How should Gulf groups think about diversification now?

For a Gulf group, diversification is no longer about adding sectors. It is about concentrating capital where you hold a real edge and where the national visions create durable demand. The era of the opportunistic conglomerate, a trading arm here, a contracting business there, a hotel because a plot came up, is closing. The McKinsey and Gulf Family Business Council study found that 88 percent of GCC family businesses operate in five or more sectors, and that the groups with a coherent, focused portfolio tend to outperform the highly diversified ones. The work now is subtraction as much as addition.

Why is owning more sectors no longer the goal?

Because the reason it once worked has faded. In a young market, a trusted family group created value precisely by spreading wide: it supplied the capital, talent and government access that the market itself could not. Khanna and Palepu showed that diversified business groups in emerging markets often beat focused firms, because the group substitutes for missing institutions. That was sound advice for the Gulf of two decades ago.

The institutions have since matured. Capital markets are deeper, regulation is stronger, professional talent is more available, and access is less of a moat. As those gaps close, the rationale for unrelated diversification closes with them, and the conglomerate discount that hollowed out Western groups starts to apply here too. Breadth that once signalled strength now often hides trapped capital.

What should diversification be organised around instead?

Capability, not opportunity. The shift is from “related by who we know” to “related by what we are genuinely good at.” A group with real operating muscle in logistics, retail or real estate should extend that muscle into adjacencies it can run better than the next owner. It should not buy into an unrelated sector simply because a deal appeared or a peer did the same.

There is one honest test for every business in the portfolio: do we make it worth more than another owner would? If the answer is no, that business is not diversification. It is capital sitting still, and a distraction for management attention that the core needs.

Where are the real tailwinds?

In the national visions. Saudi Vision 2030 and its counterparts across the UAE, Qatar and Oman are redrawing demand for a generation: non-oil industry, logistics, tourism, healthcare, renewables, localisation and digital. These are not slogans. They are state capital and policy moving in a known direction, which is the rarest thing in strategy, a tailwind you can see coming.

The discipline is to diversify into the visions where you already have an edge, not to chase every announced megaproject. A tailwind only helps a group that is pointed the right way and can actually sail.

What does this mean for the group CEO?

Three moves. First, map the portfolio honestly: which businesses earn their cost of capital, and which are kept for sentiment or history. Second, recycle capital out of subscale legacy businesses into a smaller number of bets the group can genuinely lead. Third, institutionalise portfolio review so it is periodic, rigorous and systematic, not a reaction to whoever walked in with a deal.

The analysis is the easy part. The hard part is the will to exit businesses the family built, where the case for selling is financial and the case for keeping is emotional. That is precisely where a neutral outside view earns its place: someone with no stake in the internal politics who can say plainly which businesses belong in the next decade of the group, and which were right for the last one.

Diversification, done well now, makes the group sharper, not wider. It is the difference between a portfolio that compounds and a collection that merely accumulates.