Malaysia Campus

Nott ingham University Bus iness Schoo l MBA Program e m

International Bu siness Strat egy (N1DM39 ) Convenor: Professor Ba la Ramasamy

Title :

United Arab Emirates Country Analysis

Zhijing, Eu (UNIMKL 0041 51)

Date: 18 .07 .200 8 Copy I

ABSTRACT The following report provides an analysis of the general business

conditions in the United Arab Emirates (UAE) in the particular context of potential business opp ortun ities for a Malaysian retailer and the ass ociated risks and challenges.

From a gover nance and administrative view, the gover nment is stable and strongly encourages pro-foreign investment policies. From an economic persp ective, the UAE has a large potential retail m rket and a the high GDP per capita that is coupled with a growing metropolitan population.

From a socio-cultural asp ect the UAE, much like other Gulf coun tries, has a culture shaped strongly by the Muslim religion. In terms of the UAEs regional and international standing, it is an im ortant regional p trading centre and widely held as one of the mor e progressive coun tries within the Gulf region and also has a history of good bilateral ties with Malaysia.

The most prominent risks and challenges within the com etitive p retail environment, the high level of

UAE are the demographic

segmentation and

esca lating inflation. Howe ver, in conclusion, the

potential rew ards from a well-planned and properly ex ecu ted business venture into the UAE strongly outweigh the potential risks.

Table Of Contents

1.Introduc tion ................................................................................................................4

2.General Co untry Backg round ..............................................................................4

3.Governance.................................................................................................................5

4.Ec onomy ......................................................................................................................7

5.Socio-Cultural ..........................................................................................................10

6.Regional .....................................................................................................................12

7.Conclusion .................................................................................................................14

UNITED ARAB EMIRATES

1.Introduction
The following report outlines the general business landscape of the United Arab Emirates (UAE) that seeks to add ress two key questions: Is ther e an opp ortunity for a Malaysian depa rtment stor e in the UAE What are the pa ram eter s, risks and challenges in pursuing that opportun ity?

2.General Cou try Backgrou d n n

The United Arab Emirates consists of a federation of seven states (emirates) formed in 1971 after Brit ain withdrew from the Gulf.

Geographically, UAE has a land area of 83 ,60 0 sq km. The capital city is Abu Dhabi but Dubai has the highest population of approximately 1.6 million people.

Figure 1. Map Of United Arab Emirates ( WorldAtlas.com, 2008 )

3.Governance
The most recent Governance Matt ers (Kaufmann et al., 2008) report has benchm rked the UAE as being in a top quartile position for the a Rule of Law, Go vernment Effectiveness and Control of Corruption and Regulatory Quality and second quartile for Political Stability.

The UAE has a federal presidential-elected mona rchy with the positions of Presidency and Premiersh ip being hereditary to the Al Nahyan clan of the Abu Dhabi Emirate and the Al Maktoum clan of Dubai Emirate resp ectively. Each emirate retains some level of autonom from the y At present ther e are no imm ediate

central gover nm ent in Abu Dhabi.

thre ats of foreign invasion or organized domestic opp osition. However the Business Monitor International (Business Monitor International, 2006) reported that the political tensions betwee n the US and Iran

could potentially have a negative im act on investor se ntiment within p UAE given the coun trys current good relations with bot h sides.

The federal

and

state gover nm ent

has

a ver y active policy of Initiatives to

encouraging the diversifica tion of trade and comm erce.

draw in foreign investment to su pport this diversification include the sett ing up of six free trade zo nes (Dubai Business Handbook, 2006 ). The
gover nm nt itself generally does not seek to participate in the ownership e or operation of companies except in strategic national interest industries such as telecom unications and petroleum. m

Although Islam is a source of legislation, it is not strictly app lied in business. The law that im acts a foreign retailer wo uld be the U.A.E. p

Federal

Comm ercial

Agencies

Law

which

requires

the

agent/distributor/franchisee to be a UAE national. Mun di Gu ide to Doing Business in the

According to the Lex

UAE (Fer ris HA, 2004 ), the

statutory protections to the local partner include exclusivity, restrictions on the foreign pa rty' s right to terminate or withh old renewal of the relationship.

Many international brands that venture into the UAE m rket tend do so a und er local ag ents with General Trading Licenses (GTLs) who generally have ver y large diversified business portfolios. For examp le the Al-

Futtaim group manages both the UK brand Marks & Spencers but also recently acquired the rights to the Singaporean retailer Robins ons (AlFuttaim Website, 2008 )

In add ition to international brands

such as Burberr y (British ) and JC

Penn ey (America n) which are usu ally licensed to local UAE franchisees, new entran ts will also have to contend against established local and regional retail brands. For example the Emke Gro up is a large

conglomerate that has interests in the entire customer product chain from manu facturing to im ort/export, wholesale business p and also

consu mer retailing. This group oper ates popular brands of retail chain stores that depa rtment include the stores, renowned Lulu chain and of su permarkets, malls and

hyp er m rkets a

now sh opping

according to their website has 32% of the total retail market sha re within the GCC (Emke Gro up Website, 20 08).Another prominent UAE based retailer Jashanmal, which incidentally owns the Burberry

franchise license for the UAE mentioned earlier, also has a su ccessf ul chain of own brand department store s (Jashanmal Website, 20 08).

4.Economy
UAE has an open economy that is supported by a burgeoning annual trade su rplus, robust fiscal and monetary policies, favourable tax laws and imp ort/export duties. region as a trade centre. Dubai is also well known within the Gulf

Acc ording to the CIA Wor ld Factbook (CIA, 2008 ) , the UAE has a GDP of USD 192.6 billion (2007 est) and a GDP per ca pita of $37,30 0 (2007 est.). In the IMF 2007 World Economic Outlook report (IMF, 2007 ) , UAE was rank ed as the second highest GDP among the Cooperation Co unc il for the Arab States Of The Gulf (CCASG) countries.

The UAE has

a 200 8 population of 4,621 ,399 with at an estimated It has a favourable consu mer the Economic Intelligence

grow th rate of 3.8 % (CIA, 2008 ).

purchasing pow r trend as exem lified by e p Unit report (EIU Viewswire, 2007) that coming years

foreca sted the population in the but real GDP growth will

would continue to expand

exceed population grow th, enabling per ca pita incomes to rise.

Howe ver much

like the other Gulf coun tries,

the UAE prosp erity is

linked to its oil wealth. The government howe ver is cognizant of this depend ency and has focus ed on boosting non-oil grow th. Therefore

the UAE have re-invested the oil wealth into non-oil related sectors as exem lified by the su ccessf ul development of Dubai into a tourist p destination.

Since

1996 Dubai has held the Dubai Shopping Festival (DS F), an sh opp ing extrav agan za during which goods in

annu al one-month

sh opp ing malls are heavily discounted. The DSF has almost doubled its

num er of visitors from 1.6 million to 3.3 million in 20 06. (Eu ro b monitor International, 2007 ).There are also similar festivals at the other Emirates such as the Sha rjah Ramadan Festival, Abu Dhabi Coupled with

Festival of Sales and the Dubai Summer Surprises.

policies such as the no currency controls, and no customs duty on personal effects, these effor ts have served to att ract a sizeable

amount of tourist traffic. UAE is a growing leader in the tourism industry in the region with 2006 figures of over 7,944 ,600 visitors that brought in the revenue of AED 15 ,929 milli on (Euro monitor

International , 2007 ).

Howe ver the risk of inflation is high due to the coun trys currency exchange policy being impacted by the weakening dollar, the

sensitivity of the economy to the movement

of oil prices and the

general over-heating of the economy lead by a boom in real estate

The Ministry of Economy in UAE released a statement (UAE Inter act Website, 2008 (a)) that inflation was at 11 .0% as of 2007. The

government can already be seen as acting up on this issu e with the passing of the Consu mer Protection Law in 200 7 and ma ny players in the retailing sector have begun to fee l the effects of the governments ha rd line app roach on price controls for ess ential food items. In case of American a, a Kuwaiti based com any p that the

oper ates

international franchises such as KFC and Pizza Hut in UAE, they wer e fined 10 ,00 0 Dirhams in December 2007 for increasing prices by some 11% from 2007 levels (UAE Inter act Website, 2007 ).

On a positive note, the MasterCard Wor ldwide Ind ex of Consu mer Confidence H1 2008 (MasterCard Worldwide We bsite 2008) re ported a

surge in consumer confidence regarding regular income and quality of life. This finding was also su pported within the Nie lsen Global UAE was Co nsum er Confidence Ind ex (ACNielsen, 2008 ) where the rank ed 5
th

out of 51 different countries. The significance in this result is

that the UAE is the only country out of the four Gulf coun tries that had an increase in Co nsum er Confidence.

In the

abovementioned Nielsen survey,

the

UAE respondents still

stated that after covering ess ential living expenses, the remaining income was still spent in the followi ng distribution: savings (58 %),

new clothes (33 %), paying off debit/credit ca rds/loans (30 %) and holidays/vacations (28 %)

5.Socio-Cultural
The UAE has a high num er of expatriate wor kers within the coun try. b In a 20 05 censu s, it was found that expatriate wor ker s made up 78 .1 % of the population (Ministry of Economy UAE , 2005 ). In ter m of the s gender distribution, ther e were 67.6% males and 32 .4% females. The same report also stated that the population is centered on the key Emirates of Abu Dhabi and Dubai.

Arabic is the official language. However Eng lish is the widely us ed business language. Persian, Hindi and Urdu are also widely spoken.

The Mus lim faith is practiced by the overwhelming majority, although ther e is significa nt num er of adh ere nts of other faiths. Although Arab b and Islamic cultural influences can be found, western culture plays an imp ortant role and business practices closely resemb le those in the United States and Great Britain.

Assu ming that the target m rket is the Emirati population and tourists a from the neighbouring countries, the adva ntage that a Malaysian

brand m ay have is the relatively shor ter cultural distance as measu red by the Hofstede Cultural Dimensions wher e both Malaysia and the UAE app ear to be closer to each other especially in the Power Distance and Individualism ca tegory.

Figure 2.Cultural Distance Be twee n Malaysia, United States and United Kingdom com ared to the Arab World p

Source: (ITIM International W bsite , 2008 ) e Howe ver it should be noted that given the strong presence of the expatriate com unity, a diverse multicultural society is present in the m key cities. Prominent nationalities among the expatriates are Indians or Pakistanis, expatriate Arabs, Filipinos and Europeans.

6.Regional
Foreign Policy The UAE foreign policy has maintained a principle of non-interference in the internal affairs of other s and the pursu it, wherever possible, of peaceful resolutions of disp utes, together with a supp or t for

international institutions. (UAE Inter act, 2008 (b)).

The UAE is an

active mem er of a large host of international bodies. Regionally, it is b a mem er state of the Arab League (And therefore also a mem er of b b the G ater Arab Free Trade Agree ment) and also a member state of re the Gulf Cooperation Counc il which operates as a custom union and also has the objective to create a local GCC based comm on currency by 2010 .

Supp orting Infrastruc ture The UAE is as an important regional trading centre and a distribution hub to much of the W st Asia region as a a resu lt of its excellent e infrastructure services in the are a of telecomm un ications, por ts and airport facilities, moder n transp ortation as we ll as logistics support.

For examp le, it has bee n repor ted (FDI Magazine ,2005 ) that Dubai is served by more than 170 shipp ing lines and 86 airlines offering links to over 100 coun tries worldwide. Dubai is also an open m rket with no a exchange controls, qu otas or trade barriers. Dubai comm ands a large

m rket - mor e than $17 billion in domestic imp orts annually and a a ga tew ay to a $150 billion p.a., with a 1.4 billion population regional imp ort market.

Bilateral Ties The UAE is Malaysias largest trading pa rtner in the Gulf region. In 20 06, UAE acc ounted for 40 .4 per cent of Malaysia's total trade with the GCC coun tries. Malaysia 's total trade with UAE was valued at US $3.2 billion, an increase of 19 .4 per cent comp ared with US$2.6 billion in 200 5 (Ministry of International Trade and Indu stry Malaysia, 2008).Bo th coun tries had signed five bilateral agree ments as a legal framewor k to further develop and enhance relations including an

agree ment on avoidance of double taxation in 1995 .

As of 20 07, there wer e 40 Malaysian com anies operating in the UAE p involved mainly in construc tion and enginee ring but also in the

services and hotel m anag ement industries. (Qudoos MA, 20 07). With rega rds to the consu mer food retailsector , Secret Re cipe and

Marrybrown Fried Chicken are examp les of Malaysian companies that have su ccessf ully franchised outlets within the UAE. Howe ver there

are presently no active Malaysian depa rtment store or hyp er m rket a retailers within the UAE.

The

possible

advan tage

Malaysian

retailer

(especially

in

the

departmental store sub-sector) may have in entering the UAE is the potential familiarity of the brand due to high amount of tourist traffic from the gulf region into Malaysia. In 20 03, the estimated no of

arrivals from We st Asia was 80 ,216 , which doubled to 186 ,821 in 20 06. From the UAE, Malaysia recorded 35 ,11 8 arrivals in 2006

(Ministry of International Trade and Industry Malaysia, 2007 )

7.Conclusion
In sum mary the UAE provides a suitable investment climate for a Malaysian retailer seeking to expa nd their business in the middle east given the large potential retail m rket and the high GDP per ca pita a that is coupled with a growing metropolitan population. The general stability of the political circums tances and pro-foreign investment gover nm ent policies also serve to further enhance the feasibility of the

investment opp ortunity. It should also be noted that any com pany that wishes to extend its networ k further into the midd le east m rkets will a find the UAE to be a su itable strategic sp ring-board to set up a regional base.

Howe ver there are specific pitfalls that a Malaysian retailer m ust be aware of in that despite of all the positive points above ha ve accom anying flip-sides. For example desp ite of the high market p grow th potential, the UAE has a highly comp etitive retail environment and a high level of demographic segmentation that wo uld require a robust marketing st rategy. The booming economic grow th also ca rries with it the risk of inflation costs imp acting profits and high capital requirements. Malaysian retailers m have a bett er business ay un derstanding of Gulf culture due to the aff inity they may sha re in operating wi thin Muslim cultures. Howe ver it sh ould be noted that the entry method may be limited due to exclusive general trade licenses by UAE nationals that are required by law so entry methods and affliate selection will be of the utmost im ortance. p

Howe ver as with any international business venture , a successful or failed entry into UAE m rket will depend ver y m a uch on the level of

risk mitigation based on sound un derstanding of the local market

conditions and the formation of a healthy relationsh ip with the local affliates. In conclusion, the potential rewards offer ed by a su ccessf ul business foray into the UAE outweigh the risks.

[ Main Body Wor d Co unt : 2018 Wor ds ]

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nd

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rd

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