The UAE jewelry industry is currently witnessing a period of growth and is encouraged by the government to expand to foreign markets. Internationally, the South Asian jewelry industry is primarily represented by Indian and Chinese manufacturers, with other countries’ products mainly targeted at local markets. The purpose of this paper is to analyze and compare the Maldives and Sri Lanka in terms of market entrance possibilities for a small UAE jewelry company and suggest a preferable mode of entry.
The UAE Jewelry Market
The UAE companies produce high-quality jewelry that is sold at lower prices than almost anywhere in the world. Due to the exclusion of taxes in the emirates, prices for gold and diamonds have always been low because buyers only have to pay for the value of jewelry (“UAE germs and jewelry market,” 2019). According to the ReportLinker report (2019), the UAE gems and jewelry market stood at $8.4 billion in 2018 and is projected to grow at a CAGR of around 8%, to cross $13 billion by 2024. Growth is expected to be driven by “rising disposable income, changing consumer lifestyle, growing e-commerce and organized retail channels, coupled with innovative and premium product launches by leading jewelry players in the UAE” (“UAE germs and jewelry market,” 2019, para. 2). The industry developments and current market situation encourage local companies to expand their market presence to other countries.
For a small company, expansion to the South Asian countries seems more reasonable because of the distance and similar market characteristics. For the purpose of this research, the Maldives and Sri Lanka were selected as possible countries of entry that provide attractive market opportunities. Both countries have a well-develop tourism industry that allows a new market player to target its products both at tourists and the local population. The countries are analyzed from the economic, political, social, cultural, and tourist industry perspectives, as well as in terms of their relations with the UAE.
Maldives Country Profile
Overview
The Maldives is a small island nation situated on a chain of 26 atolls to the southwest of Sri Lanka and India. It is the smallest Asian country by land area and population, with around 500 thousand inhabitants (Bose & Jalal, 2017). In the 12th century, the islands were consolidated as a sultanate and converted to Islam. Since then, they have developed strong commercial and cultural ties with Asia and Africa. From the 16th century, the Maldives came under the increasing European influence and became a British protectorate in 1887 (Bose & Jalal, 2017). The country gained independence in 1965, and a presidential republic was established in 1968. The recent decades have been characterized by periods of political instability, democratic efforts, and environmental challenges posed by climate change.
Political System
The Maldives’ political system is that of a presidential republic. The president is elected by direct popular vote, and the cabinet is appointed by the president and approved by the parliament. Currently, the Maldives Democratic Party controls both the presidency and the legislature, with the main opposition party being the Progressive Party of the Maldives (“The Maldives seeks political stability in crucial parliamentary vote,” 2019). The current president is Ibrahim Mohamed Solih, who was elected in 2018 for five years in the period of political turmoil. The country’s political landscape is influenced by China and India, with the Maldives Democratic Party considered to be pro-India and aiming to scale down Chinese influence on the archipelago (“The Maldives seeks political stability in crucial parliamentary vote,” 2019). According to analytics, political turmoil has plagued the archipelago for years, with the country being transformed into a multi-party democracy only in 2008, after decades of authoritarian rule (“The Maldives seeks political stability in crucial parliamentary vote,” 2019). The country is currently witnessing more democratic tendencies, and the political situation is considered to be stable.
Economy
The Maldives is a developing country that has been experiencing a period of growth prior to the COVID-19 pandemic. The World Bank classifies the Maldives as having an upper middle-class economy, and the country rates high on the Human Development Index, with per capita income being significantly higher than that of other SAARC nations (“Maldives human development report, 2019). The primary economic activities are tourism, fishing, and shipping, with fishing being the historically dominant industry, and” tourism experiencing rapid growth in recent decades. According to the country’s economy analysis, “tourism accounts for 28% of the country’s GDP, and 90% of government tax revenue flows from import duties and tourism-related taxes” (“Impact of the COVID-19 crisis in the Maldives,” 2020). Apart from tourism, the country’s economy is based on industries typical for developing countries: garment production, boat building, and handicrafts.
In recent years, the Maldives economy has been experiencing positive growth rates and was anticipated to grow in 2020. However, given the exposure of the tourism sector and other industries to the current crisis, the economy is now expected to contract significantly (“Impact of the COVID-19 crisis in the Maldives,” 2020). The government’s forecasts indicate that the decline in tourist arrivals is expected to be in the range of 50% to 63% within the next year (“Impact of the COVID-19 crisis in the Maldives,” 2020). Currently, the government implements a range of measures intended to develop a recovery plan for the economy and return to previous levels of growth.
Social Structure
The Maldives social structure is characterized by a significant gap between the elite living on the main island of Male and the remainder of the population inhabiting the outer islands. The government efforts of recent decades have been targeted at improving the standards of living for the majority of the population. Male also differs from other communities because as many as 40% of its residents are migrants. The inhabitants of small islands traditionally form small, tightly knit groups interrelated by marriage. A typical family consists of a married couple and their children, with the man being the head of the household. Islamic law makes divorce easy for men and women, and women traditionally hold a high status in society. Although special sections are reserved for women in public places, they do not veil, are not strictly secluded, and hold strong positions in government and business. Given the status of women in society, the development of the jewelry industry targeted at women consumers seems promising.
Culture, Arts, and Crafts
The Maldives has a rich culture and traditions that have evolved from the first settlers into a melting pot of different influences as people from all parts of the world came to the archipelago and settled down. The culture is shaped by Indian, Sri Lankan, Malaysia, Arab, Persian, Indonesian, and African influences (“Arts and crafts of the Maldives,” 2018). Islam is the main religion, and the country’s architectural heritage is defined by Muslim traditions. The modern culture of the country strives to find a balance between traditional customs and tourism influences.
The Maldives has a long and rich heritage of arts and crafts and is believed to be the home of many skilled craftsmen, with modern traditions being a testament to age-old skills. The Rinbundoo Island in Dhaalu is famous for making gold jewelry, and Huludeli for silver jewelry (“Arts and crafts of the Maldives,” 2018). According to the tourists’ reviews, the majority of jewelry sold in the Maldives is from Sri Lanka, with some shops also offering local products for high prices (“Arts and crafts of the Maldives,” 2018). The authentic arts and crafts products are hard to find for ordinary tourists, due to most tourist shops primarily dealing with western artists or cheap imitations of souvenir art from other countries.
Tourism
The country’s economy primarily depends on the tourism industry that has been witnessing a period of growth prior to the pandemic. The Maldives has a reputation of a luxury tourist destination able to provide a relaxing holiday away from urban centers all-year-round. Its main selling points are exotic islands, natural attractions, pleasant climate, and world-class diving facilities (“Tourism comparison in Sri Lanka and Maldives,” 2016). Many islands within the archipelago have been explored and transformed into holiday resorts under the “one island one resort” policy. The Maldives primarily attract high-income travelers, offering premium accommodations and high-priced services (“Tourism comparison in Sri Lanka and Maldives,” 2016). The development of the tourism industry both significantly benefits the country’s economy and poses serious environmental challenges for its nature and climate.
Relations Between the UAE and the Maldives
The UAE and the Maldives have good relations, which have been increasingly strengthened in recent years. In 2019, the countries signed a Memorandum of Understanding between the Ministries of Foreign Affairs on Establishing a Joint Cooperation Committee (“MOU signed with UAE on establishing a joint cooperation committee,” 2019). According to the official report, the collaboration was intended to “facilitate the realization of common goals and aid in increasing the capacity for growth of the two nations” (“MOU signed with UAE on establishing a joint cooperation committee,” 2019). In the course of the COVID-19 pandemic, the two countries discussed the importance of boosting joint cooperation in various fields and reaffirmed their commitment to continue working together on bilateral, regional, and international issues of mutual concern (“UAE Foreign Minister, Maldivian counterpart discuss relations, ways to curb impact of COVID-19,” 2020). Considering the nature of the countries’ relations, the perspectives of entering the Maldives’ market for a UAE company seem extremely promising.
Sri Lanka Country Profile
Overview
Sri Lanka is an island country located in the Indian Ocean and separated from the Indian subcontinent by the Gulf of Mannar. It has a population of 21 million people and a history that spans over 3,000 years. Since ancient times, the country’s geographical location and attractive harbors have made it a place of strategic importance and a major trading hub (Bose & Jalal, 2017). For centuries, Sri Lanka has been engaged in the trade of luxury goods and spices with the Far East and Europe, attracting traders from all over the world. In the times of political crisis, the country was occupied by the Portuguese, then by the Dutch, and then by the British, who colonized the island from 1815 to 1948 (Bose & Jalal, 2017). In 1948, it gained its independence and became a republic under the name of Sri Lanka. After that, a civil war broke out that ended in 2009.
Political System
The country’s current constitution stipulates it as a republic governed by a semi-presidential system, which is a mixture of a presidential and parliamentary system. Sri Lanka is essentially a multi-party democracy, with the current political culture being a contest between the center-leftists and right-wing parties (Kadirgamar, 2020). In 2009, after the end of the civil war, the country’s political regime turned authoritarian, with the changes towards democracy only starting to emerge since 2015 (Kadirgamar, 2020). The COVID-19 pandemic significantly influenced the country’s political landscape. According to analytics, the government’s militarist response to the pandemic has eroded democratic space and reinforced a polarized political culture, intensifying the government’s efforts to consolidate power (Kadirgamar, 2020). From a political perspective, the country is currently undergoing a period of instability, which can hinder market entrance.
Economy
From an economic perspective, Shi Lanka is considered to be a developed country. It is rated high on the Human Development Index, with its per capita income being the highest among South Asian nations (“Sri Lanka human development report,” 2019). The country’s economy is largely based on agriculture, services, and light industry. Agriculture is the primary sector, accounting for approximately 21% of GDP and employing 38% of the workforce (“The World Bank in Sri Lanka,” 2020). The economy has been growing over the last decade, with the last two years, however, witnessing negative tendencies caused by increasing debt levels and a political crisis (“The World Bank in Sri Lanka,” 2020). The coronavirus pandemic has severely damaged the economy, resulting in a steep fall in earnings from tourism, remittances, and outflow of foreign investments (“The World Bank in Sri Lanka,” 2020). According to the World Bank (2020), the country is currently facing the worst financial crisis in its history due to the economic and travel curbs imposed after the coronavirus outbreak. From an economic perspective, the country currently does not provide welcome opportunities for market entrance.
Social Structure
The social structure of the Sri Lankan society is based on four elements: caste, class, gender, and ethnicity. The class system has historically developed on the basis of various socio-economic and political aspects. The recent years have witnessed “the rapid proliferation of social issues due to the disruption of social relationships, failure of institutions, erosion of the normative framework, and the rising aspirations and expectations among individuals and groups” (“Sri Lanka human development report,” 2019). The major social issues that the country currently faces are crime, sexual abuse, corruption, domestic violence, suicide, mental illness, violence, poverty, unemployment, alcohol and drug abuse. Most people no longer live in stable and closely knit villages and urban communities, and the society witnesses a lot of problems that the government is unable to address effectively.
Culture
Sri Lanka’s culture is shaped by many languages and ethnicities and mixes modern elements with traditional aspects. The country’s religious legacy is primarily Buddhistic, with the traditions passed on from India and being particularly strong in the southern and central regions. Sri Lankan culture is known for its regional diversity, with many customs and traditions varying from region to region. The unique cultural elements are represented most strongly in art, architecture, and sculpture.
Tourism
The country has been a popular place of attraction for travelers for many years, with the tourist industry experiencing a period of particularly rapid growth in recent decades. In 2018, Sri Lanka was declared the top tourist destination in the world (“Tourism comparison in Sri Lanka and Maldives,” 2016). The country’s main unique selling points are natural attractions: wildlife, beaches, nature reserves, flora, and fauna, and its rich Buddhist culture. In contrast to the Maldives, Sri Lanka does not have many luxury resorts, primarily focusing on providing adequate accommodation in close proximity to popular markets and centers of commerce (“Tourism comparison in Sri Lanka and Maldives,” 2016). Unlike the Maldives, the concept of Sri Lankan tourism is that the travelers are free and encouraged to experience the diverse landscape of the country and not just restrict themselves to one hotel or region.
The development of the tourism industry, although considered beneficial to the local economy, has its critics that argue that it does not cater for the needs of the local people and damages the environment. In 2019, the country witnessed terrorist bombings, which caused a massive slump of tourists (“Tourism comparison in Sri Lanka and Maldives,” 2016). Since the start of the COVID-19 pandemic, tourist arrivals have fallen by 70.8% (“The World Bank in Sri Lanka,” 2020). Currently, the tourism industry is undergoing a crisis that the government is trying to address.
Jewelry Industry
Sri Lanka has been traditionally associated with the gem and jewelry trade since ancient times and has been known as the cradle of treasure for its precious gemstones. It is currently positioned in the global market as a source of high-quality gems and a quality cutting and finishing center (“Gem, jewellery and diamond faceting industry capability of Sri Lanka,” n.d.). Sri Lanka has both the traditional jewelry industry and the modern export-oriented jewelry companies that supply the international market. There are around 300 exporters of gems, diamonds, and jewelry scattered across the country, with the mining and processing techniques being efficient and environmentally sustainable compared with gem mining in other developing countries (“Gem, jewellery and diamond faceting industry capability of Sri Lanka,” n.d.). In terms of market penetration, it seems hard for a foreign company to enter the Sri Lankan jewelry market.
Relations Between the UAE and Sri Lanka
The UAE maintains close ties with Sri Lanka, with the relationships between countries based on mutual understanding and friendship. The UAE is the largest export market for Sri Lankan products, and the countries’ bilateral trade represents more than half of Sri Lanka’s total trade with the region (“UAE is Sri Lanka’s largest trading partner in Middle East,” 2019). The major exports from Sri Lanka are tea, coffee, clothes, and tobacco, while the UAE mainly supplies petroleum and related products (“UAE is Sri Lanka’s largest trading partner in Middle East,” 2019). The relations between the UAE and Sri Lanka are primarily based on trade, with the cooperation extending to the fields of education, scientific research, and business.
The Maldives and Sri Lanka Comparison and Contrast
The Maldives and Sri Lanka are geographic, cultural, and economic neighbors who share very similar climates but have different political, economic, and social characteristics. To make a choice between these countries for a foreign market penetration strategy, mainly their economies, political systems, tourism industry, and social structure need to be taken into consideration. Both countries are currently undergoing a period of political turmoil that hinders market penetration. From an economic perspective, the situation is also difficult for both countries, with the COVID-19 pandemic having a significant impact on their economies. With the Maldives’ economy primarily depending on tourism, the slump in tourist arrivals greatly affects GDP growth. Sri Lanka is also witnessing a crisis that started before the pandemic. From a social perspective, the Maldives provides more attractive market opportunities because the country currently has fewer social problems. Overall, the Maldives has fewer barriers to market penetration because its political and economic situation is more stable compared to the crisis that Sri Lanka is currently experiencing.
The main factor in determining the most attractive country of entry is the state of the jewelry industry in the region. The jewelry market in the Maldives is less developed than in Sri Lanka, which has traditionally been associated with the jewelry trade and has a large number of manufacturers that export domestic jewelry products. In the Maldives, on the other hand, the local jewelry industry is mainly represented by small companies that do not export their products. Overall, the Maldives seems to be a more attractive point of entry for a small foreign jewelry company. The nature of the relationships between the UAE and the Maldives and the peculiarities of its tourism industry also seem to offer more promising market opportunities.
Entry Mode for the Maldives
For a company to enter a foreign market, one of the three types of strategies can be selected: exporting, collaborative, or non-collaborative strategies. Exporting is based on direct investments, collaborative modes of entry intend to establish collaborations with international trade partners, and non-collaborative strategies require the company to rely on its own resources (Puthusserry et al., 2017). For a small company, a collaborative entry mode is considered the most advisable, as it is generally associated with lower risks and costs and is believed to be the safest method for foreign market expansion.
The two main types of collaborative entry are licensing and franchising, and partnering and strategical alliance. Compared to non-collaborative strategies, they both have lower risks and costs, although the cost of partnering is slightly higher (Mariadoss, 2019). Licensing and franchising ensure fast market entry, while partnership and strategic alliance allow the company to share costs with partners, reducing investments needed (Mariadoss, 2019). Both types of strategies require good knowledge of the market and potential partners.
Non-cooperative strategies include acquisition and the launch of a new, wholly-owned subsidiary. Both solutions provide certain benefits, such as fast entry (for acquisition) and maximum control over operations (Mariadoss, 2019). The disadvantages include higher costs and risks, and slow entry in case of the launch of a new subsidiary (Mariadoss, 2019). The non-collaborative strategies are more suitable to large companies that have ample resources and good knowledge of the market and can afford to risk.
For a small company to enter the Maldivian jewelry market, the licensing strategy is suggested. Under this strategy, an international licensing agreement is signed that allows a foreign company to sell the products of a producer in exchange for royalty fees (Mariadoss, 2019). It is a good solution for a small company because it requires little investment on the part of the licensor while providing a large return (Puthusserry et al., 2017). Licensing reduces costs and lowers risks, and allows the company to get into an international market quickly.
Given the current market situation and the state of the Maldivian tourism industry, it is suggested to search for a potential licensor among tourist shop chains located in major resorts. It will allow the company to target its products at tourists rather than the local population and gain international recognition. As the Maldives is primarily visited by high-income tourists and has many luxury resorts, it will be possible to sell the companies’ products at significantly higher prices compared to the domestic market.
Corporate Social Responsibility (CSR) Policy
The CSR policy is a type of international private business self-regulation practices. They aim to guarantee the companies work ethically and recognize their responsibilities toward the environment, society, and economy. The four types of corporate social responsibilities include philanthropy, environment conservation, diversity, and labor practices. The companies that are engaged in CSR generally have faster access to foreign markets than those who do not.
In the Maldives, not many businesses are aware of the CSR concept, and most companies do not have a formal CSR strategy. The term is rarely used to describe CSR-related activities, and the concept is often applied to charity and philanthropy only (Shareef & Sodique, n.d.). The primary target for most businesses engaged in CSR practices is underprivileged individuals, with the aid provided in the form of financial assistance in medical treatments (Shareef & Sodique, n.d.). The second most targeted group is employees, and in the tourist industry, environmental protection is the matter of primary concern (Shareef & Sodique, n.d.). For entering the Maldivian jewelry market, the CSR strategy based on employee protection and community development is suggested. If the licensing strategy is chosen, the licensee should focus on delivering a competitive and fair employment environment and providing benefits to the local communities.
Conclusion
Several factors need to be taken into consideration when developing a market entry strategy. In the case of a small jewelry company based in the UAE and aiming to expand into the South Asian market, two potential countries of entry were identified: the Maldives and Sri Lanka. The choice was made based on several factors: the countries’ economic and political circumstances, the current state of the tourism industry, and the presence of domestic jewelry companies on the market. The Maldives was chosen over Sri Lanka because of the more attractive economic and social characteristics.
The research discovered that both countries are currently undergoing political and economic crises. In the Maldives, the crisis is caused primarily by the COVID-19 pandemic, while in Sri Lanka, it has started before the virus outbreak and is characterized by rapid economic, political, and social decline. Both countries’ economies significantly largely depend on the tourism industry, which has suffered the most during the pandemic. In the Maldives, the tourist industry has been rapidly growing before the virus outbreak, while in Sri Lanka, the 2019 terrorist attacks have caused a slump in tourist arrivals. In Sri Lanka, the government’s response to the virus outbreak was aggressive and intended to consolidate power, while in the Maldives, the quarantine measures were primarily supportive. Both countries are now trying to recover from the pandemic and return to previous levels of growth.
One of the major factors in choosing the point of entry was the state of the jewelry market in each country. In the Maldives, the jewelry market is not developed, while Sri Lanka is a major gem and jewelry manufacturer and exporter. As it is harder for a small company to enter into an already well-developed market, the Maldives was considered the more attractive choice. The characteristics of the tourism industry have also been taken into consideration. The Maldives is famous for its luxury resorts, which provides opportunities for targeting the company’s products at high-income European travelers. Sri Lanka offers more democratic travel options and does not provide such a market.
To enter into the Maldives market, the licensing strategy was suggested as the most appropriate. It is a collaborative strategy that provides an attractive low-cost and low-risk option for fast market entry. Under this strategy, an international licensing agreement is signed that allows a foreign company to sell products in exchange for a royalty fee. Other market entry options are less suitable for a small company because they require higher investments and are associated with more risks. The consumer benefit policy based on employee protection and community development is proposed. If the licensing strategy is chosen, the licensee should focus on delivering a competitive and fair employment environment and providing benefits to the local communities.
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