Executive Summary
The main issues explored in the Dubai Expo 2020 case study are connected to a lack of entrepreneurial activity in the United Arab Emirates (UAE), despite its ranking high in the assessments of entrepreneurial spirit. Some of the obstacles include a lack of loan offers for Mall and medium-sized enterprises (SMEs) that are new and have not operated for less than two years. Additionally, residents without citizenship have restricted access to capital, while the state experience a severe workforce shortage. The bank loans provided to small businesses in the state are not typical, mainly because of risks associated with new SMEs, and thus, the government should create funding initiatives for such companies and popularize alternative funding sources. Additionally, the experience of Silicon Valley as a hub for innovation and entrepreneurship should be adopted. Finally, residents should be provided with an opportunity to access funding opportunities available to citizens.
Introduction
World Expo is a significant event during which critical technological advancements and innovation are presented, which provides many opportunities to countries hosting this event, especially for industries such as hospitality, construction, transportation, and logistics. The main benefit of the World Expo is thus its positive impact on the entrepreneurial environment in the host country. The business problem presented in the “Expo 2020” case study is the lack of entrepreneurial activity in the UAE and obstacles such as obtaining loans from banks and workforce shortage, which contribute to this issue that needs to be solved. One approach is the popularization development of government support programs, while alternatives include the popularization of other funding sources. The main actors that can carry out these solutions are governmental agencies. This paper aims to analyze the main ideas relating to entrepreneurship in the UAE, Dubai Expo 2020, and offer solutions to problems reflected in the case study.
Analysis
World Expo is an exciting event that brings multiple opportunities, such as foreign investments and the ability to exchange technology innovation and knowledge with the global community. To host this event, the state has to invest in the infrastructure to prepare for the influx of visitors, and in the following years, a boost in tourism can be anticipated as well. For UAE, this is a chance to boost the number of entrepreneurs that establish businesses in the state, which should support the economic development of the country. The Dubai Expo 2020 case study explores the topic of issues that entrepreneurs aiming to establish an SME enterprise face. This case study highlights the need to improve access to capital for SMEs and work towards creating an environment that fosters the establishment of new firms.
Missing Link
There is an inconsistency between the entrepreneurial spirit of people from the UAE and the actual activity they display. As Sayed (2016) observes in the case study, there is a “missing link” between the actual state of entrepreneurship in the UAE and its potential. One cause of this issue can be connected to the perceived difficulties associated with establishing a business since it requires one to invest personal savings or sell equity in the early stages of development. Additionally, the overall lack of a skilled workforce may mean that individuals lack the necessary skills that would allow them to create a business and that they will experience issues with a workforce shortage. Moreover, residents of the UAE who have no citizenship have restricted access to capita, meaning that they have to use their savings instead of other sources, which is demonstrated through the example of Jamal (Saued, 2016).
One way to address this problem is through government-led initiatives and educational programs. The positive aspect of the solution is the empowerment it will provide to future entrepreneurs since they will be more confident and will have a better knowledge of business (Spender, Corvello, Grimaldi, & Rippa, 2017). An alternative is targeting policies that outline the ability of a start-up, especially that established by a resident, to access funding. Both other options can be implemented simultaneously since they are good in terms of addressing the lack of entrepreneurs.
One can argue that the UAE does not currently have an environment that would allow for the development of successful start-up companies and SMEs. A notable example of an innovative environment is silicon Valley and the example of it can be used by legislators to improve the conditions and present incentives to UAE’s entrepreneurs. Notably, the case study demonstrates that the Dubai government is already working towards creating a similar environment, which projects such as Dubai Silicon Oasis (Sayed, 2016). Working further towards similar initiatives is the key that can help support local entrepreneurship and innovation.
Expanding opportunities for expatriates to gain access to capital is essential. Approximately 8 out of 100 are currently engaged in entrepreneurial activity, compared to 10 out of 100 UAE residents (Sayed, 2016). The case study focuses mainly on the gap between the contribution of SMEs to the local economy and the bank loans dedicated towards these enterprises. In short, Sayed (2016) suggests that 94% of businesses in the UAE are SMEs, and they provide employment for 90% of residents. However, only a small fraction of bank loans are presented to the start-ups and SMEs from the banks, because of the risks associated with the loan. The banks are willing to support start-ups that have proven their viability through positive cash flow, meaning that entrepreneurs with no capital have smaller opportunities for creating a business.
Khalil’s Plans and Limitations
In the case study, Khalil aims to explore the opportunities that are provided by the Dubai Expo 2020 to leverage his entrepreneurial spirit instead of working a full-time job. However, as he continues to explore the specifics of the UAE’s infrastructure and entrepreneurial environment, he realizes that setting up a business in the state is more complicated than he initially perceived. The main issue with Khalil’s plans is the fact that he does not work on any innovation nor has a specific idea relating to what business he wants to establish. Instead, as indicated by the case study, he is encouraged by the UAE’s win in the quest to host the World Expo and wants to “capitalize on this opportunity, and be a part of history” (Sayed, 2016, p. 4). The main flaw is the view of entrepreneurship as a more comfortable and more profitable opportunity when compared to the work that Khalil already has.
The most significant limitation, however, is the fact that Khalil has no start-up or experience in working in innovation, this can be a substantial obstacle because the conditions in which start-ups operate – high competition and innovation, are very challenging and require leadership and commitment from the owners (Cooper, & Folta, 2017; Dayan, Zacca & Di Benedetto, 2013). As with the previous problem, the issues associated with skills and knowledge can be addressed through government-led educational programs, which can be costly but will result in a beneficial impact on the state’s GDP. An alternative would be Khalil’s partnership with another entrepreneur. However, it would result in monetary losses as they would have to share the profits.
Banks
As noted in the case study, the banks in Dubai implemented rules that require a business to operate within a minimum set timeframe in order to obtain a loan, despite the possibilities that Dubai Expo 2020 would bring. Start-ups are high-risk lending opportunities for banks, which can explain why lending to these enterprises is so difficult (Obiora, & Zeng, 2019; Wahjono, Marina, & Fen, 2019). In the case study, RakBank is presented as the only bank that did not suffer significant losses during the 2009 crisis because of its focus on SMEs. Thus, the bank initially declared its commitment towards providing loans for SMEs as part of Dubai Expo 2020, granted to borrowers collateral-free. However, upon closer examination, the bank only offered loans to already existing businesses with trade licenses, financial statements, and other documents that are evidence of operational activity. Only 4% of loans are dedicated to SMEs, and it is not surprising that banks favor established firms as providing them loans is less risky because they have operated for a while and have proven their viability.
One hypothesis that explains the risk associated with start-ups is that they often offer innovation as the basis of their business activity. Since change has not been tested in a specific market, it is unclear whether the demand for the offer exists and often the value of it has to be explained to the customer. Notably, Nguyen and Hille (2018) state that the paradox experienced by UAE’s SMEs exists outside the state as well, as, despite the fact that start-ups are in need of funding, banks consider them to be too risky. Therefore, it makes no sense for banks to provide loans to start-ups. According to Obiora and ZHeng (2019), start-ups often rely on alternative sources of funding, including the recently introduced crowdfunding and peer-to-peer lending, in which case they obtain possibilities of developing their business but lose in equity. Therefore, start-ups have to go through a route of establishing themselves, attracting a customer base, and only then acquiring profit.
Moreover, some of the famous start-up companies that operate globally have not been profitable despite obtaining significant investments and being an established brand, with Uber serving as a prime example of this phenomenon (Sherman, 2019). In May 2019, Uber’s value decreased significantly, putting at risk its shareholders. Such businesses usually borrow money from investors in return for equity, and as a result, they do not have to return the investment at a set timeframe as it is with bank loans. This allows start-ups to invest in growth and introduce even more innovation, capture their share of the market, and only then make substantial profits. Arguably, the UAE banks are informed of this inconsistency, and their business model suggests that they cannot have a large percentage of high-risk investments that show no profit for years.
Impact of Dubai Expo
As this case study highlights, the World Expo events are very beneficial for the host countries, not only because they attract visitors from all over the world who attend the event, but also because they stimulate the development of business, SMEs, and innovation. The case study highlights several opportunities for UAE, for example, the number of jobs created as a result (Sayed, 2016). In my opinion, the event will have a significant and durable positive impact on the economy of the UAE. One reason is the need to prepare the infrastructure to be able to accommodate the millions of visitors and increased demand for transportation, which will be carried out by the government. Additionally, the state will be interested in introducing initiatives to attract tourists in the following years to gain a better return on their investment. This will create new opportunities pre and post-Dubai Expo 2020.
Moreover, because this is a large-scale event, it allows for networking and the establishment of new connections with businesses that are outside Dubai or the UAE. As such, new partnerships can emerge from this event, which will provide business opportunities to UAE’s residents and citizens, such as the ability to export to other states, cooperation with international partners. It is possible that through these partnerships and networking, new entrepreneurs will be able to access funding outside the UAE from venture capitalists, to overcome the barrier of bank loans.
Conclusion
Overall, this case study report explores the issues associated with the Dubai Expo 2020, which affected the ability of new entrepreneurs to use the new opportunities brought by this event. The main recommendation based on the information outlined in the Dubai Expo 2020 case study is for the government to work on creating better opportunities for SMEs to obtain funding. Additionally, the experience of Silicon Valley in its successful fostering of many start-ups can be used to develop the already existing entrepreneurial spirit of people in the UAE (Cooper & Folta, 2017). All of the offered resolutions will require spending from the government, to popularize entrepreneurship and provide funding opportunities to businesses. However, this will empower the entrepreneurs, affecting the economy beneficially.
References
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Wahjono, S., Marina, A., & Fen, F. (2019). Equity-based crowdfunding to finance business startups.SSRN Electronic Journal. Web.