Introduction
Globalization and trade liberalization have become common terms in the past with both policy and technology advancements being the main drivers. The adoption of a free market economy system has greatly increased the productive potential of most countries.
It has also created diverse opportunities for international trade. As a result of the reduction of barriers of trade, the waves of globalization have even spread faster.
As globalization gains momentum and producing companies seek external markets, research companies have been embarking on market research. Assessing all the challenges and opportunities exporting countries are likely to face when exporting their goods and services to foreign companies.
Example of such companies is Export Box which is embarking on market research to assess the viability of the United Arab Emirates as a potential market for UK companies.
The company will assess the market conditions in the United Arab Emirates, outlining both the challenges and opportunities which are likely to be faced by United Kingdom companies as they invest in the country.
Liberalization of trade has made conducting of business easy. As a result, companies have been using different strategies to penetrate the market depending on the goods and services they are offering as well as the capital required to introduce a new product in a new market.
It will thus be the objectives of this study to determine the current market environment at the United Arab Emirates as well as the best strategy companies can use while exporting their goods and services to the country.
UAE background
About three decades ago, no one thought that the United Arab Emirates could be currently where it is ranked in terms of economic. Most of the citizens in the country depended on peasant activities such as farming, animal husbandry, fishing among other activities.
However, with the discovery of oil in the late 1950s, the country’s economy has grown tremendously and it has achieved income comparable to the most industrialized countries in the world.
The country did not have to go through the normal development transformations as the discovery of oil made sure that the country did not have to undergo the gradual economic growth that other countries went through to become fully industrialized.
With the demand of oil products increasing and the prices of oil products remaining high there is no way to stop the economy from the fast growth rate (Mallakh 1981)
Objectives
As indicated in the introduction, the objectives of this study will be to determine the current market environment in the United Arab Emirates and also the best entry strategy companies in the UK can use when penetrating the market.
Determine the market environment
Over the last thirty years, the United Arab Emirates has grown from a little recognized country in the world to an economic powerhouse. The steady and the fast growth of the economy have been attributed to the discovery of oil.
The increasing demand for oil and oil-based products has driven the prices of oil per barrel high and as a result, the country has gained a lot in form of foreign earnings. With these high earnings, the country’s economy has grown tremendously.
The country has a stable political environment though not democratic. Its leaders have worked hard in ensuring that it remains stable by ensuring everybody gets a share of the national cake. With a tax regime considered to be among the best in the world and a strong communication network.
The United Arab Emirates has turned from the desert country it used to be to a world leading economy with investors working hard to invest some capital in the country.
To analyze the market condition in the UAE, we shall use both the PESTLE analysis model and SWOT analysis to provide information which can guide international companies especially those from UK when they decide to export their products in the United Arab Emirates.
We shall try and assess what kind of environment they are likely to face.
Political
The market environment of the United Arab Emirates is a unique market for any companies (UK companies included) wanting to export their products to the country.
To begin with, the political system of the United Arab Emirates follows both the modern and the traditional forms of ruling where the traditions of the Islamic rule are maintained as they still pursue for the new forms of ruling. Despite the country following some Islamic laws, it has a strong and consistent policy making agenda.
Decisions are not made haphazardly. This is a very important factor for exporters to note. They can always be sure that there will be no introduction of strange policies which have not been in place in the previous years.
Although the president is not elected democratically, he and his cabinet have been responsible in managing the resources in the United Arab Emirates and everybody is now able to enjoy the benefits of their country riches (Peterson 2000)
However, despite the economic benefits and the efficient management of resources in the country, the regime has done little in the way of transforming the United Arab Emirates to a fully democratic state.
Constitution amendments which can make it a democratic government have not been implemented: As a result political tensions canaries at any time.
According to Datamonitor (2010) when quoting figures provided by the World Bank, when it comes to matters concerning accountability, the country is poorly rated. Leadership of the country is not chosen by everybody in the country and thus questioning their authority is also a problem.
Freedom of expression, freedom of association and even freedom of speech are unheard of at the United Arab Emirates.
The country does not tolerate any interventionist media houses and the regime controls news which are released by these bodies. The delay in implementation of a democratic regime has been leading to cases of unrest in UAE (Datamonitor 2010).
Economic
The country is currently enjoying a very stable economy both at the regional levels and at the world levels when compared to other countries. As of the year 2009, the country purchasing power was 23rd in the world (a very good indication of a strong economy).
As long as the demand for oil products continue from other world countries, the economy of the United Arab Emirates is set to grow at even higher rates than it is currently doing.
The country’s high purchasing power is a positive reflection to any company which would want to export its products to the country that they will be bought as long as their demand exist (Datamonitor 2010).
The country also enjoys a strong trade surplus (exporting more than it’s importing). With such a strong export market and the balance of trade being easily realized, the country is very favorable for any investment whether from local companies or from international companies.
The economy enjoys a well built and established infrastructure and it is currently ranked sixth in the world recordings. Its developed infrastructure is a major investor’s attraction as networking and moving of goods and services from one place to the other is made easier.
A good infrastructure network reduces costs of petrol and other expenses which would be incurred as a result of a poor infrastructure. A good infrastructure also creates a good environment for moving goods and services back and forth creating an active economy.
Despite the successes and the strong points which the country’s economy reflect, Dubai, one of the country states and a major economy hub for United Arab Emirates, has been experiencing problems in clearing its debts.
The Dubai economy is thriving under debts and the inability of the state to pay for its debts has been a major repellant to investors. The collapse in the real estate trade and in tourism has led to its slow growth and this is likely to continue.
Another problem with the UAE has been despite the strong economy, its’ over reliance on oil products has been a major weak point. This is not a positive indicator for the economy.
With the country largest Gross domestic Product being on oil, fluctuations of world oil prices and its products can lead to dismal performance of the economy or even a complete collapse. This is a negative indicator to the company since if the prices of oil were to fluctuate; the demand of the imported goods would decline.
Another problem for any foreign investors who might want to invest in the country is the fact that foreign investors are never treated the same as the local foreigners in the UAE.
Complete ownership of companies by foreigners is restricted and there is legislation which requires at least 51% of the business to be owned by UAE nationals.
Even in the management these projects, the authorities require if the leader is not an UAE national then the board should have a majority of UAE nationals for their voice to be heard during the decision making process.
This is a major hindrance for international companies which desire to invest fully without sharing of ownership (Kim 2007)
Social
With the country’s economy being a stable one, the unemployment levels are very low. Both skilled and semiskilled have a place to work in the country’s labor market.
In the past, majority of the country population were not highly skilled as a result the country had liberalized the movement of people (importation of labor) so as to have a population which is skilled.
The existing laws within the country do not require foreign workers to possess residence permit as a result; there is no sector which can complain of labor shortages.
However, investing in the UAE can present problems to the exporters due to the country’s low levels of literacy rates. It is important for any exporter to understand that a country with low literacy levels presents a challenge when the search for employees will begin.
With the introduction of more companies in the country leading to overdependence on foreign workers increasing, companies which invest in the country are likely to import employees from foreign countries a situation which could lead to incurring of extra costs.
However, this problem is likely to reduce with the efforts the government has been showing in the education system ensuring that all children receive compulsory education up to the 9th level.
Those who may wish to proceed even to the higher levels are supported by the government until university level. This case applies also to private students who wish to further their education in foreign countries..
Technological
The country prides itself with a strong telecommunication network and also world class technologies. This is a major attraction to investors in the country. Since the privatization of government companies, the country has seen increase of income earned from this sector.
The entry of other players in the telecommunication industry has also seen the industry grow at rapid rates with private companies such as DU having almost a third of the country’s market share, a projection experts claim it will still increase.
It is important as an investor to note that a strong communications network favors investments in information and technology. The country’s proximity to other Asian countries makes it a hub for technology markets (Rettab& Kwaak 2005)
Environmental factors
The country follows a very strict environment policy which is enacted under the country’s Environment and Impact Assessment (EIA).
It is thus very important for the UK companies with an intention of exporting to the United Arab Emirates to closely observe all the environmental issues, health and also moral issues as (indicated by the UAE authorities) which are strict in the country and which supports the sustainable development.
If they fail to observe and follow these laws and regulations, it will thus be hard for them to export their products into the country. The prohibitions which exist in the UAE range from issues to deal with drugs, wastes, fake products among others.
Any product which can be used against humanity cannot also either be imported to the United Arab Emirates or exported from the country. It is a mandatory requirement for companies to assess how their activities will affect the environment before they can be allowed to continue.
The integration of the environmental standards within the UAE laws has brought up many positive changes improving even the environment standards and ratings of the country (Aspinall, nd).
The country supports sustainable development and any project which does not qualify or observe sustainable development criteria is thus rejected.
However, the current environmental challenges facing the country are related to the high level of green house gas emission which has been on the increase in the recent years. The high levels of carbon emissions is a negative characteristic to the country as high releases can affect the environment negatively.
Water needs in the UAE are among the lowest in the region. Most of the citizens access their water through desalination process.
This process affects the environment negatively as the brine which is a byproduct when released to the atmosphere or water; it has negative implications on the environment as well as the high costs involved in making the water clean.
If the products to be imported in the country from UK are likely to result in increased emissions then chances of their being rejected are high (Datamonitor 2010).
Lack of clean water can serve to the advantage of a UK company if there is any with intention of exporting water cleaning equipments which can be used at lower costs.
Legal
The United Arab Emirates is one of the few countries in the world which have a free tax regime. The country has got no tax laws and this provides a very suitable environment for investors since with their low capital, they can be able to invest comfortably in the country.
Each of the UAE’s state has its own tax laws which are usually enforced on oil companies and the foreign banks investing in the country. With the country desire to attract more foreign employees to take care of the little literacy levels, it has grown to become an employee friendly nation.
Personal incomes or any capital gains are usually not taxed nor are there any numerous taxes as experienced in most world countries. This is a major investor attraction as most of the times high taxes charged by countries discourage investors from investing in foreign countries (Harris& Wells 2010).
However, before any company exports its products to the UAE market, there is a basic requirement for it to acquire a trading license which is usually acquired from the economics department.
It is important to note that these licenses are usually valid only in the place where they are issued and thus it becomes very difficult for one to acquire a license from one state and think it will be possible to use it in the other state.
It is also very important for the UK companies to note that you don’t just export in the UAE, as an exporter, you have to indicate and categorically specify the goods or the services you intend to the country.
Such registrations are made through the ministry of economics. There is a cost which comes behind acquiring the license and it is also very important to understand that the licenses are renewed annually.
Away from the licenses, other barrier to any company which wishes to import to the UAE is brought about by the tariffs which exist in the country.
It is important to note that in the United Arab Emirates a 5% tax is only charged to most goods but there are no tariffs, quotas or any restriction fee that is charged on imports to that country. However, exceptions are only raised on tobacco and alcohol products
The country’s judiciary system is also well organized and highly efficient. In the recent past the judicial system has also undergone several reforms in order to allow it improve its handling of financial transactions within the country.
The introduction of both criminal and civil courts has led to less use of the Sharia laws and as a result many investors have turned up in the country since they understand and can cope with the modern laws better than they can with Sharia laws.
A major challenge however despite the good legal environment is compliance with the ownership laws. The ownership laws require companies to be majorly owned by the UAE nationals.
With the laws having been based on developing entrepreneurship skills among the UAE nationals, the law serves as a barrier to foreign companies which would like to be the major decision makers by owning fully or have the majority shareholding capacity.
Lack of intellectual property laws is also a major hindrance to a company investing in the UAE as the lack of the laws encourages duplicate production of goods all over the country thereby reducing the revenues gained by these companies (Kim, 2007).
SWOT analysis
To understand what the investors are likely to experience in the United Arab Emirates we shall conduct a SWOT analysis for the country’s market so as to inform the investors what they are likely to meet in the markets.
Strengths
As we saw earlier while conducting the PESTLE, the standard of living is very high in the United Arab Emirates due to the country’s strong economy. As a result, with everyone confident with the economy, there have been very little calls for political representation in the ruling government.
Another factor that leads to the strong economy of the UAE is the support of the government by majority people living in the nation. If such good relations continue, the economy of the country will remain strong and good for making investments both from local investors and international investors.
In the recent past, the country has been marked with an increase in the population growth in the country as a result; investments towards the education sector have increased.
As we stand now, the country now offers a complete education support for all its citizens starting from the basic levels to the university levels. The government of the United Arab Emirates also supports private students studying abroad
Weaknesses
One of the major weakness of the country lies with its system of leadership. With a non-elected government on the throne, there is a likelihood that in future people may want to be represented in the authority.
With the current leader being conservative just like the others in the past, there is very little likelihood that the country will make any constitutional changes which can accommodate the people’s desire as a result risking the country’s market.
Most people complain that the system is more like opaque when it comes to democracy matters and these problems can pose a problem if people (ordinary citizens) one day decide its their time to rule.
Another weakness which the United Arab Emirates has lies in the fact that it suffers from shortage of qualified workers. As a result, any UK company which would like to invest in the country should plan in advance where their sources of labor are likely to come from.
The fact that no company can be owned by majority of foreigners is also a weakness since it makes investors always caution in their investments since somebody else will be controlling the market than the foreigner who came with the investment.
Opportunities
The country’s telecommunication sector is more advanced. The country also has one of the best infrastructures in the world. As a result, this offers a very important opportunity for any investor who would like to invest in the company: As creation of networks is very easy in a country with world class infrastructure.
The country’s tax incentives are another major attraction to the investors. The company does not charge any taxes whether income or profit tax except on banks and oil companies.
The main aim of doing this has been to attract foreign investors a feat the country has achieved. This presents major opportunities to those companies which would fear investing in UAE due to the high taxes involved to invest freely without many taxes to follow.
Threats
Among the major threats likely to derail any new investment in the UAE has been the long time territorial disputes with the Iran which is a major country of interest to the UAE when it comes to trade. A sour relationship between the two would destroy the relationship between the two countries.
The poor living conditions experienced by the foreign workers are another major threat. With most of the skilled workers being foreign, this is a major threat to the performance of the economy in the United Arab Emirates.
Methodology
The research will use both primary and secondary data. The primary data will be collected will be collected from the government bodies concerning the likely challenges and opportunities a UK company importing her products to the UAE is likely to face.
Secondary data will be used from the government magazines and journal assessing both the challenges and the opportunities other companies which have invested in UAE have also faced.
While the secondary data may be accessed directly from UK stores, the primary data will be collected in United Arab Emirates so as to be able to access the information fast hand from the people involved.
Entry strategy
Companies from England which would like to invest in the United Arab Emirates would face challenges, opportunities as well as success while conducting business there. A decision to export abroad by any company comes along with numerous benefits and challenges (Doole& Lowe 2002).
As we have seen in the market analysis using both PESTEL and SWOT analysis. Depending on the goods or services which the company is dealing with, the company can choose the best exporting method through which its goods and services are likely to penetrate the market faster.
Several methods of exporting goods and services exist and they include among others licensing, franchising, direct exporting and indirect exporting. The adoption the exporting entry strategies most the times depends on the risks and the costs which the company is likely to incur thus choosing a strategy.
The strategy itself should be the one which minimizes the risks involved while at the same time maximizing the benefits. It is thus very important for an exporter to analyze all the issues involved before embarking on a particular strategy (Lymbersky 2008).
The exporting strategy for any company is usually related to the objectives and the goals which it wants to fulfill as it enters a new country.
Among the most important decisions a company should make before exporting her products to a foreign country is what part of the population are they targeting and how the population will be divided in order to reach the target.
Apart from dividing or segmenting the market the other issue concerns how the exported goods will reach their targets. Companies do not just export their products they must plan in advance how their products will be distributed and through which channels (Kotler 2007).
How the exported goods will reach their customers is a very important consideration as a company can not just export without the customer in the mind.
According to our case, the best entry strategy for companies wishing to export their products to the United Arab Emirates market would be the direct exporting.
Since the companies are new to the country and they just want first to test the markets, it would be important to follow this strategy since the risks involved are minimal. The Company can either export directly to the customers through their retail shops or export by using middle men.
If the company could be having own stores or a department within the United Arab emirates, this would work to the advantage of the company since it would have much control on the marketing mix strategies to be used once the product is already there (Cateora& Graham 2002).
The costs involved and the customers’ views about the company products would be communicated directly to the company. Companies also export though intermediaries. This happens when exports its products, sells them fully to the middle man and after the sales are completed fully, it is for the intermediary to look for the markets.
This method is less preferred when the company wants to hear the views of the customers and their recommendations on what would be done to improve the product.
The direct exporting method is also more advantageous than the other exporting strategies since it creates a more close relationship between the producers and the end users. In this instance the exporting company shall be able to interact with the customers directly and thereby solving any problem that may need to be solved.
Direct exporting is also more preferable to the other strategies since it allows the company to fulfill the needs of different markets at the same time. For example if a company produces its goods in the United Kingdom and then exports them to other countries.
If it decides to add the United Arab Emirates to its market pool, the company will just be required to produce more; this will help it achieve economies of scale without incurring of any extra costs (Gilligan& Hird 1986).
Direct exporting also allows the producer to control the prices and thus he is able to gain fully from the product sales without the necessity of selling through a middle man who would have to ask for transaction costs.
As a result, the exporting company is able to gain fully and more than if it was to export through an intermediary.
Another advantages why direct exporting is a better strategy than the others is the fact that the exporting company is able to discover new opportunities which were unknown to the company but as a result of entering into the market, the company realizes that there are other opportunities which other companies have not ventured in and which as a matter of fact could bring more revenue to the company.
Finally, the exporting company is also in full control of what is exported to another country.
Instances where middlemen alter the product quality or sell fake goods has been experienced in the past and thus direct exporting gives the company a chance to defend its product in the market since they are very sure of how the products works and can also ascertain the qualities of the exported product.
Recommendations
- With the well established economic network in United Arab Emirates, any UK company wishing to export it products to should do so since there is a strong purchasing power as exhibited by the country’s economic status.
- For any company wishing to export either alcohol or tobacco products should do it at their own risk since the taxes on these two products are very high at rates of 50 and 100% respectively.
- For any UK company in the telecommunications sector wishing to export her products to the United Arab Emirates should do feel encouraged to do so.Since with the already established strong communication network, there will be no requirements for the advertising of goods as the customers are already aware of other communication devices in the country.
- Water is the scarcest product in the United Arab Emirates. Any company which can be able to export water or machinery which can filter and sterilize water at lower costs than the costs which are being incurred by the government would be making a very successful strategic move.
- Finally, the United Arab Emirates is a very developed country and as the country seek to increase the literacy levels in the country, any UK company which would like to export its services (in form of establishing colleges and universities) in the country is very much encouraged.This is due to the desire the government of the United Arab Emirates has shown by ensuring each and every child in the country attains the maximum level of education they would desire. There are many opportunities in United Arab Emirates which still need to be discovered.
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