You are on page 1of 12

Building and Managing successful

Marc Hormann is an Associate Partner in


OC&C’s Middle East offices. Marc started his
career with OC&C Germany mainly focusing
on developing business strategies for major
German conglomerates in industries such as IT,
retail, wholesale and real estate. In addition,

Building
and Marc gained experience in private equity being
part of some of the largest multi-billion M&A
transactions in Germany, mainly in the real estate
sector in which he and his team performed
strategic due diligences.

Managing
He came to the Middle East in 2005 and
specialized in market entry strategies as well
as in supporting top management to set up
organizations for fast growth in a broad variety of
different industry sectors. Marc is well connected
to the ever-increasing local community of

Successful Businesses entrepreneurs, supporting young entrepreneurs


with strategic advice. Marc holds a general
in the Middle East
Joern-Carlos Kuntze

management and finance degree from WHU–Otto


Beisheim School of Management, Germany.

marc.hormann@occstrategy.ae

www.occstrategy.com

Joern-Carlos Kuntze &


Marc Hormann
Building and Managing
Successful Businesses
in the Middle East
Building and Managing
Successful Businesses
in the Middle East

Joern-Carlos Kuntze, Marc Hormann


(Lukas Brosseder, David Khalil, Pablo Metz, Glen Osmond)
Published by Motivate Publishing

Dubai: PO Box 2331, Dubai, UAE


CONTENTS
Tel: (+971 4) 282 4060; fax: (+971 4) 282 7898
e-mail: books@motivate.ae www.booksarabia.com
Preface 7
Office 508, Building No 8, Dubai Media City, Dubai, UAE
Tel: (+971 4) 390 3550; fax: (+971 4) 390 4845 Introduction 9

Abu Dhabi: PO Box 43072, Abu Dhabi, UAE
Tel: (+971 2) 677 2005; fax: (+971 2) 677 0124 Chapter 1 Fast Facts & Figures 13

London: Acre House, 11/15 William Road, London NW1 3ER 1.1 Profile of the GCC
e-mail: motivateuk@motivate.ae 1.2 The UAE – Setting the economic example of the GCC
1.3 Profile of the United Arab Emirates
Directors: Obaid Humaid Al Tayer
Ian Fairservice
Chapter 2 Why Multinationals are Heading to the GCC 27
Consultant Editor: David Steele
Editors: Albert Harvey Pincis 2.1 Favourable market conditions
Moushumi Nandy 2.2 Market challenges
Assistant Editor: Zelda Pinto 2.3 Summary
Senior Designer: Cithadel Francisco
Designer: Charlie Banalo Chapter 3 Basic Strategies of Internationalization 49

General Manager Books: Jonathan Griffiths 3.1 Motivation


3.2 Strategies
3.3 Value chain configurations
© OC&C 2008 3.4 The UAE as a regional hub
© Motivate Publishing 2008
3.5 Company formation
All rights reserved. No part of this publication may be reproduced in any material form 3.6 Summary
(including photocopying or storing in any medium by electronic means) without the
written permission of the copyright holders. Application for the copyright holders’ written Chapter 4 Successful Market Participation 71
permission to reproduce any part of this publication should be addressed to the publishers.
In accordance with the International Copyright Act 1956 and the UAE Federal Law No. (7) 4.1 Local commitment
of 2002, Concerning Copyrights and Neighbouring Rights, any person acting in
4.2 Raising capital
contravention of this will be liable to criminal prosecution and civil claims for damages.
4.3 Managing people
ISBN: 978 1 86063 228 0
Chapter 5 The Four Ps of Marketing to the Region 99
British Library Cataloguing-in-Publication Data. A catalogue record for this 5.1 Effective brand positioning
book is available from the British Library. 5.2 Matching products and services to markets
5.3 Finding the right price point
Printed by Rashid Printers & Stationers LLC, Ajman, UAE 5.4 Developing and managing effective relationships
Chapter 6 Long-Term Risk Factors 131 PREFACE
6.1 Economic risk
6.2 Political and regulatory risk
6.3 Social risk
6.4 Summary
This book investigates the opportunities for foreign companies to
Chapter 7 Business Opportunities 139 do business in Arabian countries, especially in the United Arab
Emirates (UAE). The main part of the book, an empirical study, was
7.1 Logistics sector supported by our students Brosseder, Khalil and Metz, based on the
7.2 Tourism, travel and aviation authors’ master thesis delivered in August 2006 at WHU-Otto
7.3 Environmental sustainability Beisheim School of Management, one of the leading business
7.4 Management solutions and professional services schools in Europe.
7.5 Energy intensive industry I find this volume exceptionally comprehensive and valuable. It
derives its conclusions not only from a solid evaluation of press
reports and available secondary data but also from fifty-four
Conclusion 151 personal interviews that the authors conducted with high-profile
business people and political leaders in the UAE. All these interviews
Company Register 153 took place in the UAE. I am not aware of any other available study
on the region that would be comparable in terms of the breadth of
its approach, the quality of the interview partners, and the clarity of
the conclusions drawn.
For practitioners, the main benefit of reading this book is the
well-structured overview on opportunities and risks of doing
business in the UAE. The authors present six strategic options for
foreign companies to enter the Arabian markets and convincingly
weigh the pros and cons of each strategy. The study distinguishes
between different industries and different business models. It also
gives a very broad range of real examples. Thus, readers can easily
determine suitable market entry strategies for their own industry
and their own company.
Another major benefit of this book is the thorough analysis of
the legal and macroeconomic conditions of doing business in the
UAE. The authors clearly point out, where foreign companies need
local partners, where they need government approval and what
markets are difficult to enter without political support. The
dependence on public orders in many industries, the rising costs of
living, and the lack of local management talent are risk factors to be
taken seriously. On the other hand, this book also leaves no doubt
that the whole region is a quickly growing and fascinating market. It
is a melting pot for cultures and offers leading companies from
abroad unprecedented opportunities for growth, as long as these
companies are really willing to learn about local cultures, rules, and
habits. To do so, this book is the perfect starting point.

Professor Dr Peter Witt,


Academic Director of the Chair for Entrepreneurship,
WHU-Otto Beisheim School of Management, Germany
CHAPTER 1

Fast Facts and Figures

1.1 Profile of the GCC

In May 1981, the UAE and five of its neighbours in the Gulf – Bahrain,
Kuwait, Oman, Qatar and Saudi Arabia – founded the Cooperation Council
for the Arab States of the Gulf, commonly known as the Gulf Cooperation
Council (GCC). Within the GCC organization the members have been
following shared economic goals and ultimately hope to create a unified
economic bloc on a par with other regional organizations such as the
Association of South East Asian Nations (ASEAN) or the European Union.
Triggered by the regional security threat of the Iran-Iraq War, the
underlying aim of the GCC was to promote security and stability in the
region, particularly through the integration of foreign and security policies.
Economic integration has been limited, until recently. In 1993, the first
concrete steps were taken to establish single tariffs on goods coming into
the GCC. But follow-up talks took time and were marred by disputes over
compensation arrangements. In September 1999, the members accepted a
draft set of customs laws that became effective in January 2003. Under the
customs union, a flat five per cent tariff on basic goods and seven per cent
on luxury goods is charged when entering the bloc. To date, this is the
extent of economic integration in the GCC.
However, future plans are ambitious, and include the formation of a
common market by the end of 2007, and a monetary union. The members
hope that by creating a common market with a GDP of roughly US$600
billion the region will increase its international economic visibility.
The organization is also in the process of debating several free trade
agreements. While negotiations for a free trade zone with the European
Union have been going on since the early 90s, talks with China began in
14  Building and Managing Successful Businesses in the Middle East Fast Facts and Figures  15

USD million (# world rank)


2005. Until recently, trade agreements by individual members were not Country – GDP in US$ billions (World Rank)
officially permitted. Regardless, member states such as Bahrain, Oman and
the UAE have been actively pursuing Free Trade Agreements (FTAs) with Saudi Arabia 308 (22)
the United States for years. This has especially irked Saudi Arabia, which
protested by boycotting the 2002 GCC Summit in Doha. In 2004, Bahrain United Arab Emirates 134’ (37)
signed its FTA, while Oman and the UAE began negotiations for their
own. In 2005, the GCC agreed to allow bilateral FTAs with the US, as the Kuwait 75’ (55)
only exception to the requirement for treaties to be region-wide. Oman
signed its agreement in 2006. Talks between the UAE and the US have Qatar 38’ (62)
stalled, although the UAE is hoping to finalize the agreement by 2008.
The organization also cooperates in many other fields such as Oman 30’ (67)
infrastructure and transportation. Construction of a US$3 billion causeway
between Qatar and Bahrain has been agreed, while the UAE and Qatar have Bahrain 13’ (94)
announced plans to build an elevated highway linking the two countries.
The GCC is also set to go ahead with developing a region-wide rail network, GCC 5 9 7 ’ (1 7 )
after completing a pre-feasibility study in mid-2007.

The economic significance of the GCC Figure 3: Nominal GDP of GCC Economies (International Monetary Fund, 2006)
The GCC has witnessed impressive economic growth throughout the past
decade. These countries, some of which used to exclusively draw their
economic power from their energy resources, are today successfully
promoting the Gulf as the dominant, non-oil business hub for the Middle Country – GDP in US$ billions (World Rank)
East North Africa (MENA) region. They have clear advantages. Their USD million (# world rank)

strategic location at the intersection of Africa, Asia and Europe is vital. India 775’ (12)
They offer low or no tax regimes for foreigners, and there is the
Mexico 768’ (13)
possibility of tapping into the tremendous liquidity from high oil prices
since 2002. Russia 766’ (14)

The GCC is looking to attract foreign investment and technology Australia 708’ (15)
transfer from all over the world to provide momentum for their rapidly
Netherlands 625’ (16)
growing economies. By diversifying into non-oil industries, the GCC
countries hope to make their economies stronger and more stable in the GCC 597’ (17)

event of fluctuations in the price of oil and gas. Be l g i u m 3 7 2 ’ (1 8 )


The creation of a unified economic bloc with a series of high-profile
Switzerland 3 6 8 ’ (1 9 )
trade agreements would give the GCC increasing global visibility and
significance. As a single economy in 2005, the GCC would have ranked as Turkey 3 6 2 ’ (2 0 )

the world’s seventeenth-largest, equalling the Netherlands in terms of Swe d e n 3 5 9 ’ (2 1 )


GDP (see Figure 4).
T a i wa n 3 4 6 ’ (2 2 )
Although its dramatic rise has been overshadowed by other emerging
markets such as Brazil, Russia, India and China (BRIC), the GCC has
climbed to the top of companies’ internationalization agendas around the Figure 4: Nominal GDP of the GCC Bloc compared to other economies (International
globe. While supranational efforts are bringing the GCC countries closer Monetary Fund, 2006)
16  Building and Managing Successful Businesses in the Middle East Fast Facts and Figures  17

together, its individual members are embarking on drastic transformations The Sultanate of Oman
of economic policies on the national and local level. After Bahrain, Oman is the least blessed with hydrocarbon reserves among
Through these changes, the GCC has created one of the world’s most its GCC neighbours. The oldest independent state in the Arab World
attractive investment environments, offering world-class infrastructure, depends on agriculture, fishing and tourism, as its main sources of income.
well-developed free trade zones, industry clusters and long-term tax The diversification efforts of the government are encouraging the tourism
exemptions on both a corporate and personal level. The GCC has also industry to become a driver of future growth. Projects such as Al Madina Al
witnessed a significant increase in both government and private sector Zarqa (The Blue City), which will take up roughly thirty-five square
spending, fuelled by the region’s vast financial resources and an kilometres of land, along the Al Sawadi coastline, highlight these efforts. Al
unprecedented influx of foreign direct investment. Madina Al Zarqa will include sixteen hotels, two hospitals and a large
Differences naturally exist between the GCC countries. However, many of university. Only the Dubai Waterfront project, with it’s 150 luxury planned
the findings presented in this text broadly apply, as similar regulations on communities, covering eighty-one square kilometres is bigger.
issues like foreign direct investment with respect to local ownership, and
workforce nationalization programmes, influence the general business Qatar
models chosen by companies throughout the region. Controlling the world’s third-largest natural gas reserves, Qatar has become
the world’s largest exporter of liquefied natural gas (LNG).1 Benefitting
Kingdom of Bahrain from a sharp rise in LNG production capacities, the country is expected to
Regarded by many as the most open and free economy in the region, the grow its gross domestic product (GDP) faster than any other nation in the
Kingdom of Bahrain has focused on establishing itself as the leading region. Qatar is also vying to become the sports centre of the Gulf. In
financial hub in the Middle East. Although it is facing increased December 2006, it was the venue for the 15th Asian Games. It is a mainstay
on ATP & WTA tennis tournament circuits. Other international events on
Qatar’s sporting calendar include, motoGP and the cycling Tour of Qatar.
Bahrain Oman Qatar Doha has also announced a bid for the 2016 Olympics and has indicated
500 500 500
that it may jointly bid for the 2018 football World Cup.2
400 400 400 8.1%
6.3%

300 300
4.8%
300 Kuwait
200
4.2%
200
4.0%
200
4.7%
Kuwait is a constitutional monarchy and has the oldest elected parliament
of the GCC countries. It has a population of around three million including
100 100 100
approximately two million non-nationals. Compared to its Gulf neighbours
0 0 0 its economy is most contingent on hydrocarbons making up roughly ninety-
1985 1990 1995 2000 2006 1985 1990 1995 2000 2006 1985 1990 1995 2000 2006
five per cent of the country’s exports. With roughly ten per cent of the
world’s proven oil reserves, Kuwait has the third-largest oil reserves in the
Figure 5a: Development of GDP [Index 1985 = 100] and CAGR [compound annual world. In order to diversify its economy Kuwait encourages FDI by allowing
growth rates] (International Monetary Fund, 2007) foreign companies to hold 100 per cent equity stakes in local firms, and has
reduced corporate taxes from fifty-five per cent to twenty-five per cent.3
competition from the UAE, there is evidence that Bahrain’s strategy is
paying off. Bahrain continues to attract some of the world’s leading The Kingdom of Saudi Arabia
financial institutions. In September 2006, Hannover Re, the world’s third- The Kingdom of Saudi Arabia is the world’s largest exporter of petroleum
largest reinsurance group, set up its first MENA subsidiary under the name and with an area of about 2.24 million square kilometres is by far the
Hannover Re Takaful in Bahrain. The significance of the decision was largest country in the GCC. With a population of twenty-seven million, of
emphasized when the Hannover Re Group transferred its Islamic insurance which sixty per cent are under the age of twenty,4 Saudi Arabia has the
business to the new subsidiary. most interesting domestic market of all GCC countries, and potentially the
28  Building and Managing Successful Businesses in the Middle East Why Multinationals are Heading to the GCC  29

2.1 Favourable market conditions April 2006, projects worth US$525 billion were either planned, out for
tender, or under construction.5 The UAE leads the way with so-called
Even though the UAE is home to a population of only 4.1 million1, its two “mega developments”. Landmark projects such as the three Palm Islands,
major cities, Dubai and Abu Dhabi, have managed to gain tremendous Dubailand and Business Bay in Dubai, have put the emirate on the global
media attention worldwide in the last couple of years. When looking at map. Sadiyaat Island, Al Raha Beach and Shams Abu Dhabi are beginning
business in the Middle East, the UAE usually attracts the most interest. This to transform the UAE’s capital. The regional construction boom has
status was achieved through major efforts by the federal government and, reached such proportions that an urban myth puts twenty per cent of the
of course, fuelled by the oil wealth of the region. world’s cranes in Dubai, despite the UAE having less than 0.1 per cent of
The following section takes a closer look at the UAE – its position in the global population.
relation to other GCC countries – the advantages and the disadvantages of As Saudi Arabia ploughs billions of dollars into its infrastructure and
doing business there. the construction of cities, it is fast catching up with the UAE. Qatar’s
offshore Pearl development and huge Lusail residential and commercial
Large potential markets district, emulate grandiose projects across the region. The smaller
Despite its small population, the UAE offers a wealth of opportunities in a members of the GCC, Oman and Bahrain have also witnessed a sharp rise
wide variety of sectors. These include growing demand within the oil in construction activity.
equipment and services industry, construction sector, real estate development Many of the real estate projects developed in the UAE have become
as well as transport, communications, tourism and retail services. internationally renowned. The country is home to two of the most luxurious
hotels in the world, the Burj al Arab in Dubai and the Emirates Palace in Abu
Oil and gas sector Dhabi. By 2008, it will also boast the tallest tower in the world, the Burj
Despite the federation’s diversification efforts, the oil and gas industry Dubai, and has plans for a kilometre-tall tower on the coastline. The Palm
remains the UAE’s most important contributor to GDP. The government is Jumeirah, a reclaimed island, is well under construction – the first residents
increasing its oil production capacity from 2.8 million barrels per day in moved into luxury homes in 2007. Although even larger land reclamation
2006, to four million barrels per day by 2010.2 It is the world’s sixth-largest projects are being built off Dubai’s coast, government owned developer,
oil exporter. However, much of the oil wealth is in Abu Dhabi, which Nakheel, is marketing the island as the eighth wonder of the world. Below is
accounts for ninety-five per cent of the reserves and makes up eighty-five a selection of other spectacular projects planned in Dubai.
per cent of the UAE’s total land mass.
The GCC region accounted for more than one-fifth of the world’s oil
production in 2006, and has more than forty-two per cent of today’s Mega Projects in Dubai
proven oil reserves.3 International pressure lies with Saudi Arabia, Kuwait, Dubailand – The world’s largest theme park
and the UAE, in particular to adjust their production capacities, to close
Dubailand will contain forty-five mega projects, seven theme parks, and
the gap between global supply and demand. The abundance of natural
over 200 tourism, leisure and entertainment sub-projects, making it one
gas reserves has also propelled Qatar on to the international scene. The
of the most ambitious tourist destination developments ever undertaken.
country has now become the world’s largest supplier of LNG and plans to The three billion square foot area will include roller-coaster rides, a ski
raise production to seventy-seven million tonnes by 2012 from just above dome, replicas of famous international landmarks, such as the Eiffel
twenty million tonnes in 2005.4 Although the UAE ranks fourth in the Tower and the Pyramids, a Dinosaur Park, as well as four gigantic sports
world, behind Qatar, in terms of size of gas reserves, its development has stadiums that may well support a bid for the Olympics in 2020.
not been as fast as its regional neighbour. On completion, the Dubailand theme park will be twice the size of
Walt Disney World Resort in Florida, making it the largest in the world.
Construction and real estate sector Some projects, such as the Autodrome, are already operational, while
Despite growing concerns about the build-up of a real estate bubble, the the next phase will extend from 2007 to 2010. The completion date for
region’s construction and real estate market continues to thrive. As of
30  Building and Managing Successful Businesses in the Middle East Why Multinationals are Heading to the GCC  31

its regional neighbours have also seen unpredicted growth. As regional


the whole project is scheduled to be between 2015 and 2018.
cities continue to suffer from capacity constraints, hotel prices are among
According to the developer, the project will cost an estimated US$65
the highest in the world. In a survey of eight Middle East cities in 2006,
billion (Dhs 235 billion).6
Dubai’s average room rate was US$249, ahead of Doha at $248, bypassing
Dubai Waterfront – 850 kilometres of new coastline destinations such as London and Paris.9 Occupancy rates in both Dubai and
The masterplan of the Dubai Waterfront is based on a series of ten Abu Dhabi were above eighty-five per cent in 2006.
zones designated for different commercial, residential and tourism
purposes. The development will boast a new city centre, anchored by Al Retail
Burj, a skyscraper that could be more than 1,000 metres tall7. The The GCC is also world’s premier market for luxury goods. More than
project will build multiple roads and waterways, five square kilometres 300,000 of the world’s 8.7 million high-net-worth individuals live in the
of coral reef, and add an additional 850 kilometres of waterfront, region. Luxury products from cars to yachts, apparel to personal goods,
twelve times the length of the existing Dubai coastline. The planned and even exceptional services as space travel are highly sought after.
communities on the waterfront are expected to house up to 400,000 Luxury products and services are not the only areas driving the UAE’s
people. It is intended to be the world’s largest beachfront development, hunger for the retail sector. Fast moving goods and electronic devices such
and will be larger than Manhattan or Beirut. It is expected to cost as mobile phones also enjoy great popularity. Hassan Tavakoli, Vice-
somewhere around US$40 billion. President Middle East and Africa of Motorola, has learnt a great deal from
Hydropolis – the world’s first underwater hotel his distributors: “A typical UAE national may change his cell phone up to
six times per year.” Motorola anticipates significant demand at the high-
Some projects may, or may not, ever become reality, but the very fact that end for the latest, most luxurious, and fashionable handsets.
they are proposed still demonstrates the UAE’s ambition to further push Generous spending by nationals is not the main driver behind the
the limit in the future. Hydropolis, the world’s first underwater hotel, has phenomenal growth that UAE retailing has witnessed in recent years: Dubai
yet to break ground, but the plans call for a 220-suite hotel located 300
retailers now earn fifty per cent of their annual revenues during two shopping
metres offshore, covering an area of 260 hectares – about the size of
festivals, the Dubai Summer Surprises (DSS), usually held between June and
London’s Hyde Park. The company has now taken on board a prominent
August, and Dubai Shopping Festival (DSF), usually held between December
member of the Bahraini family to source land sites and project licensing for
and February. According to OC&C Strategy Consultant’s figures, tourists
proposed Hydropolis schemes in Saudi Arabia, Dubai and Oman.8
account for sixty-five per cent of the retail business during these festivals.
Skiing in the Desert – Dubai’s winter ambitions
Ski Dubai, the largest indoor skiing venue in the world, added a new
dimension to the UAE’s ever growing leisure portfolio by bringing snow
Space Travel – Ra’s al-Khaimah taking the UAE to new frontiers
to the desert. There are other ski projects on the table, including wildly In 2006, Space Adventures announced a US$100 million venture to offer
unsubstantiated rumours of an outdoor mountain with real snow. More commercial space flights from a proposed spaceport at Ra’s al-Khaimah
plausible – but only just – is the whisper of a revolving ski slope in Dubai, International Airport. Its plans are supported by the government of Ra’s
on which enthusiasts would ‘ski’ down the slope while a 175-metre al-Khaimah, which not only granted clearance for suborbital flights in its
rotating snowfield moved in the opposite direction, allowing hours of airspace, but also agreed to be a co-investor in the project.10 Following
endless skiing without actually going anywhere. the announcement, Virgin Galactic, Space Adventure’s British competitor,
stated that it was also considering building a spaceport in the UAE. With
tickets as expensive as US$200,000 per flight, both companies intend to
Tourism sector target the wealthy population in the Gulf region.11 According to unofficial
In line with economic diversification, the transport and tourism sector has estimates, the two companies could expect to get up to 100,000 bookings
developed rapidly over the last decade, particularly as business activity has in the Middle East.
grown. Dubai has become the region’s flagship destination for tourists, but
50  Building and Managing Successful Businesses in the Middle East Basic Strategies of Internationalization  51

3.1. Motivation language skills and professional skills defines for which industries a market
can serve as a low-cost niche.”
Assuming that maximizing profits is the ultimate goal behind any business Heavy industry is one business segment that uses the UAE as a low-cost
decision, companies extend their operations to new countries with at least base, as shown by the growing number of aluminium smelters, which enjoy
two other motives in mind: the chance to increase, or protect revenues, and extraordinarily cheap energy prices in the region.
the potential to reduce costs. Another cost-saving potential lies in taking advantage of the country’s
excellent ports, airports and to a lesser degree road networks, which are
Revenue-driven expansion strategically located between Africa, Asia and Europe. Logistics companies
An overwhelming majority of the companies we spoke with were drawn to have a significant presence in the UAE.
the GCC in the hope of tapping new business opportunities in the region
and growing their top-line. These findings correlate with our perception
Falcon Technologies International – Exploitation of a low cost
that size and growth of sales markets are largely responsible for the UAE’s
niche in Ra’s al-Khaimah
attractiveness as a business location. Conject, a German software company
that came to the federation as a first step towards internationalization, can Falcon Technologies International (FTI) was founded in Ra’s al-Khaimah
serves as an example: (RAK) in 2004 and has its headquarters and manufacturing plant in the
emirate. The group is a joint venture between a Swiss-based investment
‘Conject set up an office in Dubai to prove that its business model works in company and a group of private investors. FTI offers recordable optical
non-European markets. Accordingly, we are here to sell our products and discs. The product range is offered to international original equipment
services to large national companies and government entities.’
manufacturers (OEMs) and sold under the FTI brands.
In 2005, Falcon opened its US$100 million optical disc production
Max-Michael Mayer, Director International Business Development
facility in RAK, becoming one of the few international manufacturing
companies in the emirate. Adel Michael, CEO of FTI, explains that while
A closer look at companies that chose revenue-driven expansion shows
the cost of labour in the region is slightly higher than in China or India,
two main motives. The companies enter the market to seek new
higher efficiency and fifty per cent shorter lead times easily compensate
opportunities and clients in the region, or to follow existing customers
for additional labour costs: “Our shipping times to Europe are about three
who have entered the market. In certain industries, companies are weeks, while our competitors, which are all based in the Far East, need
essentially required by their clients to offer a local presence. Clients prefer about six weeks. This saves us not only time and fees, but also
that the same company takes care of their needs worldwide. The logistics, significantly reduces our working capital.” The benefit of getting the
accounting, banking and consulting sectors are some of the most product to the market faster is that it becomes an additional asset that
prominent examples of firms that need to be present in the region to customers are willing to pay a premium for.
protect their domestic revenues. Falcon now employs about 300 people and by exploiting its cost
advantage, it aims to become one of the world’s top five manufacturers
Cost-driven expansion within five years.
Largely due to the scarcity of local labour, the UAE bears limited potential
for purely cost-driven expansion. As discussed previously, the UAE relies
on foreign workers, and although the cost of unskilled labour is far lower A company that exploits the strategic location of the UAE is the Swiss-
than in more developed economies, labour usually has to be imported by managed technology company Falcon Technologies International.
offering a significant premium on the wages paid in the exporting The UAE does not impose income tax on individuals or corporations,
country. Cost-driven opportunities are limited to a few niche areas. Phil which is often a considerable cost in other countries. While the tax
Schneider, a partner at Deloitte Consulting, points out that such niches exemption can provides additional cost savings, alone it is usually not
are defined by the following: “The interplay of cost, infrastructure, enough to justify an expansion into the federation.