FIFA Qatar Business and Economic State - Case Study Example

FIFA Qatar Business & Economic State Name Subject & Code: Date: Table of Contents Table of Contents 2 Introduction 3 Background 3 Business risks and human rights issues 6 Relevance to Business 7 Preparation and Planning Phase 7 Construction Phase 7 Execution phase 8 Sponsorship deals and market accountability 8 Sponsors and Sponsorship effects 8 Business reputations and impacts on business 9 Sponsorship gains 10 Conclusion 11 Works Cited 13 Introduction Fédération Internationale de Football Association (FIFA), which has been World Cup’s international governing body since 1904, decided to take the international football event to the Middle East by giving the bid to Qatar. In spite of not being intrinsically ‘big business,’ football has strong implications to big businesses, specifically when it comes to the effects of the periodic decisions related to hosting the World Cup, which is tied to extensive private and governmental investment in television rights, infrastructure and sponsorship deals (Pielke 257). This paper’s underlying argument is that hosting the FIFA World Cup presents Qatar with vast business and investment opportunities. The FIFA World Cup is expected to have mild economic impacts in the period 2011-2016. Despite this, Qatar has to make significant preparation to invest in businesses and infrastructure. The investments will have to be substantially proportionate to the size of Qatar’s economy. In addition, Qatar’s macro-economic and long-term business development impacts need keener attention. It is also estimated that after 2022, the World Cup will bring vast opportunities that will strengthen Qatar’s non-energy sector performance and structures. This paper examines FIFA Qatar business state with discussions on business investment opportunities impacts, business risks and human rights issues, sponsorship deals and market accountability, business reputations and impacts on business. Background The State of Qatar is a sovereign Arab emirate situated in Western Asia. It is situated in Western Asia on the northeasterly coast of the greater Arabian Peninsula. The country is an absolute monarchy, which has been led by the Al Athani family since 1825. Currently, it has the third largest oil and natural gas reserve possessing 25 billion barrels. This has enabled the country to become the riches country per-capita, as well as to attain the highest human development index in the world. The World Bank recognizes Qatar as a high-income economy and nineteenth most peaceful country globally. Currently, the country undergoes immense transformation under its strategic plan called the National Vision 2030. Qatar is currently expected to host the 2022 FIFA World Cup, becoming the first Arab country to do so. According to the Qatari government, plans are underway to invest some $200 billion in construction of infrastructure. More than US$140 billion of the amount is expected to go towards construction of 600 miles new roads, rails and light rail systems, as well as upgrading seaports and airports (DrakeFinance). Business investment opportunities impacts Qatar has made preparations to undertake huge construction and business investments in support of FIFA’s quadrennial international soccer games (Kemp 1). Qatar’s winning bid also included its commitment to construct nine high-tech stadia installed with cooling technology to reduce the averagely high temperature of 40 degrees Celsius to 20 degrees Celsius during summer, public transport structure, a state-of-the-art airport, 54 team cups, new hotels and a bridge that connects neighboring Bahrain (Euler Hermes 1). Construction of World Cup-related projects has started, although to a limited extent. New tenders had also started to be issued for contracts tied to the construction projects. All this have signified different implications to foreign and local investors (Kemp 1). Towards 2022, some experts have extended arguments that the World Cup may impact trade over and above speculative investments. According to Basher (1), while the impacts are likely to be transitory, the government is still expected to monitor the impacts and avert any likely cause of market power. The wider public interest should also be protected. Within the perspective of the country’s economic diversification aspirations, the World Cup offers vast opportunities. For instance, public-private partnerships will promote the development of some infrastructural projects. In respect to the business sector, the World Cup will create newer opportunities for the domestic enterprises to partner with foreign firms, in order to link with the global value chains (Basher 1). As the country makes preparations to host the 2022 World Cup, investors from the United States have strongly positioned themselves to help the country make upgrades, renovations and complete the construction project. As a result, more investments and exports from the United States have resulted. In 2013 for instance, exports from the United States climbed to US$4.95 billion, indicating an increase by nearly US$1.38 billion more than the year before. Analysis of exports statistics related to FIFA Qatar show that exports into the gulf state have climbed by 56 percent, specifically since the launching of the US National Export Initiative that has taken keen interests in helping the country to make preparations for the 2022 World Cup (DrakeFinance). Various experts have argued that Qatar may make considerably rapid strides in its service and non-hydrocarbon sectors ahead of the 2022 World Cup. By 2018, the Qatari economy is expected to grow to $275.5 billion (Market Research Reports 1). The World Cup preparations and its outcomes are therefore seen as capable of enabling the country to transform into a knowledge-based economy by promoting investments in the service industry. The World Cup is expected to offer new investment opportunities in this regard. To sustain the growth of its GDP, the country is currently expanding its non-hydrocarbon sector even as it plans to inject more than $140 billion in the next 10 years into the sector (Market Research Reports). Business risks and human rights issues A number of private and public infrastructures related to the FIFA World Cup, such as metro and railway system, New Doha International Airport and Qatar-Bahrain Causeway started in 2012. Additionally, local Qatari organizing committee called the Supreme Committee for Qatar 22 started to issue tenders for the World Cup’s construction projects to CH2M HILL, a US firm, to oversee the constructions (Human Rights Watch 10-11). The business risks and human rights linked to the FIFA World Cup in Qatar, known as the Mega Sporting Effect, originates from the inflow of more than 1 million foreign workers looking to work in the construction projects. Already, Human Rights Watch (2012) warned that there could be cases of abuse of migrant workers, in terms of wages, recruitment housing and working conditions, after it expressed its dissatisfaction with Qatar’s labor laws. For instance, the Kefala System (or the sponsorship system) where employers sponsor migrant workers to Qatar and withhold their passports has been criticize for making workers to be vulnerable to abuses. According to Morgan et al. (4), multinational corporations involved in the construction of the projects and sponsorship deals for the 2022 event need to have a good understanding of the risks associated with migrant worker abuses. Additionally, they need to address the potential abuses of worker rights. Several businesses have already vowed to uphold human rights. For instance, CH2M HILL has declared to Human Rights Watch that it would make promotion of human rights a key priority as it oversees the construction projects. Relevance to Business The FIFA World Cup 2022 signifies massive opportunities for businesses concerned in planning, construction and execution phase. Each of these companies has some level of risks (See figure 1). Figure 1: Outline of businesses involved in FIFA World Cup 2022 (Morgan 12) Preparation and Planning Phase In 2012, Albert Speer & Partner, a German architectural firm, involved in construction of stadiums in Qatar, in the planning and preparation phase. The company has had distinct business risks linked to failing to address poor migrant labor practices because of involvement in value chain. In 2012, a Danish engineering firm also involved in the Preparation and Planning Phase and was accused of working with local contractors who failed to uphold migrant labor laws (Morgan et al. 11). Construction Phase In preparation for the World Cup 2022, the Deutsche Bahn AG, also a German firm, is constructing a rail network and subway in Doha. Similarly, another German construction firm Hochtief, is involved in similar construction projects. Because of the high number of manual laborers, mostly migrants, a number of business risks have faced these companies. These include project costs and market access. When it comes to project costs, workers may go on strike over working conditions and compensation, hence delaying the construction of the projects (Morgan Et Al. 11-13). To prevent this, companies should treat workers in a better way. In terms of market access, businesses that operate in Qatar have to apply for permits from Qatar Labour Ministry before they can begin operation. The Qatari government should withdraw the licenses in the event that companies are violating workers’ rights. Execution phase On completion of infrastructure and stadiums for the World Cup 2022, other businesses, such as consumer product companies and retailers, will begin to communicate their sponsorship for the event. At this stage, firms that associate with brands to the World Cup should take charge in ensuring that they are not involved in corporate branding of stadiums, implicated in abuse of migrant workers labor laws during their construction (Morgan et al. 13). Sponsorship deals and market accountability Sponsors and Sponsorship effects According to Lee and Bravo (1) Sponsorships are considered to be less intrusive methods than advertising, making sponsorship an alternative to the conventional marketing communications. According to Chavanat (644) and Thurston (17) sponsorship is a critical marketing strategy for building image, exposures and generating goodwill. Indeed, in World Cup events, the sponsorship expenditure surpasses the traditional advertising spending. FIFA expects to use its traditional three-tier sponsorship structure, which consists of National Supporters, FIFA Partners and the FIFA World Cup Sponsors (Fifa). Among the rights for the sponsors include brand association, where the corporate sponsors share in the World Cup brand association, get substantial media exposure and use marketing assets. Additionally, they offer hospitality and ticketing for the event (Lee and Bravo). A key benefit that businesses expect to benefit from the 2022 World Cup is the broad product category exclusivity, given to the commercial affiliates, and which allow brands to differentiate themselves from competitive brands. Current FIFA Partners include Visa, Adidas, Coca-Cola, Sony, Emirates, and Hyundai. On the other hand, FIFA World Cup Sponsors include Castrol, Budweiser, McDonalds, Yinglu and Johnson. The National supporters will comprise local Qatari companies (Fifa.com). Business reputations and impacts on business FIFA has recently come under close scrutiny by its major sponsors after allegations that Qatar had bribed its way to win the bid (Gibson1). Concerns by the sponsors include instances where the corruption allegations could damage their global reputations. Other contestants for the bid included Japan, Korea, United States and Australia to win the bid (Futterman 1). The FIFA 2022 World Cup bribery allegations emerged during the FIFA presidential elections in 2011, when Qatari Head of Asia Football Council (AFC) Mohamed Bin Hammam was charged for bribery allegations. The case was sent to FIFA ethics committee resulting to suspension of Hamman in July, 2011 (Pielke 259). At this rate, the good governance of 209-member state FIFA is critical since the business of football brings many people from different nations together. Among the most vocal sponsors in this regard are Adidas and Visa. The two sponsors argued that FIFA’s bribery allegations could affect their businesses. On critical analysis, it is argued that such cases can be prevented when FIFA becomes more accountable for its activities and transparent in the way it bids for projects. Hosting government’s involvement is also critical since national support for the event may decrease if negative perceptions prevail (Chain 4). Sponsorship gains On the other hand, corporate sponsorship is a major source of revenue for FIFA. The sponsorship is greatly associated with extensive commercialization and allocation of tickets to the sponsors. Companies who are not sponsors are not permitted to associate with the World Cup brand, or the nine stadiums in Qatar (Littleton). Critically, the sponsors gain substantially from the events. For instance, Hyundai Motor Company, which became a FIFA sponsor in 1999, will be the automotive official partner in 2022. The company views the sponsorship as a key component of its marketing strategy and an opportunity to link global customers to its brand. The company provides ground transportation by supplying buses for FIFA officials and national teams (Hyundai 1). Hyundai supplies buses for the 32 teams that participate in the sports event. Additionally, Adidas, which has been a FIFA sponsor for over 60 years, recently renewed its sponsorship until 2030 (Foxsports). Adidas will supply personalized balls for all the matches of the tournament, each having the names of the stadium and the national teams featuring in a game (Foxsports). As part of the sponsorship deal, Visa’s cards will be used throughout the World Cup Venues in the 2022 World Cup. Budweiser, which is a key sponsor, supplies beer throughout the event. Emirates became a FIFA sponsor in 2006, becoming the first airline to sponsor the World Cup. As s sponsor, it will fly all the 32 national teams and FIFA officials across Qatar (Emirates 1). The sponsors are also allocated 25,000 tickets each, while the remaining national partners share 115,000 tickets. The sponsors anticipate high revenues from the 2022 World Cup. For instance, Adidas topped in terms of revenues by $2 billion of the total revenue of $17 billion that accrued in the 2010 World Cup. Wiesman (1) argued that sponsors spend millions of dollars on sponsoring the event and get high return on investments. It is estimated that in addition to sales during the World Cup, the companies also get extensive media coverage. A study by Analytic Partners showed that marketing at the event can earn the sponsors between 1 and 6% increased revenues. To increase return on investment by the sponsors, Wiesman (1) argued that the sponsor should use the social and digital space to intensify engagement with their brands during the events. Such online interactions and engagements can increase sales from the event, and even afterwards. Conclusion The World Cup has strong implications to big businesses, specifically when it comes to the effects of the periodic decisions related to hosting the World Cup. This is since it is tied to extensive private and governmental investment in television rights, infrastructure and sponsorship deals. The World Cup may impact trade over and above speculative investments. While the impacts are likely to be transitory, the government is still expected to monitor the impacts and avert any likely cause of market power. The wider public interest should also remain to be protected. Therefore, Qatar has to make significant preparation to invest in businesses and infrastructure. The investments will have to be substantially proportionate to the size of Qatar’s economy At this stage, firms that associate with brands to the World Cup should ensure that they are not involved in corporate branding of stadiums implicated in abuse of migrant workers labor laws during their construction. At this rate, the good governance of FIFA is critical since the business of football brings many people from different nations together. Cases of corruption in handing out business projects and sponsorships can be prevented when FIFA becomes more accountable for its activities and transparent in the way it bids for projects. The hosting government’s involvement is also critical, since national support for the event may decrease if negative perceptions prevail. This is since when it comes to market access, businesses that operate in Qatar have to apply for permits from Qatar Labour Ministry before they can start operation. The Qatari government should withdraw the licenses in the event that companies are violating workers’ rights. Works Cited Basher, Syed. “The economics of the 2022 FIFA World Cup." Vox, 24 Dec 2010. 9 July 2014, Chain, Dion. Residents’ perceptions of the 2010 FIFA World Cup : a case study of a suburb in Cape Town, South Africa. Cape Peninsula University of Technology, 2009. Chavanat, Nicolas, Guillaume Martinent and Alain Ferrand. "Sponsor and Sponsees Interactions: Effects on Consumers’ Perceptions of Brand Image, Brand Attachment, and Purchasing Intention.” Journal of Sport Management, 23.1 (2009): 644-670 DrakeFinance. “Exporting to Qatar: 2022 FIFA World Cup," 2014. 9 July 2014, Emirates. "Official FIFA Worldwide Partner," 2014. 10 July 2014, Euler Hermes. "Qatar Gas-Fired", 2014. 9 July 2014, Fifa.com. “The Organization,” 2014. 10 July 2014, Foxsports. "FIFA, adidas extend WC sponsorship," 21 May 2014, Futterman, Matthew. "For FIFA, a Tumultuous World Cup: Allegations Mount About Qatar World Cup Before Brazil Opener." The Wall Street Journal, 10 June 2014. 19 July 2014, Gibson, Owen. "Qatar World Cup sponsors warn Fifa of damage from corruption allegations." The Guardian, 8 June 2014. 10 July 2014, Human Rights Watch. Building a Better World Cup: Protecting Migrant Workers inQatar Ahead of FIFA 2022. Human Rights Watch: Amsterdam, 2012 Hyundai. "Sponsorship Overview," 2014. 10 July 2014, Kemp. Daniel.” Qatar 2022 World Cup offers opportunities to contractors that can adapt and innovate." CN Plus, 22 Nov 2013. 10 July 2014, Lee, Cindy and Bravo, Gonzalo. "Unraveling team sponsorship in World Cup: What are the influencing factors?" The Sport Journal, 2010. 10 July 2014, Littleton, Tamara. Brands and the Politics of Sponsorship: The 2022 World Cup. HuffingtonPost, 16 June 2014. 10 June 2014, Market Research Reports. “Qatar,” 2014. 9 July 2014, Morgan, Guy, Lindsey Lim, Lewis Xie and Julia Beier. "Migrant Workers and the FIFA World Cup 2022 in Qatar: Actions for Business." BSR, 2012. 10 July 2014, Pielke, Roger. "How can FIFA be held accountable?" Sport Management Review 16 (2013): 255-267 Thurston, Norton. “The Effect of Sponsorship, sponsor awareness and Corporate Image on Intention to Purchase Sponsor’s products," University of Pretoria, 9 Nov 2014. 10 July 2014, Wiesman, Tom. FIFA World Cup Sponsorship: Is it Worth It?" Analytical partners, 10 march 2014. 10 July 2014, Read More