Business Environment of the Gulf Region, Australia - Case Study Example

Analysis of Business Environments Name: Course Professor’s name University name City, State Date of submission Table of Contents Conceptual Framework 3 Analysis of Environmental Factors 4 Economic growth 4 Social and Cultural Factors 5 Political Factors 6 Legal Factors 7 Discussion and Recommendations 8 Conclusion 11 References 11 Conceptual Framework The Gulf region is one of the richest regions in the world, with some of its member countries being ranking high in terms of per capita income [Mar13]. Since crude oil became a significant part of the global economy, the region has moved from a backwater economy to one of the leading economies in the world. As of the year 2006, the region accounted for more than 26% of the global oil reserves, while some of the member states accounted for about 20% of the global oil demand [Mar131]. In fact, some of the major oil companies in the world are estimated to mine as much as 85% of their oil revenues from the region [USE14]. However, oil is a finite resource and its price is subject to abrupt changes depending on a large number of factors. A brief analysis of research into the Gulf region has shown reliance on secondary data drawn from oil company’s annual reports. An analysis of political, economic, social, cultural, environmental, legal and technological (PESTEL) factors has proved important in research related to social sciences, especially business and economics[Kam14]. This is of particular importance when the focus is on the external environment as opposed to a comparison of internal and external factors where an analysis of strengths, weaknesses, threats and opportunities (SWOT) is found useful[Aga12]. The current study lays focus on the external factors that are likely to affect a company seeking to launch an export business of lamb and mutton from Australia to the Gulf region. Therefore, owing to its default in focus on internal factors peculiar to a firm, the study will use the PESTEL framework of analysis. While it is debatable whether Saudi Arabia is part of the Gulf region, this paper includes as if it was part of the region. This is driven by the fact that the country plays a major role in the drafting of policies in other members of the region. Analysis of Environmental Factors According to industry experts, Australia exports 51% of the 457000 tonnes of lamb and 96% of the 183000 tonnes of mutton produced within its borders [Mea14]. While the Gulf region is a natural importer of Australian minerals such as diamonds used in oil drills, it is also a major importer of slaughtered and live sheep [Aus03]. The dependence of the Gulf States on food imports is because the climatic conditions in the area are not suitable for agriculture. Moreover, the economic explosion in the region has helped importation of food products take a new dimension for the better. Economic growth The GCC (Gulf Cooperation Council) is composed of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates. As mentioned earlier, these countries are major exporters of oil and account for much of what is left of hydrocarbon fuels. However, some, like the UAE and Bahrain have diversified their economies to include the service sector. Currently, oil exports account for less that 60% of the total export revenues earned by the UAE while Bahrain had achieved a similar position in the 1990-1999 period [Int11]. The result of this diversification has been the turning around of cities into major service areas where tourism is a major contributor where Saudi Arabia is among the top 20 tourist destinations in the world[Int11]. The impact of economic growth has had pronounced impacts of the level of consumption by the average population. One, economic diversification efforts have led to the creation of jobs that are largely suited for the expatriate population. For instance, Kuwait has a population of approximately 3.6 million people and 2.4 million of them are non-nationals [Mar13]. While sheep is one of the commodities allowed by the religious customs in the area, expatriates have also contributed to the rise of demand for sheep meat owing to their exposure from native countries. The combination of oil and service industry revenues have also improved the economic conditions of the general citizenry in the GCC. This has seen the demand for imported items such as lamb and mutton increase. This fact corresponds with recent market statistics that indicate that there was a rise in demand in these products in most GCC countries over the last one year[Mea141]. The rise in come is evidenced by the continued rise of GCC countries not only in oil production, but also as tourist and financial hubs[All06]. The UAE through Dubai is an example of this rise. Social and Cultural Factors While the economic developments in the GCC states have had a pronounced positive effect on the lamb and mutton exports from Australia, culture has also played a pivotal role. Sheep is one of the few items that are allowed for consumption in the Quran. This has made it easy for the exports to find a ready market in an area dominated by the Islamic religion. All the GCC states Muslims accounting for more than 80% of the entire population [Pew09]. With such a heavy concentration of Muslims, the issue of halal food is one that drives consumption. Moreover, all the GCC states are Islamic states and this means that the importation of some food items such as pork is expressly outlawed by the state. The result is that the culture found in the GCC countries creates room for a monopoly of food to form. Lacking in the supply of alternative meat items, the population relies on lamb, mutton, beef and a selection of a few other foods allowed in the Quran. Over the last three decades, education levels in GCC states has improved tremendously to reach an average of 80% among all member states[Int10]. This is driven by the diversification efforts from the government that have seen a rise in literacy levels among the younger generation of citizens. Moreover, the region has one of the highest rates of expatriate labour that accounts for close to 55% in some countries[Int10]. The result is a population that is highly aware of the quality of food items they consume. Therefore, it is not surprising that the region being a large importer of red meat regularly bans products from some countries that do not meet the requisite quality standards[Mea13]. Such bans have had a positive effect on the demand for quality lamb and mutton products from Australia that has maintained an airtight quality control system for all its exports to the region. Political Factors Having an abidance of a globally important commodity such as oil has not always been favourable towards GCC countries. The discovery of oil in a country has been studied to findings that war is one of the natural results[Ter04]. The region is considered one of the most politically unstable areas in the world due to the local and international wars that have been fought in some states such as Kuwait and Bahrain. Many of the countries neighbouring GCC states have experienced wars and political turmoil at some point in the last two decades. The condition is made worse by the proximity of these states to perennially volatile states such as Iraq, Iran, Jordan and Syria. As such, the occurrence of war in one of these countries has a direct impact on consumption patterns in GCC states. One reason is that people, especially expatriates flee the country at a moment’s notice. For a country like Kuwait where expatriates make up close to 90% of the entire population, the effects of war on the country’s import of lamb and mutton can be devastating[Mar13]. Secondly, the occurrence of war leads oil prices to plummet. While most states are diversifying their economies, many GCC states are still heavily reliant of oil revenues. Therefore, a decline in crude oil prices has an all-round negative effect on the economy[Rog11]. The political risks that are rife in the region were witnessed in the recently concluded ‘Arab Spring’. While none but one of the GCC states was affected, the domino effect of the popular uprisings on the greater economy. Bahrain was one of the countries that almost saw its government brought down by the political protests against the dictatorship that is often intertwined with countries holding large oil deposits. While it survived, Bahrain suffered immense shocks to its economy that has diversified away from oil over the last two decades. With such examples, it would be ignorant to assume that even apparent peaceful states lack undercurrents capable of turning a plausible investment on its head. Legal Factors As stated earlier, all GCC states are Islamic countries. The implication is that the law as stated in the Quran is above every other law. As a religious book, the Quran dictates the food taken by its readers and followers. In a positive turn of events, lamb and mutton are some of the food items permitted by the Quran. As Islamic states that have a high density of Muslims, there are legal provisions that expressly prohibit the selling of food items such as pork, which are outlawed in the Quran. However, the state is not only concerned with following the teachings of the Quran. As the population has become more enlightened and educated, the state is met with demands to ensure that food items on supermarket shelves are of the highest quality. In a recent turn of events, some GCC countries banned the importation of beef products from South America on suspicion of mad cow disease in the exporting countries [Tho12]. This goes to show that GCC states have continued to enforce strict requirements that are consistent with any modern state. One of the major reasons why Australia has survived these bans is because it places a high bar for lamb and mutton exporters. For instance, the Australian government mandates a mortality rate of no more than 2% of all live sheep in transit to export destinations[Aus142]. This is beyond the quality standards related to the slaughter and handling of mutton and lamb products that must be met by the Australian exporter. The enforcement of such laws has seen the quality of Australian lamb and mutton products gain wide acceptance across the world. Discussion and Recommendations The Gulf region is not only one of the wealthiest areas across the globe, but it is also rising into prominence. Growth is mainly driven by revenues from crude oil sales and government efforts to diversify the economy to include other elements such as the service industry [Int14]. The diversity of the economy is paying off for some of the states that launched it early. For instance, Dubai, one of the emirates in the UAE is home to one of the largest shopping malls in the world that attracts more than 75 million people annually, a much larger group of people those visiting New York or the Eiffel Tower [Ema14]. With such a turnaround in the constituents of national revenue, some important benefits and risks are to be considered. As one of the most valuable commodities in the modern economy, having large amounts of oil means that GCC states can continue supporting lavish livelihoods for their citizens at least in the medium term. While many states are diversifying away from oil, all GCC states but Bahrain have oil revenues accounting for more than 50% of gross exports [Lim13]. Therefore, it is not expected that the coffers to these states will run dry anytime soon. For the mutton and lamb exporter, it means that the GCC will continue being a major product for these agricultural products. This is backed by the climatic fact that no GCC states can meet their food demands from their fields. Owing to the rapid development of GCC countries, they have not had adequate time to develop their citizens to take up the many jobs created by economic growth [Boo10]. Therefore, the need to continue growing and providing basic amenities to citizens means those governments have had to lower immigration requirements. The result has been rapid inflow of expatriate workers at all levels from masons to top calibre chief executives. In Kuwait, non-nationals make up over 70% of the entire population [Mar13]. For the lamb and mutton exporter, this has several implications. One, it means that in considering the GCC market, he must not overlook the important role played by expatriates. This is because they make up a large percentage of the population in those countries. Moreover, the exporter must adopt a worldview even when exporting to one state. This is driven by the fact that these expatriates are drawn from all over the world and their cultures are not those of the Middle East. Rather, their cultures are a mix of nearly all nationalities across the world and should be treated as such. With most economies relying on oil, an exporter of lamb and mutton products to the GCC must consider the fact that these hydrocarbon fuels are finite. This means that sat some point in the future, the oil wells will dry and national revenues along with them. This has far-reaching negative effects on an oil dependent economy as revenues to the state and the citizens dry up. Moreover, continued dependence on oil has been shown mixed signals on the economic and political arenas[ERo08]. Owing to the strong relations between oil and its effects on the politics and economic environment of a country, the lamb and mutton exporter to the GCC countries should be wary of risks involved. As the recent Arab Spring exemplified, a peaceful country can be war torn in a matter of days. Therefore, it is important for a company seeking to export lamb and mutton products to GCC states to consider the political undercurrents that operate in the state and how they influence his position in the market. While it is important to consider the political events occurring in the GCC states, it is also crucial that the exporter considers the political events in the surrounding states. For instance, the attack of Kuwait by Iraq in the 1990s spurred turmoil across the entire region. This was repeated again in 2003 and in the ongoing Syrian conflict that has led to thousands of refugees fleeing into neighbouring states, some of them GCC members [The146]. While the political relations between Australia and GCC countries have been cordial for eons, they are not to be banked upon. To diversify this risk, it would be best if an exporter of lamb and mutton chose to sell his products through an intermediary based in these states. This lowers the company’s exposure to the risk of political outbreaks, as it will not have any stock lying in those countries. If a company considers itself lucky to produce halal goods, it should also be mindful that GCC states have become more sensitive over quality issues in the recent past. For instance, Saudi Arabia banned beef from Brazil and the US owing to mad cow disease concerns[Tho12]. On the other hand, the Australian government has also enforced stringent laws governing the quality of mutton and lamb so as to maintain the country’s brand as a quality exporter of these agricultural goods [Aus142]. The only way to ensure that the exporter goes through these hurdles is to have internal quality standards that measure to the regulatory requirements. For instance, it would have to ensure that animals are not subjected to cruel slaughter practices, transport is handled according to the proper standards and processing of mutton and lamb it done hygienically to avoid contamination. The aim of these internal processes is to ensure that the company does not suffer loses when its products are rejected by the importing states. At the same time, they should also ensure that the Australian government stamps its authority and brand over the exported mutton and lamb. Going into the future, the company should expect that GCC citizens will be more enlightened on what constitutes proper standards. Moreover, as the countries become tourist hubs, it is expected that they will create enough pressure to ensure that their diversified economy takes off in the right direction. Conclusion A company exporting lamb and mutton products to the Gulf region will find that the business environment is highly dynamic and sensitive to a wide variety of factors. Through an analysis of secondary data from media houses, journals and respected research institutes, it was established that the region was highly sensitive to economic factors such as the rapid growth of member states. Heavy reliance on finite oil resources has forced some member states of the GCC to diversify their economies. This has had pronounced impact on the economic outlook of the region as it has brought in expatriates who have an influence on demand patterns. Moreover, cultural factors such as rising literacy levels and the imposition of Islamic law on imports has been beneficial for Australian lamb and mutton exports. However, the Gulf region is highly sensitive to political events and this can have negative effects on a company that does not take into consideration that turmoil in one nearby state can lead to disarray in the entire region. This study was limited in research as it only considered the Gulf States that are members of the GCC. While the states are major importers of Australian lamb and mutton, other equally viable countries would be amicable trade partners to Australia. 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