The United Arab Emirates - Historical Background, Influence, and Challenges of the Business Environment - Case Study Example

Table of Contents 1.0. Historical Background 02 2.0. Current Scenario 02 3.0. SWOT Analysis 04 4.0. Influence of Business Environment 05 5.0. Challenges of the Business Environment 07 6.0. Conclusion 08 7.0. Recommendations 08 8.0. References 10 1.0. Historical Background The United Arab Emirates (UAE) is a federation consisting seven emirates with Abu Dhabi comprising more than three-fourth of the total area. The historical background of the country is rooted in trade and had always attracted merchants from all round the world. With the passage of time the emirates went into a series of trade agreements and pacts with different world powers. The pearling industry thrived in the 19th and the early 20th century and provided income and job and business opportunities to a lot of people. But the pearling industry suffered a serious setback in the 1920s and 1930s due to the economic depression and furthers the further invention of the cultured pearl by the Japanese. UAE was the foremost Arab capital exporter over a period of 32 years from 1980 – 2011. The oil refineries turned out to be the mainstay of the economy and the region grew in a potential and was the picture of the gulf countries in eyes of the different countries of the world. Since the exploitation of oil and gas reserves in the mid 1960’s provided the seven emirates to attain a level of substantial economic growth. 2.0. Current Scenario Although oil was the major contributor to the economic prosperity and stability of the emirates, a farsighted economic diversification of the region proved out a potential 69% of the total GDP for non-oil sector and the rest being covered by oil. UAE has improved its business environment, in the yester years, in various regions and turning itself into the top 10 global improvers. As per the World Bank report, it has been emphasised that the UAE has improved the administrative efficiency of its land registry, better access to credit information and empowering the sector of minority investor protection. In the current phase the emirates looks towards increasing investment in industrial and other export oriented sectors like heavy industry, transport, information technology, tourism, petrochemicals, renewable energy, oil and gas and other such segments. Currently tourism has added to the successful economic diversification of the zone and UAE has a very pivotal position as a top tourist destination. With Etihad and Emirates making a mark in the aviation sector has a reputation amongst the top world-class airlines. Trade was the major player in the economic lifecycle of UAE which is not completely surprising as per the strategic geographic position of the country. Investments in airports, ports and services has backed the business environment of UAE and connecting it to the other parts and regions of the world and converting it into a successful business hub (Sambidge, 2014). The following are some of the principal features that helped the economic and business environment of UAE: Setting up of a coordinated infrastructure which backed in providing all necessary utilities to all major centres. Communication system of high excellence. Absence of taxation in the business circle (Peterson, 2015). The financial structure which almost has no exchange-control rules and regulations. Implementing free trade zone that facilitated efficient operating and ease of registration. Being the hosts of regular international fairs and exhibitions. Improved educational and medical facilities. Currently UAE has a very strong position in the world economy and the existing business environment and the upcoming programmes of the region has attracted a lot of business in the environment and generating revenue for the region. 3.0. SWOT Analysis The SWOT Analysis helps in studying the internal and external factors which makes it very easy for any business enterprise to decide upon starting business in the UAE. STRENGTHS The federation is a free trade zone. Starting up of a new business is at relative ease. Support from the government for setting up new business or any venture. No personal income and capital taxes or any corporate taxation. Abundance and less expensive energy supply. Competitive freight and real estate costs. Better and easy access to airports and sea. WEAKNESSES There is a need of a network of people for expansion opportunities. Need for gaining trust before any business transaction takes place. Differences in culture. Social customs to some extent may obstruct the business. OPPORTUNITIES The emirates provide a large export market. Trade missions. Still some sectors are untapped and scope in existing ones. The rules and policies of the governing bodies attract a lot of investors. Huge level of concentration on the infrastructure structure has provided for a good business environment. With Dubai winning the expo 2020 shall create numerous opportunities including tourism and new hotels. THREATS One major disadvantage is the geographical location as sandstorms and dust storms occur very frequently. With the facilities attracting a lot of new investors raises the bar of competition level for new entrants and the existing ones. Language is also a factor but to a nominal extent. Political and legislative threats. A proper SWOT analysis of the business environment of UAE shall serve as a good source of information for strategic planning and building of organisational strength for any business enterprise. With the identification of the strengths, weakness, opportunities and threats the entry into the new market becomes easier and shall act as a support for new business or any old company starting new business in UAE (Surani, 2010). 4.0. Influence of Business Environment UAE has drastically changed over the last few decades turning into an important business centre that has more dynamic and diversified economy. The business environment of the region has promoted a lot of business and thus the economic environment of the region. The total international trade of Dubai has grown on an average over 11% per annum since 1988 promoting the economic growth of the region. The business environment supports a strong economical environment as there has been increased expenditure on the economy and infrastructure. The fast growing cities of Dubai and Abu Dhabi has benefitted the food service industry and shall continue in the same direction in the future with increased construction of malls, convention centres and modern hotels (Ernest & Young, 2011). Some of the highlighted features that the business environment has had on the business and economic environment of the emirates are discussed below. Economic Expansion: UAE is amongst the most highly developed and industrialised economies of the world which is reflected in the GDP per capita according to which it ranks 5th in the world and 3rd in the Middle East. The emirates have one of the fastest growing tourism sectors which have attracted a lot of investors and international jet-setters. Extensive Foreign Trade Network: Dubai has an extensive foreign trade network which is extended to almost 179 states providing the investors with a huge choice of potential global market and diverse portfolio of goods and services. The region is also the third largest export and re-exports centres after global heads like Hong Kong and Singapore. Competitive Cost Structure: International companies are more advantageous for gaining some significant costs which are otherwise not available easily in other international markets like no foreign exchange controls, absence of trade barriers or quotas, competitive import duties and labour costs, competitive real estate and energy costs, no corporate or personal income tax, etc. (Klapper, Lewin and Quesada, 2009). World Class Infrastructure and Service Sector: With heavy spending on transport, telecommunications, energy and other infrastructure features has backed the business and the economy of the Emirates. Open and Free economic System: The economy is free and open to attract investors and new business ventures as the Government control and regulations is very minimum on the private sector. Also the liberal visa policies have backed the easy permission of importation of expert and skilled labour from different parts of the world. So the government backing and the business environment of the region makes it a strong business hub attracting a lot of economic benefit to both the region and the business sector. 5.0. Challenges of the Business Environment Although the UAE is prospering various fields the region still has many challenges ahead which are needed to be encountered and resolved for them to prosper and stay on top the charts. Some of them are listed below: Managing the economic recovery and giving higher emphasis on generating new sources of growth and development. The competitive environment needs to be monitored and the strategic direction of the company is required to be adjusted accordingly. All through adjustments are to be made to the challenging realities of ever continuing globalisation. Morale maintaining and retaining of top talent. Developing customer loyalty is required. Protection of sensitive and private information if any. Understanding and responding to the rapid changing risk profile. Assessment of capital and management of cash flow in an effective and efficient manner. Effective use of the available data and information, within the organisation, for timely and informed decisions. High dependence on food imports. The above stated challenges summed up with some other internal and external factors are to met up and correct set of strategies are to be processed for efficiency in business and business environment. 6.0. Conclusion The assignment aimed at studying the business environment in UAE and how the region has evolved from the past to the present and the continuation for betterment in the future. Light has been thrown upon the historical and current background of the region of how it has overcome itself in all fields and ranks among the top charts in various fields. With significant growth in the oil sector paralleled by other sectors like industries, tourism, aviation and others the region has some great prospects ahead. The SWOT analysis discussed presents a picture for the new and existing investors for assessing the business environment of UAE and pursuing business thereafter. The further discussion of the influence of the business environment on the economic environment and the business sector of the regions makes it further more clear and the challenges that still seem to be somewhat threatening are also discussed. 7.0. Recommendations Some recommendations that are suggested for the betterment of the business environment in the UAE are discussed further. Taxation Issues: With the unique nature of the Arabian Peninsula’s taxation system of no personal income taxes, wholesale or point of sales taxes or any other corporate taxes in most sectors provides it’s a certain degree of advantage. But foreign businesses are charged higher charges for certain utilities and health care through a range of other charges. So there is a need for broadening of revenue bases and bring a pause to such tends from reaching the public. Education and Workforce: Laying more importance on the education of the primary section, female participation in the labour force and protection of investors is required. There is need for further investments in such sectors to boost the healthcare and educational outcome (Wan and Hoskisson, 2003). Labour Profiling, Mapping and Skills Training: There needs to be more specific targeted programs for the improvement of the labour and sharpening of their skills as per the specific needs of each region (Chen, 2005). Dependence on Oil: Despite the liberalized trade regime of the other free trade agreements the dependence on oil still continues to be a strong factor. More focus on other sectors and opening the gates for the source in revenue or any liability of repayment needs to be shifted from the high dependence on the abundant oil reserves. 8.0. References Chen, M. “The Business Environment and the Informal Economy.” Proceedings from the Committee of Donor Agencies for Small Enterprises Development Conference: Reforming the Business Environment. 2005. Cairo, Egypt Ernest & Young. Doing business in United Arab Emirates: Country profile. 2011. Retrieved on 18/08/15 http://emergingmarkets.ey.com/wp-content/uploads/downloads/2012/05/Doing-Business-in-UAE-2011.pdf Klapper, L., Lewin, A., & Quesada, J. The impact of the business environment on the business creation process. 2009. Policy Research Working Paper, 4937, The World Bank. Peterson, J. E. United Arab Emirates: Encyclopaedia Britannica. 2015. Retrieved on 17/08/15 http://www.britannica.com/place/United-Arab-Emirates Sambidge, Andy. UAE named among most improved business-friendly economies. 2014. Retrieved on 18/08/15 http://www.arabianbusiness.com/uae-named-among-most-improved-business-friendly-economies-570034.html Surani, Vikas. In: Slide Share: UAE. 2010. Ahmedabad University. Retrieved on 19/08/15 http://www.slideshare.net/suranivikas/uae-presentation Wan, W. P., & Hoskisson, R. E. Home country environments, corporate diversification strategies, and firm performance. 2003. Academy of Management Journal, 40(1): 27-45 Read More