Challenges Facing Entrepreneurship in the UAE - Research Proposal Example

Table of Contents 1.Introduction 2 2.Problem Statement 4 3.Research Questions 4 4.Research Objectives 5 5.Significance of the Study 5 6.Methodology 6 7.Literature Review 6 7.1 Innovational frameworks 6 7.2 Entrepreneurship models 10 7.3 Challenges facing entrepreneurship in UAE 12 7.4 Case study: Silicon Valley entrepreneurship model 13 7.5 Education 14 7.6 Entrepreneurship 14 7.8 Creativity 15 8.Organization of the study 15 9.Findings 16 10.Conclusion 17 11. Bibliography 18 1. Introduction The dynamic nature of modern economies is characterized by creation of new businesses while allowing the less productive ones to exit. Such new businesses, upon prosperity and rapid growth, draw resources towards new activities and at the same time create sizeable job opportunities. However, such businesses, in response to the high firm churning rates and competitive pressures, are required to possess competitive edges in terms of innovation1. Also, new enterprises, notably in the private sector, are exposed to lack of sufficient funds as a result of their uncertain nature and high administrative costs; making them unattractive to potential financiers. To begin with, innovative businesses, particularly SMEs are usually in search of risk capital. This makes the returns from such businesses highly skewed and uncertain. Secondly, the innovative attributes of underlying processes and products are more coherent to entrepreneurs as opposed to investors who may be willing to fund the new business. Thirdly, it is only until the business has become commercially successful that the innovative activities can be assessable in terms of their monetary value. Such hurdles for SMEs can only be handled through coming up with ways merging entrepreneurship, innovation and finance. For SMEs, this extends to provision of management assistance as well as monitoring performance and prospects with due diligence. Correspondingly, investors need to be actively involved in the business while providing managerial, technical and entrepreneurial expertise to financiers2. Small and medium enterprises are focal players in a country’s GDP, export performance and job creation. According to the UAE Finance Ministry, during 2014, SMEs accounted for 86% employment in the private sector, 60% of the country’s GDP and 92% of all businesses3. In Dubai, there are about 72,000 SMEs, constituting 40% of the city’s labor force and 95% of all enterprises4. The country is a global giant in terms of per capita income as well as high living standards; corresponding to the developments following oil discovery. Additionally, UAE citizens have enjoyed various government welfare schemes inclusive of education allowances, high salaries in the public sector, a no-tax regime and supportive government policies5. Nevertheless, the UAE economy is trending towards high unemployment rates; about 14% of the country’s nationals are unemployed. There is a significantly low involvement by the country’s citizens in the private sector, with about 90% working for the public sector. Ironically, the country’s population comprise of 80% expatriates in the private sector, seizing the productive and profitable business opportunities in the private sector6. 2. Problem Statement While the government has realized the impact SMEs have on the economy and has set out to help entrepreneurs with innovative ideas; the banks are also willing to fund SMEs, many businesses are failing upon starting up. Innovative frameworks and entrepreneurship models are still insubstantial and unknown in the UAE since there is no evidence of practice in the country. Even with declaration of 2015 as the year of innovation and entrepreneurship, UAE’s innovation and entrepreneurship centers are yet to provide entrepreneurs with such essential knowledge of frameworks and models. This study seeks to attend to the knowledge gap mentioned herein. It is imperative to have a study highlighting the implications of introducing innovational framework and entrepreneurship models for improving growth of SMEs in UAE in order to counteract the presently high failure rates. UAE has been chosen based on its endeavors of shifting towards a knowledge-based from an oil-based economy7. UAE is also a government that is leading by example and has become the most innovative country in the Middle East. While seeking to develop an innovative culture, the government, through innovative property development, has created an iconic skyline from a desert. Additionally, brands such as The Dubai Mall, Etihad and Emirates are milestones towards an innovative entrepreneurial culture. 3. Research Questions i) What is the effect of applying innovational framework and entrepreneurship models in improving business success rates in UAE?  ii) What are the determinants of successful application of innovational framework and entrepreneurship models in UAE? 4. Research Objectives The main objective of the study is to explore the impact of applying innovational framework and entrepreneurial model at management level (managerial level) in SMEs to improve business successful rates business sustainability and (Human capital development). Thus the study will: i) Examine the barriers that prevent to understand SMEs from applying innovation.  ii) Review the advantages of implementing innovational frameworks and entrepreneurship models in improving business success rates and minimizing failures.  iii) Explore the coloration between successful current business and innovational framework and entrepreneurship.  5. Significance of the Study The study’s findings will supplement existing knowledge and comprehension of innovational framework and entrepreneurship models and application in business. The study is therefore significant in that it will: i) Facilitate the recognition of the concepts paramount to innovational framework and entrepreneurship models and significance to business. ii) Promote and enhance application of models and theoretical frameworks in entrepreneurship and other areas relevant to business. iii) Foster greater awareness among innovative entrepreneurs concerning the significance of having guiding models and frameworks for business success. iv) Postulate meaningful knowledge on elements impacting and contributing to application of innovational frameworks and entrepreneurship models. 6. Methodology This study uses SMEs in UAE as its sample population. To ensure uniformity and homogeneity, the study will only focus on SMEs in Dubai since the prevailing business environment is similar for all Emirates. Structured questionnaires will be used as the perception survey to measure variables. Questionnaires will be posted to the randomly selected sample businesses, with a Likert Scale measurement approach. Additionally, there interviews will be conducted to additional sample SMEs, with a main focus on the managerial level. More data will be collected from such business organizations’ various departments’ records, files and other relevant documents. Secondary data will be gathered from relevant journals, newspapers, magazines, statistical abstracts, annual reports and seminar and/or research papers. 7. Literature Review 7.1 Innovational frameworks Innovation should be geared towards creation of new product categories and growth customers with subsequently new values for the organization, customers and stakeholders. It is a crucial prerequisite for businesses, notably SMEs with success objectives in the present increasingly dynamic and competitive global economy8. For most organizations, innovation is considered, or should be considered a priority. Innovation is attributed by creativity and different thinking in search of solutions with social and economic implications. It is an essential tool for generating intellectual value, improving governance and creating collaborative advantages for business operations. By involving relevant institutions, organizations and human capital, it is an instrument for redefinition of products, services and processes. An entrepreneur’s innovative capacity is a key driver for a business’ capitalistic engine. This is with respect to application of radical innovations in transformation of existing industries and markets while creating new ones. Innovations in business can only be significant upon application in commercially feasible products, services and processes. Innovation should therefore be viewed as an economic as opposed to a technological concept. It is also complex and does not emanate solely from Research and Development labs but more so from the entire production process. Also, there is no single innovative framework that can define innovation comprehensively. Innovation can be a product of tacit knowledge, adaptability, communication skills, entrepreneurial capacities and from users or the society. Given that innovation occurs in uncertain environments with consequently uncertain results, it can be an outcome of serendipitous moments and systematic processes. Alongside Research and Development, innovation requires resources allocation, the right organizational structures, cultures and leadership. The success of business enterprises is therefore embedded in the abilities to optimize innovation, technology, business strategy and economic organization. In spite of this, for successful implementation of innovation, various complementary undertakings such as specific business services, marketing and design, employee training and organizational change are crucial9. According to GE Global Innovation Barometer, a global survey that encompassed 3,200 executives from 26 countries including UAE, the country is positively inclined towards innovation and has a strong awareness for the same. The report emphasizes that innovation, by combining and merging resources, an insight, ideas and talents, is conforming to global adoption10. Even so, innovation needs some level of localization in order to cater for specific market needs. According to the report, most executives at managerial levels consider innovation as a priority for enterprise growth. In fact, more that 50% of the respondents argued that development of new innovational frameworks is significance for the future of business. It is therefore evident from the report that innovational frameworks are the best route towards a market lead and innovation. The executives involved in the survey highlighted industrial internet, Big Data and collaboration as the focal points of innovation. The executives emphasized, also, that users, institutions and a network of stakeholders are necessary in innovation, with 85% granting particular attention to networking and collaboration with other entrepreneurs and startups for success. In UAE, timely adoption of new technology is also a key consideration in placing a business at a competitive edge in the market while SMEs and individuals are considered the hubs of innovation. Nevertheless, the same young and small businesses are exposed myriad challenges inhibiting their innovative and business success rates, especially scaling up to international markets. Such challenges include incapacities for taking up risks emanating from innovation, challenges of defining the best business model and innovational framework to be followed for profitability, lack of supportive skills and talents and insufficient financial support due to poor investment levels among others. According to the report, most executives view it a duty of the government to establish a supportive framework for such innovation by providing relevant curricula in the education system for the students as pertains innovation and entrepreneurship for business, offering protection for trade secrets and business confidentiality and fighting bureaucracy. The report, GE Global Innovation Barometer, puts it clear that; despite the creativity by individuals and SMEs in the UAE, large state companies and private companies are still in control of the economy. In another report, Entrepreneurship, An Emirati Perspective, which is mainly concerned with firm and entrepreneurship performance, the SMEs owned and managed by UAE citizens are negatively inclined to innovation. The report puts it that with increasing competition at a global perspective, offering innovative and unique goods and services to customers is paramount to success11. In the UAE, most innovative start-ups fail to continuously improve products and services offered to the market, implicating a negative perception by customers (75%) concerning the innovative level of commodities offered to them by SMEs12. The 2013 survey also found out that only a small portion of Emirati entrepreneurs have the intentions to introduce new technologies in the business growth strategies. There is also a tendency of SMEs to copy existing products and processes as opposed to innovating, with majority of the SMEs dealing with products similar to those of competing businesses. According to the report, the current innovational framework for UAE SMEs is defined by low innovation levels, copying of competing products with minimal improvement and low technological levels in such businesses. These findings are binding to all SMEs in the UAE. What does this imply? What is the missing link between SMEs and success rates in the country? The answer is quite obvious; the Emirati entrepreneurs need a review of innovational framework for their businesses. There is need to move away from the current status quo of copying, lack of product improvement and low technological levels in production. 7.2 Entrepreneurship models The federal government is envisioned to make UAE a startup hub come 2021. In December 2015, the government announced $82 billion for funding science and technology. This is in an attempt to streamline the country with other global knowledge-based economies while turning UAE into an entrepreneurship hub as contained in the UAE National Charter 2021. Only five years towards 2021, it is significant to evaluate UAE’s startup ecosystem and assess whether it is possible to turn it into among the best places on earth to do business come then. During the past five years, there has been meaningful growth in UAE’s entrepreneurial ecosystem. Most renowned startups such as Souq, propertyfinder.ae, Nabbesh, Just Falafel, Jadopado, GoNabit, Fetchr, Eureeca.com, compareit4me.com, Dubizzle among others have chosen UAE to be their headquarters. Wamda’s 2015 reports that about 60% entrepreneurship-promoting institutions were established just after announcement of the vision 2021 plan13. Better still, the country ranks above all other MENA economies while appearing among the best 30 global economies with respect to prosperity, global opportunity, entrepreneurship and competitiveness. This trend can be attributed to a collaboration of corporate, private and governmental which have been acting to drive the entrepreneurship ecosystem towards such prosperity. In 2009, to increase funding from banks and other supportive policies, the federal government redefined SMEs. In 2014, the government formulated the SME Law, which provides that all government owned firms are obliged to allocate 5% procurements budgets to SMEs while the federal authorities allocate 10%. The SME100 initiative has also improved the performance of SMEs in UAE by awarding the best performers. So far, the beneficiaries of the award include The Box, Duplays, Careem and Souqalmal. The government has also collaborated with startups, corporations and universities to tap developing innovation and entrepreneurship14. Furthermore, Cognit, a creation of Abu Dhabi’s leaders in development agency, IBM and Mubadala, has brought the Watson’s Supercomputer to the MENA region. This will benefit startups investing in business intelligence and data analytics while enabling companies to leverage Big Data Technologies. Corporations in UAE, prompted by the healthy ecosystem, have been driven towards partnering with startups. In 2013, PayPal, Google and Aramex backed up ShopGo in offering entrepreneurs with competitive e-commerce services. Other corporations like DP World, MBC, Mobily and STC have supported various incubators and accelerators. Such an environment has led to startups being valued above $100 million; Namshi, News Group, Marka VIP, Careem and Souq.com. According to Frost and Sullivan, the GCC ecommerce market will be valued at about $41.5 billion in 2020, with 53% of this being in UAE. 7.3 Challenges facing entrepreneurship in UAE To achieve the quest of becoming a global entrepreneurship center, UAE needs to jump various hurdles. In the short-term to midterm, there exist conflicting grounds between nurturing the Emirati entrepreneurial culture and maintaining international competitiveness. UAE nationals make up only 12% of the country’s population, with only 20,000 Emiratis among the four million employees in the private sector. The vision 2021, including establishing a space program, renewable energy and smart cities necessitates a mammoth labor force in the sector, which calls for employment of more than 60,000 extra engineers from 2011 to 2020, not mentioning other workforces15. Logically, the UAE cannot provide for such labor requirements from within its borders. It is therefore a requirement for the government to entice such engineers, programmers and scientists for jobs with startups and corporations. Other countries that have become entrepreneurship hubs such as Chile and Singapore offer $40,000 for foreigners who move in and a enter passes respectively, to help them in resettling. UAE, on the contrary, has not followed up the superficially announced entrepreneurship visa in 2014. Another law, drafted in 2015 to address the settlement of foreign entrepreneurs outside UAE free zones is also pending discussions. It is evident that in the MENA and GCC region, UAE is leading I terms of technology adoption. However, the country is trailing with regard to Research and Development, currently ranking beside low-spenders Romania and México, according to the World Bank. With OECD economies spending up to 2.3% in Research and development, UAE spent 0.5% in 201516. Compared to countries like Singapore and South Korea which register 10,000 and 100,000 patents annually, UAE has strikingly low patents standing at only 20 annually. The government therefore needs to step up its efforts by integrating tech-companies, universities and corporations in a partnership aimed at developing a knowledge-based economy17. 7.4 Case study: Silicon Valley entrepreneurship model Silicon Valley is located in San Francisco, California. The valley is a giant of high-tech innovation and acts as a global command center in terms of Research and development. The Silicon Valley model makes it possible to partner with international technology leaders and venture firms. The success of the model has led to its adoption by countries such as India, Ireland and Israel. Silicon Valley is rich in assets fundamental for people, capital, entrepreneurial culture and economic success. The model is built upon the concepts of education, entrepreneurship and creativity 7.5 Education Education is vital for entrepreneurship and innovation. In Ireland, education has been applied to ride the country in a wave of technological advances and innovation18. The support for an educated workforce has created an entrepreneurial habitat for the country. A country moving towards a knowledge-based economy should therefore embrace partnership with various learning institutions so as to produce skilled man power for startups and SMEs. 7.6 Entrepreneurship Entrepreneurship should be a fundamental concept building the larger entrepreneurship model. It is necessary to create a favorable habitat for innovation and entrepreneurship. Among the attributes necessary for entrepreneurship, risk taking, innovativeness and passion are fundamental19. The government should ensure it provides conducive conditions by provision of highly skilled employees, consultants, lawyers and researchers as a binding network. This can only be done by ensuring there are reinforcing institutions to produce such human capital. 7.8 Creativity Creativity is a product of interacting institutions, companies and relevant human capital. Close interaction creates sharing of knowledge and regular flow of information which produce innovation and competitiveness. Given that creativity is a mix of analyzing competitors, networking, standardization, Research and Development, market success, intellectual property, technology transfer, product development and productivity success, it is vital to create an enabling environment20. 8. Organization of the study The study is organized as follows: Part One: Study Background and Methodology Chapter One: Introduction, Problem Statement And Objective Problem Statement Research Questions Research Objectives Significance Of The Study Chapter Two: Methodology Part Two: Literature Review Chapter Three: Innovational Frameworks Need For Innovational Frameworks Innovative Capacity Innovation Environments Chapter Four: Entrepreneurship Models UAE Vision 2021 UAE Entrepreneurship Ecosystem Chapter Five: Challenges Facing Entrepreneurship in UAE Emiratization Vs. Globalization Research And Development Chapter Six: Case Study: Silicon Valley Entrepreneurship Model Education Entrepreneurship Creativity PART THREE: FINDINGS AND CONCLUSION Findings conclusion 9. Findings This study finds that for new businesses in UAE, there are minimal or no technological levels. UAE is thus the lowest rated in terms of technological levels for startups among innovation driven economies. With about 2.4% of such technological levels, UAE has since been unranked from best performers such as Norway in this field. Emirati entrepreneurs have also been left behind as far as innovation and product improvement is concerned. Apparently, only 12.2% of the UAE entrepreneurs have plans to include technology in the SMEs growth strategies. UAE GEM also provides that low innovation levels have resulted to continuous copying of competitor products. The SMEs are also subjected to complex legal formalities for starting up, lack of entrepreneurial skills and access to finance. 10. Conclusion This proposal is a genesis of a quest to embark UAE’s SMEs to innovation-oriented business while deriving the need for entrepreneurship models. It is arguably true that the challenges being experienced by the Emirati SMEs and startups can be traced to lack of innovational frameworks and entrepreneurship models. Entrepreneurs in the country should seek skilled man power for their businesses, invest in technology and build organizational cultures and business processes that are friendly to innovation. By doing so, success rates will tend higher. Financial institutions will be attracted to such businesses upon elimination of high perceived risks and uncertainty. The government the most significant player in providing an entrepreneurial culture for its citizens. Though the Emirati government is highly innovative as evidenced by initiatives like Etihad, Emirates and Dubai Mall, it needs to extend this innovativeness to its citizens. The Silicon Valley Case Study employed herein is not a reflection that it should be copied in UAE, seeing that the UAE habitat is entirely different from Silicon Valley. However, through a combination of education, creativity, trust, collaboration and partnership, the country can create applicable business models and innovative frameworks for higher success rates for its SMEs. It is hoped that the provisions of this study will be beneficial to all relevant stakeholders while providing insight concerning the state of entrepreneurship and innovation in UAE. 11. Bibliography Al-Ansari, Y., Pervan, S. and Xu, J. (2013). Innovation and business performance of SMEs: the case of Dubai. Education, Business and Society: Contemporary Middle Eastern Issues, 6(3/4), pp.162-180. Al-Khouri, A. M. (2012). eGovernment strategies: the case of the United Arab Emirates (UAE). European Journal of ePractice, 17, 126-150. Altomonte, C., Aquilante, T., Békés, G., & Ottaviano, G. I. (2013). Internationalization and innovation of firms: evidence and policy. Economic policy, 28(76), 663-700. Aswad, N. G., Vidican, G., & Samulewicz, D. (2011). 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