Small Business Enterprises in the United Arab Emirates - Case Study Example

Statistics Research Report on Small Business Enterprises in United Arab Emirates By Student’s Name Institution Course Prof Date 1.0 Introduction Business managers and leaders make business decisions on daily basis. These decisions affect the operation and performance of an organization and hence are significantly vital for the success of a business organization. In the recent decades, business environment has become increasingly complicated and making intelligent and informed decisions has become quite difficult. In this situation, business managers and leaders are relying heavy on statistics and research methods to gather relevant information which they use to base their decisions. This research paper is a statistic research report on small and medium enterprises in tourism industry in United Arab Emirates. Tourism in United Arab Emirates has grown exponentially in the past one decade (Mankiw 2014). In the year 2004, the number of the tourists who visited the country was six million. One decade later, the number of the tourists has increased by three hundred percent. Statistics indicates that in 2014, the number of visitors in the region was more about 18 million tourists (Mankiw 2014). The visitors come from different parts of the world such as North America, South America, Europe, Africa, Australia and other parts of the Asian continent. The tourism industry has played a vital role in the economy of the UAE, accounting to more than forty billions US dollars every year. Although large firms dominate the industry, small and medium enterprises contribute hugely in the tourism growth in the United Arab Emirates. In addition to providing millions of jobs to the people in the country, the SMEs are a major contributor to the country’s GDP. 2.0 Distribution by Industry According to a qualitative research done in 2014, approximately 16 percent of about three millions SMEs employers in the UAE work in the tourism sector. The largest percentage of the SMEs operates in food and beverage sector accounting for 50 percent. Other sectors include accommodation (10 percent), transportation (8 percent), recreation and entertainment (12 percent) and travel services (4 percent). In 2004, the tourist industry accounted for a significantly small percentage of the total number of SMEs in the country but has grown rapidly to reach the 16 percent where it standard today. Over the past years, the effort and the policies formulated by various stakeholders in the sector have seen the number of tourists increase year after another. Figure 1: The percentage of the SMEs in various sectors of economy in UAE (Jomaa 2014). Table 2: The rise in the number of visitors in United Arab Emirates (Index of Economic Freedom 2014) Geographically, about seventy five percent of the tourists coming to UAE visit Dubai city. Other areas include Abu Dhabi, Ajman, Fujairah. Ras al-khaimah, Sharjah and Umm al-Quwain. It can be deducted from the findings that most of the SMEs are based in the Dubai followed by Abu Dhabi emirates. A small percentage of them operate in less visited emirates such as Sharjah and Umm al-Quwain (Evans 2011). 3.0 Business characteristics The main characteristic that dominates the tourists industry in UAE can be explained in terms of the labor force in various restaurants, coffee shops and hotels in the sector. A statistics collected in 2003 when the annual growth rate was 4 percent indicates that there were 366 hotels in the country. Seventy four percent of the hotels were located in Dubai; fourteen percent in Abu Dhabi and the rest were distributed in the other emirates (De Silva 2009). The number of hotels and restaurants has risen to about five thousand hotels and restaurants with the percentage of their distribution remaining almost the same. Emirate Hotels 2003 2013 Dubai 271 3189 Abu Dhabi 52 981 Sharjah 23 413 Ras Al-Khaima &Al-Fujeirah 15 318 Ajman &Umm Al-Qiwain 5 189 Total 366 5090 Figure 3: Number of Hotels in every Emirate (Labor Force Survey 2013) Statistics indicate that 54 percent of the hotels are owned by small business people while the middle business enterprises account for about 19 percent (International Monetary Fund 2014). Therefore, large number of hotels and restaurants (73 percent) are within the SMEs business level. The number of labor force in every organization is different and ranges from five to a hundred employees. Most small tourists’ shops employ five to twenty people while middle enterprises employ labor ranging from twenty to a hundred employees. According to Labor Force Survey (2013) about 4.4 percent of the middle enterprises in the country employ more than a hundred employees. 4.0 Growth SMEs in tourism industry in UAE has grown faster compared to the SMEs in other sectors. In 2013, 17.2 percent of SME in tourism industry recorded no growth from the previous year while 14.4 percent recorded a negative growth. Fifty one percent recorded a positive growth ranging between one and ten percent (Ayoub & Choufany 2013). The rest of the SMEs, accounting for 18 percent, recorded a growth greater than 10 percent compared to their previous year performance. On the other hand, 16 percent of SMEs in other sector in the country recorded a negative growth while 23 percent did not record any growth. Sixty one percent of the SMEs in other sector recorded a positive growth in comparison with their performance in the year 2012. Apparently, the growth of the SMEs in the tourism industry in UAE is better to the SMEs in other sectors of the economy (Ayoub & Choufany 2013). 4.1 Reasons behind the Growth The main reason behind the rapid growth of the SMEs in the country is the large number of the tourists that visit the country. In the year 2014, the number of the tourists who visited the country was more than 18 million. This figure was higher than the previous year. The large number of the visitors means that the demand for the tourism products and services is always high, which gives the SMEs market to sell their services and products. In addition, the government provides financial assistance and formulates policies to encourage the growth of the tourism. In 2013, the UAE government loaned eight billion US dollar to SMEs in tourism industry while more than ten billions US dollars were used to promote the industry locally and international. However, the dynamic nature of the tourism industry can be a hindrance to the rapid growth rate. 5.0 Capital structure Finance is vital assets for both SMEs and large organizations. It plays a vital role in growth and development of any business organization. The major source of capital for most SMEs is loans, personal saving and leasing (Dubai Strategic Plan 2013). The same is true among the SMEs operating in the tourism industry in United Arab Emirates. About 80 percent of the total capital used by the SMEs in UAE is personal financing or the savings. Financial institutions also contribute to a considerable percentage of the finances used by SMEs. Other sources include leasing, retained earnings, loans and friends, government credits and grants and trade credit (Dubai Strategic Plan 2013). Figure 4: The percentage of amount of finance used by SMEs from every sources (International Monetary Fund 2014) During the operation, SMEs in tourism industry in UAE engage in different financial activities to generate money to meet their daily expenses. The major source of this finance is debt financing, which account about 66 percentage of the external source of money used by SMEs. Other activities include taking credit cards, leasing some properties owned by the enterprises, equity and some government grants (Jomaa 2014). Figure 5: The external sources of money for SMEs (World Bank 2012) 6.0 Innovation and Technology In 2014, Jomma conducted a survey to determine how innovation and technology have been embraced in the technology. Innovation and technology have been recognized as key accelerator for increased productivity and business growth. In 2013, 50 percent of the SMEs in tourism Industry in UAE reported to have introduced at least one aspect of innovation to enhance their sales. Some of the innovations include improving existing products, introducing new organizational methods and new and improved production process. The use of modern technology was also gaining popularity with 42 percent using different technological innovations to increase their productivity. Today, the innovations and technological applications are evident in the four major aspects of the SMEs namely process, product, organizational and marketing. Figure 6: The major aspects of SMEs which have been affected by the business innovation and technology (Ayoub & Choufany 2013) Conclusion This research paper is a statistic research report on small and medium enterprises in tourism industry in United Arab Emirates. Business managers and leaders base their decision making process on the information collected from various sources. The complicated nature of today’s market has made statistical research and methods important tools of gathering information for decision making. This statistical report captures a number of economic aspects of SMEs in tourism industry in United Arab Emirates. It particular, it captures distribution, characteristics, growth and financial structure, sources of finance and innovation and technology. SMEs in the country have and will continue to growth faster due to the favorable business environment in the region. References Ayoub, N. & Choufany, H., 2013, Dubai: Market Snapshot. HVS: Dubai. De Silva, K. 2013, The Political Economy of Windfalls: The Dutch Disease –Theory and Evidence. Washington University: St. Louis, MO. Dubai Strategic Plan, 2013, Highlights. The Executive Office, Government of Dubai, United Arab Emirates. Dubai Strategic Planners: Dubai. Evans, P., 2011, Embedded Autonomy: States and Industrial Transformation. Princeton, NJ: Princeton University Press. Edelman’s Global Trust Barometer Survey, 2010, World Economic Forum. Davos, Switzerland. Imbs, J. & Romain W., 2008, Stages of Diversification . American Economic Review, 9 (1), 63-86. Index of Economic Freedom, 2014, Heritage Foundation and the Wall Street Journal, Sage Publisher Washington D.C. International Energy Agency, 2013, Key World Energy Statistics, Paris, France. International Monetary Fund, 2010, World Economic Outlook: Washington D.C. International Monetary Fund, 2014, World Economic Outlook: Sustaining the Recovery. World Economic and Financial Surveys Series: Washington D.C. International Monetary Fund, 2010, United Arab Emirates: Staff Report for the 2009 Article IV Consultation. Washington D.C. Jomaa, A., 2014, CPI Estimates in the United Arab Emirates for 2010-2014 using DEMETRA Time-Series Analysis. Department of Economic Statistics, Prices and Indices Division. National Bureau of Statistics: Abu Dhabi. Labor Force Survey, 2013, National Bureau of Statistics, Abu Dhabi, United Arab Emirates: Abu Dhabi. Mankiw N., 2014, Macroeconomics, 6th edition. Worth Publishers: New York. World Bank, 2012, Global Economic Prospects: Crisis, Finance, and Growth. Sage Publisher: Washington D.C. Read More