Entrepreneurship Problems in the United Arab Emirates - Essay Example

?[Your full full May 06, Entrepreneurship Problems in the United Arab Emirates Before going into the discussion regarding problems and difficulties that the entrepreneurs face while starting a new restaurant in the United Arab Emirates, let us get a better understanding of what entrepreneurship actually is in order to get a better understanding of the issue. Entrepreneurship is the start of a new business by an entrepreneur or a business person. “An entrepreneur is an individual who owns a firm, business, or venture, and is responsible for its development” (Shukla). Some of the most important considerations in entrepreneurship include business management skills, an understanding of the demand of the product or service marketing knowledge, and risk management analysis (Cyprus). Entrepreneurs face several problems and difficulties while planning to start a new business in a new country. Entrepreneurs need to proper research regarding start of a business in a foreign country in a proper way in order to be successful. “A typical analysis will cover the history of the industry, including discussions of key dates, historic growth patterns, and other matters” (Smith). In this paper, we will discuss ten most relevant problems and difficulties that an entrepreneur in the U.A.E, particularly in Dubai, can face while going on to start a new restaurant. Ten Most Influencing Difficulties for Entrepreneurs Some of the commonly observed difficulties which entrepreneurs are likely to face in the United Arab Emirates include finding relevant information, inadequacy of information, obtaining trade license, developing taste for local people, recruiting key workers, cultural problems, increase in the competition, reduced inflow of foreigners, less capital, and diverse customer base. Let us discuss all of these issues in some detail in order to get a better understanding of how these problems affect entrepreneurs. Recent Economic Crisis “Among the GCC economies, the United Arab Emirates (UAE) has been the most affected by the crisis” (“United Nations Publication” 73). The recent economic crisis has put a deep impact on many sectors and industries, which is also one of the reasons why entrepreneurs today find it difficult to start a new venture outside their home country. It is a common misperception that the financial recession has only impacted the financial markets. While there is no doubt that the impact has been very severe on the financial markets, but there has been a very severe impact on the consumer sector as well. The sectors such as construction, automobile, textile, and food have also suffered because of the financial crisis. “With the recent hit by the global economy crisis, many have lost their daily jobs during that period” (Goh). Therefore, we can say that the recent economic crisis has not only put an adverse impact on different sectors and industries but also it has affected the employment conditions of almost every country. Dubai and the Recent Economic Crisis Dubai is that part of the world, which was heavily affected by the current economic recession. The most affected sector in Dubai was real estate. “The real estate bubble that propelled the frenetic expansion of Dubai on the back of borrowed cash and speculative investment, has burst” (Lewis). Many companies had to stop their large-scale construction projects due to adverse impact of economic crisis on the economy of Dubai. A large part of the government’s spending was also in the real estate construction and development sector. With this decrease in the flow of capital, the economy of Dubai became relatively slow. Therefore, this is also an important factor why most of the entrepreneurs find it difficult to invest in Dubai now because investment in the restaurant business heavily relies on stable economic conditions. Restaurant Business The restaurant business has a great cultural significance when it comes to Dubai. This is because the city has always been marketed as a welcoming destination for investors and traders. A major part of this image is the large number of restaurants operating in the country. One example of this attractive investment opportunity is Buraj-Al-Arab. This world’s famous hotel has become a symbol of Dubai’s modernization and the economic opportunities, which Dubai can offer to foreign investors. “Restaurant business is something that has done very well in Dubai for a long time” (Jarral). Additionally, the heavy flow of tourists and businessmen has kept the restaurant industry an attractive investment option over the years for the foreign firms. “Dubai is gradually freeing its economy from dependency on oil and focusing on services industry” (Homes). Constraints Restaurant industry has not remained the same as it was before recession in Dubai. “Per capita spending per visit to a restaurant may have come down during the recession” (Nair). There are many different constraints or limitations, which can come in the way of entrepreneurs when they plan to start a new restaurant. “Productivity in any system is hampered by limitations or bottlenecks slowing down a few key processes” (Gaudet). The nature of these constraints can be different from each other in terms of the impact which they can have on the success of a venture. “A business risk is a circumstance or factor that may have a negative impact on the operation or profitability of a given company” (Tatum). Following are the ten most relevant difficulties and problems, which may come in the way of an entrepreneur planning to stat a restaurant business in Dubai. 1. Finding Relevant Information Lack of relevant information is one of the primary constraints to starting any business. Consumer research in the hospitality industries like restaurants is very important. This is because the hospitality industries are very demand sensitive. There is a severe information gap in the market when it comes to consumer research for restaurants. There are no studies particularly done for this specific purpose. Moreover, it is very difficult for a solo entrepreneur to have the funds or abilities to research the market like franchise restaurants. 2. Obtaining Trade License To setup any business in Dubai a trade license is one of the basic requirements. This is a very strict requirement with no exceptions. The government issues different types of licenses, which include: - Commercial Licenses: These are the licenses, which are required if any person wants to engage in any form of business related to trade of goods of services. Some of the simplified examples are shops, stores etc. - Professional Licenses: For people wanting to engage in specialized businesses, such as, providing dental care, doctor, construction etc. - Industrial Licenses: Industrial licenses are needed when a person plans to start some sort of business related to any specific industry, such s manufacturing industry, restaurant industry. Entrepreneurs need to fulfill all legalities and formalities in order to become eligible for the industrial licenses. 3. Developing Taste for Local People Another difficulty, which many entrepreneurs face while starting a restaurant business, is related to taste of the local people. It becomes a big problem for the business when food stuff provided by the restaurant does not match the taste of the local people. Entrepreneurs need to carry out research about local foods in order to prepare the food which local people like to eat. Moreover, entrepreneurs need to provide delicious food to the local people in order to create a demand for foreign food. 4. Recruiting Workers Dubai is one of the most expensive cities in the world. Therefore, the labor costs are very high which create difficulties for the entrepreneurs. The salaries are considerably high which make restaurant business an expensive business in Dubai. Moreover there is a constant problem of finding stable staff. This is because the restaurant industry has the highest turnover ratio in the world. Noack found that most of the restaurant workers are foreigners who are not very much skilled (32). The time invested by the business persons in training them is wasted because they do not stay long in the same restaurant. People come to the restaurants, work for some time, earn much money, and then either move towards a better restaurant or leave the profession. Therefore, from the very start, it is important for a restaurant to recruit labor that is interested in the long term employment. 5. Getting in Touch with the Clients The lack of market research and information makes all marketing efforts very difficult. Any hospitality business in its early days needs contacts for effective direct selling. Therefore, it is extremely important in the initial stages of the business to use personal contacts in order to attract customers. However, these personal contacts are not easy to come by. This is one of the primary constraints in starting a restaurant in Dubai. Corporate contracts are a source of marketing and a chance of building reputation among the customers and they can come only through personal contacts. 6. Understanding of the Culture “Culture refers to the pattern of human activity and the symbols, which give significance to this activity” (Oak). The entrepreneurs also need to understand the culture of the country where they want to start their businesses. In Dubai, there is a diverse form of culture because many people from different parts of the world come and stay there. Sometimes, entrepreneurs do not have much understanding of the culture of Dubai and meet difficulties in operating the restaurant in an effective way. 7. Increase in the Competition Dubai has been an investor’s heaven since many decades. A large number of multinational restaurants are currently operating their business activities in Dubai. Therefore, it is very hard for a new restaurant to attract customers because the customers have already developed their taste. If an entrepreneur plans to open a new restaurant in Dubai, he/she must take steps to ensure the provision of quality and excellent taste to the customers. It is important because a company can succeed in a competitive environment only if it provides excellent quality to the customers in comparatively low prices. 8. Reduced Inflow of Foreigners The investor confidence has reduced in the markets of Dubai after the recent problems faced by the economy of Dubai. This has reduced the inflow of foreigners into the city up to a great extent. This factor, combined with the tough competition explained above, is a constraint to starting a successful restaurant business in Dubai. 9. Not Enough Capital The high inflation rates have affected commodities, labor, and the real estate industry. The cost of start up for a new business has thus considerably increased over the last few years. Starting a high end restaurant can take up to millions of dollars. “Restaurant start up costs usually cover a wide range of areas, including food inventory, dining room furnishings, and cooking equipment” (Grindstaff). With unavailability of financing and high capital cost, this is one of the major constraints to starting a new restaurant business. Increased cost of capital is a big concern for the restaurant entrepreneurs. “Start up expenses for a small restaurant business are considerable in comparison to other business models” (Richards). The regulatory requirements by the government on the financial sector have increased the cost of capital. The monetary tool used for this purpose is the reserve ratio. The government can increase the required reserve ratio in order to reduce the money flow in the market. As the flow of money is becomes low, the cost of capital increases in Dubai. This high cost of capital makes it difficult to sustain a business venture, because the cost of capital is a large part of the overall expenses of the businesses. 10. Diverse Customer Base Schulte-Peevers states, “Dubai’s culinary landscape mirrors the imported expat population – Indian, Thai, Chinese, Lebanese – rather than local Emirati culture” (106). Dubai is the center of economic activity in the region because of the rich and diverse culture of the city. There are a large number of customers from different backgrounds who all have different tastes. A restaurant business has to address this cultural diversity in their menu in order to attract a large number of customers towards the restaurant. Conclusion Summing it up, Dubai is an eye candy for the investors and entrepreneurs. Many entrepreneurs plan to start new businesses in Dubai because of the excellent investment opportunities that the government of Dubai provides to the investors. Opening a restaurant is one of the widely observed investments in Dubai. However, there are some problems which entrepreneurs can face while operating their restaurants in Dubai. Entrepreneurs need to do proper market research before starting their businesses in order to make the business productive and successful. Works Cited Cyprus, Sheri. “What is an Entrepreneurship?.” Wisegeek.com, 10 Apr. 2011. Web 06 May 2011. . Gaudet, Henry. “What Is the Theory of Constraints?.” Wisegeek.com, n.d. Web. 06 May 2011. . Goh, Gary. “Sectors Free From the Economy Crisis.” Ezinearticles.com, 18 Sept. 2009. Web. 06 May 2011. . Grindstaff, Susan. “What Are the Different Types of ??Restaurant Start Up Costs?.” Wisegeek.com, 08 Feb. 2011. Web. 06 May 2011. . Homes, Jason. “Setting Up a Business in Dubai?.” Ezinearticles.com, 10 Feb. 2009. Web. 06 May 2011. . Jarral, Muhammad. “Investment Options In Dubai.” Ezinearticles.com, 03 Oct. 2010. Web. 06 May 2011. . Lewis, Paul. “Dubai's six-year building boom grinds to halt as financial crisis takes hold.” Guardian.co.uk 13 Feb. 2009. Print. Nair, Manoj. “UAE restaurant business increase as more dine out.” Gulfnews.com 11 Jan. 2011. Print. Noack, Sascha. Doing Business in Dubai and the United Arab Emirates. Norderstedt: GRIN VERLAG, 2007. Print Oak, Manali. “Importance of Culture.” Buzzle.com, n.d. Web. 06 May 2011. . Richards, Peter. “Start Up Costs For Starting A Restaurant.” Articlesace.com, 02 Nov. 2010. Web. 06 May 2011. . Schulte-Peevers, Andrea. Dubai City Guide. 6th ed. Victoria: Lonely Planet, 2010. Print. Shukla, Amitabh. “What is Entrepreneurship?.” Paggu.com, 30 Jun. 2009. Web. 06 May 2011. . Smith, Susan. “What Is restaurant Industry Analysis?.” Wisegeek.com, 22 Mar. 2011. Web. 06 May 2011. . Tatum, Malcolm. “What is a Business Risk?.” Wisegeek.com, 19 Apr. 2011. Web. 06 May 2011. . United Nations Publication. The Global Economic and Financial Crisis: Regional Impacts, Responses and Solutions. New York: United Nations, 2009. Print. Read More