The External Environmental Analysis of the United Arab Emirates - Case Study Example

Table of Contents Topic Page no. Executive Summary 2 Macro-environmental analysis 3 SWOT analysis 5 Risk Assessment 6 Modes Of Entry 7 Support Service Available In The Country 7 Conclusion 8 Recommendation 9 Appendix 10 Bibliography 10 Executive Summary The following paper deals with the market analysis of UAE to find its feasibility for the export of the brand of cars manufactured by Toyota in Australia. The external environmental analysis of the United Arab Emirates is done with respect to the political, economic and demographic aspect. The brand Toyota, Australia wants to export their product in UAE and a thorough analysis of the scenario needs to be done before the decision making procedures. The popularity of the Toyota and its reputation has been considered in dealing with the analysis. Selection of areas were highlighted which could provide added benefit to the export of the business. The underlying risk associated with the entry of foreign markets was also studied in detail. The market of UAE have been found to be promising for the Australian export market and owing to the benefits the market provides Toyota should not resist its temptation to test its fortune in the market. An added advantage which the market of UAE provides is in the low price of diesels, which generally increases the sale of cars. Other than the general market analysis a study of the associated service has been done to find out whether any obstacles lie in the smooth running of the business. 7. Macro-environmental analysis of UAE 7.1 Political and Legal Environment of UAE: The government of UAE is the combination of seven emirates which is ruled by the president. The government of UAE is flexible relating to the investment from the foreign countries. It promotes and encourages foreign countries to enter their region and carry out business. Despite the nation being the combination of seven different emirates but there exist federalism in the UAE companies law and is applicable throughout. The UAE free zone offers 100%foreign ownership and tax exemptions to companies operating over a period of 15-50 years (United Arab Emirates UAE tax rates, n.d). So it is quite encouraging for the companies to invest in UAE. Owing to such favorable factors the foreign investment in UAE accounted to108billion dollar in 2011. (FDI in UAE, 2008,) 7.2 Economic Environment of UAE: The economic condition in UAE is always on a high and in recent times it is expected to grow at a rate of 3-3.5% in 2011. UAE’s rising economy can be contributed to the export of oil, which over the years have gained considerable amount of revenue for the country. It significantly rose to 30% and caused earnings of 74 billion dollars (UAE oil income up 30% in 2010, 2011). It happens to rise at a considerable rate every year. The employment rate in UAE is considerably high as the foreign companies are obliged to recruit local people. Out of approximately 2 million populations in the emirate a staggering 86.6% of them are economically active. (Holdsworth, 2010) Dubai sees 19% decrease in unemployment rate 7.3 Socio-cultural Environment of UAE: The standards of living of the inhabitants are pretty high owing to the good financial position of most number of people. UAE has a diverse culture of people as many foreign bodies have established their base in the country. 7.4 Competitive Environment in UAE: The demand for luxury cars in UAE is always on a high and the automobile industry faces sufficient growth over the years in UAE. There is a strong presence of local car manufactures as well as the presence of international brands like Hyundai. The sales figure of Arabian automobiles recorded an 18% growth and the increase in sales of the Japanese firm was accounted due to introduction of new brands of car. The overall market grew by 19.7% in the year of 2010. The rise in sales of cars have added considerable amount of competition among the big players in the market. (UAE automotive industry record high growth in sales, 2011) 8. SWOT analysis STRENGTH 1. The company ,Toyota had carried out extensive research to find out the suitability of their products and analyzed the market condition of UAE and the compatibility 2. It had extended its base to other countries and was aware of the strategies needed to operate outside. 3. Long term planning relating to expansion was chalked out. WEAKNESS 1. History of failing to build as a brand in some countries. 2.Falling of sales figure in reputed markets like U.S.A 3. Requirement of competent workforce overseas. OPPORTUNITY 1. Presence of liberal trade policies. 2. Good market for luxury cars. 3. Evidence of increase in rise in economy of UAE. 4. Presence of an internationally reputed oil market which facilitates the growth for cars. 5. Growing trend among the local people for fascination in Western Brands. THREAT 1. Competition from local bodies. 2. Need to have 51% stake of local bodies for entry through joint venture. 3. Presence of global brands already occupying a large base. 4.The rise in sale being concentrated only in Abu-Dhabi 5. Need to operate for a minimum period of 5 years in the free zone. 9. Risk Assessment: 9.1 Risk Assessment Matrix Risk Probability Mitigation Strategy Political Risk low Create a strong management team which will respond according with change in policies Legal Risk Almost Certain Careful research of the legal procedures of UAE and strong legal framework Credit\Financing Risk low Financing from external source ,and nationalized banks of UAE Graft and Corruption Risk Likely Strict ethical procedures in the management 9.2 Risk Management From the risk management matrix it is evident that legal risk should bother the entry of Toyota, Australia in China. The laws pertaining to operation in a different country may sometime appear to be of new in nature and takes time to have a thorough understanding. In order to mitigate the risk a strong legal team needs to be implemented. The other point evident from the table is the graft and corruption list. Owing to the facilities in UAE most of the organization tends to open their unit over there and the rise in demand often leads to offering of bribes and corrupt policies to facilitate the smooth running of the organization. 10. Modes of Entry 10.1 Choice Of modes of Entry: The entry to the foreign market can be accessed by three major modes like direct export, indirect export, joint venture, licensing arrangement and direct foreign investment. However among these modes the most preferable one is the entry by direct export. 10.2 Reason behind the Choice: For Toyota, Australia to enter the market of UAE, Direct mode of export is preferred. Toyota has a strong manpower resources and it is beneficiary for them to enter the market without any help from external source. The direct mode of entry of Toyota will enable them to have a control on their pricing policies. The customer relationship can be better managed and they can identify new possible opportunities for growth. Better customization of the products can be achieved by Toyota as they will have a better understanding of the customer’s viewpoint. Reason for choosing the method over others: A big brand like Toyota will like to handle the proceedings of business under their own control and would like to operate without any external supervision. In case of joint venturing they would have to sell 51% of their stake to a local organization which may be unacceptable for this global brand (Dubai company formation and registration, n.d) 11. SUPPORT SERVICES AVAILABLE IN THE COUNTRY: 11.1 Marketing services in UAE 1. Al-Futtaim Group. The group provides marketing of various automobile companies.  2. Arabia Felix Advertising &marketing services FZ LLC: It deals with direct marketing, promotional service, advertising &communication agency, Address: Dubai Media City, UAE, (Building4, Map-2, Grid: A1) (Direct Marketing services in UAE, n.d). 11.2 Financial Services: 1. Flying Colour.com It helps in company formation service in Dubai; it works with Dubai economic department and operates at all free zones of UAE Address: 401, Montana building, near Karama post office, Dubai. 2. Emirates Account: Carries work of Accounts auditing and business consultancy, Address: Dubai Diera. 3. ACE Business Consulting FZE: It carries out business and financial consultancy services. Address: Sharjah, Hamriah free zone (UAE finance Service, n.d) 12. Conclusion: The detailed analysis done regarding the market of UAE seems to be beneficial for the export of Toyota, Australia. The market shows prospect for the growth of the car market which is predominant in the economy. The flexibility of the laws pertaining to the foreign companies is quite motivating for the entry in the UAE market. The overall interest among the people residing in the part of the country is also on a high, as they are passionate about using luxury cars. Presence of international brands and their market presence do support the cause for expansion of Toyota. The company Toyota had been successful in the previous ventures of expansion in the foreign market, and they are equipped with a good management and resource building team which is going to be beneficial if it chose to enter the market in UAE. Overall if they are able to continue their business in the free zones of the emirates, they will not be entitled to any sort of tax, which itself is a big gain for any industry. 13. Recommendations: In order to enter the market of UAE, Toyota, Australia should try to enter through the joint venture mode. It should try to reap the maximum benefit available service provided by the UAE government. The nature of the service required to establish a car industry in UAE is also present in a large number and it should not worry to run out of the associated services. Other than looking to export the brand manufactured in Australia, Toyota should also look forward to promote new brands of luxury cars in UAE. Appendix: Table showing few lists of services available in UAE. Marketing Services Legal Services 1. Talha Business &Marketing Services FZ LLC- Conducts feasibility study, and carries out marketing and commercial information consulting. 2. Arabia Felix Advertising & Marketing service FZ LLC- Conducts public relations, Media placement and buying and selling 1.Abbas Al Hawaii & Associates-Lawyers and legal consultants 2. Al Sharif-Advocates and legal consultants, property consultant, Trademark registration. References Dubai company formation and registration, (n.d), worldwide-tax, retrieved on August 31, 2011 from http://www.worldwide-tax.com/dubai/dubai-company_formation.asp Direct marketing services in UAE, (n.d), uaeincorp, retrieved on August 31, 2011 from http://www.uaeincorp.com/cat/Business%20Services/Direct%20Marketing%20Services/ FDI in UAE, (2008), ameinfo, retrieved on August 31, 2011 from http://www.ameinfo.com/156015.html Holdsworth, P (2010), Dubai sees 19% decrease in unemployment rate, gulfjobsmarket, retrieved on August 31, 2011 from http://news.gulfjobsmarket.com/dubai-sees-19-decrease-in-unemployment-rate-7861442-news UAE oil income up 30% in 2010, (2011), emirates 247, retrieved on August 31, 2011 from http://www.emirates247.com/business/energy/uae-oil-income-up-30-in-2010-2011-07-26-1.409678 UAEs automotive industry records high growth in sales, (2011), uaeinteract, retrieved on August 31, 2011from http://www.uaeinteract.com/docs/UAEs_automotive_industry_records_high_growth_in_sales_/46353.htm UAE finance service, (n.d), uaeincorp, retrieved on August 31, 2011 from http://www.uaeincorp.com/cat/Finance/ United Arab Emirates UAE tax rates, (n.d), taxrates, retrieved on August 31, 2011 from http://www.taxrates.cc/html/united-arab-emirates-tax-rates.html Read More