In recent years, the Middle East (particularly the Gulf Corporation Council (GCC)) has become a magnet for international companies in pursuit of growth opportunities due to internal and external factors. Within the Middle East, mass investments have been made across all industry sectors, including healthcare, transportation and real estate. Furthermore, the Middle East has seen changes such as the deregulation of State-owned monopolies and the privatization of government-owned companies. Further adding to the appeal of investing in the Middle East is the lack of growth in Western economies, in addition to the accession of some Arab countries to the World Trade Organization (WTO), which makes it easier to do business in the region.
Companies with a presence in the Middle East have an advantage over newcomers as not only are they best placed to grab new opportunities, they are familiar with the system. However, this is not to say that newcomers cannot be just as successful; they too have an advantage in that they can bring something new to the market.
In spite of the change in rules and regulations for investing, there is still a need for local partners, as in-depth knowledge of the marketplace, customers, laws, etc. is paramount. An ideal partner would be a company that has prior experience with international companies in the relevant sector(s) and not simply a commercial agency or local representative. Western governmental organizations and agencies can also aid the introduction of Western companies into the Middle East through the provision of market data, matchmaking and the opportunity to participate in exhibitions.
Middle Eastern governments strive to attract foreign direct investors in support of national objectives, such as supporting diversification efforts, technology transfer, self-sufficiency, creating job opportunities and ultimately supporting the national economy at large. Preference may be given to companies who agree to make their products locally and use locally rendered services. Some Middle Eastern governments offer incentives to foreign companies to attract foreign direct investment, including the provision of industrial land, feedstock and low-cost energy.
Pursuing business in the Middle East may feel like you are taking a big leap, as the business culture is very different to that of the West. However, this is true of conducting business in any other continent and an appreciation of how things operate will make the experience both exciting and rewarding. It is worth mentioning that connections, whether they are through business or family, are vital when conducting business in the Middle East. This further highlights the need for having a partner who is already well established in the region.
Some of the key challenges that newcomers may face include:
- Understanding the business culture and market dynamics
- Securing customers’ trust and confidence
- Setting up local operations
- Attracting skilled talent, particularly considering the new legislation for workforce nationalization
- Addressing the high-level of competition, especially in commodity areas, and the need to have clear differentiators
In order to ensure smooth entry into the Middle Eastern market, businesses need to do their homework. Primarily, they need to understand the region of interest from multiple perspectives (cultural, legal, political, economic, etc.) and should aim to build alliances with well-established national players/market experts. It is essential to visit the target region at least a few times in order to meet potential partners and conduct the necessary checks before making any contractual commitments. Extreme care needs to be taken in your business dealings; be weary of scrupulous businessmen or companies who claim they can do miracles.
For an effective and problem-free market entrance, one must have:
- A full understanding of the target market, in addition to customers’ expectations and demands
- A clearly defined product with after-sales support that is available locally
- A clearly defined business model
- Willingness to transfer technology and invest in the local economy
- A well-established and credible local partner with a proven track record
- A clear exit strategy
Short-term engagements are highly discouraged as the market favors those investing in the long term (and who aim to become local).
It is highly advisable to refrain from making any large investments or engaging in any legally binding joint ventures before testing the market. It is best to adopt a step-wise approach with calculated risk. Once committed, remember that getting in can be straightforward, but getting out can be more of a challenge.