1. Introducing the business environment of the United Arab Emirates
A Strategy for the UAE 2031 to become a knowledge-based economy
The UAE vision for 2031 aims to build up a remarkable knowledge-based economy to replace the diminishing oil-based wealth creation. The vision focuses upon improvisation in the fields of a cohesive society and preserved identity, competitive knowledge economy, world-class healthcare, first-rate education system, sustainable environment and infrastructure, safe public, and fair judiciary. (Saleh, et al., 2017)
Currently, the strategic journey from oil-based to a knowledge-based economy is measured with the Global Innovation Index (GII), which is an annual metrics assessing national investments and benefits in innovation since 2007 (Bayona & Wunsch-Vincent, 2020). The index combines measures in several areas like institutions, human capital and research, infrastructure, market sophistication, business sophistication, knowledge and technology outputs and creative outputs. The UAE has been the highest innovating Arabic nation holding position 36 in 2019 index report. (Dutta, et al., 2019)
The GII is focusing on innovation as a central driver for economic growth. It may be useful metrics for the previously established economies since the ten best have been there for a long time. Switzerland is at the top, Nordic countries, Netherlands, UK, Germany, and the USA persisting. Singapore is the only Asian country. Israel has made it to 10th position. The question is: does it provide efficient metrics to make the UAE a potential landing zone for international business and direct finance?
Current business environment and ongoing effort to build a knowledge-based economy in the UAE
Statistics published in 2016 show that the fundamental business and socio-economic growth of the Dubai is contemplated via technological start-ups and SMEs representing 95% of the business sector, accounting for 86% of the workforce and contributing around 60% to the non-oil GDP. All this is driven successfully by the combined efforts of the government and the private players. Whereby technology-based SMEs and start-ups are expected to play a significant role in developing innovation and strengthening the economy of the UAE.
A large number of initiatives have been adopted in this respect, mainly in Dubai and Abu Dhabi, namely through research centres such as Khalifa Innovation Centre established by Khalifa University of Science & Technology (KUSTAR) and the UAEU Science & Innovation Park established by the United Arab Emirates University.
There are several corporate incubators established which provide physical environments and infrastructure for the establishment of companies in UAE free zone with 100% ownership rights including Dubai Science Park, Dubai Techno Park, Dubai Silicon Oasis, D3, Masdar City, Dubai Internet City, Dubai Biotechnology & Research Park (DuBiotech), to name a few.
Argument and overview of the ongoing disruption
Currently, the digitalization or digital transformation is considered the disruptor of business and significant leverage for economics as evidenced in the analysis (Anthony, et al., 2018) of the S&P 500 list:
- The 33-year average tenure of companies on the S&P 500 in 1964 narrowed to 24 years by 2016 and is forecast to shrink to just 12 years by 2027.
- Record private equity activity, a robust M&A market, and the growth of start-ups with billion-dollar valuations are leading indicators of future turbulence.
- At the current churn rate, about half of the S&P 500 companies will be replaced over the next ten years.
- Retailers were especially struck by creative destruction, and there are vital signs of restructuring in financial services, healthcare, energy, travel, and real estate.
- The turbulence points to the need for companies to embrace a dual transformation, to focus on changing customer needs, and other strategic interventions.
On the other hand, McKinsey (Benson-Armer, et al., 2015) forecasts the 2030 change of consumer landscape based on five trends as follows:
- Changing the face of the consumer – Globally, middle-class spending will almost triple by 2030, and the growth comes from the southern hemisphere.
- Evolving geopolitical dynamics – China’s real GDP exceeds the US by 2025
- New patterns of personal consumption – Size of the sharing economy could exceed $300 billion by 2025
- Technological advancements – by 2030, three out of four people will own a connected mobile device.
- Structural industry shifts – Over 300 companies faced activists demands in 2014 alone.
Assuming that current linear evolution and the above mentioned disrupting changes take place, then measuring the national strategy using metrics (GII) where previously established countries are dominant may not be the wisest approach. What if one reviews the nation’s strategy with an international business model and defines landing zone preferences for foreign business and investments?
2. Creating a model for an optimal landing zone for an international company
Introduction of the internationalization model from a landing zone viewpoint
Approaching the landing zone from a country competitiveness viewpoint (Schwab, 2019), one asks how a country affects a multinational enterprise selection of its global operations location, industry selection, capability building and global strategic opportunities. (Shenkar, et al., 2015) In a simplified model for international business, a country may be a sourcing, hub or market zone for a multinational enterprise in the next Figure.
Also, the multinational enterprise decision making will assess the strengths and development of international networks or platforms for supply chains, delivery chains, finance, and communications.
Defining an optimum landing zone features for a multinational enterprise
A simplified model to assess the feasibility of a country for a multinational enterprise may look like the following:
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Source
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Hub
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Market
|
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Socio-political
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Political stability
Cultural barriers
Local business practices
Government efficiency and corruption
Attitudes towards foreign business
Community characters
Sustainable development
|
|
Regulatory
|
Industrial policies
FDI policies
Availability of special zones
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Stability
of local market regulation
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|
Cost/Tax
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Transportation
Wage rate
Land & construction costs
Accessibility of raw materials,
resources, and services
Availability of finance and financial
infra
Tax rates
Investment incentives
Profit repatriation
|
Transportation
Tax
rates
Profit
repatriation
|
|
Strategic
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Infrastructure
Manufacturing concentration
Industrial linkages
Workforce productivity
Inbound & Outbound logistics
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Infrastructure
Inbound
logistics
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|
Demand
|
|
Potentially
reachable market and its growth
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Market
size and growth
Customer
presence
Demography
Development
of potential customer segments
Local
competition
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3. Testing the model with a case study and conclusions
The test case and outcome
The UAE is known besides its oil and gas resources also a regional hub for commerce, finance, tourism, and logistics. The UAE aims to improve its competitiveness, especially in innovation, knowledge-based economy, and foreign direct investments. (Finland, 2019) Furthermore, the Middle-East relies heavily on mobile infrastructure with further investing in 4G and quick roll-out of 5G networks. (De Rosbo, 2020) Therefore, the UAE should emerge as a potential market or hub for a Finnish digital economy enterprise (European Commission, 2020) to land on and expand the rest of MENA onwards. Significantly, the areas of the Internet of Things, additive manufacturing, Artificial Intelligence and Blockchain may emerge profitable over the wideband mobile infrastructure and disrupt regional markets. (World Trade Organisation, 2018) Based on the Finnish advantages in cybersecurity and independent enterprises, the Finnish cybersecurity service may appear valuable in the regional markets. Therefore, the study focuses on the UAE strengths as a cybersecurity market and later as a hub to extend to other GCC countries in the following table.
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UAE as a landing zone
for a Finnish cybersecurity enterprise
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Hub to reach the MENA
region with over 500 M people (-85 M Iran) (Statista, 2018)
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Market of 10 M
residents of which only 1 M citizens
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Socio-political:
·
Political
stability
·
Cultural
barriers
·
Local
business practices
·
Government
efficiency and corruption
·
Attitudes
towards foreign business
·
Community
characters
· Sustainable development
|
Political stability concerning the
legislation of Internet, enterprise computing and privacy is most stable in
the region.
Cultural behaviour differs from
Europe, but once relationships are established locally, it is easier to
extend in the region.
Recently opened possibility for 100%
foreign ownership outside the free zones enables FDI’s optimized along with
the global strategy.
Attitude towards foreign business is
the best in the region. The community provides one of the most internationalized
population and mixture of cultures.
|
|
Regulatory
·
Stability
of local market regulation
·
Industrial
policies
·
FDI
policies
· Availability of special zones
|
Industrial policies are supporting SME’s,
but local funding and financial regulation differ from Europe.
FDI policies have been opened lately.
Many specialized free zones available
to reach out to other markets
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Stable local markets with legislation
for privacy, customer protection, labour, and health services.
Telecommunications regulated and
protected (duopoly). (Gulf Talent, 2020)
|
|
Cost/Tax
·
Transportation
·
Wage
rate
·
Land
& construction costs
·
Accessibility
of raw materials, resources, and services
·
Availability
of finance and financial infra
·
Tax
rates
·
Investment
incentives
· Profit repatriation
|
Air and sea transportation connections
run regularly and frequently
Wages vary per profession. Division of
wealth is unequal.
Land ownership constrained, but
construction costs are cheap. Living costs are high.
Local finance is hard to access, but
local FINTECH operates at European standards.
Government supports FDI’s but local
financial responsibility legislation differs from European.
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5% Value added taxation since 2018
Profit repatriation granted
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Strategic
·
Infrastructure
·
Manufacturing
concentration
·
Industrial
linkages
·
Workforce
productivity
· Inbound & Outbound logistics
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Digital infrastructure with satellite
and ground-based connections reliable. Hundreds of small data centres and MS,
HP cloud entities. (Data Center Catalog,
2020)
Several digital industries hubs both
in free zones and inland.
Workforce productivity low.
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Two primary 4G service providers with
full coverage over the inhabited areas. Both have optimistic plans for 5G
migration. (Wikipedia, 2020)
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Demand
·
Market
size and growth
·
Customer
presence
·
Demography
·
Development
of potential customer segments
· Local competition
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In Saudi-Arabia over 53 M mobile
accesses in not yet saturated market among young population.
Low level of education, Arabic
language.
Some content constraints due to
Islamic culture.
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Over 17 M mobile accesses with saturated
use, but a rotation of users as foreign workers change around 2 M per year.
Low level of education, Arabic
language.
Some content constraints due to
Islamic culture.
|
Potential for a Finnish cybersecurity company is found in the UAE and the region. The significant challenges are located in the areas of language, culture, education, and access to local finance. The opportunities are opening mainly through reliable and extended mobile networks, young population, and well-functioning infrastructure.
A possible scenario for an entry may be a Joint Venture with a local company employing foreign-educated operators as a front office for Arabic client services and 24/7 monitoring and a Finnish back office with high-end experts solving problems and developing new services.
Conclusion
Seemingly, the experimentation did not answer the initial question of the feasibility of GII metrics in a quest to develop a national competitive strategy. Still, the case study showed a different way to a state to analyze its competitiveness in the eyes of a multinational enterprise.
References
Anthony, S. D., Vigurie, S., Swartz, E. I. & Van Landeghem, J., 2018. 2018 corporate longevity forecast: Creative destruction is accelerating. [Online]
Available at: https://www.innosight.com/insight/creative-destruction/
Bayona, P. & Wunsch-Vincent, S., 2020. About the global innovation index. [Online]
Available at: https://www.globalinnovationindex.org/about-gii#history
Benson-Armer, R., Noble, S. & Thiel, A., 2015. The consumer sector in 2030: Trends and questions to consider. [Online]
Available at: https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/the-consumer-sector-in-2030-trends-and-questions-to-consider
Data Center Catalog, 2020. The UAE data centers. [Online]
Available at: https://datacentercatalog.com/united-arab-emirates
De Rosbo, S., 2020. Middle-East - Mobile infrastructure and mobile broadband. [Online]
Available at: https://www.budde.com.au/Research/Middle-East-Mobile-Infrastructure-and-Mobile-Broadband?r=51
Dutta, S., Lanvin, B. & Wunch-Vincent, S., 2019. Global innovation index 2019. [Online]
Available at: https://www.globalinnovationindex.org/gii-2019-report
European Commission, 2020. The digital economy and society index. [Online]
Available at: https://ec.europa.eu/digital-single-market/en/desi
Finland, T., 2019. Country Outlook - the UAE, Helsinki: Ministry of Foreing Affairs Finland.
Gulf Talent, 2020. Top telecoms companies in UAE. [Online]
Available at: https://www.gulftalent.com/telecom-companies-in-uae/2
Saleh, A., Aldel, D. & Alsamid, S., 2017. R&D and Innovations in the GCC Countries: Recent Updates. [Online]
Available at: https://www.tamimi.com/law-update-articles/rd-and-innovations-in-the-gcc-countries-recent-updates/
Schwab, K., 2019. The Global competitiveness report 2019, Geneva: World Economic Forum.
Shenkar, O., Luo, Y. & Chi, T., 2015. International business. Third toim. New York: Routledge.
Statista, 2018. MENA region - total population 2018, by country. [Online]
Available at: https://www.statista.com/statistics/804633/total-population-of-the-mena-countries/
Wikipedia, 2020. Telecommunications in the United Arab Emirates. [Online]
Available at: https://en.wikipedia.org/wiki/Telecommunications_in_the_United_Arab_Emirates
World Trade Organisation, 2018. World trade report 2018, Geneva: Wold Trade Organisation.
