2021-02-06

Internationalization Strategy - Case Study UAE - Finland

 Case Study of Internationalization Strategy

Model to analyse internationalization intents both from National and Company viewpoint


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:
  1. Changing the face of the consumer – Globally, middle-class spending will almost triple by 2030, and the growth comes from the southern hemisphere.
  2. Evolving geopolitical dynamics – China’s real GDP exceeds the US by 2025
  3. New patterns of personal consumption – Size of the sharing economy could exceed $300 billion by 2025
  4. Technological advancements – by 2030, three out of four people will own a connected mobile device.
  5. 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:

 

Source

Hub

Market

Socio-political

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

Stability of local market regulation

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

Transportation

Tax rates

Profit repatriation

Strategic

Infrastructure

Manufacturing concentration

Industrial linkages

Workforce productivity

Inbound & Outbound logistics

Infrastructure

Inbound logistics

Demand

 

Potentially reachable market and its growth

Market size and growth

Customer presence

Demography

Development of potential customer segments

Local competition



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.

UAE as a landing zone for a Finnish cybersecurity enterprise

Hub to reach the MENA region with over 500 M people (-85 M Iran) (Statista, 2018)

Market of 10 M residents of which only 1 M citizens

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

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.

5% Value added taxation since 2018

Profit repatriation granted

Strategic

·        Infrastructure

·        Manufacturing concentration

·        Industrial linkages

·        Workforce productivity

·       Inbound & Outbound logistics

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.

Two primary 4G service providers with full coverage over the inhabited areas. Both have optimistic plans for 5G migration. (Wikipedia, 2020)

Demand

·        Market size and growth

·        Customer presence

·        Demography

·        Development of potential customer segments

·       Local competition

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.

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.

No comments:

Post a Comment