In recent years, the Middle East (particularly the Gulf Corporation Council (GCC)) has become a magnet for international companies looking for growth opportunities due to internal and external factors. Within the Middle East, massive investments have been made in all sectors of industry, including health care, transportation, and real estate. Furthermore, the Middle East has seen changes such as the deregulation of state monopolies and the privatization of state-owned companies. Adding to the attraction of investing in the Middle East is the lack of growth in Western economies, as well as 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 they are not only better placed to take advantage of new opportunities, but are also familiar with the system. However, this is not to say that newcomers cannot be just as successful; they also have the advantage that they can bring something new to the market.
Despite the change in rules and regulations to invest, there is still a need for local partners, such as deep knowledge of the market, clients, laws, etc. is of the utmost importance. An ideal partner would be a company that has previous experience with international companies in the relevant sectors and not just a sales agency or local representative. Western organizations and government agencies can also help introduce Western companies to the Middle East by providing market data, matchmaking and the opportunity to participate in exhibitions.
Middle Eastern governments strive to attract foreign direct investors in support of national goals, such as supporting diversification efforts, technology transfer, self-sufficiency, creating job opportunities, and ultimately supporting the economy. national in general. Preference may be given to companies that agree to manufacture their products locally and use locally provided services. Some Middle Eastern governments offer incentives to foreign companies to attract foreign direct investment, including the provision of industrial land, raw materials and low-cost energy.
Doing business in the Middle East can feel like you’re taking a big leap, as the business culture is so different from that in the West. However, this applies to doing business on any other continent and an appreciation of how things work will make for an exciting and rewarding experience. It is worth mentioning that connections, whether business or family, are vital when doing business in the Middle East. This further highlights the need to have a partner that is already well established in the region.
Some of the key challenges newcomers may face include:
- Understand company culture and market dynamics.
- Ensuring customer confidence and trust
- Local operations setup
- Attract qualified talent, particularly considering the new legislation for the nationalization of the labor force
- Address the high level of competition, especially in commodity areas, and the need to have clear differentiators
To ensure a smooth entry into the Middle East market, companies need to do their homework. Mainly, they should understand the region of interest from multiple perspectives (cultural, legal, political, economic, etc.) and should aim to build alliances with well-established national market players/experts. It is essential to visit the destination region at least several times to meet potential partners and carry out the necessary checks before making any contractual commitment. Extreme care must be taken in your business dealings; Tired of scrupulous entrepreneurs or companies that claim they can work miracles.
For effective and smooth market entry, you must have:
- A complete understanding of the target market, in addition to the expectations and demands of the clients.
- 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 commitments are strongly discouraged, as the market favors long-term investors (and who aspire to go local).
It is highly recommended to refrain from making large investments or entering into legally binding joint ventures before testing the market. It is best to take a gradual approach with calculated risk. Once engaged, remember that getting in can be easy, but getting out can be more of a challenge.