Doing Business In The Middle East:
A Primer for the American Corporate Director
First published in "Directorship", Vol. XXIII, No. 5, 1997.

High among your priorities as the director of a large corporation is supporting your firm's business growth. One of the leading options for growth is the entry into new and emerging markets such as the Middle East This article provides Middle East regional highlights, discusses major business opportunity sectors and provides ideas for success.

The Middle East has a sizable--150 million--population, and one of the fastest growing in the world. In addition to its own expanding market, the region has long established connections to vast Asian, African, and former Soviet markets, and thus serves as an important conduit to these areas.

The building blocks for doing business successfully in the West are also appropriate in the Middle East. You must understand your market, your competition and your own capabilities, and then develop appropriate strategies. You need good products at competitive prices, the right distribution channels to reach your customers and the support to service them. However, doing business in the Middle East poses unique challenges which are driven by the different language, customs, business practices and political systems. Being aware of the Middle East "terrain" and being able to navigate it are essential to success in this region.

Regional Highlights

Several characteristics peculiar to the Middle East are critical to understand:

• The region is going through a technological revolution. Changes that took centuries in other parts of the world are occurring in decades, mixing the most advanced technologies with a traditional way of life.
• There are huge differences among countries in per-capita GDP, varying from over $16,000 in the United Arab Emirates to $1,000 in Egypt.
• The Middle East is an area rich in petroleum, boasting two-thirds of the world's oil reserves, as well as huge gas reserves. There is a critical dependence on the petrochemicals sector, with the main oil-producing countries as direct beneficiaries and the others as secondary beneficiaries through job creation.
• Most governments are running budget deficits, with oil revenues failing to keep pace with public spending and rapid population growth.
  To improve their economies, Middle Eastern countries are pursuing five strategies:
  - maximizing oil revenues;
  - diversifying sources of revenue to decrease dependence on oil;
  - transferring government services to the private sector;
  - training citizens to fill jobs currently held by foreign workers; and
  - importing technology to create jobs.
• Most Middle East countries require a local business person to be the agent of the foreign enterprise, sometimes with majority ownership of the business. In addition to running the business, the agent plays an important role in opening doors, navigating through the government, shielding you from accounts receivable problems, obtaining visas and introducing you to local contacts. You should choose your agent carefully —personal trust and chemistry as well as demonstrated competence are key. The agent relationship is to be viewed as long term; breaking it is often very difficult, costly, and time-consuming.
• Dubai on the Arabian/Persian Gulf has emerged as the preferred location for setting up regional headquarters. It features world-class business infrastructure, political stability, remarkable religious and ethnic tolerance, and a longestablished tradition of trade. Its Jebel Ali free trade zone allows you to set up a business with 100 percent foreign ownership and without a local agent. Jebel Ali's shipping, warehousing and distribution facilities are well regarded.

Major Business Opportunities

Petrochemicals
The major producers of petrochemicals are Saudi Arabia, Kuwait, the UAE, and Qatar. Subjected to OPEC production quotas, local economies are driving to maximize revenue from every oil barrel. This has led to expanding refining capacity, oil shipping and retailing, and integrating petrochemicals with other manufacturing enterprises (such as the use of excess refinery heat to smelt aluminum, in Bahrain).

Banking
Bahrain, Saudi Arabia, the UAE, and Kuwait have the most developed banking sectors. Many of the purchasing decisions are made at the banks' headquarters (likely in Hong Kong or London). There is a consolidation taking place in the banking sector and a rise in the number of Islamic financial institutions; even Citibank has set up an Islamic bank.

Government
There are huge opportunities for Western business in the government areas of defense, industrial zone development (e.g. in Jubail and Yanbu in Saudi Arabia), desalination and transportation.

Desalination is of great importance as the Middle East is home to both very scarce water resources and the world's highest rate of population growth.

The rapid growth in business and commerce is driving the needs for a massive increase in transportation facilities. Highway, seaport and airport construction are flourishing as the establishment of airlines and ground transportation systems.

Some countries require offset programs for government contracts. These programs are intended to channel a percentage of the contract revenue back into the country's development. The offset obligation is more easily fulfilled through investment in some areas, such as human resource development, than investment in others, such as real estate development.

Telecommunications: voice and Internet
This sector is a prime example of how the Middle East is leaping into the most advanced technologies. Voice communications use the most advanced switches, fiber optic and satellite systems. Mobile telephone usage is ubiquitous. Internet usage, which started only within the last few years and is still small in comparison with the United States, is growing exponentially, with usage at times doubling monthly.

Consumer goods sectors
The market for automobiles, foods and beverages, clothing, personal computers, and consumer electronics continues to grow at double-digit rates.

Tips for Success

The following guideposts are essential for your corporate success in the Middle East:

1. Get qualified Arabs and Americans on your team

Look for people who have bridged the cultural, language and business practices gaps between the two environments to guide you. These are Arabs who have strong experience in Western business and Americans who have operated successfully in the Middle East.

2. Utilize available resources

Examples of these are the US State Department, the US Department of Commerce, commercial attaches in US Mid-East embassies, the National US-Arab Chamber of Commerce, and Middle East consulting firms.

3. Cultivate the right mindset - don't think differences -- think similarities

Many Middle Eastern businessmen have been educated in the West and most speak English, but your developing some familiarity with the Arabic language will be appreciated.

Islam is one of the three monotheistic religions and honors both the Old and New Testaments. You should become familiar with the Muslim religious practices, holy days and diet restriction.

Both cultures value the importance of families and friendships.

4. Be prepared for the longer sell cycle

It is said that here in America we first conduct business, then go out for a drink. In the Middle East, you first drink (coffee), then conduct business. This is not a quick sell territory. Relationships are particularly important here; once formed, they can last for generations.


Zuhair M. Suidan
President
Suidan Associates