Region carries high opportunities for foreign firms to establish their businesses into any of its emirates

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CHAPTER ONE
INTRODUCTION
UAE (United ArabEmirates) is ranked among the riches states of Gulf Nations. Right
after the exploration of oil reservesin the country, it has shown remarkable growth in
business market and accordingly in living standards. There was a time when it was a
country dependent on oil and gas resources only (Haouas. and Heshmati, 2014).
However, now it has diversified its income into banking, tourism, trade,
manufacturing, logistics and real estate businesses and they reduced the portion of oil
and gas on overall GDP of the country. Such a diversified organizational environment
provides ample opportunities for the establishment and growth of different businesses
(Rasanen, 2010). Moreover, the geographical location of UAE provides ad its liberal
climate has helped it to establish extensively cooperative relations with other countries
as well as to get access to more efficient infrastructure with developed air and sea
connections (Haouas and Heshmati, 2014).
Thus, the region carries high opportunities for foreign firms to establish their
businesses into any of its emirates.As for instance more than 200 companies of only
Dutch operate at UAE in various sectors. The entry to UAE business market is also
easy, however, to get the business started and have it well established is a very
challenging task due to different factors like cut throat competition faced due to
running businessesin the market,the great diversity of cultures at UAE as more than
90% urban population of the country and almost 75% rural population consist of
foreigners, so, their habits, life style all will be changed from each other. It is
immaterial what the purpose of businesses entering the UAE is, the selection of
partners to enter the market and their mode of entry in the market plays the key role
(Mellahi, 2007). As for instance, the affiliation with strong powerful local players is a
guarantee to run successful operations in the region (Dacko, 2002). Moreover, there
are larger diversities not in terms of language, religions and ethnicities but political
and economic disparities among different regions of the country also play key role in
making a business successful or not (Budhwar and Millahi, 2007). The existence of

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complex laws and regulatory framework at UAE for foreign firms to operate in this
country is perhaps the biggest challenge as it requires local partnership of 51% with a
local player. The existence of federal, emiratesand free zone regulatory framework has
made it quite complex and difficult to successfully operate the operations here (HSBC,
n.d).
Purpose and Contribution of Research:
This research has been carried out to examine the various challenges faced by foreign
companies to enter and start business at UAE. Moreover, it has examined as to how
these challenges are managed by foreign firms. The results of study will contribute to
business community by providing useful insights to potential entrants of UAE to
establish business in that attractive market. In addition to it, it has also contributed
to literature as this area of study has been less highlighted in researches.
Objective of Research:
The aim of this research has been discussed in detail in introductory paragraphs. In
order to achieve this aim, the following objectives have been formulated:
 To examine the percentage of foreign firms as a ratio to total firms working in
UAE;
 To analyze the potential barriers to entry for foreign firms in UAE;
 To investigate the challenges which the foreign firms are facing for business
establishment in UAE;
 To figure out the number of foreign firmssuccessfully dealt with challenges the
UAE market is presenting, to establish business;
 To examine the ways on how to overcome the challenges in order to enter the
attractive market of UAE.
Limitations:
The study has certain limitations. It has covered a small sample of only 10 firms
belonging to hoteling, retail, pharmaceutical, banking and insurance sector due to
time constraints. Moreover, the firms selected are only those who have successfully

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managed its operations out of all the challenges presented by this market, and have
survived its business. Thus, the application of the results of study is limited due to
such small sample size.

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CHAPTER TWO
LITERATUREREVIEW
2.1 Background:
The history of UAE has long been traced since 5500 BC but the country was formed in
1971 as an independent state.According to researchers UAEhas interaction with the
outside world and foreign trade has always been a very important aspect of their
civilization. In the 1720s there was growth in English trade in the Gulf area. In the
1930s the oil production became an important aspect of the economy. The first export
of oil from Abu Dhabi was in 1962 and the increasing production of oil improved the
revenueswhich facilitated the ruler of Abu Dhabi to undertake a massive construction
program by building schools, houses, hospitals and roads. Dubai started the export of
oil in 1969 which made it possible for the ruler of Dubai to use the revenues to
improve the quality of life of his people. (UAE Interact 2009, 9-14.)
In 1968 the British Government announced its intention to withdraw from the Gulf
region which begun the discussions of the formation of the emirates. As a result, the
State of the United ArabEmirates was established on the 2nd of December 1971 after
Britain renounced the maritime agreements of the 19th and early 20th century. The
UAE is the only federal state in Arab world (UAE Interact 2009, 914.)
The state has seven emirates namely Abu Dhabi, Dubai, Sharja, Fujairah, Ras Al
Khaima, Ajman and Umm al Quwain. Amongst which, Abu Dhabi and Dubai provide
the greatest opportunitiesfor business due to established infrastructure and trading
environment. However, the emirate of Sharja provides attractive opportunities for
establishing heavy industry while Ras Al Khaima has established free trade zone and
Fujairah is a billionaire market for oil and gas reserves (Rasanen, 2010).
2.2 Foreign business relations of UAE:
Thus, the region carries high opportunities for foreign firms to establish their
businesses into any of its emirates.As for instance more than 200 companies of only

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Dutch operate at UAE in various sectors. UAE is also located in the center of the
Middle East, offers a perfect starting point to developa market in the region. With its
strategically important location, the U.A.E. acts as a gate to the Middle East, India,
Africa and Asia, potentially reaching a market of more than 2 billion customers. The
U.A.E. government has managed to turn an economy solely based on oil exports into a
diversified economy showing highest growth ratesin the Middle East since the 1990s.
Because oil revenues are reinvested in their own country, the U.A.E. is aiming to
developa more diversified industry in order to reach independency of oil in the future
(Balakrishan, 2009). In addition, as more and more projects are launched,
infrastructure has to be continuously expanded, and foreign labour and imports of
various products and services is needed (Schiliro, 2015).
One of the main features in UAE’s foreign policy is the development of closer
relationships with the neighboring countries of the Arabian Peninsula. They seek to
improve the cooperation within the Arabian Gulf region as well as in the wider Arab
world, and any disagreementsarisenare solved through discussions. The UAE is part
of the Arab Gulf Cooperation Council (AGCC) with Kuwait, Saudi Arabia, Bahrain,
Qatar and Oman. The Council was established in 1981 in Abu Dhabi and has become
a successful and widely respected alliance. In addition, the UAE seeks to develop
friendly relationswith other countriesbeyond the Arab world. The UAE’s foreign policy
consists also by supporting international bodies such as the United Nations (CIA
2010).
The UAE market is very open and competitive.The country has been a member of the
World Trade Organization since 1996, and supports open trade and has stable
relations with countries all over the world (Embassy of the United Arab Emirates in
Washington DC 2009b. Where is the reference! Its not written in the reference list)
This country is also a member of GCC (Gulf Cooperation Council). The agreement
allows all agricultural,animal, industrial,and natural resource products to be exempt
from duties and other charges when traded among the member states.The goods to be
qualified as a GCC national product have to be produced in a factory with at least 51

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percent local ownership and be licensed by the respective Ministry of Finance and
Industry. In addition, the value added in a GCC member state must not be less than
40 percent of the final value (U.S. Commercial Service 2008.)
2.3 Challenges for foreign businesses to enter and operate in UAE
The entry to UAE business market is also easy, however, to get the business started
and have it well established is a very challenging task. The UAEmarket is regulated by
the Federal Government as well as by the individual emirates. Dubai authorities, for
example, have tried to create an environment which is well structured without being
excessively restrictive (Gosh, 2014). Consequently, Dubai has one of the most liberal
and attractive business operating conditions in the region (Government of Dubai:
2010). It has resulted into widespread competition at this market, which is quite
challenging for any entrant.
Secondly, when entering the UAE a company can either establish a permanent
presence in the UAE or use a commercial agent. The permanent presence may be
pursued by:
If a company is present in the country with one of these methods it is permitted to
engage in all activities as licensed in the UAE. However, a foreign entity can only
operate in those activitieslicensed by the relevant UAEauthority such as contracting,
providing services, and possibly manufacturing.Certain activities, such as commercial
agency activities, are reserved for wholly UAE owned enterprises (Government of
Dubai: 2010).
In the UAE there are 38 Free Trade Zones(FTZ) with over 20,000 companies operating
in them. Establishing a business in a Free Trade Zonesis most suitable for companies
whose intension is to use the UAE as a regional manufacturing or distribution base

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and when most of the turnover comes outside of the UAE. Companies which are
approved with a Free Zone license are allowed to operate within the FTZ area and
outside the UAE (Grant, 2007). Nevertheless, if the company wishes to do business
within the UAEthey need to use a commercial agent, representative, distributor, or
the mother company licensed by the relevant UAEauthority. Any company with a Free
Zone license is allowed to purchase goods or services within the UAE. (Government of
Dubai, 2010).
A foreign company wishing to engage in importation into the UAE need an appropriate
trade license. Documentation requirements obey the international standards and
delays in customs clearance have been rare. The user rates in port facilities have
remained low because of the competition which has also promoted the quality of
services.There are no duties subject to exports. Because of the religious and security
reasons various restrictionsconcerning the importation of alcohol, tobacco, firearms,
and pork products have been set up (U.S. Commercial Service 2008.)
When doing business outside of one of the free zones in the UAE, a foreign company
needs an UAE national sponsor, agent, or distributor. When the sponsor, agent, or
distributor is chosen, they have exclusive rights for non-food products only (U.S.
Commercial Service 2008.)
In addition, the economy in the UAE still depends heavily on oil and its price in the
world market. Since the oil is mainly in Abu Dhabi and Dubai area, other areas of the
UAE have not been developing as fast and the standard of living in the other emirates
is not as high (Stevens, 2010). The business laws of the UAE are also vital to mention.
Although the country has extremely positive attitude towards international trade and
foreign investors,the law protectsnationals and nationalization (Stanton, n.d). When a
company wants to establish a permanent presence in the UAE it may incorporate a
Limited Liability Company (LLC), establish a Branch office or Representative office, or
establish a wholly owned entity in one of the UAE Free Trade Zones (Schiliro, 2015).

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When establishing an LLC in the UAE the company must be 51 percent owned by the
UAE nationalsand there are some restrictions concerning the minimum capital. The
second possibility is to establish a branch or a representative office which does not
require as much UAE participation. The branch or representative office can be fully
owned by foreigners, though they are appointed a local agent to help with local
arrangements. The branch and representative offices are limited in their activities. The
third possibility when establishing a permanent presence is to open a unit in one of
the Free Trade Zones in the UAE. The 100 percent foreign ownership and tax
incentives have attracted many foreign investors. However, the company that operates
within the Free Trade Zone is not allowed to do business in other parts of the UAE
without a commercial agent (Rasanen, 2010).
When a company does not need to open an own branch in the country, they can
appoint a representative agent. The law states that the commercial agent must be a
UAE national or a company that is 100 percent owned by UAE nationals. In addition,
the agency must be registered by the UAE Ministry of Economy and Commerce.
Finding a suitable agent is the most important first step, since the contracts are quite
difficult to terminate and agents are protected by UAE laws (Mellahi et al, 2011).
The income distribution and consumption expenditure vary a lot between social
groups. The nationals’ income is greater than the non-nationals’ and members’ of
collective households. Consequently, the nationals spend more money than the other
social groups. Many brand names have shops in the UAE such as Versace, Tommy
Hilfiger,Donna Karan, and Scandinavian retailers H&M and Ikea, making the UAE a
competitive market for high-end designer brands (Schiliro, 2013). There is obviously
demand for designer products in the UAE. However, since the brand name is
important for consumers proper marketing of the brand is vital (Adele, 2007).
The religion and culture play a major role in doing business in the UAE. Business
people should remember not to schedule meetings for Fridays, since it is a holy day in
Islamic countries (Maclachlan, 2010). Additionally, other religious holidays should be
taken into account. Valuable features are good manners and politeness. It is also

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important to build relationships, since business people in Arabic countries rather do
business with the people they know. A proper knowledge about the culture and
religion should be obtained before doing business with the UAE since these aspects
differ greatly from other countries (Adele, 2007).
2.4 Rational of study/Gap in body of knowledge:
The major reason why I chose to do a research on this topic and selected UAE as a
target market was due to a reason that there are no previous studies regarding the
subject, or they are very difficult to ascertain.

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References:
1. Adele M. Hayutin, 2007, “How Population Aging Differs Across Countries: A
Briefing on Global Demographics,” Stanford Center on Longevity
2. Balakrishan. S.M, 2009, Approaches to enter emerging markets: A UAE case
study, 9th Annual Hawaii International Conference on Business, Hawaii, pp. 1-
28.
3. Budhwar, P., & Mellahi,K. (2007). Introduction: Human resources management
in the Middle East. The International Journal of Human Resource Management,
vol. 18, no. 1, pp: 2–10.
4. Budhwar, P., & Mellahi, K. (Eds.). (2006). Managing human resources in the
Middle East. London: Routledge.
5. CIA 2010, The World Factbook: United Arab Emirates, Available at: Available at:
https://www.cia.gov/library/publications/the-
worldfactbook/geos/ae.html#Econ, This link is not found [Accessed 22 Nov,
2016]
6. Gosh. P, 2014, Expats Face ChallengesFinding Work In United Arab Emirates,
Despite Buoyant Economy And Strong Job Growth, Available at:
http://www.ibtimes.com/ [Accessed 22 Nov, 2016] This link takes me to the
home-page not the exact page that was used as a reference
7.
8. Government of Dubai: Department of Tourism and Commerce Marketing 2010a
Dubai Free Zones. Last updated 8th March 2010. Available at:
http://www.dubaitourism.ae/WorkingWithDubai/FreeZones/tabid/88/lan
guage/en-US/Default.aspx, [Accessed 22 Nov, 2016] Also this one takes me to
the home-page not the exact used page
9. Grant, J., Golawala, F.S., McKechine,D. S. (2007). The United Arab Emirates:
The twenty-first century beckons, Thunderbird International Business Review,
49 (4): 507-533.
10.Haouas. I and Heshmati. A, 2014, Can the UAE Avoid the Oil Curse by
Economic Diversification?, Discussion Paper No. 8003

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11.HSBC, n.d, Barriers, risks or downsides for foreign investors, Available at:
https://www.pwc.de/de/internationale-maerkte/assets/doing-business-in-the-
uae.pdf, [Accessed, 20th November, 2016]
12. Maclachlan. M, 2010, Challenges of Doing Business in the UAE, Available at:
https://www.communicaid.com/cross-cultural-training/blog/challenges-of-
doing-business-in-the-uae/ [Accessed 22 Nov, 2016]
13.Mellahi, K. (2007). The effect of regulations on HRM: Private sector firms in
Saudi Arabia. The International Journal of Human Resource Management, vol.
18, issue. 1, pp. 85–99.
14. Mellahi. K, Demirbag. M and Riddle. L, 2011, Multinationals in the Middle
East: Challenges and opportunities, Journal of World Business, pp. 1-5
15.Rasanen. P, 2010, INTERNATIONALIZATION PATH TO THE UNITED ARAB
EMIRATES, SAVONIA UNIVERSITY OF APPLIED SCIENCES Press, KUOPIO
16.Schilirò, D. (2013). Diversification and development of the United Arab
Emirates’ economy,Journal of Applied Economic Sciences, vol. VIII, no. (2), pp.
228-239
17.Schiliro.D, 2015, Innovation in small and medium enterprises in the United
Arab Emirates, MPRA Paper No. 64309, Available at:
https://www.researchgate.net/publication/277667549_Innovation_in_small_an
d_medium_enterprises_in_the_United_Arab_Emirates [Accessed 22 Nov, 2016]
18.Stanton. N, n.d, UAE Entering the Market, Available at:
file:///E:/UAE%20proposal/Entering%20the%20Market%20in%20UAE%20_%
20Startup%20Overseas.html [Accessed 22 Nov, 2016] This link can’t be open
19.Stevens, P. (2008). Resource nationalism and the role of national oil companies
in the Middle East: History and prospects. Journal of World Energy Law and
Business, vol. 1, no. 1, pp: 5–30.
20.U.S. Commercial Service 2008 Doing Business in United Arab Emirates 2008
Country Commercial Guide for U.S. Companies. Available at:
http://www.buyusainfo.net/docs/x_216958.pdf, [Accessed 22 Nov, 2016] This
is another link that can’t be open

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21.UAE Interact 2009d United Arab Emirates Yearbook 2009. Trident Press Ltd.
Available at: http://www.uaeinteract.com/uaeint_misc/pdf_2009/, [Accessed
22 Nov, 2016]
22.Dacko, (2002), S.G. “Understanding market entry timing decisions: the
practitioneracademic gap”, Marketing Intelligence & Planning, Vol. 20, No. 2,
pp. 70-81.

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