BUSINESS ENVIRONMENT IN GCC 24
Businessenvironment in GCC
Businessenvironment in GCC
TheCooperation Council for the Arab States of the Gulf(GCC) is a regional intergovernmental economic and political unioncomprising of all Arab states of the Persian Gulf, apart from Iraq(Heinberg,2016).Member countries include Bahrain, Kuwait, the United Arab Emirates,Saudi Arabia, Oman, and Qatar. Therecent years have seen a rise in thenumber of businesses in the region. It has attracted both local andbusinesses from other partsofthe globe. Inspite ofthe rising number of firmsinterested in establishing their activities within the area,it still presentsa decidedlymixed picture. Somethe states are open to foreign ownership and formalities on thingslike construction licenses has been cut. On the other hand, policiesare limiting foreign labor and broadly varying business rules, thatcan stall projects and development (Garavan, McCarthy, & Morley,2016). These two conflicting messages from GCC states present achallenge for investors. Ingeneral, the regionis characterized by both negative and positive trends intertwined andno clear indication of how they will impact the future. Nevertheless,the good news from the regionis evident. Its recent rise in business-environment league tablesproduced by respected global organizations has been striking (Schwab,2016).
Thisresearch paper examines the business environment in GCC by carryingout a literature review and analyzingthe real life situation.
TheGulf region has displayed an outward look for millennia. It iswell connectedto the Mediterranean and Asian world by trade routes and appeals toMuslim pilgrims from across the world(UK Trade & Investment , 2016).The Oil Age propelled a new age of internationalization, dedicatedinitially inEurope and the US. Currently, countries in the region are more opento Asian giants(Heinberg, 2016).The GulfStatesare evolving as a global economy. Nevertheless, fine tuning theglobal position, in societies characterized by conservatism is achallenge. In essence, this is a tension business must be aware of ifthey are to enter and survive the market. Individuals in the Gulfregion still value their cultures and beliefsand expect business to show respect to the same. However, Shaherand Ali-Tajir (2016)argues that states are more open to new cultures and willing to trynew things. This presents an opportunity for businessesas they can capitalize on it to expand their product portfolio aswell as expand further in the market. The same trend isexpectedin the future. There is also a downside to this opportunity. Withmore countries within the region embracing diversity, this willattract manybusinessesfrom all over the world, hence increased competition(Heinberg, 2016).
Accordingto Bahramitashand Esfahani (2016), business conditions are getting tougher. Theenvironment has become more volatile and challenging than before.Reduced customer spending, intense competition, talent recruitment,and the need for increased performances are some of the challengesexperienced by businesses currently operating within the GCC region.Government spending cuts, reduced oil prices, and wider regionalconflicts are some of the factors that are likely to contribute totougher conditions in the future (Regional Economic Outlook, 2016).Apparently, the level of competition among business in the region hasbeen rising with multinational firms keen to benefit from diverseopportunities. Increases in labor costs also present seriouschallenges for business. Fundamentally, they are forced to spend moreto acquire the best talent. On the contrary PR Newswire (2016),debates that the increased economic performances of Gulf states haveattracted expatriates from across the world. As such, firms haveaccess to highly skilled employees with the abilities to engage increativity and innovation, hence business success.
Asargued byPR Newswire (2016), leaders remainoptimistic regarding the business outlook as government-ledinitiatives continue. Corporations,in general,have a neutral-to-positive outlook on economic conditions over thenext three years. In fact, many areexpecting sales to rise. Government-led creativities are the keyfactors that contribute to the positive outlook, including thedeveloping infrastructure,the GCC`s robust economic growth forecasts, spending ahead of Expo2020 Dubai, as well as confidence in the GCC political leadership,especially in conglomerates and the Industrial and Consumer sectors(Regional Economic Outlook, 2016).Themajority of business development in the next three years is expectedto come from the Middle East.However, some scholars maintain that growth will come from within theGCC region(Raghu, 2016).With countries within GCC committed to economic development,businesses expect more opportunities in the future.
Consistentwith Shaher and Ali-Tajir (2016), the GCC countries are still fairlyinsulated from global distresses. Even though, authorities’determinations to come to grips with the slide in energy prices willcontinue to be a significant factor in the performance of GCC assetsover the coming months. Businesses are encouraged by reforms that thedrop in oil prices have prompted in ultimately unsustainable tax andsupport mechanisms in GCC countries (Heinberg, 2016). While theauthorities in many states still have ample room to support theirdomestic economies, other illustrations of greater economicdiscipline in the region have attracted many businesses. Expenditurecuts loom in the fiscal year 2016 in other GCC countries as well,together with further directed cuts to industry fuel subsidies andrises in business taxes.PR Newswire (2016), maintains that it is tooearly to become exceedingly concerned about the GCC’s medium-termprospects. Although some GCC members are more susceptible to lowhydrocarbon prices than others, financial deficits in powerfulcountries such as Saudi Arabia are much lower than in Europe or theUnited States, and public debt is low.
Comparedto 2014, companies increased their investments in the region in 2015.Out of these,approximately 23 percent have plans to expand theiractivities to other areas globally (Regional Economic Outlook, 2016).Some are interested in mergers and acquisition opportunities. A smallpercentage are considering to close their offices within or outsideGCC. Most companies are recruiting new employees as they expand inthe region. The increased demand for workers has caused an increasein labor costs as individuals have more bargaining power (Heinberg,2016). This is a significant challenge to businesses especiallyforeign firms interested in expandingtheir activities in the region.With some companies having plans to close their offices, businessleaders anticipate reduced competition. Nevertheless, this is notentirely accurate as there are foreign firms from other regions thathave intended to enter the GCC region (Garavan, McCarthy, &Morley, 2016).
Thebusiness environment in GCC varies from one member country toanother. Specifically, some countries have more opportunities thanothers (Regional Economic Outlook, 2016). For instance, the UnitedArab Emirates has attracted more businesses as compared to most ofthe remaining states. The UAE government has advanced in theestablishment of a healthy business environment attractive to localand global businesses (Heinberg, 2016). It works under the assumptionthis is essential to economic development, hence the need to improveon the same. On the contrary, some member states are also committedto improving their environment. Nevertheless, lack of resources andpolitical instability among other make it hard for them to realizethis goal. Bahrain is an example of countries that struggle toestablish a healthy business environment but fail to achieve the sameobjective. Nonetheless, this implies that the state can show betterperformances in the near future with an improvement in the politicalsituation (Raghu, 2016).
Governmentsplay a significant role in ensuring additional growth and businessconfidence in the region. Apparently, some states are performingbetter than others. The UAE government has outperformed almost stateswithin the region. Its continuous investment in initiatives aimed atimproving the business environment has ensured the competitiveness ofits companies both within and outside GCC (Shaher & Ali-Tajir,2016). For instance, the provision of subsidies to local businessesensures their improved performances and competitiveness.Additionally, foreign firms are exposed to less restrictive laws,hence their ability to fully pursue great opportunities availablelocally. On the contrary, member countries such as Saudi Arabia arestill struggling to improve the business situation. Therefore, abusiness interested in the country must anticipate political unrestand the consequences that accompany the same. Other countries such asQatar have displayed improvement in their economic, political, andsocial performances an indication that the future holds betterbusiness opportunities (Heinberg, 2016).
Thepast decade has seen an increase in the Asian demand for oil and gasas well as products of Gulf diversification, including fertilizers,metals, and petrochemicals. Traditionally, GCC nations have investedin their assets, both private and public, in the US and Europe. Theflow of new funds to these established markets is still evident.Nevertheless, there has been a consensus on the need for membercountries to invest more in the diversification of portfolios, buildrelationships with emerging markets, such as Malaysia, Algeria, andMorocco. Capital wealthy Gulf organizations have started to globalizein the recent past. Inward investments come from different directionswith many associated with Japanese, US, and European investors.Investors from these regions have been active in Gulf countries fordecades and remain the primary source of inflows. Asian bankscontinue to play a growing role in bond financing and loansyndications. Many Europen firms disengaged from the region as aresult of economic crisis. As such, investors have turned to Asianbanks for services previously offered by the European banks (Mitra,Minasyan, & Abajyan, 2016).
Fromthe Regional Economic Outlook(2016), the GCC has worked closely withthe global organization to benchmark itself against internationalstandards and norms. The region became a member of the World TradeOrganization (WHO) after its launch in 1995 (Shaher & Ali-Tajir,2016). Ever since its states have been working to improve traderegulations to favor free trade. The same trend is anticipated in thefuture. However, some countries are expected to remain conservatismto avoid Western influence on their culture. For example, Saudi hasstrict rules regarding advertising and materials used to achievemarketing goals and objectives. This is likely not to change in thenear future. Public engagement with the world benefits the region togreater extents. Specifically, it will help in boosting thecountries’ images in the global arena. This will bring enormousbenefits in tourism, investment, and trade. Nonetheless, businessesalso find this disadvantageous (Shaher & Ali-Tajir, 2016). Withan improved image, the number of organizations attracted to theregion will rise. In the end, companies will have to be dealingintense competition and market saturation. Generally, since itsformation in 1981, GCC has made progress towards a greater politicaland legal cooperation. This presents both opportunities and threats(Khan, Khurram Al-Saud, Alkhathlan, & Al-Derham, 2015).
Productand service consumption levels within the Gulf region have increasedin the past few years. This can be attributed to improved economicperformances and disposable incomes among individuals. Foreignbusinesses are attracted to the region to capitalized on the highlevel of consumption among people (Khan, Khurram Al-Saud, Alkhathlan,& Al-Derham, 2015). Nevertheless, the demand for goods variesfrom one sector to another. Some industries experience strong demandfor their products, for example, the retail industry. Other hasreported little performances as a result of competition from theglobal market. Companies interested in doing business in any of theGulf countries must target the right sectors to avoid failure. Somesectors perform poorly in one of the Gulf countries and thrive inothers. It is all about the management in an organization selectingthe right country and sector to ensure success or reduce chances offailure. Raghu (2016) argues that some of the best performingindustries are likely to be impacted upon in a negative manner as aresult of government spending cuts. This will have a significantimpact on local firms that rely on subsidies or government aid toachieve an edge.
Witha volatile business environment, the majority of business within theGulf region have been forced to rethink their strategic position,particularly, their global corporate structures and supply chains.For instance, some have embraced decentralization in regards to theircorporate structures. This has enabled speedy decision making andproper adaptation to consumer needs and preferences (Shaher &Ali-Tajir, 2016). The number of mergers and acquisitions has alsobeen rising as businesses realize the need to increase their size toachieve an edge. Business involvement with the broader businesscommunity has also expanded. This has been caused by the benefits ofbusiness understanding the needs of its people. For instance,businesses are working closely with their customers to determinetheir distinct needs and preferences. Information gathered from theirinteractions with their clients is used to provide quality productsthat are based on what the consumer wants (Khan, Khurram Al-Saud,Alkhathlan, & Al-Derham, 2015). The business community has alsobeen working with governments to develop strategies that are withinthe law.Traditionally, organizations were focussed on their homemarkets. Currently, most of them have refocused their efforts on theglobal market. Physical integration of GCC markets presents a perfectopportunity for expansion purposes (Mitra, Minasyan, & Abajyan,2016).
OPECstates produce approximately 37 percent of the global crude oil andconflicts over production ceilings have already impacted some of themembers (IRENA, 2016). Countries, such as Algeria, Venezuela, andNigeria that rely on oil exports to fuel their economies are alreadyexperiencing widening current account and fiscal deficits as aconsequence, cannot afford the luxury of oil surpluses. Even with GCCcountries, assuming low oil prices persist, public foreign assets candecline substantially in the next five years while the grossgovernment debt could rise to 59 percent of GDP (Khan, KhurramAl-Saud, Alkhathlan, & Al-Derham, 2015). Considering many Gulfstates rely on oil exports to boost their economic performances, theabove problem present a significant challenge to businesses. Lowrevenues for the government as well as weakening balance sheets couldhave a major impact on the economy at large should the situationpersist. The ability of businesses to access funding for theirexpansion projects will also prove to be an issue. This is on of themain reasons as to why Heinberg (2016) is of the view that somebusiness will divest from the region. Nonetheless, not all industrieswill be affected. Companies can target the best-performing sectors toboost their edge and expand.
Raghu(2016), maintains that draining of resources remains major concernsto businesses within the Gulf region. For instance, the bankingsector has reported a decline in deposits, especially from oilrevenues. Governments have been drawing down on their savings whichhave led to short-term pressures on the money market. Consequently,this has contributed to spurts in rates of overnight spending.Government sovereign bonds have been rising which reduce the numberof businesses in the private sector and well as deprive them creditfacilities. With the United States increasing hiking its interestrates, increasing government borrowing will worsen the situation(Regional Economic Outlook, 2016). The eventual impact of the declinein liquidity is an increase in the cost of capital. Companiesarealready experiencing the same challenge in some of the markets.Companies require access to funding to enhance their competitivenessin a market. With the financial sector struggling this makes it hardfor them to acquire funding to deal with different activities aimedat improving their edge.Companies from other parts of the world canuse this to their advantage. Specifically, they can benefit fromaccess to funding in their home countries to develop robuststrategies integral to their survival in target markets in the Gulfregion (Khan, Khurram Al-Saud, Alkhathlan, & Al-Derham, 2015).
TheReal Life Situation
Apparently,the business environment varies from one country to another. This isalso the case with Gulf states. Some present good business climatewhile others are deemed challenging. In the same regard, there arethose that have shown good trends while others struggle to improvetheir situation. This part of the research paper examines the reallife situation of the business environment among GCC countries.
Kuwaithas been going ahead with reforms intended at improving the generalbusiness climatein the country. Laws relatingtopublic-privatepartnerships (PPP), small and medium-sized enterprises (SME), andforeign direct investment (FDI)have lately gone into effect at a time when the government isearnestly looking for ways to lessen its dependence on oil as theprincipal source of state revenue (Schwab, 2016). Moreover, thecurrent environment of low oil rates might provide just the rightmotivation to accelerate efforts. Even though Kuwait, with adequatefinancial investments and one of the lowest breakeven oil pricesbetween oil exporters, is in a more contented position than some ofits OPEC peers, for instance, to weather the downturn (Al-Mutawa &Al-Nakib, 2015).
Thegovernment lately passed its second 5-year progress plan (2015-2020)(Regional Economic Outlook, 2016). According to the scheme, Kuwaithas set chief economic goals including to increase the impact of thenon-oil sector to general economic output (GDP) to 55 percent by 2020and to enhance the incidence of the industryon overall GDP (RegionalEconomic Outlook, 2016). The country also seeks to increase the totalof Kuwaitis employed in the private sector beyond the current.Kuwait’s plans are in line with the development objectives beingpursued by neighboring countries in the GCC (Shaher & Ali-Tajir,2016). All are looking to expand their economies, boost employment ofnationals in the private sector,moreover, stimulate non-oil activity,and investment. In Kuwait, the passage of judicial reforms has easedsubstantially since 2012 a permanent government committee for thisgoal has been set up, and fundamentalchanges relating to SMEs, PPPs,and FDI have been presented (Peng, 2016). The government has alsoprofited from closer links with the World Bank and the InternationalMonetary Fund (IMF), whose consultants have been looking at ways toimprove Kuwait’s business environment, to expand its economy and toreduce its customary dependence on the oil industry (RegionalEconomic Outlook, 2016).
Forauthorities in Kuwait, stimulating FDI is significant strategicobjective(Shaher & Ali-Tajir, 2016). In essence, the countryneeds FDIs for technology dividend multinational firms could offerrather than capital, which the country is not shortof. The governmentin keen to attract foreign businesses that will fill thetechnological advancement gap. Equally, this seeks to improvecreativity and innovation among companies (Peng, 2016). Notably, thecan learn from foreigners, hence their ability to improve theirperformances or productivity. Research shows that Kuwait has onlymanaged to attract 3.3 percent of all FDI inflow to the GCC (Shaher &Ali-Tajir, 2016). On the hand, it is ranked among the top exportersof FDI. The government has realized the effects this has on theeconomy, hence the development of laws and creation of an environmentfavorable to FDIs (Al-Mutawa & Al-Nakib, 2015).
TheUnited Aran Emirates
TheUnited Arab Emirates is one of the fastest growing nations in theworld(Schwab, 2016). The country attracts not only multinationalbusinesses but is also considered a tourist destination. The countryhas the right ingredients, unbeatable shopping experiences, anintriguing traditional culture, top-class restaurants and hotels,unforgettable sports, sea, sand, sun, and holiday, and safe andwelcoming environment (Tseng, 2014). Presently, the country isconsidered a high-income developing economy. Its oil reserves areranked sixth among largest reserves in the world. The countrypossesses the most developed economies in West Asia. UAE is astatutory federation consisting of seven emirates Fujairah, Rasal-Khaimah, Umm Al-Qwan, Ajman, Sharjah, Dubai, and Abu Dhabi (Peng,2016). The different Emirates have different business environmentswith Dubai and Abi Dhabi attracting the most business in the regionand beyond. The government in the two emirates have committed theirefforts and resources in ensuring improved confidence in theirbusiness environment. The remaining emirates are also committed toboosting business performances. Nevertheless, they are yet to achievethe status of Abu Dhabi and Dubai (Schwab, 2016).
Regardingeconomic development, UAE stands at the thirty-fifth position basedon market exchange rates(Schwab, 2016). The state has in the recentpast been enjoying a high per capita GDP. The government controllevels of inflation to ensure stable prices. Consequently, it hasguaranteed low levels of unemployment not reduce poverty as well asincrease public spending. This is unlike the case with other Gulfstates such as Saudi Arabia (Tseng, 2014). Moreover, UAE has avibrant free economy. A significant proportion of its revenue iscollected from exports of gas and oil.The government has also beenattempting to reduce its reliance on revenue realized from the saleof hydrocarbons through diversification. The establishment of freezones has helped in the realization of the diversification policy. Italso has a high Human Development Index. The United Arab Emirates hasbeen increasing. In 2010, it was estimated to have 4,975,593 (Callen,Cherif, Hasanov, Hegazy, & Khandelwal, 2014). Out of the total,the vast majority are expatriate workers seeking greener pastures. Inessence, many individuals have been attracted to the UAE market totake advantage of competitive salaries offered by differentcompanies. The Emiratis population is expected to rise in future(Garavan, McCarthy, & Morley, 2016). The growing presence ofEuropeans, Asians, and citizens from more than 160 countries rendersUAE a cosmopolitan country (Peng, 2016). This offers business withexpansion opportunities. For instance, they can expand their productportfolio to attract diverse customers.
TheUAE has been experiencing a desirable degree of political stabilitysince its establishment in 1971, unequaled in the region (Mitra,Minasyan, & Abajyan, 2016). This has enabled the development ofsound economic policies and the reinforcement of the country’ssocial structure. The UAE government has ensured this to produce oneof the most tolerant, secure, prosperous, and safest societiesglobally. Dubai is among the best cities in the Middle East based onthe quality of life. Many businesses are attracted to the cities asthe offer many opportunities for expansion. The demand for differentgoods and services is considerably high in these areas (Schwab,2016). The investment includes a diverse range of internationalorganizations headquartered in various states. The government offerssignificant incentives to organizations to stimulate their enhancedperformances. For instance, taxation policies are favorable to bothlocal and foreign firms. FDIs benefit from the same as they can pricetheir good competitively (Al Shamsi, Dixon, Hossan, & GolamPapanastassiou, 2015).
SaudiArabia hasan attractive business environment. Rising oil prices meanthat the kingdom enjoyed highest average GDP rates between 2002 and2011(Tseng, 2014).Its GDP tripled within thisperiod.However, the country reported a negative growth in 2009 during theglobal credit crunch. Sincethen, the economy has been struggling with good performancespublishedin 2011(Peng, 2016).Business leaders are optimistic that the kingdom will improve itsperformances in 2016 and the future. Saudi, just like the case withUAE and Kuwait relies on oil and oil products to fuel its economy. Inessence, the energy sector dominates the local economy(IRENA, 2016).The fact that the economy is still growing means that businesses canexpect better performances in the future. This is evident as thegovernment has recently increased its spending to boost economic andsocial development. Government spending iswidely spreadwith notable expenditure in education, health and welfare,infrastructure and transportation, and water and agricultureindustries. Many scholars and business leaders argue that thispresent numerous opportunityto businesses(IRENA, 2016).
Socialtrends include population growth, underdeveloped infrastructure, andchanges in consumer needs (Schwab,2016).These trends can beviewedas both threats and opportunities. With an increasing population,businesses can anticipate increased demand for their goods in thefuture. Equally, changes in consumer needs can lead to organizationsengaging in research and development to improve the quality of theirgoods and services, hence high performances. Failure to ensure thesame canresult intheir products being rendered obsolete(Mitra, Minasyan, & Abajyan, 2016).In turn, this will attract target consumers to what is provided bythe competition. Underdeveloped infrastructure remainsa challenge to businesses in Saudi Arabia unlike the case with UAE.The government must invest more in the development of the same toimprove the business environment(Peng, 2016).
SaudiArabia has created an environment where business findsit easy to operate. It fareswell in investor protection, registering property, and taxation. Thegovernment has ensured an environment where FDIs do not struggle toachieve their goals and objectives. The number of FDIs in the countryhas increased since 2008 and continuedto rise(Peng, 2016).Largest investments have beenreportedin water, power, and petrochemicals. On the contrary, it performsbadly in resolving insolvency and enforcement of contracts.Corruption is also a major challenge to business. Some governmentofficials offerservices based on people’s willingness to offer or accept bribes.All in all, the government has been working tirelessly to rectify thesituation. Stringent rules and regulation have been developed to curbthe issue(Schwab, 2016).
Thepast years have seen considerable changes inQatar’s business environment. The state has witnessed numerousreforms in the Ministry of Economy and Commerce, for example, theintroduction of online payment systems, changesin the foreign investment laws, and new public service centers. Otherchanges include theintroductionof withholding taxes, migration to advanced InternetTax Administration System, and reduction in tax rates(Qatar, 2015).The government is engaging in these initiatives to attract morebusiness from the international market as well as improve theperformance of its local organizations. Moreover, it encourages acompetitive business environment. With foreign firms enjoying goodlaws, their local counterparts are forced to enhance theirperformances failure to which they risk losing their edge. Thecountry’s leaders haveplans to develop the economy to attract additional foreigninvestments as well as stimulate growth(Qatar, 2015).
Qatar’seconomy is ranked third among largest economies in the GCC after theUnited Arab Emirates and Saudi Arabia. Itis projected that the state will havethe highest growth over the next five years. Plans are underway toinvest more in infrastructure to attract more businesses from allparts of the world. Currently, the majority of firmsoperatingin its market are British(Mitra, Minasyan, & Abajyan, 2016).The number of British expatriate population has also been rising.Qatareconomy ischaracterizedby stability and high personal wealth. It is also considered to bemodern, fast-growing, and diversifying economy(Garavan, McCarthy, & Morley, 2016).Substantialgovernment funding for infrastructure and associated projectsis also evident. Qatar welcomes multinationals to participate injoint ventures through market administration, equity participation,and technology supply. The government has been improving the businessenvironment as a way of ensuring economic development(UK Trade & Investment, 2016).
Despitethe government efforts to improve the business situation, the Qatarbusiness environment is not without challenges. For example, enteringthe country directly is a challenge. As such, most organizationprefers joint venture as a market entry strategy. Even so, theirQatar partners are given the majority share(Mitra, Minasyan, & Abajyan, 2016).Disputes occur when determining contracts. In most cases, theforeigner carries the highest risk regardinglosses should the venture fail to work. All in all, to survive themarket, a foreign investor must look for a local partner. It isimperative multinationals to ensure they sign a contract beforestriking any deal with their Qatar counterparts. Principally, work isnever agreed on a handshakeas this increase the risk of non-payment issues. Other challengesinclude high levels of bureaucracy, delays in payment, market notwell regulated, focus on prices rather than quality, and highlycompetitive(Schwab, 2016).
Oman’sstatepolicy is to ensure the creation of anational economy based on individualinventiveness in a competitiveenvironment without monopolistic practices.Thisexplains why the government has invested a lot in infrastructuredevelopment to boost socio-economic development(Tseng, 2014).Government officials have been working tirelessly to establish astrong private sector to support state initiatives and offerfinancial assistance should the need arise. This is done to stimulaterapid growth, especially in areas of commerce and production hithertounknown in Oman. Scholars express their optimism is a better businessenvironment in the future. Both local and foreign businessesshould expect better investment opportunities as the governmentattempts to improve the Oman marketsituation.
Omanalso relies on oil and gas to fuel its economy(IRENA, 2016).However, historical price fluctuations in the gas and oil industryhave necessitated the need for the government to diversify theeconomy to avoid downturns. For instance, it has embarked on a policyof economic diversification with an emphasison light industry, mining, tourism, fisheries, and agriculture. Anambitious privatization plan is also in place. Other industries thegovernment intendsto improve on include heavy industries and petrochemicals. Companiesand organizations currently operating in the Oman market cancapitalize on the opportunities created in these industries toimprove their market position. This is also likely to attract morebusinesses from other regions(Mitra, Minasyan, & Abajyan, 2016).
Thereare also downsides to investing in Oman. For one, the country isranked among the most corrupt countries in the region. Access toresources is in most of the times based on whomsomeoneknows or their willingness to offer bribes(Schwab, 2016).The country also has a small population. However, it has a higherpopulation as compared to Qatar and Kuwait. The population has alsobeen increasing. With this being the case, businesses should expectmore demand in the future. In the same way, unemployment is alsoconsiderably high. This affects disposable income and the demand forvarious products and services. The government has embarked on theroad to achievingeconomic diversification tosolve the unemployment problem(Callen, Cherif, Hasanov, Hegazy, & Khandelwal, 2014).In essence, focusing on the diverseindustry will ensure job creation, hence reduced unemployment.
Bahrainoperates as a constitutionalmonarchyand has been since 2002(Peng, 2016).Its government isalso committedto the improvement of the business situation especially in this erawhere more countries are opening up their borders for foreignbusinesses.Nevertheless, its ability to achieve this goal has been impacted bypolitical instability(Ahmed & Hamdan, 2015).Bahrain citizens are contented with the current governance and havebeen demanding for change. This explains the regular demonstrationagainst the government which disruptsbusinesses and their activities. To ease tensions, the government hasbeen encouraging national dialogue. Equally, new law enforcementintelligence and judicial reforms have been introduced to handle someof the issues and concerns raised by citizens. Nevertheless,corruption and lack of transparency remains a barrier to successfuldevelopment(The Heritage Foundation, 2016).
Despitechallenging internal and external environment, Bahrain has maintainedeconomic resilience. Equally, it is considered a regional leaderregardingeconomic freedom. This explains why firms are attracted to itsmarket. The state remains a financial hub for dynamic economicactivity. High levels of investment and trade arebolsteredby an efficient and competitive regulatory environment. Its GDPgrowth is stable(Mitra, Minasyan, & Abajyan, 2016).Thestate has been encouragingventures in thenon-energysector, including construction and finance to ease dependence ondeclining oil reserves and fluctuating oil and gas prices.Unemployment levels are low as compared to Oman. As such, companiescan be sure of high demand for their products and services(The Heritage Foundation, 2016).
Bahrain has a small population. Nevertheless, the population hasgrown over the past years. As a consequence, this has increased thedemand for various products and services. This explains why manymultinational businesses are attracted to the market. Most of themoperate in the market through joint ventures and exports(Ahmed & Hamdan, 2015).It is clear that the country has been experiencing politicalinstability. As such, companies chose to operate indirectly in themarket to avoid issues linked with demonstrations and rallies. Thetrend is expected to change in the future as the governmentencourages national dialogue. In general, foreign investment isexpected to thrive in the coming years(The Heritage Foundation, 2016).
Thereare somedifficultiesbusinesses are likely to experience in almost all the Gulf States.For one, cultural diversity is a major challengein all cases. Countries in the region still value their culturalbeliefs and practices. Foreigners are expected to respect the samefailure to which they may struggle to survive or even enter themarkets. Special consideration must be placed on business etiquettethough this also varied from one country to another. Languagebarriers are also evident especially for companies outside the MiddleEast(The Heritage Foundation, 2016).
Variousmarket entry strategies can be utilized when entering the GCCmarkets. This includes joint ventures, franchising, exporting,acquisition, foreign direct investment (FDI), and the use of overseasdistributors. However, the best market entry strategy into the UAE,Kuwait, and Qatar market is through foreign direct investment. Thiswill allow business to have total control of their activities andquality of products offered to customers(Bahramitash & Esfahani, 2016).Additionally, the three countries have established a market whereFDIs can thrive with ease. Direct investment will enable businesseshave more control over their activities as opposed to the use ofother market entry strategies(Heinberg, 2016).On the other hand, businesses should consider entering the remainingcountries through exporting, joint ventures, and franchising.Basically, they should avoid entering the markets directly as theirgovernments have failed to develop policies that favor suchbusinesses. Equally, the level of corruption in these countries isconsiderably high. With this being the case, foreign firms are likelyto encounter challenges acquiring business permits as well asresources integral to their survival(Shaher & Ali-Tajir, 2016). Saudi Arabia may soon be ripe for foreign direct investment. Thereare foreign investors already operating in the market. However, thegovernment is yet to establish an environment where internationalbusinesses can survive with ease.For example, corruption and budernsome tax system are majorimpediments to foreign investment (Schwab, 2016).
TheGulf region has in the recent past attracted businesses fromdifferent corners of the world. This isattributedto improved economic, social, and political status of membercountries including Oman, UAE, Kuwait, Bahrain, Saudi Arabia, andQatar. The United Arab Emirates has attracted most businesses as aresult of itsgreat focuson economic development and the establishment of ahealthybusiness environment. Evidently, most countries in the region rely onoil and gas to boost their economicperformances. Historical price fluctuation and declining oil reserveshave forced them to refocus their efforts on other sectors. Thispresents opportunities for business expansion. Among the challengesbusinesses experience in these markets include language barriers,differences in cultural practices, corruption, and competition. Ingeneral, the business environment in Gulf region has become tougherthan before. It takes the right strategies and resources to enter andsurvive these markets. Some member countries have better businessenvironments than others. Companies must be keen when determiningwhich market to enter and the strategies to employ. In the sameregard, they must embrace a localization strategy. Despite thechallenges, scholars envision better opportunities in the future.Surviving these markets will be tougher in the future with increasedcompetition and new reforms. Nevertheless, businesses with the rightstrategies will still achieve the high performances. The best marketentry strategy in the Qatar, Kuwait, and UAE markets is foreigndirect investment. On the other hand, multinational companies shouldconsider entering the Saudi Arabia, Oman, and Bahrain market throughexporting, joint ventures, franchising, and licensing. Fundamentally,these markets are not suited for direct investment.
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