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ISSUE 123
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MANAGEMENT Dominic De Sousa Chairman Nadeem Hood Group CEO Georgina O’Hara Publishing Director Paul Godfrey Head of Content – SME paul.godfrey@cpimediagroup.com Editor Rushika Bhatia rushika.bhatia@cpimediagroup.com ADVERTISING Business Development Executive Mohamed Kerrouchi mohamed.kerrouchi@cpimediagroup.com Account Executive Freshia Mistry freshia.mistry@cpimediagroup.com Account Manager Mrudula Vempuluru mrudula.vempuluru@cpimediagroup.com Creative Director Sam Birouty Senior Designer Solomon Arthur Printed by Al Ghurair Printing & Publishing LLC
Enabling trade opportunities To survive in today’s highly competitive business landscape, SMEs need to seize and maximise growth opportunities in areas such as human capital development, innovative product creation, industry collaboration, mergers and acquisitions, and internationalisation. This month’s issue focuses on enabling SME growth through trade, expansion and doing business across new markets. We reached out to global experts and partners, and discussed strategies that will propel SMEs to get off the ground and increase their chances of success in international markets. Moving forward, here’s a three-pronged approach to bear in mind:
Editor
1. Meeting international quality standards
In order to be successful in overseas markets, SMEs need to have a clear internationalisation strategy. At the core of the strategy should be quality. Adopting internationally recognised standards to meet export requirements for quality and safety significantly reduce barriers to trade. It further helps instil global confidence in a company’s products, services and processes – particularly within overseas markets. 2. Focusing on research and market intelligence
Investing in research and development to innovate product offerings is critical as it helps SMEs gain market differentiation, increase market size and boost profits. Market intelligence puts you ahead of competition, opens doors to new markets and fast-tracks business growth. 3. Working with global partners and mentors
Government agencies such as the Dubai Export and Dubai Trade continue to support SMEs to innovate, raise productivity, hone their competitive edge and eventually scale their businesses overseas. With the backing of such partners, SMEs can not only survive challenging business conditions, but rather develop leaner, more cost-effective and efficient operations. Good luck and enjoy reading this issue of SME Advisor! SCAN THIS CODE FOR REGULAR UPDATES!
rushika.bhatia@cpimediagroup.com
@SMEadvisorME www.facebook.com/SMEadvisor www.tinyurl.com/smeadvisorme Head Office PO Box 13700, Dubai, UAE Tel: +971 (0) 4 440 9100 Fax: +971 (0) 4 447 2409 © Copyright 2016 CPI. All rights reserved. While the publishers have made every effort to ensure the accuracy of all information in this magazine, they will not be held responsible for any errors therein.
PRESENTING PARTNER
STRATEGIC SME PARTNER
OFFICIAL GOVERNMENT PARTNER
CONTENTS
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09 EDITOR’S NOTE Enabling trade opportunities. Your three-pronged approach to unlimited business growth. 10 SME CONTENT CURATORS Presenting this month’s portfolio of industry specialists and thought-leaders, who played a critical role in the content of the magazine. The Economist’s View 12 TRADE WINDS: key factors driving the new era of global trade. Wolfgang Lehmacher of the World Economic Forum shares trade and industry insights. 18 SMALL BUSINESS, BIG DECISIONS. KPMG UAE discusses the importance of SMEs’ auditor selections in overcoming testing times and planning for the future. Editor’s Roundtable 22 EXPORTERS MUST WAKE UP TO THE DIGITAL REVOLUTION. Noted industry commentator Dr. Ashraf Mahate, Head of Export Market Intelligence, Dubai Exports, highlights critical lessons.
SME ADVISOR ISSUE 122
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Data & Analysis 48 CHINA’S TRILLION DOLLAR SILK ROAD: and its impact on global trade. Spotlight on the new ‘superhighway’.
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Emerging Middle East 54 TRANSFORMING KUWAIT’S FUTURE, ONE SMALL ENTERPRISE AT A TIME. Experts from the World Bank shed light on the evolution of this burgeoning market. Organisation & Structure 58 INTERNATIONAL ARBITRATION: key trends and statistics. Senior advisers from Clyde & Co. present the latest updates.
VIP Majlis 28 MASTER OF TRADE: Eng. Mahmood Al Bastaki. An exclusive interview with the CEO of Dubai Trade. Business Banking 32 DOING BUSINESS IN EMERGING MARKETS. A closer look at these fastgrowing markets and a detailed analysis of the way moving forward. Infographic of the month 40 Our infographic section showcasing key trends shaping the SME marketplace. Movers & Shakers 42 THE GROWTH IMPERATIVE. We review the conclusions of DMCC’s farreaching report –The Future of Trade, and speak to their CEO about the changing face of global trade.
62 BUILDING AN EXPORT STRATEGY: an expert’s blueprint. We turn to Rami Rabia – exporting guru and consultant – for strategic advice. 66 ENTERING NEW MARKETS – 10 stepping stones to success. A comprehensive guide to help SMEs in their quest for international business growth. SME Unplugged 70 WHY HAPPINESS AT WORK MATTERS 72 IF YOU’RE HAPPY AND YOU KNOW IT...Unravelling the relationship between happiness and productivity in the workplace. 76 YOUR GATEWAY TO OPPORTUNITIES – bauma. A guide to the latest developments and innovations at the world’s foremost sector-focused event.
Content Curators
“unlocking the potential of international ecommerce requires efficient and costeffective logistics and smooth customs processes through paperless digital export and import processing.”
Wolfgang Lehmacher Head of Supply Chain and Transport Industries World Economic Forum
CONTENT CURATORS
“Dubai Trade’s primary goal is
Presenting this month’s portfolio of industry specialists and thought leaders, who played a critical role in producing the feature content of our magazine and ensuring that we were more topical than ever.
to ensure facilitation of trade in an easy, efficient, highly streamlined and businesssavvy manner.”
Eng. Mahmood Al Bastaki CEO Dubai Trade
“Much of the new international
regulation is increasingly aimed at freeing up trade to make it simpler and less bureaucratic.” Gautam Sashittal CEO DMCC
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Content Curators
“Turbulence in the global economy is likely to increase the number of international disputes. International arbitration is increasingly popular as the means of resolving them.” Anthony Albertini Partner Clyde & Co LLP
“Your export strategy has to begin with how you are leveraging the local Dubai and UAE market for exports.”
“Many companies are already embracing the notion that employees who are satisfied with their jobs and are happy at work make more productive and better employees.” Courtney Rickert McCaffrey Senior Associate at A.T. Kearney’s Global Business Policy Council
“Companies increasingly have
to adapt their workplace policies and culture to attract top talent from the rising generation of employees.” Erik Peterson Partner and Managing Director at A.T. Kearney’s Global Business Policy Council
“In the case of exporting, the internet cannot make firms exporters overnight, because they have a website and an internet connection.”
Rami Rabia
Dr. Ashraf Ali Mahate
Director of International
Head of Export Market Intelligence, Dubai Exports
Sales - BMB Gourmet
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The Economist’s View
Trade winds:
key factors driving the new era of global trade
Underpinning current trade growth are four crucial market forces, and businesses need to adjust quickly in order to make most of these new possibilities, says Wolfgang Lehmacher, Head of Supply Chain and Transport Industries, World Economic Forum.
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Global trade has gone digital. The days where global trade could be seen through the lenses of export and import, trade surpluses and deficits are gone. Global platforms offer business and nations global opportunities – disconnected from the locations of production and sale. With borders increasingly forced to give way to the digital economy, all market participants need to urgently understand the key driving factors of the new era of global trade. Today’s global market is characterised by relatively mature value and supply chains, increasing regionalisation and localisation of production, the rise of non-tariff barriers after a period of significant tariff reductions, and an e-commerce boom, which needs to overcome the remaining hurdles in international business – much of which is driven by digitisation. Digitisation is the key enabler of modern times, and an important lever to capture value in the new era of global trade. Among many, platformization, flexible manufacturing, fast products and repurposing of goods are critical drivers in the new game of digital trade.
With borders increasingly forced to give way to the digital economy, all market participants need to urgently understand the key driving factors of the new era of global trade
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The Economist’s View
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The Economist’s View
1. Platformization The era of “platformization” allows for a more inclusive economy, i.e. almost each and every business can now operate on a global scale. Global e-commerce platforms such as eBay or Alibaba can connect millions of manufacturers and billions of consumers, making the global market accessible to even the smallest manufacturer and providing the broadest choice to all consumers with access to the internet. Hence, platforms can drive growth in the small and midsized business sector. In addition to much broader and better match-making, middlemen are cut out which allows for higher margins on the sales and lower prices on the purchasing side. It also reduces the risk of corruption. However, the concept only works if the underlying logistics and transportation platforms support the digital transactions. Unlocking the potential of international ecommerce requires efficient and cost-effective logistics and smooth customs processes through paperless digital export and import processing. On the import side, there is a need for effective tools to be able to process and analyse information about shippers and products moved. These tools reduce clearing times, enable pre-clearance, and help to manage the risks that come along with lower value goods, which fall often below the threshold of more diligent customs clearance processes. 2. Flexible manufacturing Digitisation enables more flexible manufacturing. In the past, brands tended to centralise manufacturing for better manageability and quality control. The possibilities of information technology, the internet of things, big data and the cloud are the tools to reach a new level of collaboration and empowerment throughout the value and supply 14
chain. One example is the Flex Pulse Centre. The Pulse Centre is an aggregator of information from various sources and a space of collaboration to support understanding and decision making at the level of the local operating units. Potential threats and deviations from plans can be identified and discussed across the organisation. The enhanced visibility allows companies to move factories closer to the customer without risking sudden surprises. In the continuous process, the global supply chain is converting towards a more and more dense and integrated platform of short, medium and long distance cargo moves – with regional and local distribution centres along the way. However, the new factories will continue to require global supply, as not all materials and resources will come from sources nearby. There are still black holes. Some blackouts of visibility are caused by governmental security concerns, for example in free zones, others by the lack or the limitations of digital infrastructure. There are opportunities for business and government through public-private partnerships to establish not only the full coverage digital architecture but also the trust to fully leverage the available technology. It goes without saying that the smooth and seamless movements of goods in and out of countries through the reduction or elimination of tariff and non-tariff border barriers is essential for success in the new era of digitised trade.
Unlocking the potential of international e-commerce requires efficient and cost-effective logistics and smooth customs processes through paperless digital export and import processing
3. Fast products Today’s customers demand fast products, such as fast fashion with quickly changing models. Many customers wish instant customer satisfaction. In fact, this works well for brands wanting to avoid the high inventory and high risks which come with the big bets on the right
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The Economist’s View
designs for an entire fashion season, for example. Fast products require short supply chains. Consequently, production needs to move closer to the markets and shops to meet the shorter lead times from sketch to shelf. Zara, for example, “adapts couture designs, manufactures, distributes and retails clothes within two weeks of the original design first appearing on catwalks”. In creating the new customer experience, the management of the supply chain becomes a critical component of the business model and source of
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competitive edge. Companies that wish to play in the “fast economy” will require new factories close to the markets and new distribution platforms. Consequently, factories will move and intercontinental flows of goods will become more regional or even local. 4. Repurposing of goods The planet has limits. These limits can be opportunities for business. Though there is a need to analyse the entire value chain, as sometimes even long-distance transport might be less carbon intense than local
production, in many cases tightening the supply chain saves energy and emissions. Hence, the trend towards localisation and regionalisation helps with resources and the environment. However, digital trade can go well beyond the simple shortening of the supply chain. The new visibility in the supply chain not only helps identify leakages and misuse but enables new operating and business models, ranging from optimising delivery routes to tapping into unused capacity offered by the many platforms of the sharing economy. Additional potential lies in
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The Economist’s View
Wolfgang Lehmacher Head of Supply Chain and Transport Industries World Economic Forum
the resources locked in the products which are thrown away every day: for example electronics, paper and plastics. Asset tracking alone could help unlock a potential value of about US$52 billion annually for consumer electronics and household appliances alone. Repurposing products will be a major opportunity for governments and companies in the years ahead. In the world of digital trade, visibility and fluidity of the supply, manufacturing and distribution ecosystem is critical. Businesses seek and will find new sources of value in tracking products throughout the first lifecycle and further downstream to the recovery for the repurposing. By creating a repurposing capability, the public and private sectors have a unique opportunity to position themselves as modern, responsible and smart players. The digital economy has become a reality and digital trade is a good part of it. In the new era of global trade, companies and governments need to update knowledge and adjust strategies. We must keep in mind that despite all the technological possibilities, it is the small and midsized business sector which plays a key role when it comes to innovation and new business models.
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Wolfgang Lehmacher is Head of Supply Chain and Transport Industries at the World Economic Forum. He is a global executive, management consultant and entrepreneur – expert in the field of supply chain, transportation and logistics. He has been involved in major change initiatives in the industry. During his career Lehmacher has been heading country, regional and global innovation, expansion and investment projects of Fortune 500 and other leading companies, and supporting various start-ups, social enterprises and notfor-profit organisations. Prior to joining the Forum, Lehmacher was Partner and Managing Director (Greater China and India) at the global strategy boutique CVA, overseeing also the firm’s global logistics and transportation practice. Between 2005 and 2010, he served as President and CEO of GeoPost Intercontinental, the global expansion vehicle of French La Poste. He was the International Director of GeoPost Group from 1999 to 2005. Before joining La Poste, Wolfgang Lehmacher held senior management positions with TNT from 1991 to 1999, including Head of the Eastern European and Eastern Mediterranean Regions and Country General Manager Switzerland.
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The Economist’s View
Small business, big decisions KPMG UAE’s Associate Director for Advisory Services, Ben Edwardes, discusses the importance of SMEs’ auditor selections in overcoming testing times and planning for the future.
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The Economist’s View
A lot has been said in the national, regional and international media about how falling oil prices are affecting government spending and larger corporations’ profits across the GCC. However, it is important to remember that companies of all sizes and across all industries are being affected by the current downturn. The recent news that the Emirates NBD Dubai economy tracker fell below the neutral 50 mark in March underlines how a lower oil price, a stronger US dollar, volatility in financial markets and global economic worries are affecting all types of businesses. In fact, SMEs are often more challenged by low oil prices as they suffer the same drop in demand while having to deal with large corporate and government bodies delaying payments to protect themselves in these trying times. Smaller companies don’t have the same margins or resources to see them through a protracted period of smaller cash inflows, forcing them to reduce costs dramatically. Ways of doing this include reductions in staff headcount, delayed payments to suppliers or – with the threat of imprisonment for bad debts - simply leaving the country, leaving behind debt that is unlikely ever to be repaid. Now more than ever, it is vital that companies of all shapes and sizes go beyond increasing or maintaining revenues. While doing so is always important, companies must ensure that they are spending what time and
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The Economist’s View
Not having the right infrastructure – in terms not only of people but also tools and technology - to track and monitor business performance makes informed and timely decision-making difficult
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money they have wisely and that they have the right level of support. Having a good support network is vital – and the options often seem limitless. From advising on process efficiencies or offering day-to-day services like bookkeeping and payroll, the choice – from small SMEs that employ one or two people to large multinational professional services firms with revenues in the tens of billions of dollars and operations in every corner of the globe – may seem overwhelming. But experience shows that – particularly for SMEs - the cheapest provider may not necessarily be the most cost effective option. For example, getting funding from banks is currently particularly difficult and can be expensive. Did you know your likelihood of funding being approved is affected by the company you choose to prepare your books or sign off on your financial statements? Most banks grade accountancy firms, and this grade
has a direct impact on your credit application. If nothing else, this at least suggests that choosing the cheapest auditor or bookkeeper may not be in the best interest of your company. If, in this era of lower liquidity, you manage to persuade your bank to fund you, there will be a heavy reliance on reported numbers, internal management information and conditions that SMEs need to follow throughout the lifecycle of the loan. These additional information requests can be both time consuming and cumbersome. But noncompliance has implications – such as the loan being cancelled. Again, having the right support options in place – whether that means seconding staff for a limited period to perform a tightly defined task or something more vaguely defined – can make an enormous difference. Not having the right infrastructure – in terms not only of people but also tools and
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The Economist’s View
reputable professional service companies are waking up to the fact that the SME market offers real opportunity
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technology - to track and monitor business performance makes informed and timely decision-making difficult. SMEs sometimes say they don’t have much of a choice. The perception in the market is that SMEs have to select a local support service firm which seems more affordable. Unfortunately, all too often, these firms do not have the skills or expertise to go beyond the basic requirements they are hired for. At the same time, reputable professional service companies are waking up to the fact that the SME market offers real opportunity. If these companies can offer affordable prices, many SMEs who are seeking to professionalise themselves and grow may be willing to invest in return for working with a top tier firm. These consultancy companies are also investing in teams who specialise in SMEs. To reduce prices, they have invested in new tools and technology,
such as cloud-based accounting software or business intelligence systems. This makes them competitive against other top tier firms but also against many of the local companies based here in the UAE. Key decision-makers in SMEs – the owners and whoever heads the finance function – should consider the advantages – and the disadvantages – of working with a large multinational company. Top tier companies have years of experience across industries, markets and geographies and they bring this experience to bear on all the work that they do. Quality is second nature to these companies - a bad review from a customer, whether big or small, impacts their carefully protected reputation and so must be avoided at all costs. Using a top tier company gives you access to additional areas of support that you may not need now, but which may be critical tomorrow, next month or next year. Working with a large professional services firm gives you access to subject matter experts who can advise on company structures, governance, opportunities for cost reduction, strategic sourcing and mergers and acquisitions, amongst other things. These companies can even also be good sources for referrals, opening new sources of revenue. Using a larger support services firm is not for everyone. Mature SMEs which don’t need bank funding and are happy with their support network may not see much value in using a larger recognisable company. But how can you know whether this is in your best interests? Many SMEs may not know that there are other affordable options. They may be unaware that they can engage with well-known companies who will help them in any number of activities. The important thing to remember is that if you don’t ask, you’ll never know.
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Editor’s Roundtables
Exporters must wake up to the digital revolution The internet is revolutionising the way trade is done, but many SME exporters still haven’t fully taken advantage of the new technologies, explains Dr. Ashraf Ali Mahate, Head of Export Market Intelligence, Dubai Exports‌
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In a short space of time, the internet has changed the manner in which we communicate. The internet has been a communication tool like no other has and has allowed the world to be truly international or global. The internet is now an important source of information at schools, in the home and most importantly in the world of business. The lack of boundaries or restrictions in the use of the internet has meant that it is open to everyone and as such, it is truly an example of mass media. With a relatively small investment, the internet is available to anyone regardless of their size or location. Therefore, it is no surprise that the usage and content of the internet has grown tremendously over the last fifteen years. Studies show that in 1994 there were only 4.8 million websites on the internet. Most of these sites were located in the USA and were of course in English. Today there are over 50 million websites in a whole host of languages and now
even with non-English website names. With the advance of technology, the number of internet users has increased from 16 million or 0.5 per cent of the global population in 1995 to current level of 1,661 million or 25 per cent of world population. Current forecasts indicate that the growth in internet usage is expected to continue to increase for the foreseeable future. Throughout the world there has been an extraordinary growth in e-commerce with sales increasing by an annual rate of 20 per cent reaching US$840 billion in 2014. The growth in e-commerce has taken place as firms have expanded into new geographies and existing bricked based retailers have entered the digital market. The market potential of e-commerce is best viewed by the stock market valuations of firms such as Alibaba with its record setting US$25 billion initial public offering that valued the company at US$170
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The Economist’s View
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Editor’s Roundtables
billion. For SMEs these trends bring new opportunities especially as the business-to-business (B2B) trade in goods. At the same time, the internet allows SMEs to compensate for their inherent weaknesses in exporting such as market research and overseas promotion. The internet allows SMEs with their limited financial and human capital to support your export marketing activities in a number of ways which include: 1. Communication The internet allows SMEs to continually communicate with their suppliers and customers regardless of their location. 2. Networking The whole host of personal and business networking websites has meant that SMEs can build a large circle of potential suppliers, customers and even investors. In fact, some businesses have used social networking websites to effectively promote their products to customers throughout the globe for a fraction of the cost of placing an advertisement in a newspaper. 3. Market research The traditional difficulty faced by SMEs was that they lacked an overseas presence and the use of external consultants proved to be either expensive or of little use. However, the internet opens a whole new avenue for SMEs obtain considerable information so as to conduct tailor made market research studies in house. 4. Improve sales volume The B2B sales on the internet are a clear reflection of the manner in which firms can increase their sales through this channel. The internet makes the product or the service accessible to new customers who would ordinarily not have purchased from the company. 24
5. Image enhancement A traditional disadvantage of SMEs was that due to their financial constraints, the same tools were not available to them as those used by larger firms. However, the internet has changed this and the internet allows SMEs to conveniently and effectively display their portfolio of goods and services to potential buyers. In doing so SMEs are able to enhance and develop their image to not only domestic but also international buyers. 6. Cost reduction There is substantial evidence to show that SMEs can use the internet to reduce their operating
costs through obtaining supplies at a lower price. Also, the internet allows SMEs to use alternative and lower cost distribution channels. 7. Competitive advantage Recent examples have shown that the internet is a valuable tool for firms seeking to differentiate themselves from their competitors. Through readily available tools, the internet can easily and effectively create product and service attributes which are difficult to imitate. Although, the internet can be a valuable tool for SMEs it is important to note that real competitive
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Editor’s Roundtables
the SME use a phased approach whereby the easiest ones are made available first? • Which countries should the SME target firm through marketing activities that promote the website in the country? • Should the SME work with third party partners in the target countries or build its own resources? • What internal changes need to be carried out so that the SME can effectively meet the needs of its overseas customers?
advantage cannot be created by simply obtaining a presence through a web site. The skilful use of technology tends to enhance a firm’s competitive advantage but it cannot create it in its own right. In the case of exporting, the internet cannot make firms exporters overnight, because they have a website and an internet connection. The internet merely allows firms to reach a wider pool of potential customers across the globe. Taking these reality checks into consideration a firm then has to answer the following questions: • Is the company’s business model suitable for globalisation? • Will all services and goods be offered over the internet or will
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By answering these questions the SME will understand whether their internet presence is purely for domestic customers or will service the needs of overseas markets. If the SME feels that it is ready for exporting via the internet then it needs to develop an appropriate strategy so that real returns can be obtained from the deployment of technology. This strategy should seek to look at how the firm can reduce its overheads through greater use of technology, reduce transaction costs both with customers and suppliers so that the internet offers real financial gains, offer more efficient pricing for consumers so that the firm becomes more competitive and facilitate easy information access so as to reach a wider but more targeted pool of potential customers. Once the internet strategy has been developed the SME needs to appreciate that it will open its doors to customers from across the globe. SMEs need to bear in mind that its website is now its window to the world and can be viewed by anyone. As such, the website is the firm’s public relations and marketing tool hence its design needs to carefully choose the audience while keeping in mind that the internet is global. Some companies have dealt with this problem by developing
If the SME feels that it is ready for exporting via the internet then it needs to develop an appropriate strategy so that real returns can be obtained from the deployment of technology
4.8 million
Websites on the internet in 1994
50 million
Websites on the Internet today
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Editor’s Roundtables
SMEs need not spend vast sums of money to keep their content updated and a cheap and convenient solution is to have a Content Management System
language specific websites so that the corporate message meets the cultural norms while reinforcing the aspect of trust, commitment and export performance in a manner that is readily understood. Studies show that not understanding cultural differences leads to communication difficulties or even miscommunication and hence foreign customers form a negative view of the firm as far as trust and commitment are concerned. It has long been known that culture is vital to the manner in which an individual gathers uses and analyses information. In essence, it forms the basis of what an individual considers to be right or wrong. A common example of this is that maintaining eye contact is a positive aspect in western culture because it shows interest while in many Asian cultures it is disrespectful and aggressive. Therefore, SMEs while seeking to showcase their wares in the global market show be aware of not offending their potential customers. So what can SMEs do to build trust and confidence among potential overseas customers? This question can only be answered if the SME knows its customers. The first step towards understanding the customers is to map them. This allows the SME to build customer profiles, knowledge and better understand their needs marketing channels, level of support and incentives required before a purchase is made. The mapping exercise will also allow the SME to create groups with similar needs so that a more customised and perhaps personalised approach can be adopted for different types of customers. The second step is to build a website that has value-added, information with a high level of functionality and interactivity. With over 50 million websites potential customers are really spoilt for choice
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therefore the website should seek to differentiate itself. Also, a website rich in information implies that customers are more likely to recommend it to friends and family who in turn over time could become customers. Just because a website has a high level of functionality and interactivity does not mean it needs to be complicated. In fact, the most popular and well used websites tend to be those which are easy to navigate and quick to download. The best way to do this is to view the website from the perspective of the customer i.e. make it customer-driven. Evidence shows that customers negatively view websites that have old and outdated content. Therefore, it is important that the firm regularly updates the content so that it is relevant. This also means that products or services that are no longer available are removed from the website or if they are out of stock this is made known to potential customers. SMEs need not spend vast sums of money to keep their content updated and a cheap and convenient solution is to have a Content Management System. Of course, a good website with current content is of little use if it is not supported with a marketing and promotion strategy. SMEs can use a whole host of low-cost ways to market and promote their website site to overseas customers. Typical examples include using search engine optimisation, directory listings, barter arrangements (including reciprocal links, inclusion in industry or trade body websites), and so on. Finally, a successful website needs to integrate both the offline and online activities so that there is seamless connection between the two. While seeking to enhance its internet presence the SME should not lose sight of making sure that its product or service is also kept current.
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VIP Majlis
Master of trade: Eng. Mahmood Al Bastaki An exclusive interview with the CEO of Dubai Trade.
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From as early as 1880, Dubai has been positioned as a hub for trade – giving businessmen across the globe immense opportunities. How far have we come since then? Absolutely! Back in the late 1880s and early 1890s, Dubai was set up to be a hub for trade and logistics. Everything started from Dubai Creek, which separates Bur Dubai and Deira. Along the creek, the Dhows distributed goods in the Gulf from Iran, India, Karachi, Pakistan, Yemen and Zanzibar. Now the wooden ships still come but it’s the container ships that changed the game from how it used to be. Being the hub is the main economic pillar of Dubai, and I think this is what attracts many people, bringing in key players from all spheres including shipping, transportation
and logistics. For instance, all the shipping lines have agencies here and every shipping line stops here. All the huge vessels come here too and not every port can handle these as a deeper draft is needed. Ports have to change their infrastructure. Dubai has sea-air connectivity and every industry complements the others. We have the biggest courier’s office for the MENA region established in Dubai along with the financial institutions and 26 free zones, so it’s a fertile environment. Dubai is very flexible and protects investors. It is a secure, politically stable place for people to do business. We have a government which is pro citizens and visitors alike, and that respects people’s privacy and religion, wherever they come from. Dubai has always been very accommodating, flexible and
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VIP Majlis
accepting; we see beauty in that as every culture is very rich to learn from. Dubai is an amalgamation of human minds. Our goal is to maintain our hub status and the challenge is to stay ahead of the game. Of course we can’t stop others from developing, but it is in our hands to excel and advance. At the end of 2015, we had more than 113,000 companies registered online with Dubai Trade, including exporters, importers, shipping lines, shipping agents, freight forwarders, trucking companies, and so forth. As the person at the helm of Dubai Trade, what do you see as your strategic goal? Dubai Trade’s primary goal is to ensure facilitation of trade in an easy, efficient, highly streamlined and
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business-savvy manner. Dubai has excellent infrastructure, wise and probusiness policies, a can-do attitude and overall business conditions conducive to conducting and setting up new businesses. We strongly believe that Dubai Trade is – and will continue to be – instrumental in ensuring that systems and processes are set in place without a hitch thereby enabling trade and commerce in a competent and proficient manner. Today we live in a rapidly changing world, with speedy developments, great opportunities, discoveries and inventions. Hence, we must prepare ourselves to cope with the world in which we live, and sustain our place as a pioneer among other nations. Dubai Trade looks to cement the trade and economic activities in the country to further strengthen Dubai’s position as
the main gateway for trade regionally and globally. What are key factors that attract foreign investors to set up businesses in Dubai? It is all the more important that Dubai is seen as a stable, efficient and progressive economy that uses competitiveness as a tool to drive government excellence. This will give comfort to the multi-national companies to consider Dubai as not only the base for their local operations but to use Dubai as the regional or even global headquarters in the years to come. If investors establish themselves in Dubai, they will never leave, no matter what offers other neighbouring cities make. A lot of companies prefer Dubai despite the price of real estate and living costs.
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VIP Majlis
Dubai Trade’s primary goal is to ensure facilitation of trade in an easy, efficient, highly streamlined and businesssavvy manner
They see the value in staying and there are more companies coming to Dubai than leaving. We have so far “walked our talk” and this is seen in the growth of FDI over the past years and with a mega event such as the Expo 2020 coming up quickly, we must do even more to ensure that foreign investors are aware and are encouraged to invest in Dubai.
113,000
Companies registered online with Dubai trade by the end of 2015
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How does Dubai Trade align itself with the UAE government’s macrodevelopment initiatives? Dubai Trade complements the government’s investment into infrastructure development, whether it is the airport, sea port, free zones or road infrastructure. We look into the end-to-end process across the trade supply chain to ensure that data, documents and the flow of money is streamlined to ensure that we do not create bottlenecks at the hand-off points. We also serve as a reference model for all related stakeholders by
uniting the information regarding the customer, the cargo and the transportation method which will allow our stakeholders to focus on improving their business service development and delivery into the single window portal. Through our unique customer perspective, we challenge the status quo and have been instrumental in bringing down the number of documents required for cross-border cargo movement in Dubai from eight in 2008 to five in 2015 for imports and seven in 2008 to three in 2015 for exports. This is achieved through continuous improvement of business process. Along with the document reduction, we have reduced the time taken for the goods to reach the warehouse of the traders from 13 days in 2008 to seven days in 2015 for both import and export. This includes the time taken at the bank for a letter of credit processing and the local transportation from the port to the warehouse.
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A strong leadership that creates a shared vision is a key ingredient that is instrumental in our success when compared to similar initiatives in the region and at a global level. The close alignment between the leaders of DP World, Emirates, DNATA, Dubai Customs and Dubai Smart Government has ensured that the neighbouring economies have a very high standard to meet before they can hope to move ahead of Dubai in trade and logistics. What are the services that you provide to trading community? The Dubai Trade portal offers a single window to the online services of its stakeholders (DP World, Dubai Customs, and Economic Zones World) and provides a streamlined flow of services designed around customer needs and is targeted at customer satisfaction. The portal services are on a continuing growth curve. We have more than 820 services available
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on the Dubai Trade portal which have been developed based on our customers’ needs captured through regular follow-ups and direct client visits. In addition, Dubai Trade strives to provide effective and high-quality training sessions to customers who plan to utilise our e-services to ensure that the transition from traditional manual methods to an online system progresses as efficiently as possible. We are also providing professional courses for the trade and logistics community, which highlight critical areas focusing on the end-to-end process of import and export in the UAE and region. Furthermore, any service at Dubai Trade is supported throughout its lifetime with Dubai Trade’s professional support team which operates 24 hours a day, seven days a week, through our state-of-theart Contact Centre which offers uninterruptible support in multiple languages.
What further developments are in the pipeline, and how are they aligned to Dubai’s overall vision? We are very much aligned with the city’s growth plans and move in sync with the vision for Dubai, while bearing in mind the macro-level opportunities around the world. In Dubai, our efforts are to deliver greater value to our customers every year by bringing together more stakeholders into the single window portal. We are also excited to be an integral part of Expo 2020 and we are working independently and jointly with other partners to offer relevant services prior, during and post this mega event. We are in very advanced talks with other ports to build and operate a similar platform that will see another level of collaboration and automation of the global trade.
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Business Banking
Doing business in Emerging markets: prospects and challenges 32
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Business Banking
Emerging markets are large, fast-growing and ambitious markets best known for being the growth engines of today’s global economy. In the following feature, we take a closer look at the current trends in these markets and present a detailed analysis of the way moving forward… www.smeadvisor.com
The likes of Brazil, India, China, Turkey, Egypt and Russia, termed as ‘emerging markets’, are large, fastgrowing countries that have often been the primary targets of businesses seeking new sources of growth. Emerging markets have continually sparked interest over the last decade or so, mostly because their rate of growth has been twice as much as that of developed nations. A report on IMF’s website suggests that “growth in emerging market and developing economies is projected to increase from four per cent in 2015 – the lowest since the 2008–09 financial crisis – to 4.3 and 4.7 per cent in 2016 and 2017, respectively. While growth in advanced economies is projected to rise by 0.2 percentage point in 2016 to 2.1 per cent, and hold steady in 2017”. 33
Business Banking
Market insights Set against the backdrop of three very critical market realities – commodity prices, lower oil prices and China’s slowdown in growth – there have been strains in some large emerging market economies throughout 2015. There is no doubt that these factors will continue to weigh on growth prospects in 2016-17. However, there have been signs of improvements and countries such as India, Mexico, Hungary and Poland have made adjustments that have set the scene for better growth ahead. Let’s take a closer look at some of the top emerging markets:
1
2
3
Argentina
Brazil
Russia
NBAD’s 2016 Report further comments, “Argentina witnessed a change of government in the fourth quarter of last year, when Mauricio Macri, a right-winger, took over as President, which was a major change after 12 years of leftist governments. Macri is pro-business. The currency has been allowed to float freely, as a result of which the peso depreciated by 30 per cent last year. The curtailing of import restrictions and the liberalisation of agriculture exports - a few of his other priorities – are further examples of the new government’s pro-business stance, designed to attract foreign investment over the medium-term. The loose currency regime does carry the risk of a new inflation scare, a perennial problem for Argentina.”
With Brazil facing one of its worst economic downturns in 25 years, investors and businesses continue to wonder if there is any light at the end of the tunnel. This is of course reflected in its real GDP, which shrunk by 3.5 per cent last year, and is expected to experience a further fall of 2.5 per cent this year. Some of the country’s economic challenges include: the controversy surrounding ‘Petrobras’; commodity prices are low; and weakened confidence in government. Any recovery in business confidence depends on repairing the political situation. The adjustment of the currency is helping towards trade, export and tourism.
In 2015, Russia had serious economic challenges in the form of economic sanctions and low oil prices. However, current market signals indicate improved economic activity moving forward. Aiding in this recovery, and fuelling economic recovery, will be the Russian Central Bank’s ability to cut back interest rates – in a strategic manner. Overall, improvements across two critical areas – oil prices and good international relations – will have a positive impact on this market. On the flip side, if oil prices remain close to current levels, it is estimated that GDP could shrink by a further two per cent this year, according to the Russian Central Bank.
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Business Banking
4
5
6
Turkey
India
China
In 2015, political uncertainty took a toll on the Turkish economy, making businesses and investors over-cautious. Looking ahead, however, Turkey presents long-term opportunities due to strong demographics, positive consumption trends and ease of pressure owing to lower oil prices. Economic stagnation in North America and a continuing sovereign debt crisis in the EU is forcing investors to find new investment alternatives across the globe and Turkey is one of the candidates bridging Asia and Europe in global perspective. The economy is expected to be the fastest growing economy among the OECD from 2011 to 2017 with an annual average real GDP growth rate of 6.7 percent.
Many experts agree that India is well-positioned as one of the most attractive emerging markets globally. This is largely due to good demographics, low consumer debt, a fairly stable government and falling commodity prices. “India’s ‘hope’ investment trade since the Modi government took over has been impeded by the lack of key reforms passed to date, together with an increasing realisation that corporate capital expenditure shows few signs of recovery. Domestic consumption (mainly urban consumption) and public investment have been key drivers of GDP growth in the current fiscal year (ending March, 2016). The government may have to relax the fiscal deficit target and continue with government spending, while at the same time attempting to push through key reforms. Recent GDP growth was 1-1.5 percentage points higher than it otherwise might have been, thanks to lower oil prices,” according to key insights in NBAD’s Global Investment Outlook 2016 Report.
Forecasts suggest that growth in China is expected to slow to 6.3 per cent in 2016 and 6.0 per cent in 2017, primarily reflecting weaker investment growth as the economy continues to rebalance. Moreover, some emerging economies will continue to face strong headwinds from China’s economic rebalancing and global manufacturing weakness.
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China Egypt Indonesia Vietnam South Africa Turkey Brazil
Russia Canada US UK France Germany Japan
10019.88 500.09 1027.51 276.19 526.72 934.05 2194.55 418.73 2234.34 1345.89 14889.07 2151.89 2139.00 2881.39 4293.87
58998.31 2928.01 5633.86 1506.94 2206.76 3817.29 8884.21 1584.70 7956.98 4317.60 44641.57 6133.45 5969.19 7662.10 10192.05
489
486
448
446
319
309
305
278
256
221
200
185
179
166
137
BRICs CIVETs G7
1825.55 18,556.78 3683.29 29526.67
4311.55 104254.66 17677.56 83227.51
136
462
380
182
Italy
Colombia
India
Country
4108.00
2010
28415.20
2030
592
Percentage increase*
Business Banking
GDP forecasts by country, US$ billion (2010 and 2030)
*to the nearest percentage point Source: Economist Intelligence Unit.
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Business Banking
Risk and reward Q How do you think that overall levels of risk relative to rewards in emerging markets have changed over the past two years? (per cent respondents)
Risks in emerging markets While the advantages of doing business in an emerging market are immense, there are several risks as well that are often overlooked. A WEO update on IMF’s global portal forecasts the following risks in emerging – and developing – nations: • A sharper-than-expected slowdown along China’s needed transition to more balanced growth, with more international spill overs through trade, commodity prices, and confidence, with attendant effects on global financial markets and currency valuations. • Adverse corporate balance sheet effects and funding challenges related to potential further dollar appreciation and tighter global financing conditions as the United States exits from extraordinarily accommodative monetary policy. • A sudden rise in global risk aversion, regardless of the trigger, leading to sharp further depreciations and possible financial strains in vulnerable emerging market economies. Indeed, in an environment of higher risk aversion and market volatility, even idiosyncratic shocks in a relatively large emerging market or developing economy could generate broader contagion effects. • An escalation of ongoing geopolitical tensions in a number of regions affecting confidence and disrupting global trade, financial, and tourism flows. • Currency Risk in emerging markets -Due to rapid changes in emerging markets, businesses may face consequences of possible changes in the value of foreign currency. Uncertainty about the terms for currency conversion in emerging markets are aggravated by the interaction of capital flows and currency values. This is applicable for countries which rely heavily
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Business Banking
on external sources. The balance sheet of the central banks of the emerging countries are the major indicators for assessing the currency risks in emerging countries by this perspective. It is very essential to understand the characteristic of currency risk, and NBAD is one of the banks that have a strong presence in some of these emerging markets and their experts provide hedging and currency tools such as Spot Trading, Forward Contracts and Structured Currency Deposits. So, the question then arises – how can an organisation exploit the opportunities available, while effectively managing risks? SME Advisor turned to global consultants at PwC for strategic advice on the way moving forward. They entail the following five critical steps: - Prevent, control and contain losses related to corruption. - Know the local and regional jurisdictional nuances. - Watch operating model efficiency amid pressure to sustain profits. - Bring local talent into the business and take leadership to the streets. - Be a model of absolute business ethics. Succeeding in emerging markets While emerging markets present growth prospects and attractive business opportunities, there are several misconceptions of doing business in these markets. Here, we highlight some approaches that companies need to take in order to realise their ambitions in these markets: • Undertake due-diligence: While a lot of businesses tend to focus on markets highlighted by economists and calculate success based on hardhitting data, it is advisable to also focus on target markets that suit the
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Business Banking
individual needs of their particular business (and industry!). • Build long-terms partnerships and alliances: A majority of businesses that have successfully made inroads into new, emerging markets often partner with local companies through joint ventures, M&A and so on. The reason for this is the continued need to tap into local knowledge and understand the business culture. In addition, it is also worth partnering with institutions in your home base that have a strong foothold in these new markets. National Bank of Abu Dhabi (NBAD), for instance, eight hubs across the geographical ‘WestEast’ Corridor of emerging markets • Put into place a suitable risk model: The creation of a risk model or framework that suits the needs of the local market is imperative. E.g. policy regulations, cultural norms, language barriers, etc. Moreover, it is also important to understand what motivates your local partners or business teams – be it a promotion, recognition, or pay increase – and then link those incentives to risk management. This will help ensure that your partners or employees understand how important it is for them to identify and manage risk.
• Train your local team: Ensure that the team you’ve appointed in the new market is fully trained and equipped to understand the local culture. Moreover, working with people already accustomed to the new market avoids the hassle of relocation and reduces costs. This also works in favour of the company giving it a clear understanding of the kind of compensation packages that it will have to offer to its employees. For instance, employees based in China might want high remuneration and low healthcare benefits, while in India it may be
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quite the reverse. • Build supply chain: 44 per cent consider accessing the right supply chain capabilities extremely or very challenging in emerging markets, according to Deloitte’s Globalisation Survey. Make sure that you know who you are suppliers will be, what the production costs will be like, will their production procedures fit to your time constraints, will the final product match your level of quality and so on.
• Organic Growth Locally: More than 60 percent of executives of emerging markets considered organic growth as the most important approach for expanding in emerging markets — soundly beating joint ventures with local companies (20 percent), acquisition of local companies (10 percent) and licensing agreements (6 percent). Organic growth can offer substantial benefits, including helping a company protect its intellectual property, providing insight into the needs and preferences of customers, and experience with the local business environment. This also helps businesses access to capital to cover their gap in financing locally. The road ahead… Even though emerging markets are often associated with volatility and risk, they can’t be ignored because of the considerable opportunities they offer to companies looking to either set-up base in a new market or do trade with high-growth markets. In fact, experts predict that emerging markets will account for two-thirds of global GDP growth and two-thirds of consumption by 2030. To succeed in these markets, businesses should have a long-term goal in mind, an appetite for risk and the ability to partner with a global financial institution such as NBAD.
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Infographic of the month
State of global trade Macro-level developments By
2025
South-south trade, which has doubled in the decade from 2000 to 2010, is likely to account for over a third of global trade
US$68.5 trillion
Total goods exports in 2050 are expected to reach US$68.5
6 -times increase in world trade from 1980 to 2015 while global GDP roughly doubled
By
2025 Cross-border flow of goods, services and finance is predicted to reach US$85 trillion
Over
US$400 billion
the estimated volume of world food trade
World trade – regional share (2015) Western Europe
North-East Asia
North America
34%
22%
11%
Africa and Middle East
Eastern Europe
South-East Asia
09%
07%
07%
South America
06%
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Australia/New Zealand Indian sub-continent
02%
02%
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Infographic of the month
Impact of digital trends The digital economy will grow by as much as US$29 trillion in value over the next 10 years By 2020 people and connected objects will generate 40 trillion gigabytes of data There will be 50 billion networked devices by the year 2020 Mobile commerce sales are projected to reach US$ 626 billion in 2018
Policy regulations
Foreign Trade Policy to integrate government initiatives such as ‘Make in India’ and improve India’s share of global trade from 2% to 3.5% by 2020
The number of regional trade agreements has grown from around 70 in 1990 to more than 270 today
The TPP has linked twelve Pacific countries, including Japan but excluding China
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Top challenges to globalisation of trade Terrorism
Geopolitical uncertainty and instability
Cyber security
Economic crises
Regulatory requirements on local economies and industries
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Movers & Shakers
DMCC Chief Executive Officer Gautam Sashittal
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Movers & Shakers
EXCLUSIVE INTERVIEW
The growth imperative
The free zone concept is an intrinsic factor in the unparalleled growth of Dubai as a regional trading hub. So it’s entirely appropriate that DMCC (Dubai Multi Commodities Centre) - acclaimed in 2015 as the fastest-growing free zone in the GCC - has recently ‘The Future of Trade’, a definitive, predictive report on the critical trends in a sector accounting for 42 per cent of the UAE’s non-oil GDP. Here, SME Advisor reviews the conclusions of this far-reaching survey and then speaks to DMCC Chief Executive Officer Gautam Sashittal about the changing face of global trade - and its eminently digitalised future…
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Movers & Shakers
DMCC Chief Executive Officer Gautam Sashittal
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“The future is already here, it is just unevenly distributed.” - William Gibson, author and futurologist While every reader of SME Advisor will be familiar with the name and reputation of DMCC, it’s worth explaining at the outset that this free zone authority was established with an important dual purpose. Firstly, to provide the physical, market and financial infrastructure required to establish Dubai as a hub for global commodities trade. Then, as a geographical jurisdiction providing both a physical and virtual home to member companies who can enjoy the diverse benefits of life as a trading entity in a free zone. Last year, for example, fDi Intelligence, in its Free Zones of the Year competition, voted DMCC - ‘Winner - Global Overall’; ‘Winner - Middle East’; and ‘Winner - Middle East (SME)’. Meanwhile, the prestigious Stars of Business Awards ME voted DMCC as the ‘FastestGrowing Free Zone 2015’. Today, DMCC has more than 11,700 member businesses, a number growing by 150 per month. With this background of credibility and sector influence, DMCC joined forces with Furutreagenda.org and the Centre for Economics and Business Research (Cebr) to create a powerful, penetrating study of the trends impacting and empowering global trade - The Future of Trade. Perhaps the most striking element of the report is the scale and impact of digitalisation on global trade. DMCC’s research suggests that full digitalisation of commerce could lead to a six-fold increase in the number of businesses that export goods - in other words, between 100 million and 350 million businesses would become engaged in global export trade for the first time. This shift would provide the first significant boost to worldwide trade since the great recession, and usher in a ‘digital revolution in trade’. On a global scale, adopting such a strategy would add as much as US$29
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Movers & Shakers
trillion to the digital economy over the next decade. Creating the DMCC/Cebr Industry Digitalisation Index The strength of these findings was a catalyst for DMCC then deciding to create the DMCC/Cebr Industry Digitalisation Index (IDI). This was based on the view that establishing the potential for digital development and the impact this has is absolutely crucial. IDI now provides the metrics with which analysts can properly track business’ progress within the digitalisation agenda. Money as a digital phenomenon Another aspect of digitalisation that the report highlights is the importance of digital money in trade. Firstly, it’s much cheaper to handle than cash (effective and secure cash handling can cost economies as much as 1.5 per cent of GDP!). It has low administration costs, reduced security costs and is eminently traceable - reducing the risk of loss of funds through corruption. Since many nations and multinational organisations are looking for new mediums of exchange, it’s also possible that we may see growth in alternative currencies and money networks and the first state-issued flat digital currencies. Global trends, new global strategies The Future of Trade also identified major dynamics in areas such as • Shifts in regional trading power and influence. We are perhaps witnessing the end of an era in international trade - overall, western markets are weakening compared to the new opportunities from emerging economies. • The changing geography of talent. Across the world, it is difficult for companies to recruit the right people for the right jobs. Many professionals find themselves either with the right skills in the wrong
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place or with the wrong skills to cope with an increasingly technical and interconnected world. • Access to funding. There is growing concern over the lack of capital available from the world’s banks to support growing trade opportunities. Fresh options are emerging for SME funding and these may play an increasing role over the next decade, especially in emerging markets. • Standards driving trade. Much of the new international regulation is increasingly aimed at freeing up trade to make it simpler and less bureaucratic. Globally and regionally, governments are seeking to improve the trading landscape for the goods they produce. • Trading systems efficiency. It is anticipated that over the next decade, we will see many significant enhancements in the overall trading system - whether in terms of reducing waste, improving transparency or smoothing the flow of goods. The need for a ‘robust’ digital strategy: the CEO’s perspective In the wake of the report’s provocative findings. SME Advisor spoke to DMCC Chief Executive Officer Gautam Sashittal about the digital mechanisms that tomorrow’s ‘masters of trade’ will employ and the role of DMCC in communicating these new imperatives to the regional business community. Gautam, what is the No.1 action that businesses must take in the light of the report’s conclusions? The conclusions of our report are clear. Companies that want to succeed in today’s challenging marketplace must adopt a robust digital strategy, think globally and embrace change. If the world of global trade collaborates around these maxims, we will all surely benefit.
Much of the new international regulation is increasingly aimed at freeing up trade to make it simpler and less bureaucratic
How do you see the operational consequences of a more digitalised trading future, especially for SMEs? There are a number of important factors here. Everywhere around the world, you will see debates about the availability of finance to SMEs, the cost of doing business and the ability of an SME to grow beyond a CAPEX model. The greater digitalisation of trade favours the direct exchange of money at real values, rather than constantly paying a facilitator to make the transaction and transmit the funds. This means more costeffective and affordable trade. There is also the factor that digitalisation enhances speed, with the funds being transferred immediately – the only delay is the real time that the transaction takes: there is no processing delay from third parties. There is another factor, too. The
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Movers & Shakers
There is a growing emphasis on the availability of data to help both businesses and the providers of finance make betterinformed decisions
reality is that the improvement of the trading platform will lay more and more with the abilities and technology of the companies involved in the transaction - in other words, SMEs are more in control, since it is they who can invest in faster and more effective ways of doing business. The responsibility will lay less and less with the third party facilitator. Meanwhile, at macro level, we see the same shift away from ‘institutionalised’ ways of doing business. Consider how new phenomena such as Blockchain are enabling us to rethink not only currencies but also other complex systems that can benefit from a distributed ledger. Would you say that this trend towards digitalisation will disrupt the traditional business cycle? Very much so, this is a truly disruptive new model. For example, it impacts not only the trading process, but how you engage with your customer. How do you actually interact with your customer in making a sale? Today’s technologies mean that you have a raft of digital information at your disposal about buying trends, payment triggers and previous purchase patterns. Even small companies have a wealth of data of this kind at their disposal. The question is, can they currently harness it, analyse it and use it in the right productive ways to influence the sales ledger? Why has DMCC aligned itself with (and indeed, led) a definitive report about the Trade sector? Apart from being the only international hub for commodities of these sort in the region, our connections with trade are very diverse. For example, we have trading platforms like the Dubai Gold & Commodities Exchange, DMCC Tradeflow, the Dubai Diamond
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Exchange, the Dubai Pearl Exchange, the DMCC Tea Centre and a range of commodities-backed financial investment tools. Platforms like DMCC Tradeflow allows transparent and efficient commodity Murabaha trading, enabling enforceable pledge structures for inventory financing. I’d also mention that the DGCX is the region’s fastest-growing derivatives exchange, of which we are majority shareholder. So you see that not only are we very committed to the world of trade, but we have a vested interest in the way that it’s rapidly changing and evolving. How do you see the role of the Industry Digitalisation Index (IDI) and how often do you aim to publish it? There is a growing emphasis on the availability of data to help both businesses and the providers of finance make betterinformed decisions. We see this, for example, in consumer circles now, whereby a centralised credit bureau can immediately inform lenders how much debt you have outstanding, and they will use this to determine the availability and extent of the new sums on offer, maximising the commercial advantage and minimising risk. In an age of digitalisation, data may be everywhere, but it needs to be harnessed to be of value. Our commitment to the IDI is a way of making relevant and practical industry intelligence available and signposting business progress in this critical new sphere. That data is otherwise hard to obtain and we see the IDI as a powerful new reference tool. Of course, it will need to be highly relevant and up-to-date which is why we see this as being published annually. Get a copy of the report at: http://futureoftrade.ae/
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Data & Analysis
China’s trillion dollar Silk Road:
and its impact on global trade
Renowned global expert and lead economist Vikram Mansharamani analyses the new ‘superhighway’ and outlines critical ways in which it will shape the international trade landscape.
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Data & Analysis
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Data & Analysis
Better trade networks would help Chinese firms offshore manufacturing more efficiently
US$40 billion Value of the “Silk Road Fund”
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Two weeks ago, a 32-container train from Wuyi, China arrived in Tehran, Iran. You might think the arrival of cargo by rail would be no big deal, but in this case you’d be wrong. This was the first journey of its kind between the two cities, and it shortened the typical (ship-based) travel time separating them by 30 days. This new connection is among the first visible signs of a massive trade network that China is currently constructing across Eurasia. The Silk Route is being rebuilt. Known as “One Belt, One Road,” China’s plan to build veins of trade over land and sea into Europe and Asia – announced in 2013 – may be the most significant global economic initiative in the world today, and it’s not getting the attention it deserves in Western media. The initiative is gigantic, with future investments of almost a trillion dollars already announced. That compares to an inflation-adjusted US$130 billion America spent on the Marshall Plan following the Second World War. China’s web of trade would span over 60 countries that are home to 4.4 billion people—more than half of the world’s population. Further, the initiative would interact with economies representing more than 40 per cent of the world’s GDP. It’s a massive progamme that has the potential to affect global trade patterns. “One Belt, One Road” may be the most significant global economic initiative in the world today. The initiative is broken into a land component (known as the “Silk Road Economic Belt”) and a sea component (called the “Maritime Silk Road”). The “Belt” will consist of a number of corridors connecting China to the far reaches of Eurasia by road and rail. The “Road” will involve the development of ports and shipping routes connecting Chinese harbours to Europe and the South Pacific. Funding this massive programme is
not a trivial undertaking. There are a number of institutions on hand to support the funding of China’s grand vision. First, Beijing started a US$40 billion “ Silk Road Fund” that has already helped fund a hydroelectric power project in Pakistan and invested in a liquefied natural gas project in Russia. Second, there’s the newly created, US$100 billion Asian Infrastructure Investment Bank, 26 per cent of whose voting rights China controls. It’s logical to assume it might finance some of these projects. Lastly, the China Development Bank announced in June that it would invest a stunning US$890 billion dollars in over 900 “One Belt, One Road” projects across 60 countries.
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Data & Analysis
The Silk Road initiative will keep markets open for Chinese goods but also secure China’s access to energy
So why would China want to deploy capital in this way? After all, doesn’t it face a massive domestic slowdown and potential debt crisis that warrant financial prudence? Why invest abroad aggressively when there are potential domestic needs? There appear to be two main reasons: one related to the Chinese slowdown and economic vulnerabilities, the other to geopolitical ambitions in the region. First, China faces significant overcapacity in its steel and construction sectors. Building roads, ports, rails, and other infrastructure will help deploy some of these otherwise idle human and capital resources. Investing abroad might also strengthen the economies of nascent trading partners, thereby
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securing future demand for Chinese goods and services. There’s also the issue of rising domestic labour costs: better trade networks would help Chinese firms offshore manufacturing more efficiently. It will also foster greater trade and energy security. The current maritime trade routes Chinese goods flow through are deeply vulnerable to blockade, which in a time of war could crush the economy. The Silk Road initiative will keep markets open for Chinese goods but also secure China’s access to energy. Last spring, China announced it would support over US$20 billion worth of infrastructure projects in Kazakhstan, a potential energy partner. It is also planning a 2,000 mile high-speed
US$20 billion
Worth of infrastructure projects in Kazakhstan to be supported by China
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Data & Analysis
In late 2013
In October Preparation of the Asian 2014 infrastructure investment
bank (AIIB) and Silk Road infrastucture fund was started
In Febuary The leading task forcs 2015 was established In March 2015
Policy coordination
The “One Belt, One Road” initiative was proposed
The vision and Action plan was unveiled
Facility connectivity
The “One Belt, One Road” initiative aims to enhance the connectivity of roadside countries
unimpeded trade
People-topeople bond
Financial integration
Gross exports and imports between China and countries along the Belt and Road: US$ 485.4 billion (in first half of 2015) China’s outward FDI in 48 roadside countries: US$ 7.05 billion (Source: EY’s Navigating the Belt and Road)
railway from western China to Tehran, in part to gain easier access to the growing supply of Iranian oil. In addition to bolstering its economic strength, “One Belt, One Road” will also generate significant geopolitical clout for Beijing throughout Southeast, South and Central Asia as well as the Middle East and parts of Africa and Europe. Just consider the influence China will have in Pakistan. Beijing has already launched a US$46 billion infrastructure programme in Pakistan, which will double the energy-poor country’s electricity supply. In return, China will secure access to the port of Gwadar, minimising the time for goods to transit from inland Chinese cities to global markets. Investing in Pakistan will help develop western China. The Pakistani alliance is particularly useful, since China can use it as a counterweight to India’s influence in the region, and controlling instability in Pakistan through investment might lessen the risk of it spilling into China. Beijing 52
already has growing concerns of restive minorities within China and wants to minimise the likelihood of domestic instability gaining momentum from external sources. Despite the clear benefits the Chinese strategy seems to offer, it’s not without risk. The Financial Time spointed out that the sheer ambition of the project is part and parcel with the fragmented and often contradictory process of economic policy-making in China. How implementation goes is anyone’s guess. Further, Chinese inroads abroad could produce international tensions. Putin has signalled openness to cooperating with the initiative, but it remains to be seen how far he will tolerate Chinese influence in Central Asia. And the countries that are part of this new Silk Route are not without significant credit risks and political risks. Local instability could undermine investment projects in countries like Pakistan, which
is deploying thousands of troops to safeguard China’s investments. Stratfor also points out that the flip side of stronger connections is that they will “provide new routes for the illicit movement of goods and people into China.” Could major Chinese cities emerge as terrorist targets just as New York, Paris, and London have in recent years? Despite this uncertainty, it is particularly unwise to ignore the “ One Belt, One Road” initiative: it just might shape the 21st century as much as the Marshall Plan did the 20th.
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Emerging Middle East
Transforming Kuwait’s future, one small enterprise at a time Senior experts from the World Bank- Ali Abukumail, Nadia Karam, and Ghanimah Al-OtaibiShed light on the evolution of this burgeoning market.
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The number of SMEs in Kuwait is high, particularly within the retail and non-financial services, but their overall contribution to the economy is marginal – just three per cent of GDP. This paradox is especially troubling when compared to high income and emerging economies, where SMEs comprise most of the economic activity in the private sector and contribute to 50 per cent and 40 per cent of GDP (respectively). According to a recent survey of nearly 50,000 firms in 104 countries, SMEs provide as much as two-thirds of all employment, with small firms contributing more to employment in low-income countries than high-income countries.
Bank surveyed 502 SMEs in the country. More than 35 per cent of respondents saw business licensing and permits as the main things blocking their growth. Answers concerning labour regulations, regulatory uncertainty, and administrative corruption also featured highly. The lack of an adequately educated workforce was also cited by 24 per cent of the survey’s respondents as a barrier to growth. Obtaining an operating licence takes, on average, 41 days in Kuwait, they said. Dealing with other government regulations consumes anywhere from 14 per cent to 20 per cent of a manager’s time.
The SME landscape in Kuwait Kuwaiti SMEs only employ around 23 per cent of the country’s total workforce, which is less than half of SME employment figures for both high income and emerging economies. To understand key barriers to SME business growth in Kuwait, in 2014 the World
Nurturing the SME ecosystem Building a vibrant ecosystem for SME development is seen as critical to promoting long-term economic diversification in Kuwait. In the next 20 years or so, the private sector is expected to play a leading role in creating jobs for the next generation of Kuwaitis. Its success will hinge
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Emerging Middle East
largely on whether Kuwait creates an enabling environment in the form of an ecosystem for entrepreneurship. The National Fund for SME Development The Government of Kuwait established a National Fund for SME Development “National Fund” in April 2013. An independent public corporation with a total of two billion Kuwaiti Dinars (US$ seven billion) in capital, it aims to help create productive jobs for Kuwaiti professionals, increasing private participation in the economy and the amount of income diversification. The National Fund prides itself on being the first single entity for SMEs in the Gulf. “The equivalent of the National Fund in other countries involves four or five different government entities, one for financing, one for business support, etc.,” said Mohammad Al-Zuhair, Chairman of the Fund. Key initiatives by World Bank The World Bank is focusing
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its support on the institutional establishment of the Fund, a two-year technical assistance project. Since November 2013, the World Bank has supported three consecutive phases of the Fund’s implementation: the development of its executive regulations, the strategy and action plan, and the organisational set-up of the Fund.
The Government of Kuwait established a National Fund for SME Development “National Fund” in April 2013
The scope of Bank support continues across five main areas: • The first is to the SME business environment, including support for the creation of a “one-stop-shop” to help clients register and acquire operating licences. • The second is SME business development, which includes business improvement and training, and helping businesses link-up with local and global value chains. • The third is developing a culture of entrepreneurship, which includes an online space for interaction between entrepreneurs, and a list of community events.
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Emerging Middle East
The Bank is also supporting the Kuwaiti National Fund’s progress with data collection and the monitoring and evaluation of its impact. The National SME Forum Event In October 2015, the Fund organised its first national SME forum. The Bank’s Trade and Competitiveness Senior Director, Annabelle Gonzalez, addressed the forum. The “Mix N’ Mentor” event was attended by 70 Kuwaiti entrepreneurs and 28 local and regional mentors. They discussed the challenges facing their start-ups, including issues related to fundraising, business development, team building, and user and client growth. The event also held workshops on building and improving entrepreneurial skills. It was well received amongst participants. About 78 per cent of those surveyed afterwards thought it had helped energise them as entrepreneurs. Almost 90 per cent said they would incorporate the information they had received from mentors, and more than three quarters of respondents believed their mentors would be responsive to them. “They were really honest about the ideas we have. They gave us positive feedback, but more importantly, they shared with us the negative side of business, which I really wanted to hear and made me want to work harder,” said a participant, a founding member from Dotz N Pixels. The Bank Group has partnered with a storytelling platform, Nuwait, that celebrates stories from Kuwait as well as sharing, insights, trends, and resources. The platform serves as the virtual go-to reference for the local community of entrepreneurs. “When entrepreneurs bring their passion to the table, they have to complement it with a lot
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of rigour,” the Bank’s Lead Private Sector Specialist, Parth Tewari, told Nuwait. He advised entrepreneurs to “work together to create a culture of collaboration, where success and failures are celebrated in certain ways.” By sharing stories and other information, Kuwait provides the SME ecosystem people need. It also aims to encourage others to launch their own start-ups. The World Bank Group encourages entrepreneurs to take full advantage of the opportunities offered by the National Fund to help achieve their dream ideas, and encourages the National Fund to provide more venues for interaction where public and private sector representatives can address common challenges, discuss opportunities for SME growth, and ensure that the voices of entrepreneurs are well-heard. When governments and the private sector work together, they can have a major impact on diversifying economies and promoting inclusive growth. To ensure the success of the National Fund mandate, the Government of Kuwait is putting efforts in improving the business environment to support entry, growth, and exit of businesses. However, the role played by key economic entities, such as the National Fund, will likely take some years to show impact on the economy, especially when it starts with building the infrastructure of an entrepreneurship ecosystem in the country. “The momentum [for SMEs] now is picking up in the economy, but changes will take time to happen,” the Bank’s Senior Private Sector Specialist and Task Team Leader, Ali Abukumail, told Nuwait, “Entrepreneurs should take this opportunity to develop their business ideas and expose themselves to global trends in business.
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Emerging Middle East
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Organisation & Structure
International arbitration: Key trends and statistics
Choosing the most effective and economic method of resolving cross-border disputes is an issue which vexes many international companies. This issue is becoming ever more acute for businesses, as the economies of many leading countries around the world encounter headwinds, experience a slow down in growth, and as oil and gas and commodities prices continue to fall.
In such difficult trading times, the security of investments becomes less clear, obtaining payment becomes more difficult, and the number of international disputes grows. Against this background, it is not surprising that international companies are deciding to opt for international arbitration as their preferred means of dispute resolution in ever increasing numbers. Recent studies by a centre of higher education and two leading international arbitration institutions have highlighted the rise of international arbitration around the world. Last year, Queen Mary University of London released its 2015 International Arbitration Survey: Improvements and Innovations in International Arbitration, which
investigated the popularity of international arbitration amongst 58
its users and potential users, and its perceived pros and cons. In addition, two major international arbitral institutions, i.e. the London Court of International Arbitration (LCIA) and the International Centre for Settlement of Investment Disputes (ICSID), have recently published statistics, which demonstrate current international arbitration trends. The LCIA’s ‘Costs and Duration Data Report’ examines the average durations and costs of arbitrations conducted under the auspices of the world’s major international arbitral institutions, including the LCIA, ICC, SIAC and HKIAC. ICSID has also published its 2015 Annual Report and Caseload Statistics, which demonstrate the direction in which investor-state arbitration has headed in recent times. The following are the trends which
can be drawn from them: Queen Mary’s ‘2015 International Arbitration Survey: Improvements and Innovations in International Arbitration’ According to 90 percent of the respondents to Queen Mary’s Survey, international arbitration was their preferred method of dispute resolution, either alone or in conjunction with other forms of dispute resolution, most notably negotiation and mediation. These respondents indicated that this was because international arbitration offered a winning combination of flexibility in procedure, widespread enforceability of awards, and the minimisation of local court intervention. Also, in-house counsel were particularly attracted to international arbitration by the ability to select arbitrators with industry specific knowledge and neutrality,
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Organisation & Structure
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Organisation & Structure
Turbulence in the global economy is likely to increase the number of international disputes. International arbitration is increasingly popular as the means of resolving them
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the finality of arbitral awards, and the usual confidentiality of the process (in many common law countries, confidentiality of the arbitral process is implied because of its very nature, and institutional arbitral rules now typically make express provision for it). In contrast, the survey suggested that the cost of international arbitration was a significant concern, with more than 68 percent of participants complaining about such cost. In addition, 46 percent of those surveyed criticised the lack of effective sanctions for breaches of the arbitrators’ directions and delaying tactics, and 39 percent complained about the lack of insight which parties were given as to the likely efficiency of the arbitrators appointed in their cases. The survey noted a growing concern amongst arbitration users about due process ‘paranoia’; that is, a perceived reluctance by arbitral tribunals to act firmly and decisively in certain situations, for fear of their awards being challenged on the basis of a party not being afforded a proper opportunity to be heard. Other significant concerns from respondents about the arbitral process involved delays in reaching final awards, the risk of local court intervention, and the inability to join third parties. Interestingly, the survey found a groundswell of support from inhouse counsel for including an appeal process into arbitration procedures, by which another arbitral tribunal would review the awards of a previous arbitral tribunal, rather than a court. This would seem to add a tier of cost to the arbitration process, which was a separate concern. However, 77 percent of the total respondents, i.e. not just in-house counsel, preferred the finality of an award without any appeal process. The survey found that London was the most popular seat of arbitration, followed closely by Paris. In our view,
this is probably due to the number of years over which arbitrations have been conducted in those jurisdictions, the neutrality and impartiality of their local courts, their favourable national arbitration laws, and their perceived positive track records for upholding arbitral agreements and enforcing arbitral awards. Other seats growing in popularity included Singapore and Hong Kong, which reflects the ever increasing use of arbitration inAsia. Geneva, Stockholm, and New York were also popular seats. 92 percent of respondents thought that institutional rules should be simplified for claims of modest value, and that parties should in such cases work together to narrow issues, limit document production, and reduce costs as far as possible. Statistics from the LCIA and ICSID The LCIA’s ‘Costs and Duration Data Report’ provided statistics from recent LCIA arbitrations. These identified that the average total duration of an LCIA arbitration, from initial request to final award, was 16 months (this average period became 15 months where a sole arbitrator was appointed, and 19 months where a panel of three arbitrators was sitting). The average charge by the LCIA for LCIA arbitrators’ fees and its own administrative costs was US$192,000 per case. The LCIA proceeded to say that this typical cost was significantly lower than the equivalent average charges of the ICC and the Singapore International Arbitration Centre (SIAC), and comparable to those of the Hong Kong International Arbitration Centre (HKIAC). The LCIA also concluded that, for claims below US$1m, its charges were comparable with those of the ICC and SIAC, but were higher those of HKIAC. However, for claim values exceeding US$1m, the cost charged by the LCIA were less than those of the ICC and SIAC, but comparable with those of HKIAC.
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Organisation & Structure
As regards the data published by ICSID, ICSID noted that an increasing trend in the number of investorstate disputes referred to it. 2015 was ICSID’s busiest year since its inception in 1965, with it registering 52 new cases. ICSID’s statistical analysis showed that 21 percent of its new cases were registered against Western European States, whereas claims against States in Eastern Europe and Central Asia comprised the majority of newly registered cases (33 percent of them in 2015). New claims against South American States actually decreased from 7 percent in 2014 to 5 percent in 2015. ICSID noted that the majority of its cases arose from bilateral investment treaties between States, followed closely by the Energy Charter Treaty, and multilateral trade agreements, such as North America Free Trade Agreement (NAFTA) and Central America Free Trade Agreement (CAFTA). 8 percent of ICSID cases
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emanated from specific arbitration agreements contained in investment contracts entered into between foreign investors and States. Conclusion Turbulence in the global economy is likely to increase the number of international disputes. International arbitration is increasingly popular as the means of resolving them. However, users of international arbitration are expressing concern about the costs of the process, and the lack of imposition of sanctions for procedural infringements, and the absence of transparency regarding the efficiency of arbitrators in publishing awards. The data published by the LCIA and ICSID reflects some of these concerns. The LCIA is keen to show that its services come at a reasonable level of cost, which is comparable to, if not cheaper than, the charges of other international arbitration institutions around the world.
Further information If you would like further information on any issue raised in this update please contact: Anthony Albertini Partner Rupert Coldwell Clyde & Co LLP PO Box 7001 Level 15, Rolex Tower Sheikh Zayed Road Dubai, United Arab Emirates T: +971 4 384 4000 F: +971 4 384 4004 Clyde & Co accepts no responsibility for loss occasioned to any person acting or refraining from acting as a result of material contained in this summary. www.clydeco.com
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Organisation & Structure
Building an export strategy:
an expert’s blueprint SME Advisor turns to Rami Rabia exporting guru and leading consultant for strategic advice After spending several years interacting with hundreds of SME manufacturers, I have had the pleasure to get much insight on the question of how do companies business develop in international markets. In the following feature, I’d like to share five of the top-most lessons my experiences have taught me. Most of the examples I draw upon have come from the consumer products segment as opposed to the B2B segment but they may apply to both. 1. Exporting is a combined effort While Dubai isn’t a very large market, for most companies being successful in the local market is a must to be successful in the international markets. Dubai has a goal of attracting 20 million visitors by 2020, and this goal was set even before it won the Expo 2020! This provides the perfect platform for companies to showcase their products to future consumers, tourists and businessmen who may be in this business. What’s 62
better than a company saying they make great products? Their customers saying so by buying them off the shelves. Seeing your products being retailed and positioned properly in the Dubai market makes a great impression on a potential importer visiting Dubai and goes a long way for your brand awareness. Your export strategy has to begin with how you are leveraging the local Dubai and UAE market for exports. 2. Start networking and building long-lasting relationships. After all the time, money and energy spent on exhibiting at different exhibitions, companies may still not get the type of customer they are targeting! For example, the big key accounts that you might be hoping to meet at an exhibitions might attend for only a few hours and with a very specific pre planned itinerary that does not include you! A warm introduction is always an easier way to open the door than direct approaches. Whenever an exporter
from the UAE wins a surprisingly large account or customer, I always find out that there was some type of warm introduction made somewhere along the way. Companies should look deeper into their network to try to find the links to contacts they are looking for. In fact this should be a deliberate part of their export strategy. This can come from people they know in the industry here in Dubai or contacts from existing distributors. www.smeadvisor.com
Organisation & Structure
3. Of course, exhibiting is still a powerful way to reaching your target customer. Let me explain with an example. I recall one conversation with an exporter from Dubai on why he exhibits in six to seven exhibitions a year. A relatively large number for an SME considering the costs involved. He told me about one particular market where he was having a very hard time getting the www.smeadvisor.com
attention of a certain key importer. After contacting their procurement team dozens of times and sending many product samples along with very favourable commercial terms, he was certain that the samples were left unopened and have now become part of the furniture. One day his luck all changed when exhibiting at an international exhibition and the owner of this company, who he can never imagine reaching, just
happened to walk into his stand. Not aware of the history between the two companies, he was impressed with what he saw and started inquiring about possibly acquiring this brand for their market. Not only did he make an order, but opened the door to a potentially long-lasting commercial relationship. One of the key benefits of exhibitions can be summarised with one statement “you really never 63
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Your export strategy has to begin with how you are leveraging the local Dubai and UAE market for exports
know who might come into your stand”. While companies might spend much time on planning and strategizing their markets, they have to always leave the door open to the element of chance and opportunity. Another great example is of a company that was looking to build a new factory in the CIS region. At that time, I remember wondering why the CIS region, in particular, was of interest to him. It turned out that the head of a large conglomerate there saw the brand and understood the vision of the company; he was so sure that the concept would work in his country that he decided to opt in for a joint venture in building a new factory! 4. Go digital While working with a large construction material manufacturing company in Dubai, I asked them how they opened new export markets they said that their number one source for their leads was actually Google AdWords. However the conversation was more about having a full digital marketing strategy in line with its export strategy. They employed a person whose fulltime job was to work on search engine optimisation, their website functionality, and having a digital presence online through directories, B2B websites and using google AdWords, among others 64
etc. Furthermore this person was responsible for training the sales team in using online tools such as B2B e-commerce websites and online directories. They lived by a very good philosophy: “We are a great company with great products and some great customers are trying to find us right now! What are we doing to help them find us?” 5. We live in a brand driven world, so work on your brand. In a world where everything seems to be becoming more and more commoditized and product differentiation is becoming more difficult, the reality is that your brand is all you really have left to compete. What differentiates you from any other competitor? The answer is simple: your brand positioning and the story behind your brand and company. This is especially true for SMEs who may be taking something that already exists and just trying to do it better. This isn’t just about a pretty logo and nice packaging. It is about building your brand equity, its positioning in the consumers’ eyes and how you will communicate this to a potential distributor. Distributors are always looking for the next big thing that will literally sell itself. That powerful brand that can sell itself will actually draw distributors to you so why not spend the effort on it. Of course this is easier said than done and will require many difficult decisions to be made. One Dubaibased organisation is very successful at this; it makes small refinements to its brand every time the Gulfood Exhibition comes around. Overtime these refinements have added up to a drastic change from its former years. However, as it was defining its position in the market based on market feedback and building on the strength of the brand, the company continued to grow and gain popularity in its segment.
Meet the author...
Rami Rabia is the Director of International Sales at BMB Gourmet, a manufacturer of chocolates and Mediterranean sweets. Previously, Rami was at Dubai Exports, an Agency under the Dubai Department of Economic Development, assisting large and SME manufacturers to develop their export strategy. Rami holds an Executive Masters in Business Administration from Cass Business School, City University of London. He can be reached at r.rabia@bmb-group.com
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Organisation & Structure
Entering new markets –
10 stepping stones to success Globalisation means that the world economy is more closely integrated than ever before – giving SMEs the chance to serve new markets. In order to seize these opportunities, businesses will need to map out an entry strategy, which will enable them to tackle any uncertainties and new challenges. Here, we present a 10 step guide that looks to help SMEs in their quest for international business growth...
1. Assessing your market readiness: Given the immense pressure that SMEs face to take their business overseas, it is easy to get rushed into opening a new international branch or undertaking a foreign transaction, without doing proper research. The biggest mistake you can make is to enter a market without proper evaluation of your business. Don’t do it just because everyone else is! Like every other major business decision, ensure to speak to your Board of Directors, partners, investors, stakeholders and most importantly your CFO and certified accountants! Make a business plan enlisting your objectives, goals, investment strategy, potential risks, etc.
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2. Adhering to global standards: Global trade bodies have built international standards and accreditation mechanisms that help facilitate cross-border trade by reducing the need for duplicate testing and certification. In many cases, businesses will need to demonstrate their adherence to these standards in order to enter certain markets. From an SME’s point of view, adopting such best practices and quality standards leads to higher customer confidence, quicker market traction and easier entry into new markets. 3.Working with trade associations: Armed with a wealth of knowledge about their home markets, trade
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associations can help SMEs in areas such as: set-up; cost determination; identification of business partners; and potential market promotional strategies. In fact, lack of such information is one of the top challenges that SMEs face when venturing overseas. Staying in touch with such organisations can fast-track the process of researching industry trends, demographics and market intelligence. In addition, working through their existing network is a great way to build presence and market share: this may be through many different types of customer engagement, whether online or by building the branch network.
4.Building strong partnerships: When entering an unknown territory, it is quite useful to have the backing and support of peers, who can prove useful in the case of unforeseen challenges. This is the very reason why Mergers and Acquisitions are a popular way to enter into new markets. Many companies piggyback on their clients who are entering these markets. For instance, if you are an IT consultancy working on a major project for a
manufacturing and trading company with operations across India and China, you can use their resources and expertise to explore opportunities in these countries. Moreover, good relationships with investors and 67
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banks (risk-partners) are often very important. Building such strong connections means that these entities are familiarised with the management and personality of the brand really well so you are not starting from zero when you really need funds – or even strategic advice! 5. Participating in trade fairs: Trade fairs provide a great platform for testing products and solutions innew markets, building brand awareness and boosting your company profile. These gatherings are a fantastic opportunity for SMEs looking to take their first steps in an unknown territory, and can be used to gain significant exposure as well as assess foreign competition. For instance, SMEs can interact with potential buyers and get valuable feedback on their products
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and services. That’s not all. Trade fairs bring buyers and sellers from all around the world under one roof – giving business owners a chance to network and build longterm partnerships. 6. Investing in manpower development and cultural training: Culture is an essential elementwhen it comes to doing business overseas. Yet, lack of understanding of the cultural differences between the home and foreign markets is a critical area where many SMEs stumble. For instance, language can create a communication barrier and cause difficulties in financial negotiations. In fact, even when both parties speak the same language, there is a possibility of a misunderstanding as different cultures interpret the same language differently. Hire an
international consultant who can help your employees understand how different cultures approach business situations. Recognising the shift in skills that your new market requires will help you exploit massive opportunities. 7. Find your way around corruption: Some of the developing nations – which are typically ideal for trade and business expansion –have a bad reputation for being corrupt. Do your research and assess the levels of corruption across your target markets. The Corruption Perception Index produced by Transparency International is a great tool in this regard. 8. Putting innovation at the forefront: This is true for any market, but it’s especially important within
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Organisation & Structure
Trade fairs provide a great platform for testing products and solutions innew markets, building brand awareness and boosting your company profile
a foreign market. Working in a crowded marketplace requires that businesses constantly keep an eye on radical technologies, new inventions and emerging trends. Adopting new business models will improve efficiency, streamline operations and ultimately boost revenue. This is where data will play a pivotal role; businesses will increasingly need to use data analytical tools to understand evolving customer needs, forecast future market patterns and build intelligent operating systems. 9.Reach out for governmental support: SMEs can tap into the knowledge, resources and expertise of governmental centres to grow their business overseas. Such agencies have experience of working with SMEs across a range of sectors
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and can share critical market intelligence. Moreover, they often run training programmes that support SMEs in capacity building, streamlining operations, reducing costs and making inroads into complex markets such as Germany, China and so on. 10.Don’t let Intellectual Property (IP) slip to the bottom of your priorities: Intellectual Property, and its proper management, can be a major concern for investors and other stakeholders. IP and trademarking are extremely important for companies to protect themselves. In many countries, a trademark is obligatory before you can even begin to operate. This can be a costly process and can therefore be a barrier to the global ambitions of smaller SMEs.
Your 5-second checklist • Is your business wary of cultural differences? Does it fully understand the sensitivities of the new culture? • Have you properly researched any recent changes in regulation and market conditions, which could potentially pose difficulties? • With no strong business contacts in a new country, it is likely that you will have to start from scratch. Have you built a business network that can leveraged for set-up and growth in a foreign market? • Entering a foreign territory could result in added pressure for business operations at home. Are you making sure that your expansion plans aren’t creating a distraction from your current activities? • Are your employees aligned and fully on-board with your foreign expansion strategies? Employees need to be properly briefed before such expansion so that they are prepared to take on added responsibility.
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SME Unplugged
Why happiness at work matters Top elements of happiness in the workplace (ranked in order of priority)
1
2
3
Work-life balance
Management
Culture
4
5
Job security and Compensation advancement and benefits
Happiness and productivity Happier people produce 37% higher sales -Unhappy people are 10% less productive than average Less satisfied employees tend to stay at home 1.25 more days a month, or 15 days a year
Happier people are 3 times more creative
Happier people are 31% more productive
Only 13% of employees are engaged at work
70% believe the work environment is more important than monetary satisfaction Companies with happy employees outperform their competition by 20%
36% of employees would give up US$5000 a year in salary to be happier at work 70
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SME Unplugged
Defining happiness – by MENA professionals
24%
Mental and physical health
13%
Freedom to do what you love
12%
Career success and professional recognition
8%
Great people relationships
3%
Financial security and wealth
State of happiness in the MENA workplace 94% express that their outlook
on life is positive
30% report that financial stress is topmost thing affecting fulfillment 33% believe a better work-life
balance would lead to better overall fulfillment
What’s keeping employees dis-satisfied? Insomnia is responsible for 7.2% of all workplace errors and accidents, and for 23.7% of the total costs of errors - an estimated cost of
65% lack of proper work-life balance
US$31 billion overall
Sources: Bayt.com’s Happiness and Personal Fulfillment in the MENA; Gallup; The Indeed Job Happiness Index 2016, snacknation.com
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SME Unplugged
If you’re happy, and you know it...
The new happiness agenda and how it can impact your business
Erik Peterson, Partner and Managing Director at A.T. Kearney’s Global Business Policy Council, and Senior Associate Courtney Rickert McCaffrey examine the relationship between happiness and productivity.
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SME Unplugged
Happiness is something that most people seek, both as an end in itself and as a means to other beneficial ends. It has long been understood, for instance, that individual happiness leads to a healthier life. Beyond anecdotal evidence supporting the proposition, numerous studies have found that happier people are less likely to catch a cold, are at lower risk of having a heart attack, and are generally healthier. Now there is also emerging evidence about the positive relationship between happiness and productivity at work. In 2005, a review of 225 academic studies by professors from the Universities of California-Riverside, Missouri, and Illinois at Urbana-Champaign found that happier people are 31 per cent more productive, three times more creative, and produce 37 per cent higher sales. A more recent study by the University of Warwick also found that happier people are 12 per cent more productive than average, while unhappy people are 10 per cent less productive than average. One aspect of this higher productivity is less employee turnover and lower rates of absenteeism. For instance, a 2008 Gallup Healthways study found that less-satisfied employees stay at home on average 1.25 more days a month, or 15 days a year. These rewards of higher productivity also carry over to shareholders. Numerous studies have found that companies with employees who are more satisfied saw higher financial returns. For instance, a study by the University of Pennsylvania’s Wharton School of Business found 2.3 per cent to 3.8 per cent higher stock returns per year for companies listed on the “100 Best Companies to Work for in America” than for peer companies that didn’t make the list. Recognising this positive
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relationship, many companies around the world are beginning to invest in employee satisfaction and happiness. Firms from internet giant Google to American online shoe and clothing retailer Zappos to French clothing company Kiabi are even going as far as creating a position for a Chief Happiness Officer, whose responsibility is to ensure employees are happy with the company’s work culture and environment. While some may scoff at the idea of a C-suite level position that focuses solely on happiness, the data suggest that such efforts will improve employee morale, labour productivity, and business performance. However, promoting employee happiness at work is not necessarily a one-size-fits-all policy. As many human resources studies have demonstrated, companies increasingly have to adapt their workplace policies and culture to attract top talent from the rising generation of employees – the Millennials – who have different goals and values for their careers than older generations. In a global survey conducted by Universum, almost 50 per cent of Millennials in every region of the world (with the exception of Central and Eastern Europe) said that they would consider giving up a prestigious and well-paid job for better worklife balance, which they define as having enough leisure time, flexible working hours, and respect. Millennials also expect their managers to empower employees and provide feedback at least once a week, or even more frequently in Africa and Latin America. Chief Happiness Officers and others keen to improve productivity should take note about these shifting priorities for what will make their employees happy at work, both now and in the future.
Companies increasingly have to adapt their workplace policies and culture to attract top talent from the rising generation of employees
Happiness in the workplace appears to be crucial in boosting productivity at companies. So naturally, we wondered whether the positive correlation between employee happiness and economic outcomes at the firm level hold true at the country level. And could a greater focus on happiness in fact restore global economic growth? After all, it has been well-reported that lower productivity growth is one factor holding the global economy back from stronger performance. According to data from the Economist Intelligence Unit, labour productivity has averaged only 1.1 per cent growth annually since 2008, after averaging 2.9 per cent growth in the 20002007 time period. There is a variety of measures of happiness to choose from. The UN just released the World Happiness Report 2016 Update, which scores countries based on GDP per capita, life expectancy, and survey results from the Gallup World Poll. Gallup’s survey asks people 10 questions about their positive and negative experiences to assess
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Many companies are already embracing the notion that employees who are satisfied with their jobs and are happy at work make more productive and better employees
Courtney Rickert McCaffrey Senior Associate at A.T. Kearney’s Global Business Policy Council
Erik Peterson, Partner and Managing Director at A.T. Kearney’s Global Business Policy Council
Happiness =
31%
of people are more productive
3 37%
times are more creative
produce higher sales
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overall wellbeing, including if people feel well-rested and respected, or stressed and angered. There is also the Gross National Happiness Index, which was launched by the government of Bhutan and is centered on nine “domains” of happiness: psychological wellbeing, health, education, time use, cultural diversity and resilience, good governance, community vitality, ecological diversity and resilience, and living standards. But while the theory that
happiness leads to higher productivity and thus stronger GDP growth is logical, the available data does not back it up. We compared the Gallup World Poll’s Positive Experience Report Index and the UN’s World Happiness Index scores with countries’ productivity growth rates, GDP growth rates, and GDP per capita levels, and found no meaningful correlations. For instance, examining the Positive Experience Report Index scores with average labour productivity growth rates in recent years for the G20 countries reveals no discernible relationship (see figure 1). In fact, most of the G20 countries are clustered in the low labour productivity growth, high happiness quadrant. Why is this the case? One reason could be the way we measure
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SME Unplugged (figure 1)
happiness, which for obvious reasons is not clearly defined. After all, by definition the concept of happiness is difficult to measure in quantifiable ways. Some would argue that survey questions asking if people laughed or smiled in the last 24 hours, as the Gallup World Poll does, are subjective. And the events and conditions that create happiness for one person may not do so for someone else. Another reason could be that happiness and country-level productivity and GDP growth are simply not correlated with one another. If happiness is in fact not related to GDP and productivity growth, then perhaps it is time for governments – which have long sought to improve GDP growth through their fiscal and monetary policies – to introduce a second
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metric of policy success: optimising their citizens’ well-being and happiness. Some countries have already committed to maximise people’s happiness. Bhutan has long been a leader in this area, having developed its Gross National Happiness Index in the 1970s. The United Kingdom recently created a Measuring National Well-being programme to analyse national well-being, arguing that it should be a central part of policy-making, while the UAE government recently created a new post for a Minister of Happiness. Measuring and maximising an entire country’s level of happiness is a daunting challenge, though. While governments that explicitly focus on such a goal may have some success, there is clearly a central role that the private sector can play
in this effort. People engage much more closely with their employer on a daily basis than they do with their national government, and employers therefore have a critical impact on increasing the happiness of their employees – and on raising the happiness level of the overall population as a result. Many companies are already embracing the notion that employees who are satisfied with their jobs and are happy at work make more productive and better employees. If companies continue to invest more in employee satisfaction, it could not only improve their own bottom-line but could also help boost country-wide productivity and economic growth. The authors would like to thank Jiwon Jun for her valuable contributions to this piece.
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Your gateway to trade opportunities bauma –
SME Advisor was invited to a pre-event launch of one of the world’s foremost sector-focused event for construction – bauma. To be held from April 11 to 17, 2016, in Munich, the event promises to be bigger and better than ever before. In this month’s trade special issue, we report exclusive insights... 76
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With a total exhibition space of 605,000 square meters, bauma is regarded to be the largest trade show in the world. In fact, in 2013 the trade fair broke all previous records – attracting a total of 3,421 exhibitors from 57 countries, and 535,065 visitors from over 200 countries! Taking place in Munich ever three years, bauma provides a world-class showcase for companies providing: construction machinery; building material machines; mining machines; construction vehicles; and construction equipment. New developments and innovations Let’s take a look at some of the new developments in construction machinery, vehicles, equipment and components that will be on show at bauma between April 11 and 17, 2016 at the Messe München exhibition centre 1. Streaming transportation The vehicle and machinery manufacturer MAN is also offering advanced digital solutions. At bauma it will be premiering its new app DriverConnect, aimed at optimising the connection between driver and dispatcher. Both can communicate quickly and simply with one another by means of text messages. The driver can send user-definable quick text messages at the touch of a button and in doing so, keep the dispatcher up to date regarding arrival at the destination address, breaks, status or breakdowns. In the event of a breakdown, the app transmits all the relevant information so that the truck in difficulty can quickly be reached by the service team. The driver receives information regarding orders and addresses which he can accept through the MAN navigation system integrated in the vehicle. This avoids transmission and typing errors. In parallel with this the fleet manager and dispatcher retain
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an overview of trips and orders. Zandt Cargo, on the other hand, is offering a real “ analog” solution in the shape of its new low-bed trailer AT-P 400. This is essentially a very simple, but highly flexible and proven concept for transporting even extrahigh construction machinery. The trailer is fitted with adjustable cover elements. When these are pulled out a platform is created that can be used for a variety of loading applications. To create wheel recesses, the cover elements are stored via a telescopic
system in the frame of the trailer. Because of the low drive-on/driveoff angles, all standard construction machinery such as wheel loaders and excavators, but also large tractors, can be loaded onto this trailer and positioned in the resulting wheel recesses. At bauma 2016, Woma GmbH will be presenting to the trade visitors in Munich a new fully integrated system for transporting and operating high-pressure units delivering up to 3,000 bar. The special feature of this system is that
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the unit is installed in a Mercedes Sprinter with a total weight of 3.5 tonnes, and therefore can be driven with a Class B EU driving licence. The versatility and low weight of the EcoRunner facilitate the use of highpressure technology in areas which would otherwise be difficult to reach, e.g. under bridges or in dry docks. The pump is driven by the vehicle engine via an integrated power-split gearbox. By not having a separate pump motor, there are savings on space, weight and costs, says manufacturer Woma.
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If needed the high-pressure unit can be replaced quickly and easily. There is a choice of three pump modules, ranging from pressures of 170 to 3,000 bar and water volume flows of 16 to 235 l/min. Putzmeister will be showcasing the next generation of its truck mixer concrete pumps. Among the most important advancements in its Pumi 25-4 model and the 28-4 New Generation is the unique stepless support, which allows a flexible and safe machine set-up, including on a comparatively small space. The
In 2013 the trade fair broke all previous records – attracting a total of 3,421 exhibitors from 57 countries, and 535,065 visitors from over 200 countries 79
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safety system Ergonic Setup Control guarantees permanent control during set-up and minimises operating errors. 2. Better infrastructure: In order to be improve handling of large pipes with a diameter of DN 1200 to DN 2200 ThyssenKrupp Infrastructure has developed a new pipe-laying tool. Designed as an attachment for an excavator, the new device identifies the centre of gravity of the pipes when unloading, via a built-in sensor. This facilitates laying the pipe in the trench. In addition a rotator ensures precision alignment of the pipes. Finally an integrated pulling mechanism helps in fitting the pipe segments together. Up until now, says this supplier of civil, marine and foundation engineering solutions, it has been necessary to use two devices. Reducing fuel consumption and increasing productivity—those are the demands construction machinery today has to meet. Driveline and chassis technology specialist ZF is responding with cPOWER, continuously variable transmission technology. cPOWER delivers comparatively low engine speeds and engine stabilisation by a constant speed concept. According to ZF, in off-highway applications hydrostatic-power split transmission ensures significant consumption benefits compared to hydrodynamic transmissions and purely hydrostatic concepts. In typical off-highway machinery operating cycles, i.e. during bucket-filling, transporting or loading, the percentage of hydrostatic power is kept low and as a result an optimal degree of efficiency can be achieved. Already in the start-up process most of the output comes from the mechanical part of the transmission, and according to ZF, even in very short loading cycles, this results in a significant reduction in fuel consumption. The newly
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developed transmission unit series GFW 5000 is an especially compact drive solution for crane winches, says manufacturer Bosch Rexroth, a specialist in drive and control technology. The modular system includes reduction gears optimally adjusted for winch applications and matching variable and fixed motors. The newly developed nine-piston rotary groups improve concentricity and thus the fine positioning of crane loads at low rope speeds, says the manufacturer. High rope speeds increase daily productivity, even with heavy loads. The new series is suitable for use in mobile and stationary applications in mobile and crawler cranes as well as railway, ship, port and container cranes. 3.Digital solutions For many building professionals it’s quite a challenge to keep track of all the tools, equipment and supplies: Who is using what, and where? Which items are due for a safety check or routine maintenance? And: What commodities or consumables need to be ordered next? To help answer these and similar questions quickly and easily, tool manufacturer Hilti has come up with a software system called ON!Track, which it will be presenting at bauma. Via an RFIDbarcode scanner assets can be tagged and uniquely identified regardless of manufacturer. According to Hilti, the Cloud-based software ensures centralised and synchronous storage of data. The data can be called up at any time via a computer or on a smartphone. Hilti ON!Track has been in use by selected customers since the start of 2015, and since January this year it has been available across Germany. Komatsu Europe is also assisting drivers with automatic solutions: in Munich it is introducing the new D85EXi/PXi18 dozer with intelligent machine control. Using this equipment, both
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In order to be improve handling of large pipes with a diameter of DN 1200 to DN 2200 ThyssenKrupp Infrastructure has developed a new pipe-laying tool
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the rough cut and the fine levelling can be carried out in automatic operating mode. The system senses and controls the load adjacent to the blade and automatically optimises the penetration depth of the blade. In contrast to the retrofit solutions available on the market, this technology too is integrated into the machine back at the factory. According to Komatsu, dozers equipped with intelligent machine control can achieve substantially improved operating efficiency – especially if an accurate final fine level has to be guaranteed. For drivers, automatic controls also mean increased comfort. In general, working comfort in the cab and the process awareness resulting from it are increasingly becoming the focus of attention for construction machinery manufacturers. In the experience of British manufacturer JCB, the CommandPlus cab in its wheeled loader flagship 457, which has been optimised in terms of comfort and visibility, has proved ideal in practical conditions. This is why the company has now also equipped its mediumrange machine segment with it: at bauma, four more wheeled loader models featuring the cab, in which the B-pillars are placed at the same width as the rear, will be on show. This
results in a large interior with very good visibility thanks to a panoramic front windscreen. “ Command Driving Position” is the name given by JCB to the driver position with its reengineered pedals, an adjustable steering column and seat-mounted hydraulic levers. Full-colour LCDs show the operator screens of the loader and act as a monitor for a rearview camera. In order to intelligently combine new developments in a visionary cab, last year independent OEM suppliers and scientists banded together to form the “CAB concept cluster” . Together they designed the “genius cab” . The model cab is claimed to set standards in terms of safety, intuitive handling, driver comfort, maintenance and design. Not only will it be on show for the first time at the Munich trade fair, it has also been nominated for the bauma Innovation Award in the “Design” category. The Award recognises research and development teams of companies and universities who make practical, cutting-edge technology for the construction, building materials and mining industries ready for the market while keeping the environment, resources and human beings very much in mind. Find out more at: www.bauma.de
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