Trade and Export Middle East by Trade Export

ISSUE 4 | FEBRUARY 2012

A practical guide to going global

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inside: Event listings Country Focus PERFORMANCE survey Commodity watch Industry insights Policy watch

CHANGING TIDES Pascal Lamy, Director-General of the World Trade Organisation discusses protectionism, trade imbalance and global competitiveness

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Managing Director Richard Judd richard@cpidubai.com +971 4 440 9126

The world as it stands today is a confusing place. Europe continues its sovereign collapse, despite talks of bailouts and new debt issuances. The US ambles uncertainly along, pulled up by muted green shoots of economic growth, while China’s growth seems to have lost the steam to pull global recession to its feet. Everywhere we look there are mixed signals. Therefore, it is not surprising that most traders are adopting the wait-and-watch approach, mulling together over Shakespeare’s famous quote, “To be or not to be.”

EDITORIAL Group Editor, CPI Business Ketaki Banga ketaki@cpidubai.com +971 4 440 9115 Editor Meghna Pant meghna@cpidubai.com +971 4 440 9130 Contributing Editors Mike Byrne mikeb@cpidubai.com +971 4 440 9105 Aparna Shivpuri Arya aparna@cpidubai.com +971 4 440 9133 ADVERTISING Commercial Director Chris Stevenson chris@cpidubai.com +971 4 440 9138 Business Development Director Francis Morgan francis@cpidubai.com +971 4 440 9136

What can we do to help, we thought? Why not find a credible world voice that can put misgivings to rest, give traders some direction, and tell it like it is? So we approached the world’s largest trade organisation and sought the advice of its most eminent trade expert. This gentleman has worked with the Treasury, Finance Ministry, G7, and been an advisor to the French Finance Minister and Prime Minister. Aside from these prestigious ranks, he has also served as the European Commissioner for Trade, a position that further cemented his role in this industry. This revered gentleman is the 8th Director General of the World Trade Organisation: Pascal Lamy.

CIRCULATION Database and Circulation Manager Rajeesh M rajeesh@cpidubai.com +971 4 440 9147 PRODUCTION AND DESIGN Production Manager James P Tharian james@cpidubai.com +971 4 440 9146 Art Director Kamil Roxas kamil@cpidubai.com +971 4 440 9112 Designer Froilan A. Cosgafa IV froilan@cpidubai.com +971 4 440 9107 Photographer Cris Mejorada cris@cpidubai.com +971 4 440 9108 DIGITAL SERVICES www.tradeandexportme.com Digital Services Manager Tristan Troy Maagma Web Developers Jerus King Bation Erik Briones Jefferson de Joya

Since the inception of the Doha talks ten years ago – that his organisation pioneered – Pascal Lamy has been free trade’s biggest champion, fighting roadblocks and repeated setbacks. He has correctly expounded that with the emergence of fastgrowing and powerful developing countries, such as China, India and Brazil, the international power base will no longer be divided between rich nations and poor nations. In an anxious global environment where countries, including WTO members, are raising protectionist barriers under the misguided impression that this will save jobs and growth, Pascal Lamy is actively protesting such counter-productive moves by beseeching caution, not fear. In a rare and exclusive interview to Trade and Export Middle East – the region’s first trade magazine – Pascal Lamy discusses the most pertinent issues of today: the Doha talks, the role of the WTO, protectionism, shifting world dynamics, and the future of trade. In our next issue we will hear his thoughts on the Middle East’s role in macro trade, where he expects the region’s growth to come from, and with whom our bilateral trade relations will grow. As usual, we look forward to your comments and feedback, and will strive to make Trade and Export Middle East your go-to guide for all things exported and imported. We hope you enjoy the read!

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Meghna Pant, Editor, Trade and Export Middle East

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Branch Office PO Box 13700 Dubai, UAE Tel: +971 4 440 9100 Fax: +971 4 447 2409 Printed by ATLAS Printing Press LLC © Copyright 2012 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.

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updates

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GLOBAL WATCH: International news and trends with domestic trading relevance.

POLICY: Updated standards and regulations from government and industry bodies.

snapshotS: A quick look at news and trends that will impact traders in this region.

POLICY: In recent years soaring food prices and supply shortages have become a constant concern for both rich and poor countries. Dr Ashraf Mahate, Head of Export Market Intelligence at Dubai Exports, and Vice Chair of the Economic Policy Committee, Dubai Economic Department, tells us how trade policy can be an effective strategy to ensure an adequate and consistent supply of food.

LEGAL: When you take your business global, how do you plan for all contingencies? An international business will not accept a domestic arbitration clause and legally neither should you. Claire Grainger, Senior Partner at Prestige Advocates & Legal Consultants advises how to initiate and conduct an International Arbitration dispute.

MARKETING: Any trade institution, especially one in a global marketplace, needs to market effectively to customers. The trick to satisfying customers is to add sustained personal communications, says Dan Smith, Head of Integrated Marketing for the Middle East and Africa region of Xeroxâ&#x20AC;&#x2122;s Developing Markets Operations.

resources trade talk

CONTENTS

FINANCE: Trade and Export Middle East presents a summary of Insight Discovery’s SME Leadership Roundtable, where, among other things, experts discussed why enterprises and entrepreneurs in this region face difficulties in attracting capital funding and how they can overcome this financial roadblock.

INTERNATIONAL EXPANSION: Are you a UAE-based company looking to expand your operations to India? In order to set up your office is it better to buy commercial property or lease office space? Meghna Pant asks Indian property experts about the best way forward.

trade Guru: In an exclusive interview, Meghna Pant of Trade and Export Middle East spoke to Pascal Lamy, Director-General of the World Trade Organisation about trade in the Middle East, protectionism in the global economy and the controversial Doha talks, among other things.

COUNTRY FOCUS: The time has come for traders to take the plunge and overcome their hesitation to target the global middle class market share. Without the loyalty of this key segment, they may be left out in the cold as their competitors vie for industry leadership. Booz & Company explores the options and helps you identify the type of company you fall under in the race to capture the loyalty of billions of new consumers.

INDUSTRY INSIGHTS: Ali Abbas, Senior Regional Consultant – MENA & Turkey at Euromonitor International, reveals why increased participation by Chinese companies in Middle East banks bodes well for the financial services industry, and how the region’s anticipated growth in GDP and consumer spending will further stimulate this development.

RETAIL: While chocolate is a guilty pleasure for most people, how viable is it as a business? And if you are looking to enter the industry in this region, what should you do? Assem Hamzeh, the Managing Partner of ChoCo’a tells us why setting up a boutique store is better than joining a large franchise, besides other delicious tips.

COMMODITY WATCH: Your guide to all things commodity.

community

TRADE SECRETS: Trade and Export Middle East with Tickbox Surveys Middle East conducts a survey to gauge the language skills required of traders across the region.

focus

EVENTS CALENDAR: A snapshot of exhibitions and conferences around the world, which can help you spend less time planning and more time attending.

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Updates global watch

Kiwis flying high in UAE In the last year, there has been a region-wide boom in trade between New Zealand and the Gulf Cooperation Council (GCC), based mostly around the food and beverage sector. Recent trade figures show a compound annual growth rate (CAGR) over the last five years, of around 26%, with food and beverages (F&B) now accounting for 80.2% of New Zealand’s total exports to the UAE (2010 figures). Based on this increased demand for New Zealand

ingredients, there are now more than 75 New Zealand F&B companies doing business with to the region’s hotels, retail outlets and restaurants.

Malaysian ICT companies grow in the Middle East The Multimedia Development Corporation (MDeC) held a roundtable discussion with key stakeholders in the oil and gas, government, telecommunications, banking and financial sector, as part of its information and communications technology (ICT) marketing mission to Dubai. “The mission to Dubai is expected to create a business channel for The Multimedia Super Corridor (MSC) Malaysia-status companies to work with companies in the Middle East and tap on both regional and global opportunities. We are looking at fostering strategic partnerships and collaboration with strong UAE-based and regional ICT companies that need to increase their product portfolio and offerings with cutting edge and unique ICT solutions. We also hope to tap 1.5% of the Middle East market share by the end of 2013,” said MDeC. With strong government support and initiatives such as the liberalisation

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of Malaysia’s sub- services sectors, Malaysia is fast becoming one of the most competitive nations for Middle Eastern investment in the Asian region. In addition, this meeting gave the opportunity to enhance the visibility of MSC Malaysia in the Middle East. Malaysian ICT-based companies offer comprehensive, credible and cutting knowledge ICT services at competitive costs, besides having the ability to adapt to local culture environment of their potential clients, which comprises the private and public sectors from GCC countries. The niche areas of strength in which Malaysia excels include Islamic banking, financial services and solutions, telecommunications, government, as well as the oil and gas sector. Currently, there are more than 2,000 ICT companies operating within the MSC Malaysia fold, ranging from Internetbased business solutions and services providers to software application and

Steve Jones, New Zealand Consul General and Trade Commissioner for Middle East and Africa, said: “Our specialised staff and extensive business links help connect Gulf businesses, investors and entrepreneurs with New Zealand trade and investment opportunities. Our role has always been to help boost export earnings by helping New Zealand businesses looking to set up or grow abroad.” The New Zealand government’s national economic development agency has worked with firms such as gourmet burger chain BurgerFuel, who have rapidly created an impressive foothold across the region.

services providers. Some of the sectors where Malaysian ICT companies can provide world-class applications include financial services Industry (FSI), telecommunications (Telco) and e-Government services. The MSC Malaysia industry development programmes have produced globally competitive ICT companies delivering award winning solutions and world class service. These leading companies have successes in their delivery across continents covering Asia, Europe, US, Africa and the Middle East. They include SCAN Associates, iTopia, Securemetric Technologies, Extol MSC, GCI MSC, N2N Connect, which provides mobile trading technology for the financial services Industry in over five continents, Custommedia with their world class software testing solutions and services, Britesoft, who are providers of most advanced noncoding software development tools and services; Xybase MSC that is today’s leading total airport management system and services with more than 20 international airport implementations globally, just to name a few.

Updates policy

Exports, re-exports touch record highs in 2011: DCC Dubai Chamber of Commerce and Industry members’ exports and re-exports in 2011 made a record for achieving the highest figures in its history of operations. It also proved that the trade sector is once again the frontrunner of Dubai’s economic growth. The Annual Report 2011 released by Dubai Chamber indicates that the total value of its members’ exports and re-exports last year was AED 246 billion, which is 14.5% higher compared to the 2010 level, reflecting the importance of trade in the economic growth of Dubai. Also, the 2011 figures are higher than the peak period of economic boom of 2008, which was AED 213 billion. Meanwhile, the monthly exports and reexports of its members in May 2011 was the highest with AED 22.1 billion, while

the figures in February were the lowest with AED 17.6 billion. The annual data on number of certificates of origin (COs) issued totalling 698,067, showed an increase of 8.3% compared to 644,809 COs issued in 2010. Again the highest monthly COs issuance was in October 2011, which numbered 62,726 and the lowest was in February and totaled 50,612 COs. HE Buamim, Director General, Dubai Chamber of Commerce and Industry, stressed that the coming on board of 10,092 new members for Dubai Chamber last year, which took the total membership to over 128,000 with a percentage increase of 8.5%, also points towards the economic growth which Dubai has witnessed last year. It also reaffirms the trust of foreign investors in the

sound economy of Dubai, which has a strong backing from H.H. Sheikh Mohammed bin Rashid Al Maktoum, UAE Vice-President and Prime Minister and Ruler of Dubai. His Excellency stated that despite the political unrest across the Middle East and North Africa region, Dubai continues to be a safe and stable place to do business. The city, backed by its astute government policies, world-class infrastructure and financial services, as well as businessfriendly laws, continues to offer a solid platform for international investors to do business here and work towards their own as well as the emirate’s economic growth in the coming years. Summing up the achievements of the year, HE Buamim informed that on its part Dubai Chamber focused not just on the quantity of growth, but also on the quality of growth by exploring new products and export markets, as well as business opportunities for trade and investment in Africa, East Asia and Latin America.

Trade control becomes more sophisticated

The Commercial Compliance and Consumer Protection Division at the Department of Economic Development (DED) has launched a new advanced portable device “Meydani” to improve the efficiency of trade control and inspection processes conducted at stores. The new device is part of DED’s strategy to contribute to facilitating Dubai’s growth by providing faster and more efficient services to the public.

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“DED is committed to offering better services to the public through varied initiatives and solutions, and by providing a competitive environment that supports investment and business growth in Dubai and the UAE. Meydani is a first-of-its-kind initiative in the region and has tremendous features including a 3G interface,” said Omar Bushahab, Chief Executive Officer of the Commercial Compliance and Consumer Protection Division. He added: “The new device integrates the electronic fine system and determines the geographical locations of stores using advanced navigation techniques. It will facilitate field work for our inspectors and help them issue instant fines and transfer information to the database of Commercial Compliance and Consumer Protection Division electronically. The savings in terms of time will

be 70% and productivity will increase by about 30%. Many transactions will be completed within the shortest possible time. We have already recorded the locations of 70% of the stores in Dubai and expect to complete the process by 2012. The new device is capable of issuing at least 60 fines per day.” The multi-user equipment is equipped with cameras that inspectors can use to shoot the location and type of the fine issued. It enables the inspector to browse the internet, check e-mails and respond to them, and use the device as a mobile phone too. Meydani will support the strategy of the Commercial Compliance and Consumer Protection Division’s 2010 strategy to protect traders and consumers, as well as combat fraud. The Division has also launched various other initiatives and programmes that have positively reflected on consumer protection.

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Updates snapshots

Oman: Regional centre for aluminium recycling? Oman has the potential to become a major aluminium recycling centre servicing the industry across the GCC in the future, says Frederic Rouyer, the Chief Executive of Oman Aluminium Processing Industries LLC (OAPIL), while talking about the huge untapped potential for the creation of a viable aluminium recycling industry in the Gulf. He explained that the amount of aluminium scrap produced in the GCC during the downstream process was set to double to an estimated 270,000 metric tonnes per annum by 2020, as the Gulf becomes an increasingly centre of global importance for the industry. Mr. Rouyer explained that recycling was a highly cost effective way to reinforce sustainability, was environmentally aware and can also help to generate new employment and economic growth.

“Compared with the production of primary aluminium, recycling of aluminium products needs as little as 5% of the energy and emits only 5% of the same amount of greenhouse gases as in conventional aluminium production. Recycling can be increased further by including an aluminium recycling plant with the downstream process.” Investing in recycling in Oman would help with direct and indirect job creation for Omani nationals, support long-term sustainability in the region, help with community and social development and provide fresh education and training opportunities, added Mr. Rouyer. OAPIL was established in 2007 and produces 50,000 metric tonnes of aluminium products every year that include aluminium rods, alloy rods and overhead line conductors with plans to significantly increase production in the future.

AeroThrust establishes MRO facility in Bahrain AeroThrust Holdings USA, has concluded a joint venture agreement with Bahraini partners to establish AeroThrust Gulf Aviation Services in Bahrain. This follows a proactive outreach and consultation process by the Bahrain Economic Development Board (EDB) to support the decision to invest in Bahrain, as well as continuing support around the registration process. This joint venture is expected to leverage AeroThrust Holdings LLC’s technical expertise in the aircraft engine maintenance, repair and operations (MRO) services sector. The company will provide a full range of aircraft engine MRO services for

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the Pratt & Whitney JT8 and CFM International’s CFM 56 series of engines. AeroThrust Gulf Aviation Services W.L.L is expected to invest around USD 20 million over the next 3 years in its facility at Bahrain. The facility along with the test cell is expected to cover 94,000 sqft. It will be completely dust free and incorporate the latest climate control technologies, tools and machinery. Shaikh Mohammed bin Essa AlKhalifa, Chief Executive of the EDB, expressed his pleasure at AeroThrust Holdings LLC decision to make Bahrain their home in the Middle East. “Bahrain has a proud heritage in the aviation

sector and offers a strong location and infrastructure from which to do business across the Gulf region.” Mr. Mario Abad, Principal and Owner of AeroThrust Holdings LLC, is excited about this facility. “We considered a number of countries in the Middle East to establish an aircraft engine shop, but ultimately, we chose Bahrain for its strategic location, excellent support from the EDB and most importantly for the vision demonstrated by the Government of Bahrain to develop the aviation and aerospace sector. The facilities in Bahrain will be on par with our Miami operations and will include Non-destructive Testing (NDT), Test Cell and Plating Operations.”

Updates snapshots

Companies in international markets more profitable Companies operating in international markets are reporting better results (revenue trends, or profit trends, or both) than those concentrating on their domestic market, according to evidence from the Regus Global Survey, which polled opinion from over 12,000 companies around the world. These findings indicate that foreign expansion is good for business and should be considered urgently by domestically-focused companies who do not want to be left behind in fiercely competitive markets. Evidence from the survey emphasises the need for a shake-up in attitudes at domesticallyfocused firms. There is a gulf between the outlook of companies already operating internationally – where 80% intend to expand still further – and those solely operating in home markets – where only 42% intend to expand abroad over the next few years. ‘Property’ and ‘People’ are key perceived obstacles to international expansion: • 34% of firms say the biggest obstacle to overseas expansion are the challenges of

setting up a physical presence in a foreign country; • 63% of companies say that property commitments have to be very short term when setting up a foreign operation, as they do not know how quickly or slowly they will grow; • Opinion is split over the where senior management for overseas operations should hail from, with 53% favoring a mother country manager, and 47% opting for a local manager; and • A similar division occurs over management language skills, with 48% of respondents demanding local language fluency. Regus CEO, Mark Dixon notes, “This report provides hard evidence that, in the current economic climate, firms who have diversified overseas are faring better than those who have stayed with their home markets. This applies to companies both large and small and should act as a wake-up call for those still solely focused on domestic markets to find effective and costefficient ways of moving cross-border in order

to enhance their earnings and spread their risk. While ‘property’ and ‘people’ are perceived as potentially major challenges, the wide availability of flexible workspace options around the globe make the ‘property’ element more perception than reality, the ‘people’ issues do require very considerable judgement.” “Decisions about whether to install a local manager or install one from the mother country are critical and, we believe, rest heavily on whether sales are mainly being handled through a few major distributors, or whether direct contact with a wide range of customers is required.” “Interestingly, the only exception amongst the major economies of the world is China. Here, state-sponsored infrastructure investment and development is providing disproportionate domestic market opportunity for Chinese firms. Nevertheless, such infrastructure development will ultimately turn out to be finite, and we suspect that into the next decade, Chinese firms will once again be looking for export-led growth.”

KSA to increase hiring Experts from Bayt.com, the region’s number one job site, revealed positive hiring expectancies in Saudi Arabia over the next 12 months. They also expect that the preferred industries for employment in the country will be oil, gas and petrochemicals industry, followed by banking and finance. Further findings as a result of extensive research conducted by Bayt.com include employment preferences of graduates and women, in addition to the skills, qualifications and experience that

employers in KSA are looking for. “Our research and survey results have shown that the job market in KSA is currently the healthiest in the MENA region, with the highest hiring indicators suggesting that there will be plenty of hiring opportunities in the months to come,” said Suhail Masri, General Manager of KSA, Bayt.com. Tawteen 2012 is the leading career fair in KSA, attracting more than 10,000 jobseekers and over 500 employers from various industries.

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Updates snapshots

India trade mission to bolster F&B exports Dubai Exports, an agency of the Department of Economic Development (DED) – Government of Dubai, hosted its first ever ‘Outward Trade Mission of Food Producers to India’, an initiative aimed at introducing food and beverage (F&B) products from Dubai to importers in India. The mission, held by Dubai Exports’ Trade Office in India, served as a platform to acquaint Dubai exporters with the Indian market and its business opportunities. A total of 65 business-tobusiness meetings were organised between Dubai exporters and Indian importers during the mission. Among the companies that participated at the mission were Masafi, Al Nassma Chocolate, Choco’a, Diamond Meat Processing, Gourmet House, Coffee Planet, and Kingdom Dates.

“As the official export promotion agency of the Dubai government, Dubai Exports’ role is to support local exporters to develop and diversify their overseas operations. The trade mission is an important tool to aid them in penetrating and showcasing their products and expertise to their target markets,” Mohammed Ali Al Kamali, Director of Export Markets Development, Dubai Exports said. On the sideline of the trade mission, the delegates composed of Dubai exporters from the food and beverage industry, also visited Fine Food India, India’s latest trade event for the retail, foodservice, bakery and hospitality industries. Dubai Exports, supported by its office in India, hosted a stand to showcase Dubai’s F&B

capabilities at the exhibition. “Our presence at Fine Food India is important to increase Dubai’s profile as a leading food exporter to this region,” Al Kamali explained. “India is among the leading trade destinations for the UAE. While gold remains as Dubai’s top exported product to India, the food and beverage industry is also a growing sector that our local exporters can explore. In 2010, Dubai’s total direct exports to India posted AED 27.38 billion, a 28.42% increase from AED 21.32 billion in 2009. Among the exported products to India last year such as sugar and confectionery amounted to AED 379.69 million while the cereal preparation was valued at AED 8.74 million,” Al Kamali said. “We are optimistic that the ‘Outward Trade Mission of Food Producers to India’ will open avenues for Dubai-based companies to further boost the food and beverage exports not only in India but to other neighbouring countries,” he explained.

USD 140m JV facility to set up in Oman As part of its ongoing strategy to drive inward investment into Oman, Salalah Free Zone (SFZ) is utilising the Sultanate’s abundance of natural resources to attract foreign business, creating growth in economic activity and jobs. Most recently the free zone signed a Memorandum of Understanding (MoU) with Carmeuse Group of Belgium, a world leader in lime and lime-related products, to establish a USD 140 million joint-venture production facility in SFZ. Salalah Free Zone Chief Executive, Eng. Awadh Salim Al-Shanfari said that the new venture would have a number of positive spin-offs for Oman and the Salalah Free Zone. “The Carmeuse facility will support the development of new industrial activities and employment in Oman and Salalah Free Zone. This investment is made possible due to the availability of quality limestone, and has the added benefit of promoting Oman’s significant natural resources potential. It will also boost traffic through the Port of Salalah, which is strategically located close to key markets for lime products.”

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Carmeuse’s project has the potential of creating up to 300 direct and indirect jobs, and will expand its comprehensive global corporate social responsibility programme to include Oman and Salalah. The Carmeuse Foundation supports 18 organisations worldwide focusing on “enhancing education and training for children in need”. This will be extended to local communities in Oman and specifically in the Salalah region. Carmeuse could also act as an advisory board member to local technical schools and provide internships and other technical support. Rodolphe Collinet, Carmeuse CEO: “The new Carmeuse facility will be a key supplier to the GCC and Asia, which are increasingly using lime for industrial applications such as steel, aluminium, construction and environment. Specifically, significant demand should come from India, which is a substantial consumer of lime-related products required in a number of industries. Salalah unique location and competitiveness will enable us to serve our Asian customers more rapidly and competitively.”

In the first year of operation, Carmeuse expects to produce 50,000 tonnes of lime and lime-related products, with the aim of increasing that to 750,000 tonnes by 2020, once all three phases of the facility will be fully operational. Ali Tabouk, Salalah Free Zone’s Chief Commercial Officer, said: “Carmeuse will be one of our core material processing anchor tenant to establish an operation facility in Salalah Free Zone. Our mandate is to leverage Oman natural resource and location to drive economic development and Carmeuse’s Project fit this vision perfectly.” “We expect a sharp rise in interest and application in Salalah Free Zone in the comings years, potentially to reach USD 6 billion of investment by 2015, given that over 50 companies have now shown strong interest in the zone. Signing global multinationals like Carmeuse further underpins Salalah Free Zone’s unique value proposition, and sends a positive message to other organisations considering establishing facilities in Oman.”

RESOURCES Policy

Trade and food security In recent years, soaring food prices and supply shortages has been a major concern for both rich and poor countries. Dr Ashraf Mahate, Head of Export Market Intelligence at Dubai Exports, and Vice Chair of the Economic Policy Committee, Dubai Economic Department, tells us how trade policy can be an effective strategy to ensure an adequate and consistent supply of food.

he World Bank Food price index shows that there has been an approximately 25% increase in prices between last September and this year. In addition to this, food stocks are below their historic average levels. While such a situation

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may offer temporary financial benefits to farmers and food traders, it threatens the food security of vulnerable consumers, especially those in developing countries. Therefore, it is not surprising that an increase in food prices has initiated social

unrest in various countries, and sometimes even led to a change in government. According to the 1996 World Food Summit, food security is defined as â&#x20AC;&#x153;access to sufficient, safe, nutritious food to maintain a healthy and active life.â&#x20AC;? Such a broad definition embodies three key factors, namely: availability of food, access to food, and utilisation of food. In the case of food availability, the definition assumes that sufficient quantities need to be available on a consistent basis either through reserve stockpiles, trade or even aid. Access to food assumes that people should be able to acquire it in sufficient quantities, either through purchase, domestic (i.e. own) production, barter, or even aid. The utilisation of food assumes that it needs to have a beneficial nutritional value with appropriate cooking, hygiene, storage and sanitation facilities. Economists and social commentators have argued that various short- and longterm structural factors have intensified the food security problem. In particular, growth in global population, general rise in income, as well as urbanisation has meant that demand for food has increased without a corresponding rise in supply. In the case of developing countries the rise in urbanisation and change in dietary patterns has meant that previously self-sufficient households now depend on purchasing their food supplies. A pertinent issue is also

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the change in global climate as a result of an increase in carbon dioxide and other greenhouse gases. Extreme weather is said to have a direct impact on food production, and an indirect impact from floods, severity of pests and diseases, infections and so on. The environmental impact of intensive farming, as has been the case in some countries, can have a detrimental impact on future output through change in the availability of water, soil erosion, degradation, as well as loss of biodiversity. The move towards a consumer society has meant that there has been competition for raw materials between farmers and industrialists. For instance, mineral phosphate which is a fertilizer is also used to make chemicals for industrial purposes. Therefore, the huge demand by industry has meant that farmers have faced considerable shortages or very high prices. Similarly, high and rising oil prices have meant that both companies and the government are investing in alternative fuels. In recent years, new laws and mandates in Argentina, Brazil, Canada, China, and the United States, among other countries, are contributing to the surge in production of bio-fuels. In fact, global production of bio-fuels increased 17% in 2010 to reach an all-time high of 105 billion liters. Estimates show that currently a little over 10% of the global output of coarse grains is used in the production of ethanol. More importantly, the Food and Agriculture Organisation â&#x20AC;&#x201C; which is part of the United Nations â&#x20AC;&#x201C; predicts that if the current rate of diversion of food towards bio-fuels continues, then by 2050 the number of undernourished preschool children in Africa and South Asia will be between 1.7 and 3 million higher than what would otherwise have been the case. Solving the food security problem is not an easy task. There are a number of challenges, most notable of which is that the world will need to produce more food and ensure that it is shared more equitably between global populations.

Dr. Ashraf Mahate is the Head of Export Market Intelligence at Dubai Exports, which is an agency of the Dubai Economic Department. Dr. Mahate is also the Vice Chair of the Economic Policy Committee with the Dubai Economic Department. He has written a number of journal articles and book chapters, as well as edited books in the areas of economics, finance and banking. He has also presented papers at major international conferences. Dr. Mahate provides extensive consultancy services to various organisations in the areas of banking, economics and finance. He has been a director of a number of companies including a venture capital company and a private equity fund. Dr. Mahate received his doctorate from Cass City University Business School in London (UK), which was ranked by the Financial Times newspaper as the twelfth best university in the world for finance. He read Economics at University College London, followed by a Masters in International Economics and Banking at the University of Wales in Cardiff. Dr. Mahate is a professional educator and received his training at the Institute of Education (University of London). He is a member of the Chartered Institute of Managers (UK) and a Member of the Institute of Commercial Management (UK). He is also a member of the Association of Certified Anti-Money Laundering Specialists (ACAMS). For more information on Dubai Exports, please visit: www.dedc.gov.ae.

More importantly, this increased food production has to be carried out without negatively impacting the environment and while conserving the use of water. The food will need to be safe, nutritious and affordable, and distributed in a manner that meets the needs of consumers of different economic and social backgrounds. Food security is of particular importance to the Middle East and North Africa (MENA) region as this region is the most dependent on food imports. Currently, the MENA region imports an average 50% of its food requirements. However, with a population that is expected to double by 2050 to more than 650 million, estimates show that food imports will account for over 75% of the requirement. In the case of the six

GCC countries, imported food accounts for approximately 65% of the requirement, amounting to a total import value of USD 25.8 billion (2010 data) or 3% of the total regional GDP. It is predicted that this trend will continue and food imports will rise to USD 36.3 billion in 2015 and USD 53.1 billion by 2020. Within the GCC, Saudi Arabia by far has the largest share of food imports, amounting to 65% of the value, and this trend is expected to remain for the foreseeable future. Another key challenge for the MENA region, and in particular the GCC, is the limited availability of land and water. For instance, the land available for agriculture in the UK is 24%, while in the UAE it is only 1%. Even where land is available, GCC

Food security is of particular importance to Middle East and North Africa as this region is the most dependent on food imports. Currently, the MENA region imports an average 50% of its food requirements. However, with a population that is expected to double by 2050 to more than 650 million, estimates show that food imports will account for over 75% of the requirement.

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RESOURCES Policy

Another key challenge for the MENA region, and in particular the GCC, is the limited availability of land and water. For instance, the land available for agriculture in the UK is 24%, while in the UAE it is only 1%. Even where land is available, GCC countries face severe water shortages. Estimates show that water inflow to agriculture from underground sources will last for 30 years at best. countries face severe water shortages. Estimates show that water inflow to agriculture from underground sources will last for 30 years at best. Moreover, industrialisation and increase in population in the GCC countries implies that nonagricultural use of water is increasing rapidly. It is predicted that by 2025 domestic use of water will double while industrial demand will increase threefold. Of course, desalination supply of water is possible but it is expensive and has a detrimental impact on the environment. As a result, a number of GCC countries, such as Saudi Arabia, have reconsidered their agricultural policies that sought to create domestic production. The import replacement strategy has proved to be extremely expensive, while also damaging the water levels in the country. As a result Saudi Arabia has announced that it will phase out domestic wheat production by 2016 in order to save water. Some GCC countries have also sought to acquire land banks in various friendly countries, such as Africa, Central Asia, Southeast Asia and Eastern Europe, so as to ensure future food supplies. This policy was positively received in the early period as recipient countries welcomed investment into their agricultural sector. However, the purchase of land banks is now viewed with suspicion by some of the recipient countries and the strategy is limited at best. Moreover, the purchase of land banks itself does not guarantee a

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World Bank Food Price Index

Source: World Bank

Source: FAOSTAT

supply of future food. The simple reason for this is that a country at any point in time can impose an export ban. Another strategy used by GCC countries is to build strategic reserves of food. Food stockpiles can play an instrumental role in stabilising food prices and ensuring that adequate food supplies are available. However, strategic food stockpiles are effective only in dealing with short-term shortages or price fluctuations. In the case of long-term shortages and prices fluctuations, strategic food stockpiles are

of limited use. Moreover, food stockpiles require effective management as well as appropriate storage facilities. In the case of the GCC this is of particular importance due to its harsh climate. Such facilities add to the cost of food supply. One effective strategy of ensuring adequate and consistent supply of food is trade policy. Trade is an effective mechanism which allows food surplus countries to sell to food shortage countries. This transmission mechanism is effective and has few, if any, impediments. Trade is seen as a long-term solution to meeting the growing demand for food. Currently, 25% of global production of food enters the international chain of commerce. However, if trade is to be further liberalised then this figure will greatly increase, leading to a more efficient food security strategy as producers will be more willing to invest, knowing that their output can reach a wider market. Similarly, consumers can obtain supplies at a lower cost as a result of economies of scale and greater efficiencies from increased investment. In many respects trade of food is inevitable as there is a natural disconnect between the population centres and the natural areas for farming. As a result, it is virtually impossible for countries to become selfsufficient in the production of food, and – as in the case of Saudi Arabia, amongst others – this is not only expensive but also detrimental to the environment. International trade can lead to greater overall economic growth which itself will allow for greater access to food. More importantly, trade between countries promotes and encourages greater economic co-operation. Although, international trade offers a viable solution to the food security problem, one has to appreciate the fact that it is no more than one aspect of a complex strategy that seeks to deal with a growing problem. A portfolio of tactics need to be implemented if the goal of adequate, consistent and non-price fluctuating food supply is to be obtained.

RESOURCES Legal

When arbitrators attack When you take your business global, how do you plan for all contingencies? An international business will not accept a domestic arbitration clause and legally neither should you. To find out how to initiate and conduct an International Arbitration dispute, read what Claire Grainger, Senior Partner at Prestige Advocates & Legal Consultants has to say.

FEBRUary 2012

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o doubt those conducting business in the United Arab Emirates (UAE) would have seen, or even signed, a contract containing an arbitration clause that read something like this: “If a dispute is not resolved in accordance with clause […], either party may refer the dispute to arbitration, and give notice to the other party of such referral, so that the dispute may be finally resolved in accordance with the Arbitration Rules of the Dubai Chamber of Commerce & Industry in effect at the time of the dispute. The dispute shall be determined by one (1)/three (3) arbitrators, [one appointed by each Party and the third being appointed by the President of the Dubai Chamber of Commerce at the time]. The place of arbitration shall be in the Emirate of Dubai and all proceedings shall be conducted in the English language.” An international business will not accept a domestic arbitration clause such as the one above and legally neither should you. If all your assets are in the UAE, and if you are the one being arbitrated against, you are making it easy for the other party to enforce against you.

International Arbitration Rules

One of the first rules of business is not to make it easy to enforce an award or a judgment against you. Therefore, you must make the seat of the arbitration – the place where the arbitration is held – somewhere where you as a business do not hold any or many assets, and/or somewhere which does not have a treaty with your home country for enforcement of awards (via the New York Convention or similar). International Arbitration allows you to do just that. International Arbitration is not fixed or tied to any particular country or piece of legislation. Rather

Claire Grainger, Senior Partner at Prestige Advocates & Legal Consultants, consults in negotiation and drafting of contracts, mediation, arbitration, as well as litigation. She practices in the areas of real estate, construction, engineering and infrastructure projects. A British national, Grainger graduated with honours from the University of Leeds with a degree in Civil Engineering and Construction Management, followed by a Post Graduate Diploma in Law and a Post Graduate Diploma in Legal Practice from Huddersfield University and Liverpool John Moores University respectively. Prior to qualifying as a Solicitor in England and Wales, Miss Grainger worked in the construction industry in the UK gaining a unique insight into the industry in which she now practices law. Grainger has been involved with some of the most innovative projects in the region, such as: Burj Khalifa, The New Cairo Waste Water Treatment Plant, The Dubai Metro, Tameer Towers, and the recently awarded Riyadh Leakage Management Contract.

it is a set of rules drafted by various professional bodies for disputes arising from matters covered by these bodies. However, it must be noted that the rules are not exclusive to these bodies, and are, in fact, often used for disputes not covered by these bodies. In addition, there are some that can be used to deal with any form of dispute. This has created a lot of choice and favouritism in the market as to what International Arbitration Rules a business selects when drafting its contracts. It should be mentioned at this point, that you do not have to be conducting business internationally to use International Arbitration Rules; you can be conducting business domestically and still choose to use International Arbitration Rules. The choice is entirely yours. It is a business decision. However, if you do not expressly write in your

agreement that you want arbitration to be your choice of dispute resolution forum, you will find yourself fighting for your rights in Court.

The Choices

We’ve talked about International Arbitration Rules, but what options do businesses have? The most commonly used are: • International Chamber of Commerce (ICC), • International Centre for Dispute Resolution (ICDR), • London Court of International Arbitration (LCIA), • United Nations Commission on International Trade Law (UNCITRAL), • Hong Kong International Arbitration Centre; and • Singapore International Arbitration Centre (SIAC)

A small amount of time and energy must be dedicated to look at what might go wrong with a contract. Analyse the potential risks and threats to a business, and then assess the most appropriate dispute resolution rules at the beginning of a contract. Businesses should think of it as part of the risk aversion process.

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RESOURCES Legal

What you choose depends on rules suited to your type of commercial transactions. In other words: • Do you want to be compelled to disclose everything, whether beneficial to your case or not? • Do you want a set of rules that are less specific when it comes to disclosure, allowing you to disclose only what you want? Unfortunately, this is like asking you to see the future at the beginning of a contract. Yet, these are usually the most costly items, both in terms of time and money. Therefore, a small amount of time and energy must be dedicated to look at what might go wrong with a contract, analyse the potential risks and threats

the 2012 Arbitration and ADR Rules. The Court, via its President, assists in appointing the Arbitrator(s), if the parties are unable to agree on the nomination, and in ensuring that the Arbitration runs within the prescribed timelines and follows the rules set out by the ICC. Initiation of an Arbitration is done via a request that must set out the full details of each party, the particulars of the dispute, including how each claim arose (nature, circumstances and basis for the claim(s)), under what agreement(s), the claim under each dispute and how it’s quantified, what evidence exists, nomination of an arbitrator, details of seat (place) and language for arbitration proceedings,

If you think that the other party is more likely to break the contract, then make the place and jurisdiction of the contract in their home country. Then choose the appropriate set of rules according to the type of contract, value of contract and location of contract. If you are not sure what is best for you, then invest in good quality legal advice. to a business, and then assess the most appropriate dispute resolution rules at the beginning of a contract. Businesses should think of it as part of the risk aversion process.

International rules ICC

The ICC was founded in 1919 and by 1923 the Court for International Arbitration was established. The Court does not resolve disputes. Its role is to administer disputes in accordance with the latest rules, which at present are

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jurisdiction, among any other relevant details. It should be noted that under the ICC rules there can be multiple parties in one Arbitration or multiple can be joined to one Arbitration, unlike the UAE. “Article 9 subject to the provisions of Articles 6(3)–6(7) and 23(4), claims arising out of or in connection with more than one contract may be made in a single arbitration, irrespective of whether such claims are made under one, or more than one, arbitration agreement under the Rules.”

The ICC rules do provide for interim relief for the parties during the arbitration. However, at present they do not address small claims. Therefore, you would need to consider the value of your contract only when you consider whether or not you should be using these rules as your form of rules.

ICDR/AAA

The American Association for Arbitration established the International Centre for Dispute Resolution. The Centre and the rules lend themselves more towards a dispute that is set within the United States by virtue of the wording of Article 1(c) which states: “These Rules specify the duties and responsibilities of the administrator, the International Centre for Dispute Resolution, a division of the American Arbitration Association. The administrator may provide services through its Centre, located in New York, or through the facilities of arbitral institutions with which it has agreements of cooperation.” Again a request must be submitted similar to that of the ICC. As with the ICC, rules from ICDR state that during arbitration you can apply to the tribunal for interim measures of relief, such as freezing of assets, injunctions, security for costs, and applications permitted by Article 21.

LCIA

As the name suggests, London Court International Arbitration (LCIA) has its administrative headquarters in London. It has opened its second administrative headquarters in New Delhi, named LCIA India, and published its first LCIA India Rules in 2010 to take account of the different jurisdictional rules applicable in India.

In general, however, LCIA arbitration rules are globally applicable, as can be seen by the fact that they were chosen by Dubai International Financial Centre (DIFC) as the model rules for their Arbitration Centre. For those already conducting business at DIFC, this provides a degree of comfort when dealing with international contracts. As with ICDR, LCIA provides mechanisms within Tribunal rules to provide parties to a dispute with interim relief during the dispute resolution process. The dispute resolution process itself is swift as there are strict timelines for presenting a case, providing evidence and summing up. You cannot submit memorandum after memorandum to make the case last as long as you can. Additionally, unlike domestic arbitrations in the UAE where the parties have to pay up front and the Respondent can refuse to pay and make the Claimant pay for everything, in LCIA there are staged payments throughout the arbitration and it is up to the Arbitrator to make the Claimant pay the Respondent’s share. In other words, the Respondent cannot price the Claimant out of the dispute any more. Finally the cost of the arbitration is not linked to the amount in dispute.

HKIAC

The Honk Kong International Arbitration Centre (HKIAC) Rules are based on the UNCITRAL Arbitration Rules and are stated by the Centre to have been inspired by the “light touch” approach of the Swiss International Rules of Arbitration. As with the above rules, they are merely administrative and work with the choice of jurisdiction governing the contract you have entered into. They provide parties with the ability to apply for interim relief during the proceedings. They have also been adapted to suit

the legal system in Hong Kong which is based on the English Law system. One of the main reasons that business consider using the centre as a forum for its arbitrations is due to its location, as well as enforceability reasons as arbitral awards made in Hong Kong are readily enforceable in all East Asian jurisdictions, including Mainland China.

SIAC

Considered a relatively new player compared to LCIA and ICC, Singapore International Arbitration Centre (SIAC), established in 1991, is a non-profit, nongovernmental organisation. However, SIAC has developed a track record in providing arbitration services to the global business community, with SIAC arbitration awards enforced by the courts of Australia, China (Hong Kong), India, Indonesia and the USA, among other New York Convention countries. The SIAC has its own rules and allows parties to adopt the UNCITRAL

rules. The rules permit interim relief for the parties.

What next?

If you are expanding your business, then look at how you will grow your business, and how you will protect your existing business back home. That means ensuring that you have the right dispute resolution clauses and choice of law (jurisdiction) clauses in the contracts that you sign. If you think that the other party is more likely to break the contract, then make the place and jurisdiction of the contract in their home country. Then choose the appropriate set of rules according to the type of contract, value of contract and location of contract. If you are not sure what is best for you, then invest in good quality legal advice. A small amount of money spent wisely at the beginning of a contract can be a very good investment for the company in the long run.

FEBRUARY 2012

RESOURCES Marketing

early and often in the relationship improve cross-selling results and lower attrition rates. Welcome kits are a common means of building on the initial relationship, they need to be crafted carefully and tailored to the customer and product needs.

2. Be responsive: By scanning

A touch of personal Any institution, especially one in a global marketplace, needs to market effectively to customers. The trick to satisfying customers is to add a sustained personal communications, says Dan Smith, Head of Integrated Marketing for the Middle East and Africa region of Xerox’s Developing Markets Operations.

e’ve heard it often enough – it costs more to acquire a new customer than to keep an existing one. If a trading business has a 20% customer attrition rate on average, it must acquire 20% net new clients each year just to remain in the black. So it’s easy to see why using marketing dollars effectively to maintain customer loyalty, both in your local market and abroad, is essential to revenue stability and growth. Not only this, customer experience will be a key competitive battleground; customers will

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join for a superior experience and customers will leave over a poor one. This is especially true for a company with a global footprint, as is the case for many UAE-based exporters and importers. These tips can help you to make the most of customer communications in all your markets:

1. Strike early: Most cross-selling opportunities occur during the first few months of a customer relationship. Research shows that businesses that communicate with customers

and electronically storing documents you can provide a faster, more efficient service, obtain information for more personalised communications, ensure greater data accuracy and increase compliance. Looking through paper records or shunting them off to storage facilities will not be deemed adequate in the future, especially if you have offices across countries. Start thinking now about back file conversions, information repositories and comprehensive workflow capabilities to make servicing the customer a natural and seamless act for your customer service agents.

3. Take inventory: Any communication with a customer,( by phone, Web or face-to-face ) is an opportunity to acquire data about their life stages, attitudes, needs and preferences. The information can then be centralised across your global offices and integrated into the business’s inventory of brochures, catalogues, fulfilment literature, direct mail and statements so that details about individual customers or targeted segments can be placed in your document templates to deliver greater impact. Analytics will be crucial; you can take a page from what retailers do in this regard, in order to know your customers well enough to both sell and service them. 4. Get personal: You are likely

to generate sales if you personalise every document, email and so on. Incorporating variables in documents such as the customer’s name, product type or life event is the key to generating response rates that far outstrip the typical 0.5% – 2.0% expected from direct-mail campaigns. Of course you also need to know if your customer will welcome personalised communication or if it will be considered an invasion of privacy.

RESOURCES Marketing

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For example, getting personal can go high-tech with quick response codes (QR codes), modules that marketers print on communications for customers to scan with SmartPhones, directing them to a personalised landing page with tailored information about products and services, case studies, helpful tools and so on. In order for QR codes to be effective, marketers should stay true to the basic principles of marketing. People will only engage and interact with the content if it is relevant to them. The content on the initial communications piece must be relevant in order for the person to be interested in navigating to the landing page, and the content on the site must be relevant in order for the person to spend a meaningful amount of time there.

5. Keep it simple: Keep product

information as simple as possible so your staff can explain them and customers can understand them. This is especially true when you deal with customers from different backgrounds and cultures.

6. Be creative: Customers say they would be more responsive to more informal and creative communications; if your business requires it get the marketing and legal departments to work together to produce understandable and compliant communication. 7. Change the channel: Different

customers prefer different communications channels (direct mail, e-mail, online or text messages), so ask early in the relationship which method the customer prefers and stick with it. Do some market research about the market your business is expanding into. Communicate offers in terms that customers or prospects will readily understand, through the channel they prefer, and at a time when they are open to receiving it.

8. Embrace social media: Don’t

be afraid. In the modern communications landscape, customers are increasingly expecting their service providers to communicate with them via social media. Businesses must ask themselves: what are our

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Dan Smith is Head of Integrated Marketing for the Middle East and Africa region of Xerox’s Developing Markets Operations. He was appointed to this position in August 2008 and is based in the UK. He manages all facets of marketing – including channel communications, product marketing support, demand generation programs, electronic and e-marketing initiatives – for the Xerox lines of business in more than 70 countries comprising the Middle East and Africa region. Dan joined Xerox’s UK operations straight from university in July 1997. His first role with the company was as a systems analyst for color solutions and pre-sales technical support. In August 2000 he joined a team tasked with establishing a channels business model for Xerox UK. At the start of 2003, he began working with partner development in the UK and a Xerox sales team for enterprise-size organisations. In October 2004 Dan joined DMO to drive the Xerox Office strategy in the Middle East and Africa, and in 2007 he became Head of Marketing for the Xerox DMO Office business, overseeing a drive to maximise channel communication and demand generation in emerging markets. Dan is a law graduate from Hertfordshire University in the UK.

consumers’ expectations and requirements around social media? What information do they want shared via social media, and what conversations do they want to participate in? To address these questions, businesses have begun to create social media teams charged with transforming traditional methods of doing business. Beyond social channels, however, you must decide whether to build the infrastructure and processes to manage the social media communications, or to “borrow” the infrastructure and process instead (meaning: outsource it). Social media channels are fabulous opportunities to learn what your customers are thinking about. This is exceedingly relevant when you are dealing with cross-border clients and businesses, which you will as a trading company. Knowing when to engage a third party solution provider who specialises in optimising business processes is becoming more

important. Suppliers can bring innovation by leveraging technology and process enhancements in customer care, as well as providing transaction processing and document and digital asset management capabilities to improve efficiencies. A strong business process outsourcing partner can automate workflow, consolidate vendors and improve touch points with your customers. Power is changing hands in the global industry, slowly but inexorably. Power is moving to the customer. Customers will insist on dealing with you when and where they choose, with their preferred channel and on their terms whichever country you may be present in. Customers will want to be in control and know that you consciously put them in control with their needs first. Improving the customer communications process is a vital step for attracting and retaining the right customers, especially across borders.

People will only engage and interact with the content if it is relevant to them. The content on the initial communications piece must be relevant in order for the person to be interested in navigating to the landing page, and the content on the site must be relevant in order for the person to spend a meaningful amount of time there.

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RESOURCES Finance

What’s in your wallet? SMEs make up a majority of the trading community in the UAE. Like all small and medium enterprises, one of their key challenges is access to funding. Trade and Export Middle East presents a summary of Insight Discovery’s SME Leadership Roundtable, where, among other things, experts discussed why enterprises and entrepreneurs in this region face difficulties in attracting capital funding and how they can overcome this financial roadblock.

o matter how they are defined, it is clear that small and medium enterprises (SMEs) dominate the United Arab Emirates (UAE) economy. In the UAE, and across the Gulf Co-operation Council (GCC) and Middle East and North Africa (MENA) regions, they account for the vast majority of new jobs that are created. This matters a lot, because the demographics of the MENA region are such that the number of young people seeking work will surge in the coming years. All the governments in the region face this major strategic challenge: if there is not significant job creation over the next 10-20 years, governments face the prospect of a surge in political unrest that is fomented by angry, unemployed/under-employed and often quite well educated young people.

SME roadblocks

The real and enormous achievements of the GCC governments in terms of their countries’ economic development obscure a crucial fact: entrepreneurs who want to establish new businesses – which are invariably SMEs by some relevant definition – face considerable obstacles. In the UAE, the obstacles include a lack of finance. There are also – by European or North American standards – a lack of official incentives. The government does not have income tax revenue that it can recycle to entrepreneurs. This means that entrepreneurs have to bear substantial upfront costs such as licensing fees and visa fees. These expenses – and the costs of hiring office space that may not be

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needed – are higher than in other countries. More fundamentally, entrepreneurs are usually expatriates, with strong links to other countries. In the event that their businesses falter, they often leave – for good. In fact, given the absence of a modern bankruptcy law, they may face imprisonment if they stay. Potential financiers know this, and often see commercial ideas of merit as being far too risky. All these problems apply, in varying degrees, to the other GCC countries. As the problems are identifiable, they are soluble. The good news is that the superior growth prospects of the GCC (and, perhaps, some other MENA) countries will continue to attract interest from foreign entrepreneurs. The bad news is that the necessary changes will take time. The GCC country that is the first to overcome the obstacles to SMEs will likely gain a substantial advantage relative to the others. Over the long-term, though, the lack of resolution of these problems could have disastrous consequences – and not just the failure of countries in the region to realise their full potential.

Founded in 2007, Insight Discovery specialises in gathering market intelligence for companies through customer attitude surveys, employee engagement surveys and Leadership Roundtables. Their clients are mainly from the financial services sector and include regional banks, investment banks, asset management companies, insurance companies and private equity companies. Insight Discovery adheres to ESOMAR’s code of conduct (the international organisation of market researchers). Insight Discovery works closely with Universal Copywriters, a consultancy that works with global investment managers, private banks, institutional banks and publishers of corporate intelligence. It provides a wide variety of commercial writing/editing and research solutions. For further details please visit: www.insightdiscovery.com or contact: info@insight-discovery.com.

to SMEs that need to acquire assets or that need to put in place working capital finance to grow their businesses. Nick Levitt, Head of Commercial Banking, HSBC Bank Middle East was less optimistic as to whether the opportunity of the SME market

has been realised. He quoted that according to market research, the biggest untapped profit pool in the banking sector is accounted for by the larger SME businesses. Penetration of that profit pool is probably less than 30%. He said that there is a huge opportunity for banks, and

Opportunities

There is vibrant and active interest from banks and finance companies within the UAE, the GCC, and the wider MENA region towards supporting SMEs, said Edward Allely, Managing Director of Strategy and Credit, Gulf Finance. For example, he added, Gulf Finance, over the last 13 years, has provided over AED 3 billion of funding into the UAE SME market. Whilst there’s a lot of activity across the market, it would complacent to deny, he admitted, that far more is required. There is a clear gap between supply and demand for credit by SMEs which, by some estimates, is as big as USD 180 billion across the MENA region. However, there are signs that local banks and finance companies are becoming increasingly interested in and active in the SME market – with new offerings being announced on a regular basis. Allely adds that in 2011 Gulf Finance doubled the amount of new lending to SMEs compared to 2010. Therefore, the specialised finance company is very active in this market place, providing invaluable support

Entrepreneurs have to bear substantial upfront costs such as licensing and visa fees. These expenses – and the costs of hiring office space that may not be needed – are higher than in other countries. More fundamentally, these entrepreneurs are usually expatriates, with strong links to other countries. In the event that their businesses falter, they often leave – for good. Potential financiers know this, and often see commercial ideas of merit as being far too risky.

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RESOURCES Finance

that two things are needed at the lower end of the spectrum: 1) good and sound advice and; 2) capital, rather than just debt. Access to the equity type of capital is still at a very basic stage in this market. “If you were to try and pull together all of the money in the UAE that is available for equity financing in the market, which is the best type of financing for many start-up businesses, the pool is tiny. There are some good institutions trying to do a lot of sterling work to resolve this. However, actual capital in the system is very limited. Bank debt is more readily available. As mentioned, I think there are a couple of things that need to be built in order to boost that, as well. We need a stronger credit bureau in the UAE, which would help develop the infrastructure. It would encourage banks to build models for score card lending, which is currently not very prevalent in the UAE. We could also benefit from a robust bankruptcy law – a key element for financial development,” Levitt said. He added that in the next 5 to 10 years, provision of funding to SMEs will be one

Envestors, he confessed, provides an equity opportunity for people because when people are going to the banks there are two challenges. The first challenge is the total amount of bank funding that is available, as a lot of banks are being constrained by the government. In addition, a lot of the SMEs are in the service business, which means that there are few or no hard assets that can be offered as security. The second challenge is the cost of funding. Sometimes the rates are punitive – in excess of 20%. Roderick’s finds it extraordinary that businesses which are trying to grow and develop could be able to borrow at that level, let alone to be able to pay it back at some stage in the future. So he thought the question is: how do you make capital available to risky businesses, while making banks and or other institutions comfortable about it? This is where he thinks that the government has a much bigger role to play than it is currently. In this part of the world banks have a tendency to ‘provide the umbrella only when the sun is shining,’ commented Gunnar Skoog, CEO of Zawya.

of the areas that experiences the largest growth for financial services in this country. Another subject matter expert, Edward Roderick, who is the Co-Chairman at Envestors MENA, asked how one can create an environment where more businesses could come to the fore? He said: “In my experience the banks don’t look at small enterprises – the S bit – at all: what they are really only interested in is medium-sized enterprises – the M bit.”

“Nevertheless, I am happy to hear that HSBC now see SMEs as an important market, and I see indications from other banks that they really want to do various initiatives with Zawya in order to get into the SME market. Allely said something about high risk. The challenge is all about reducing the perception of high risk by coming up with more information and more transparency for these companies. For example, credit scoring is one idea;

The GCC country that is the first to overcome the obstacles to SMEs will likely gain a substantial advantage relative to the others. Over the long-term, though, the lack of resolution of these problems could have disastrous consequences – and not just the failure of countries in the region to realise their full potential.

FEBRUARY 2012

more transparent financials, another. That should mean that banks can come in and provide the capital needed. This is crucial for promoting aggressive growth in the SME market.” Mohamed Nassar, Managing Partner, WMS Metal Industries – the only SME company present in the panel discussion – said that since his business started in 2007, the company has exhibited double digit growth year-on-year. The only sort of money that the company was able to get from any sort of institution was trade credit from a local bank. He confessed that though another local bank came on board, it was with almost punitive rates, due to which WMS could not utilise the bank’s facilities. He commented: “Otherwise, we have had no access to any financial support. As Levitt and Allely have noted, we are not in a position to carry on debt and have the burden of repayment of principal and interest at this point of time. It really is a lack of access to the equity finance or raising equity that is the problem here. The hard work that Envestors are doing in the region is highly commendable, but that is just one entity. At the Arabia 500 Conference the same sort of comment was being repeated by everyone there. We, the regional SMEs, need to have easier access to equity finance.”

RESOURCES International expansion

Indian commercial property Are you a UAE-based company looking to expand your operations to India? As part of your strategic entry do you think that it is better to buy commercial property or lease office space? What return on investment can you expect? Read on as Meghna Pant asks Indian property experts about the best way forward. 30

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Why India? Expansion is a natural next step when a business grows. One potential international business destination, as you take your business global, is India. It is looking increasingly lucrative due to several factors that include its massive demand with a population of almost 1.2 billion, and the telecom boom. One of the first few things that you need in a new market is an office. You might as well make your investment count. An increase in Internet penetration helps as there is easy accessibility to information and transparency in real estate prices, along with the active presence of commercial developers, which means that a company can deal directly with the owner, instead of with a middle-man. With easening

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foreign direct investment (FDI) norms, the route to India is getting easier. Plus, UAE-based companies may be better suited to do business in India, than in the US or UK, due to the active presence of UAE companies in India, as well as the cultural similarities that the two countries share. There has been an increased interest in the Indian commercial space especially from the Middle East region. For instance, an exhibition like the recently held Indian Property Show – one of the largest property shows on India property in this region – with 30% commercial properties showcased, has seen a return of interest to pre-recession 2006 levels. Out of the 15,000 investors, 5-10% (mostly business owners) were looking to buy or lease commercial property in India. Sunil Jaiswal, CEO of Sumansa Exhibitions – the organiser of the Indian Property Show – says that in 2006, he saw a 50:50 spilt between those looking to invest and those interested in buying their first home. During the recession this dropped by 30%, and has bounced back in the last year. He said that 49% of non-resident Indians (NRI’s) are looking to buy property in India purely for investment purpose, while 11.6% want to buy commercial properties. Another pressing reason to expand your business to India currently is the depreciation of the rupee, which has opened greater avenues for foreign

Sunil Jaiswal is the CEO of Sumansa Exhibitions, and the brains behind India’s largest property show in Dubai. Property market investments are his forte and he takes keen interest in the dynamics of the Indian property market. An expert in investments, Sunil is a goldmine of knowledge on generating passive income. Not only is Sunil an investor, but also an entrepreneur, visionary and guide. He is a motivational speaker, noted across the UAE and India for his sessions on financial investments. Kapil Goyal currently works as the Head of International Sales with Nirmal Lifestyle, a leading Mumbai-based developer of both residential and commercial properties. Kapil’s main focus is to push for sales in the international market, and during his tenure, he has led teams in markets like Dubai, London and the US. With 21 years of experience, he has worked and travelled to almost 35 countries to promote Indian real estate. He is a regular columnist for Indian and international news papers and magazines. He holds an MBA and Diploma in Foreign Trade, as well as a Diploma in International Real Estate Marketing. Kapil Dev Sharma, is the Deputy General Manager – Sales of Vatika, which is one of the leading real estate companies in India. It is present in residential and commercial properties, including schools, hotels, restaurants, retail spaces and business centres.

players as they get an instantaneous 15-20% discount. This single factor has led to more investor interest in India over the last few months despite concerns that once the rupee appreciates, it will affect the investor’s rupee profitability. Yet, Kapil Dev Sharma of Vatika – one of the leading Indian real estate developers – says that this is not a decisive factor as real estate prices are rising at 30% per annum, so even if the rupee becomes stronger by 7-8%, it will be offset by an increase in real estate prices. This trend is on the heels of many success stories, including that of hotel conglomerate Starwood that entered India by tying up with the local Vatika Group, and then setup the Westin Hotels.

According to all the experts, companies are best off leasing commercial properties for the short-term, between three to five years, and then making an outright property buy.

Options According to the experts, companies are best off leasing commercial properties for the short-term, between three to five years, and then making an outright property buy, as property is a sizeable investment more suited for big companies. Since most companies lease for three to five years, it is good news for start-ups as they can test the market for that period without making a full commitment. The size of the property and location is also a key determinant. For instance, jewellery companies can have showrooms of 100-300 sq ft. and can be present in small or large cities; consultancy firms need to be present in a bigger city with offices with typically 1000 sq ft. coverage. Industry gurus say that if a company is entering India for the short-term and plans to pull out after a few years, investing in commercial property still makes sense. From a pure investment point of view, Indian commercial property yields 12-14% returns (especially in a mall), along with assured rentals that are

FEBRUARY 2012

RESOURCES International expansion

given by many developers. This is an even better investment than the much touted residential property, which gives 2-3% yields in terms of rent. Additionally they say, this is a good time to invest, as developers are giving sweeteners like special holiday packages and early bird specials. For example, companies such as Nirmal Lifestyle offer eco-friendly offices, such as Discovery Offices, that are especially targeted at foreign investors. They require an investment of around AED 600,000 upwards for offices between 600-1000 sq ft. and the builder gives assured rentals of approximately AED 6.5/sq ft per month on the purchase price of approximately AED 1200/sq ft till possession after three-and-a-half years.

Criteria

The criteria to enter the Indian market as a UAE-based foreign company are: • Use the foreign direct investment (FDI) channel; • Seek permission from the Reserve Bank of India (RBI), though FDI in sectors /activities permitted under the automatic route does not require prior approval from the Government or RBI; • Find a local Indian partner, as 100% ownership is not permissible in the Indian market. Ideally, the partner should have land holdings, though OCI/PIO’s are welcome. According to Sunil, these partnerships can be in the ratio of 50:50 or 60:40. It is important to find a local partner, as they can help a foreign entity raise capital through debt or an IPO; • Consult international property consultancy firms, such as Knight Frank, who can help a foreign firm find a local partner, among other things; • Do solid market research; • Develop price points and routes to the entry market. According to industry experts, it is easy to enter the Indian market. This is because an entity requires low minimum

FEBRUARY 2012

According to industry experts, it is easy to enter the Indian market. This is because an entity requires low minimum investment and licences are also easy to obtain. As long as a company has a well-researched business plan and a solid project report, it can avail bank loans from financial institutions like Kotak Bank, Reliance Money and India Bulls.

investment and licences are also easy to obtain. As long as a company has a wellresearched business plan and a solid project report, it can avail bank loans from financial institutions like Kotak Bank, Reliance Money and India Bulls. Sunil recommends that the best industries to enter India through are real estate and hospitality, while Kapil Goyal, Head of International Sales at Nirmal Lifestyle, says that education and telecom are other lucrative sectors in the Indian market. Kapil Dev Sharma from Vatika tells us that in the last 3-4 years the company has seen corporate interest from the likes of SAB, and attracted companies from industries like telecom and BPO’s, especially in Gurgaon (Delhi) and Hyderabad. Etisalat is one such company that has taken space in Vatika Techpark in Gurgaon. These areas are popular due to the presence of 30-40% vacant buildings, as is established by the fact that five to six big global companies have set-up base there in the last few months itself. 5 million sq ft. is still available there, while 3.5 million sq ft. has already been leased.

Caveats

But it’s not all peaches and roses. India is a tough market to enter for small-andmedium enterprises (SMEs) due to high investment criteria, political instability

and rampant corruption, according to Sunil. Kapil Goyal agrees, saying that SME’s will not enjoy economies of scale in India as it is a competitive market that requires a high investment of USD 10-20 million in order to buy/rent/ franchise, find local partners, set up supply chain management, market, and hire employees. Sunil, like all the other developers, expects residential and commercial property to appreciate by 30% or more this year. Kapil Sharma, on the other hand, warns that in the coming months prices will stabilise due to the global meltdown and higher interest rates. He confesses that in the last 3-4 months there has been a lull in the commercial real estate market, which will continue for a few more months, but should bounce back due to ample local demand. Still, UAE companies should not be severely impacted by this, as they are fewer in number than US or UK companies, or even Japanese or Chinese companies. The good news for smaller and more risk averse companies is that if they don’t want to be physically present in India, then they can use the option of establishing a virtual office. Due to increasing internet penetration, touted to reach 121 million people, Indian customers can be reached online and are open to making online purchases.

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Find out more. Visit www.constructionmachineryshow.com The Construction Machinery Show and Construction Machinery Middle East and their entities are registered trademarks. The Construction Machinery Show is held alongside the Saudi Building and Interiors Exhibition under the patronage of the Saudi Ministry of Municipal and Rural Affairs. ÂŠ 2011 CPI Limited. All rights reserved.

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trade talk Trade Guru

A shining beacon What do you ask a man who knows everything? A man who has worked with the Treasury, the Finance Ministry, the European Commission, the G7, and been an advisor to the French Finance Minister and Prime Minister? A man who heads the only global international organisation dealing with rules of trade between nations? In an exclusive interview Pascal Lamy, Director-General of the World Trade Organisation, gave answers to Meghna Pant, that every trader must read. Can you tell us the role of the World Trade Organisation (WTO) and its main objectives? How is the WTO organised throughout the globe? The objectives of the WTO are to foster a transparent, rulesbased global trading system which gradually opens trade in a manner that is predictable and non-discriminatory. Our organisation is a forum in which countries set the rules for international trade, adjudicate their commercial disputes, monitor country-specific and global trade trends, and provide support for developing countries so that they can participate in the system more effectively.

An important aspect of the WTO is to create an open trading system with few, if any, trade impediments. How does the WTO seek to achieve this goal? The way in which trade is opened in the multilateral trading system is through negotiations. The WTO and its predecessor – the General Agreement on Tariffs and Trade – have launched nine “rounds” of broad negotiations designed to reduce trade barriers and modernise the rules of trade to better reflect current trading conditions. Negotiations are complex, for example the ninth round of the Doha Development Agenda includes 20 diverse topics and involves 153 countries who must agree on a deal on the basis of consensus. This is obviously a difficult undertaking and it helps explain why the Doha Development Agenda – launched in 2011 in the Qatari capital – has been very difficult to conclude so far.

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What would you say are the greatest achievements of the WTO? Agreements setting new rules for trade in telecommunications, information technology products and finance services were milestones in our history. The recently concluded agreement on government procurement, which will open up USD 100 billion in new trade every year, was another watershed achievement. Expanding the parameters of the rules-based trading system to include nearly 30 additional countries since we opened our doors in 1995 is another important accomplishment. These are concrete, negotiated agreements that have improved our trading system. There are other more subtle but perhaps equally important achievements that we can point to as well. The fact that well over 400 trade disputes have been addressed peacefully through our dispute settlement system is a powerful testament to its reliability and credibility. Remember it was not so long ago that trade disputes would boil over into diplomatic or even military conflicts. A transparent and dependable system to resolve commercial discord is a vitally important asset in the international system. I would also say that the evolution of the WTO and the global trading system into something more development friendly is an advance that must be recognised. Nearly threequarters of our members are developing countries. There is a profound geopolitical shift underway and developing countries are quite rightly insisting on a greater say in how our planet is run. The WTO’s central role in coordinating the

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multi-agency Aid for Trade initiative, the success of our technical assistance, training programmes in enhancing the participation of developing countries in all phases of our work, and the launch of a trade round rife with developmentoriented objectives is a strong indication that we are responding to the challenge of adapting to this new reality.

How does an average exporter, feel the impact of the WTO in their day-to-day business activities, and what advice would you give to enhance the regional trading community’s activities? Trade impacts peoples’ lives every day in a variety of ways. Certainly exporters benefit from the knowledge that they are operating in a predictable and transparent trading environment. Entrepreneurs in the Middle East know in advance the conditions under which they will be operating: they know the tariff, the technical requirements for products in the export market, and that their products will receive the same treatment as those of competitor producers. But beyond this, there are the benefits for consumers and don’t forget that all producers are also consumers. The introduction of new products and services means more competition, more innovation and lower prices, and this is vital for keeping companies competitive. This is particularly true in this age of global supply and production chains where keeping your input prices low can have a profound impact on the overall cost – and hence competitiveness – of your product in export markets.

How has the global economic slowdown impacted trade and progress for the WTO?

Trade flows have been affected by a variety of factors, including availability of trade finance and trade restrictive

Pascal Lamy has been the Director-General of the World Trade Organisation (WTO) since September 2005. Lamy holds degrees from the Paris-based Ecole des Hautes Etudes Commerciales (HEC), the Institut d’Etudes Politiques (IEP) and from the Ecole Nationale d’Administration (ENA). He began his career in the French civil service at the Inspection Générale des finances and at the Treasury. He then became an advisor to the Finance Minister Jacques Delors, and subsequently to Prime Minister Pierre Mauroy. In Brussels from 1985 to 1994, Pascal Lamy was Chief of Staff for the President of the European Commission, Jacques Delors, and his representative as Sherpa in the G7. In November 1994, he joined the team in charge of rescuing the French bank, Credit Lyonnais, and later became CEO of the bank until its privatisation in 1999. Between 1999 and 2004, Pascal Lamy was Commissioner for Trade at the European Commission under Romano Prodi. After his tenure in Brussels, Pascal Lamy spent a short sabbatical period as President of “Notre Europe”, a think tank working on European integration, as associate Professor at the l’Institut d’études politiques in Paris and as advisor to Poul Nyrup Rasmussen (President of the European Socialist Party). Mr. Lamy was reappointed Director-General of the World Trade Organisation by its Members for a second mandate in May 2009. The World Trade Organisation (WTO) is the only global international organisation that deals with the rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal of the organisation is to help producers of goods and services, exporters, as well as importers conduct their business.

measures taken by governments. But by far the biggest factor in the size of trade flows is overall economic demand. When demand shrinks the impact on trade volumes is multiplied because in global supply chains, products cross borders several times at various stages of the production process. This is why world trade volumes collapsed by 12% in 2009, while world output decline by 0.7%. Likewise, when growth rebounded by 5.1% in 2010, trade expanded by 14.5%. Although the final figures for 2011 are not yet in, in the autumn we downgraded

our spring forecast of 6.5% down to 5.8%, and I expect the final figures will indicate that trade grew by even less than this. This being said, emerging country export growth should exceed 8% which is more than twice of what we will see from developed countries.

What are your expectations for international trade growth in 2012? We will not have our trade growth projections until early spring, but I would not expect trade growth to equal what we have seen this year, though

When demand shrinks the impact on trade volumes is multiplied because in global supply chains products cross borders several times at various stages of the production process. This is why world trade volumes collapsed by 12% in 2009, while world output decline by 0.7%. Likewise, when growth rebounded by 5.1% in 2010, trade expanded by 14.5%.

FEBRUARY 2012

trade talk Trade Guru

the impact of the crisis – in trade terms – will affect different countries in different ways. It all depends on the overall economy. The picture in the United States is brightening up somewhat with unemployment coming down a bit, demand rising in key sectors like automobiles, and with increased stability of the overall economic picture. But Europe seems in greater danger of slipping back into recession, which is noteworthy since the European Union (EU) is the world’s largest importer and exporter. Emerging countries like China will enjoy greater growth, though not as strong as they have seen in recent years, and exports and imports will grow as well. So, it’s a mixed picture and difficult to forecast.

In which areas or sectors do you see the greatest level of trade growth and why?

This is a difficult question to answer because growth in trade will be inextricably linked to the overall economic situation. In recent years, trade growth has been the strongest in agricultural products, fuels, chemicals and mining products, where the annual increase in trade value has averaged about 10%, due to strong demand, particularly in emerging countries. But given the uncertainty in the economic environment it is very difficult to say that such growth will continue. Even with these products, there was a sharp contraction in export values and volumes in 2009, so forecasting is difficult.

With the prospect of greater global economic uncertainty do you feel that some nations may resort to protectionism?

This is a constant worry, though so far, governments have shown restraint. At no time since the onset of the crisis in 2008 have we seen governments impose trade restrictive measures covering more than 1% of global imports. The

FEBRUARY 2012

The picture in the United States is brightening up somewhat with unemployment coming down a bit, demand rising in key sectors like automobiles, and increased stability of the overall economic picture. But Europe seems in greater danger of slipping back into recession, which is noteworthy since the European Union , (EU) is the world s largest importer and exporter. Emerging countries like China will enjoy greater growth, though not as strong as they have seen in recent years, and exports and imports will , grow as well. So, it s a mixed picture and difficult to forecast.

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trade talk Trade Guru

In recent years, trade growth has been the strongest in agricultural products, fuels, chemicals and mining products, where the annual increase in trade value has averaged about 10%, due to strong demand, particularly in emerging countries.

problem is that once these measures are imposed, it becomes politically difficult to remove them. Of the 674 trade restrictive measures imposed since October 2008, only 19% have been removed. In our last trade monitoring report to the G-20 â&#x20AC;&#x201C; the Group of Twenty Finance Ministers and Central Bank Governors â&#x20AC;&#x201C; which came out at the end of October, we pointed out that although the number of restrictive measures imposed during the six previous months actually declined from the prior period, the steady application of these measures over time has a serious impact on trade. In some countries we have seen growing pressure to restrain imports and some governments are responding to this pressure by doing exactly that. As long as the economic picture is difficult these pressures will remain.

Do you feel that future trade growth may be limited as some countries are looking to re-address their trade imbalance? As I said before, protectionism is less of a factor in the volume of trade flows than overall levels of demand. But were governments to resort to more such measures, then there would undoubtedly be an impact on trade flows. The unfortunate thing is that protectionism actually does not protect. When you impose such measures, your trade partners respond in kind and the result is that your exports are hurt too. Moreover, since roughly 54% of global exports are components, the global supply chain would also be affected and this would have serious ramifications on jobs and growth.

(Interview will be concluded in the next issue of Trade and Export Middle East as Pascal Lamy comments on the state of trade in the Arab World, the role played by the WTO in this region and what he foresees for Middle East trade going forward.)

FEBRUARY 2012

TRADE TALK

SURVEY

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TRADE and EXPORT MIDDLE EAST aims to keep the regional trading community up to speed with the latest information. Over the following months we will delve into industry trends, pinpoint key data and analyse the most pertinent issues to ensure that our readers are armed with real insights from within the industry. And we need your help for this! We will conduct regular reader surveys and then share key trends and analysis back with you. This is your chance to be heard and to share your experiences to help the industry. Of course, your responses will be held in the strictest conďŹ dence.

Have your say! Visit www.tradeandexportme.com to take the survey.

OCTOBER 2011

Focus Country

The global aspirant The time has come for traders to take the plunge and overcome their hesitation to target the global middle class market share. Without the loyalty of this key segment, they may be left out in the cold as their competitors vie for industry leadership. Booz & Company explores the options and helps you identify the type of company you fall under in the race to capture the loyalty of billions of new consumers.

n 2011, the worldwide economic phenomenon that is known as the global middle class included 700-900 million people, all of whom had the purchasing power to become consumers of manufactured goods and services. There is one common denominator across each country in which this demographic can be found: they are all recovering from the global recession with an increasingly urbanised lifestyle.

TYPE OF COMPANIES

The value chain of companies that provide this population with goods, services and infrastructure is becoming known as the global middle class market. Competing for their share are three different types of company – the local upstarts who are migrating into the domestic middle market, even as their customers become

FEBRUARY 2012

more prosperous; the global aspirants, who have already developed products for their domestic middle market, and who are looking to expand into the global equivalent; and the multinational incumbents who are intent on adapting their existing product lines to capture the attractive growth opportunities in emerging middle markets. “An intelligent approach will allow local upstarts and global aspirants to move up in the corporate chain. Transitional moves, such as joint ventures and regional expansion, aid their advancement by proffering the experience required to compete on a larger scale,” commented Ronald Haddock, a former partner at industry management consultancy, Booz & Company. No matter which of the three categories they fall into, companies looking to tap

into the lucrative global middle market can draw inspiration from Alfred P. Sloan Jr’s reorganisation of General Motors Company (GM) in the 1920s. By targeting the consumers in the middle finance-zone – those who were unable to afford luxury vehicles but wanted an option other than the ‘any colour so long as it’s black’ (Model T Ford) – he propelled GM past the competition to take the leadership spot among car makers and held that position for the rest of the century.

ARC OF GROWTH

Recognising the pace of development in target markets is the first step towards claiming a stake and taking that all-important step up onto the leadership ladder. All industrialising countries follow an “arc of growth” – an evolutionary path of economic change

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that takes them from nascent to mature, with a critical stage of urbanisation and economic momentum in between. Countries in the “momentum phase” have large, relatively young populations and high economic growth rates, making them the seedbed of the emerging middle-class markets. “The buying power, needs and desires of the middle class varies, dependent on the nation and the region. Therefore, obtaining a full understanding of the local requirements in desired territories will prove highly beneficial to anyone wishing to successfully harness capital in that specific market,” said Edward Tse, senior partner with Booz & Company and the firm’s chairman for Greater China. “Identifying the attributes that targeted consumers’ value, adapting the product to meet them, and culling undesirable traits from the existing merchandise, is essential to winning customers.” Considering the huge, indispensible source of sales volume presented by the global middle market, it’s no surprise that competition is already intense. Despite the number of active companies competing for consumer spending,

Booz & Company is a leading global management consulting firm, helping the world’s top businesses, government ministries and organisations. The founder, Edwin Booz, established this firm as the first management consulting firm in 1914. Today, with more than 3,300 people in 60 offices around the world, the company brings foresight and knowledge, deep functional expertise, and a practical approach to building capabilities and delivering real impact. Booz & Company works closely with their clients to create and deliver essential advantage. For more information, please visit www.booz.com and www.booz.com/me.

several would-be contenders are being put off by myths that throw a negative light on the situation. “There’s talk that it’s too early to enter the middle market in emerging economies, when the reality is that it may already be too late as some industries are already becoming saturated with competitive rivals,” explained Bill Russo, a senior advisor with Booz & Company, based in Beijing. “Other companies claim that they can’t make money from emerging economies, but they have to consider that while prices are up to 40% lower than in developed nations, sales volume is potentially up to three times greater than in mature markets.” This explains the motivation of Adidas to develop training shoes under the Reebok brand to sell for as little as USD 1 across rural India, said Karl Nader, Principal at Booz & Company.

Recognising the pace of development in target markets is the first step towards claiming a stake and taking that all-important step up the leadership ladder. All industrialising countries follow an "arc of growth" – an evolutionary path of economic change that takes them from nascent to mature, with a critical stage of urbanisation and economic momentum in between. Countries in the "momentum phase" have large, relatively young populations and high economic growth rates, making them the seedbed of the emerging middle-class markets.

EDUCATE CUSTOMERS This is the case in the Gulf Cooperation Council (GCC), where multinationals that have been late in the game face stiff competition from local brands, as well as from established international competitors deeply rooted in the local market. These multinationals either fold or resort to inorganic growth options to bridge this gap. This is evidenced, by Carrefour’s challenges to compete effectively against Panda and Al Othaim in Saudi Arabia, and Coca Cola’s recent acquisition of a 50% stake in Aujan, a significant investment to bridge the gap with PepsiCo, added Nader. Russo goes on to explain that the attitude of assuming that success will come from the education of consumers, rather than the adaptation of products, will not bear fruit. No matter how valued or desirable the merchandise is, most newly-minted middle-class customers will not be able to afford them. The final myth laid to rest is that entering the global middle market will be too disruptive to operations, to which he simply says that companies need to develop a business model that is suited to the task in order to succeed. It may be that an alteration in the mind set of more conventional multinational corporation executives is required, in order for them to compete for the position of industry leader by cashing in on the benefits of the middle-class market. The opportunities in the global middle market may require additional effort in order to successfully reap the rewards on offer, but they’re most certainly worth it at the end of the day.

FEBRUARY 2012

Focus industry insights

Breaking banks

Ali Abbas, Senior Regional Consultant – MENA & Turkey, at Euromonitor International, reveals why increased participation by Chinese companies in Middle East banks bodes well for the financial services industry, and how the region’s anticipated growth in GDP and consumer spending will further stimulate this development.

ccording to Euromonitor International, a world leader in strategy research for consumer markets, real GDP growth in the GCC is expected to increase by 4% in 2012, with Qatar leading at 6%, Kuwait’s growth at 4.5% and the United Arab Emirates (UAE) by 3.8%. Consumer expenditure is also forecast to be on the rise due to an increase in public sector wages. This in turn will drive average growth in annual disposable income in the GCC by 5.3% and ultimately stimulate the economy (for instance, 5.1% in the UAE alone). Again, Qatar’s consumer expenditure is expected to lead, with an expected compound annual growth rate (CAGR) of 6.8% until 2015. Saudi Arabia’s growth for the same period is expected to be 5.6% and the UAE will clock in 4.8%.

FEBRUARY 2012

UAE AND BANKS

As a result of this, the UAE is showing signs of growth despite the current world economic challenges. Many international companies still choose UAE as their regional hub for business operations. It is especially imperative for banks to note that the UAE is expected to witness a strong growth in urban population. This significant migration to urban areas will eventually increase the number of banked population, who in turn are more likely to get exposed to financial services. A good example of the growth of the banking sector in the Middle East is that one of the largest banks in the world, with USD 1.9 trillion in assets – Industrial and Commercial Bank

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Ali Abbas is a Senior Regional Consultant at Euromonitor International in Dubai. He holds a degree in Economics and Statistics from Carleton University, Canada. With his consulting experience in the banking sector, Ali’s role at Euromonitor is to help financial institutions research markets and explore opportunities in areas such as financial cards, mobile commerce, consumer segmentation, demographic trends, and income distribution. He also advises companies on demand feasibility studies and provides market-research-related due diligence support for IPOs and M&A transactions.

of China (ICBC) – is planning to increase its presence in the Middle East, in order to capitalise on growing trade with the UAE and the bank’s home country, which is in China. Despite the political unrest in the region, ICBC has more than doubled its profits from the Middle East within the last year. This was primarily driven by the fact that more companies settled business deals using accounts in Yuan. The Chinese currency has been offered as a means to settle transactions by the bank since March 2011. In August last year, ICBC announced plans to further expand its Middle East operations, even as the bank seeks to grow business in key countries. The state-owned bank, which already has branches in Abu Dhabi and Doha, as well as a subsidiary in Dubai, will continue to optimise its network in the region, keeping commercial banking as its main business, while developing its investment banking and asset management services. The bank also plans to develop a retail banking business in the UAE, subject to regulatory approval. ICBC will expand further in the Middle East, prioritising the growth of its business in Qatar and expansion into the Kingdom of Saudi Arabia and Kuwait. ICBC became the first wholly-owned subsidiary Chinese bank to establish a presence in the Middle East in the fall of 2008. Tian Zhiping, the bank’s Chief Executive Officer Middle East, said in a statement announcing this expansion that ICBC had maintained significant growth across all business areas and would further pursue growth across the region by increasing the scale of its existing businesses, thus broadening the range of the bank’s products and services. The bank is also following this up by expanding into new markets across the Middle East. These expansion efforts put ICBC in direct competition with Standard Chartered and HSBC, which already offer Yuan-

Euromonitor International is the leading provider of global strategic intelligence on consumer markets, with offices in London, Chicago, Singapore, Shanghai, Vilnius, Dubai, Cape Town, Santiago, Tokyo and Sydney. With a network of over 600 in-country analysts worldwide, for more almost 40 years Euromonitor has published internationally respected market research reports, business reference books and online information systems, providing strategic business intelligence for the world’s leading FMCG multinationals and bespoke consulting projects.

denominated business banking accounts to local companies in anticipation of increased trade, even as China seeks to internationalise its currency to compete with the Euro and the US dollar.

THE YUAN ADVANTAGE

Banks in the UAE offering services catering to the Yuan stand to benefit due to the increasing number of Chinese expatriates and the growing trade finances between the two countries. The population of Chinese expatriates in the UAE currently numbers 200,000, according to the Chinese Embassy in Abu Dhabi. Since the 1950s, there has been trade between China and the UAE, and in recent years, bilateral trade has witnessed sustained and rapid growth. Continuous development of economic and trade exchanges between China and

the UAE, as well as growing demand for investment, has created more demands for financial cooperation between both countries. In fact, the Middle East’s top export country partner is the US followed by China. The UAE itself ranks in the top 10 for goods exported from China, according to the latest figures from Euromonitor International. This move by ICBC could represent the start of big expansions by Chinese financial institutions to other markets like the UAE and pose serious challenges to big domestic banks. It will likely help to aid in the growth of Chinese investments outside of China. In addition, this will also help to forge close trade ties between China and the Middle East, at a pivotal time when China is looking to overtake the US as the region’s major trade partner.

The UAE is showing signs of growth despite the current world economic challenges. Many international companies still choose UAE as their regional hub for business operations. It is especially imperative for banks to note that the UAE is expected to witness a strong growth in urban population. This significant migration to urban areas will eventually increase the number of banked population, who in turn are more likely to get exposed to financial services.

FEBRUARY 2012

Focus RETAIL

Choco-port While chocolate is a guilty pleasure for most people, how viable is it as a business? And if you are looking to enter the industry in this region, what should you do? Assem Hamzeh, the Managing Partner of ChoCo’a tells us why setting up a boutique store is better than joining a large franchise, besides many other delicious tips.

lobally, the chocolate industry is valued at more than a whopping USD 41.6 billion, with Europe accounting for 45% of the global revenue and America carrying a third of the global market share. Even in the Middle East, annual chocolate sales are above USD 4 billion (Koelnmesse GmbH, 2008), with Saudi Arabia representing the largest confectionary market in the Gulf. In the UAE, chocolate consumption has increased over the years. According to Euromonitor, as of January 2011, the chocolate industry in the UAE was valued at AED 817 million – a 12% increase from 2010. In a recent UAE study, 98% of respondents claimed to consume chocolate at least once a week.

Enchanting Origins

ChoCo’a is a Dubai-based family-owned manufacturer and retailer of unique chocolate products and confectionery. Founded in 2004, the company offers a range of products, including an assortment of exclusive pastries, cakes, bespoke arrangements, seasonal collections, and customised branded products. With boutiques in Dubai and Abu Dhabi, ChoCo’a is owned by a husband and wife team, Assem and Dina Hamzeh. Assem Hamzeh is the Managing Partner and oversees the entire operations and development of ChoCo’a, while Dina works with the company as a Retail Director.

FEBRUARY 2012

“With over 15 years in the chocolate business, we felt it was time to create ChoCo’a. Today, the brand remains a boutique company, as we did not adopt the style of large corporate businesses. As a family-owned company, we offer great attention to detail and service. In today’s market with intensifying competition, these are important aspects that our customers value about our brand. We offer great flexibility with our clients’ orders and offer customised services for majority of our products. With a team of experienced chefs and

in-house designers, we constantly adapt to clients’ needs and demands. Our loyal customers enjoy the interaction with our sales staff and boutique designers when discussing details of their unique chocolate arrangement and birthday cakes,” explains Assem Hamzeh. “ChoCo’a is the result of hard work and a passion for all things chocolate.”

Scrumptious Products

The company puts great emphasis on its products; all its gift items and accessories are unique, hand-picked and

imported from Europe. ChoCo’a states that its unique selling point has been to combine the finest Belgian chocolate with exclusive Oriental and Occidental flavours, thus offering clients the “best of both worlds”. Aside from the product itself, the company stresses on research and presentation. Hamzeh understands the importance of education that goes into the introduction of new chocolates and other products, and his staff takes the time to discuss the nuances and subtleties of the products with customers. “ChoCo’a is a unique concept in the UAE as it groups the finest from a large variety of products. ChoCo’a remains a leader in the UAE as the brand does not have any direct competitor,” explains Assem Hamzeh. In the Middle East, chocolate has slowly moved away from being a massconsumer product to something more boutique. There has been a noticeable development in this region’s chocolate market with the onset of this premium category. Customers today are more interested in the “artisan” elements that make up the taste, and where the product has originated from. From budget to luxury offerings, chocolate is one of the few products that have penetrated all levels of the market. With tourism expected to rise in 2012 in the UAE, there is a strong market for premium chocolate brands in the UAE – for both visitors and residents. Although

ABOUT

Assem Hamzeh is the Managing Partner of ChoCo’a, a family-owned manufacturer and retailer of unique chocolate products and confectionery. With 15 years of experience in the chocolate and pastry industry in the Middle East and overseas, he setup the first confectionary lounge in Dubai in 2004, hoping it would become a magical and dreamy world for chocolate lovers. Aseem brought together a diverse staff led by world-renowned pastry chefs and designers to create exquisite handmade chocolates wrapped and sealed individually. In 2010, he opened a second boutique in Abu Dhabi to offer residents in the capital a taste of the company’s luxurious chocolate collections. A self-made entrepreneur, Assem worked for over nine years in the chocolate business in Lebanon, where he developed a passion for everything chocolate. Assem is happily married to Dina Hamzeh and has three children. He is the president of the Parent Teacher Organization (PTO) at Universal American School Dubai (UAS). He holds a BA in Business Marketing from the Lebanese American University.

ChoCo’a remains a high-end chocolate artisan with premium offerings, it focuses on providing “affordable luxury” to customers who walk through its boutique doors. It offers products to suit every budget – from a beautifully decorated cupcake to a lavish cake to custom-made chocolate arrangements. ChoCo’a products are made in a production facility where a strict adherence to the highest international standards of quality is applied. State-of-the-art technologies are used to ensure an exquisite final product. ChoCo’a has adopted the internationally recognised Hazard Analysis Critical Control Point (HACCP), a preventive approach to food safety. In 2005 it received the

certification from the British Standard Institution (BSI) in the UK. ChoCo’a has recently developed a new line of vibrant and attractive pre-packed boxes and chocolate bars suitable for international distribution. The new line includes their “signature” chocolates, ranging from rose water caramel with chocolate, crushed espresso beans with chocolate, to dates stuffed with nuts and dipped in rich Belgian chocolate. “We took time to develop these boxes in collaboration with one of UAE’s top creative agency. Our chefs and creative team wanted to offer something unique to customers to ensure that the final product met international standards. Having received such positive feedback on these new offerings, we are confident

In the Middle East, chocolate has slowly moved away from being a mass consumer product to something more boutique. There has been a noticeable development in this region’s chocolate market with the onset of this premium category. Customers today are more interested in the “artisan” elements that make up the taste, and where the product has originated from.

FEBRUARY 2012

Focus RETAIL

and optimistic about this new line, which we feel, will thrive across borders. ChoCo’a also recently launched a new online shop in the UAE,” says Assem Hamzeh.

Delicious Expansion

ChoCo’a is a member of Dubai Exports, under the Dubai Department of Economic Development. “This tie-up has been an immense source of support for ChoCo’a. We are proud to be Made in the UAE and Dubai Exports has helped ChoCo’a in various markets. Some examples of our tie-up with Dubai Exports include the SIAL Paris exhibition, where ChoCo’a was present under the Dubai Exports pavilion. We have also traveled to New Delhi with the Dubai Exports delegation to better understand the Indian market and conduct buyer’s meetings. More recently, Dubai Exports offered us the chance to exhibit our products at their Resource Centre – a great opportunity to gain visibility among international importers and buyers,” says Assem Hamzeh. The company has showcased its products in some of the world’s largest chocolate events and exhibitions, such as IFE India, Salon du Chocolatin Shanghai, SIAL Paris, Food & Drink Expo Birmingham, World Food Moscow and London’s Speciality and Fine Food Fair.

Yummy Future

ChoCo’a is constantly looking to franchise and expand its international distribution. It aims to partner with a selection of international gourmet stores around the world. The company distributes their products to different countries including Japan, Russia, Morocco and GCC countries. “Some of our recent success stories include new franchise agreements. I am happy to announce that 2012 will see new ChoCo’a boutiques in Jeddah and

FEBRUARY 2012

Some of our recent success stories include new franchise agreements. I am happy to announce that 2012 will see new ChoCo’a boutiques in Jeddah and Qatar, where clients will be able to enjoy the full ChoCo’a experience. We select our franchisors carefully, support them and work hand-in-hand to ensure that new boutiques, products and services are up to our standards. Qatar, where clients will be able to enjoy the full ChoCo’a experience. We select our franchisors carefully, support them and work hand-in-hand to ensure that new boutiques, products and services are up to our standards.” Through below-the-line activities, PR activities, advertising campaigns and strong online presence, ChoCo’a has been very active in the last few years and generated a lot of awareness. “We have received an increased number of international inquiries from buyers and franchisors from different countries. The European

market, Germany in particular, is looking promising for ChoCo’a with some very positive leads. We have also developed strong leads in GCC countries – especially in Riyadh – where we will be opening franchises in the next few years,” says Assem Hamzeh. Throughout the last seven years, ChoCo’a has managed to overcome a multitude of challenges quite successfully, Hamzeh tells us. Currently the company is bracing to face new-age “exporting challenges” such as the price surge of cocoa and the increase in freight charges.

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Focus commodity watch

January 2012: Commodity prices snapshot The first month of 2012 witnessed mixed trends in major commodity prices, says Reem Aboul Hosn, Senior Financial Analyst at Zawya. While energy commodities such as crude oil and natural gas posted a decline, precious metals like gold and silver saw a rally, especially in the last week of the month. There were several cues determining price trends, including an increase in fourth quarter US GDP growth by 2.8%, S&P’s downgrade of France and Austria’s credit rating, appreciation of the Australian dollar, Canadian Dollar and Euro against the US dollar, as well as the Federal Open Market Committee’s decision to keep interest rates low until late 2014.

NATURAL GAS

January is typically the coldest time in winter, which leads to an increased demand for natural gas. However, this year temperatures have yet to reach levels cold enough to boost demand for the heating fuel, which, along with high inventory levels, has kept prices depressed.

BRENT Due to debt downgrades of the EU and the recent boycott of Iranian oil by the West, crude saw a decline in prices despite bullish trends earlier in the month.

FEBRUARY 2012

Data provided by Zawya

Focus commodity watch

GOLD Gold price maintained an upward swing, rising 11.04% through the month of January. During the second half of the month, the US dollar sharply depreciated against AUD, CAD and Euro which led to a subsequent rise in precious metal prices.

Silver Silver prices, much like gold prices, rose sharply by 21% in January, ending the month at USD 33.65 an ounce. Following similar cues as gold, the commodity rallied by 8% in the last week of the month alone.

Data provided by Zawya

FEBRUARY 2012

Community events calendar EXHIBITION

DATE

LOCATION

July 2012 Doha Trade Fair

1st

CIS Travel Market

27th - 28th

EXHIBITION Ramadan & Eid 2012

DATE 29th - 19th

Qatar Russia

LOCATION Abu Dhabi

August 2012 ACBW 2012

2nd - 4th

Australia

Furniture Manufacturing & Supply China

11th - 12th

China

Private Label Middle East Dubai 2011

23rd - 25th

Dubai

Paper Arabia

23rd - 25th

Dubai

2011 UFI Congress

1st

Abu Dhabi

AutoRomania

1st

Romania

Oil & Gas Ukraine

1st - 3rd

Ukraine

Abu Dhabi International Petroleum Exhibition

5th - 8th

Abu Dhabi

World Hospital Congress

8th - 10th

Dubai

Dubai International Jewellery Week Exhibition

10th - 13th

Dubai

Dubai International Motor Show

10th - 14th

Dubai

Dubai Air Show

13th - 17th

Dubai

International Tourism Exhibition (ITE)

14th - 16th

Abu Dhabi

Roadex/Railex 2011

18th - 20th

Abu Dhabi

September 2012

Save the date!

We know that you are a busy trader with a demanding events diary. Therefore, we are providing you with a snapshot of exhibitions and conferences around the world, so you spend less time planning and more time attending.

EXHIBITION

DATE

LOCATION

February 2012 Qatar Projects

5th - 8th

Qatar

2011 World Robot Olympiad UAE

18th - 20th

Abu Dhabi

World Ophthalmology Congress 2012

16th - 20th

Abu Dhabi

The Middle East HR Summit And Expo 2011

20th - 24th

Dubai

International Defence (IDEX)

20th - 24th

Abu Dhabi

HR Best Practices in Oil, Gas and Petrochemicals

21st - 22nd

Kuwait

Facility Management

22nd - 24th

Germany

Gulf a la Carte 2011

21st - 23rd

Abu Dhabi

Middle East Exclusive 2012

27th -29th

Dubai

SIAL Middle East 2011

21st - 23rd

Abu Dhabi

FM Expo + Big 5 Show

21st - 24th

Dubai

LogiPharma Europe

1st

USA

Milipol

26th

Qatar

CeBIT 2012 (IT)

6th - 10th

Germany

Middle East Manufacturing Exhibition 2011

28th - 30th

Abu Dhabi

International Security National and Resilience

19th - 21st

Abu Dhabi

SIM - Signage, Imaging & Media Show 2011

28th - 30th

Abu Dhabi

Doha International Maritime Defence

26th - 28th

Qatar

Airport Exchange 2011

29th - 30th

Abu Dhabi

Global Water and Beverage Technology Congress

29th - 1st

Dubai

March 2012

April 2012 Motexha

1st - 3rd

Dubai

December 2012

The Internet Show Middle East

17th - 18th

Dubai

World SME Expo

1st - 3rd

Hong Kong

Arabian Travel Market

30th - 3rd

Dubai

â&#x20AC;&#x153;China Import & Export Commodities Exhibitionâ&#x20AC;&#x153;

1st - 4th

Malaysia

Project Qatar

30th - 3rd

Qatar

World Green Tourism 2011

5th - 7th

Abu Dhabi

Middle East Natural & Organic Products Exp

5th - 7th

Dubai Abu Dhabi

May 2012 Multimodal

1st - 3rd

England

National Exhibition for Small & Medium Enterprises

5th - 8th

Arab Market 2012

1st - 12th

Abu Dhabi

International Real Estate & Investment Show

7th - 10th

Abu Dhabi

Cards and Payments Middle East 2012

15th - 16th

Abu Dhabi

Airport Suppliers Conference

11th - 12th

Dubai

The Hotel Show 2012

15th - 17th

Dubai

Abu Dhabi International Motor Show

19th - 23rd

Abu Dhabi

Made IN Korea (MIK) UAE 2012

21st - 23rd

Abu Dhabi

January 2013

Dubai Airport Expo

22nd - 24th

Dubai

Tekno Tube Arabia

7th - 10th

Dubai

Arab Plast

7th - 10th

Dubai

June 2012 The Franchise and Business Opportunities Expo

2nd - 3rd

USA

Domotex Hannover

12th - 15th

Germany

World Gas Conference & Exhibition

4th - 8th

Malaysia

Offshore Middle East

21st - 23rd

Qatar

COMPUTEX Taipei

5th - 9th

Taiwan

PROMAT

21st - 24th

USA

AIBTM 2012

19th - 21st

USA

Trans Oman

28th - 30th

Oman

FEBRUARY 2012

Get in touch! Would you like to list your event here? Or better still, list your detailed event profile? If yes, then please contact: meghna@cpidubai.com

November 2012

ANALYTICS Find the delicate balance.

Sharp skepticism and increased regulatory pressures call for a firmwide approach to managing risk. SAS helps you integrate strategies throughout your business cycle and focus on long-term growth. Decide with confidence. ®

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