It’s a country with a stable economy, a modern political system and a comparatively young population with disposable income. And successful efforts at economic diversification have broadened the scope of opportunities across all sectors. Building on a strong commercial trade relationship with the UAE, Canada has a presence in many sectors, such as oil and gas, resources, power, infrastructure and environment, and ICT. Businesses may also take note of the UAE’s role as a hub servicing the needs of the Middle East and beyond.
Already a very wealthy country with a high per capita income, economic growth in the UAE is projected to be around 5% from 2015 to 2019.
Free trade zones offer 100% foreign ownership and no taxes to attract foreign investors.
The UAE will be hosting the 2020 World Expo in Dubai.
“Projects are awarded through a transparent tendering process. Once the bidders who meet a minimum technical quality requirement have been identified, the winning bid is chosen purely on the lowest price.”
What are some of the factors driving business opportunities in the UAE?
The UAE is a textbook case of an emerging market; it is a vibrant and growing economy with a determination to diversify away from the oil and gas sector. This has opened the door to opportunities in other industries. You see tremendous growth all over the UAE, but especially in the larger emirates of Dubai, Abu Dhabi and Ras Al-Khaimah.
What are the key hurdles that Canadian companies might face?
A key hurdle is lead time. It takes a long time to develop both the personal and professional relationships that will ultimately lead to winning business. This means Canadian companies have to be committed to the region for the long haul. If they are looking for a quick win, their efforts will be a waste of time and money. The second challenge is related to scale. The typical project size here is large – Canadian companies need to think in terms of consortiums in order to collectively offer more complete solutions for potential opportunities.
What else should Canadian companies be aware of?
Projects are awarded through a transparent tendering process. Once the bidders who meet a minimum technical quality requirement have been identified, the winning bid is chosen purely on the lowest price. At that stage, it doesn’t matter if a product is 20 or 30 per cent better. That means Canadian companies have to be extremely competitive from a pricing perspective. Businesses should also be aware that this is a hierarchical culture. If Canadian companies send junior business development staff to the UAE, they will not meet with senior executives from a local company. To advance a discussion that involves decision-making, senior engagement is a must.
“Canadian companies that operate in the UAE will often have an Emirati national company or individual who is involved in sponsoring the business, sometimes as an agent and sometimes as a part owner.”
What do Canadian companies need to know about licensing and registration in the UAE?
There are several options for doing business in the UAE, which comprises seven emirates and numerous economic free zones. Each of these provides business registration and licensing options. Service-oriented companies may generally set up cost-efficiently in a free zone. Trading companies that provide physical goods or would trade within the emirates may need to be licensed in one or more of the emirates. Canadian companies that operate in the UAE will often have an Emirati national company or individual who is involved in sponsoring the business, sometimes as an agent and sometimes as a part owner. It's important to do your homework and determine the most appropriate approach for your business.
What are some important first steps?
It is important to determine the staff and other resources you will need on the ground in the UAE. From there, you may consider options such as establishing a supplier-customer relationship from Canada, opening a branch in the UAE, opening a subsidiary or entering into a joint venture or partnership structure. It is of critical importance to get your partnership and/or agency arrangements right. It can be difficult and costly to fix a set-up that isn’t suitable, from a licensing operating or other perspective, or if a company is working with the wrong local partner. Many issues arise from new market participants rushing into unclear or insufficiently detailed arrangements. It is best to be patient and thorough in both planning and execution.
Any advice on finding the right partner or agent?
The market is evolving. For example, there are now corporate service providers, which can fulfil the role of a local partner. Sometimes we direct people toward these corporate partners; sometimes we direct them toward individual Emiratis. In order to determine the best choice, companies also need to understand the dynamics within their particular industry. If a Canadian company is involved in the oil and gas business, for example, they may need to ensure that their local partner holds all necessary licences and government tender approval credentials for that sector.
“It’s important to do due diligence when it comes to deciding whether you need a partner or in choosing a partner – and that may take many trips.”
What's the best approach for Canadian companies coming to the UAE?
This region is becoming more and more sophisticated and a high level of commitment is required for doing business in the Middle East. It’s important to do due diligence when it comes to deciding whether you need a partner or in choosing a partner – and that may take many trips. You need to have the stamina, the strategy and the budget to come to this part of the world repeatedly to ultimately establish a presence.
What are some of the pitfalls you’ve observed?
I’ve seen too many companies that send a rep to a trade show here and expect to get business out of it. Or they team up with the first person who talks to them at their booth. And because this person looks like an Emirati, they think he’s the biggest sheikh in town and sign an agency agreement. First thing you know, this goes nowhere and the product or service hasn’t been marketed in the right way. It’s usually an uphill battle to unravel all of that.
How can you help Canadian companies with their entry into the UAE?
Part of what we do at Alioth Capital is provide a number of services for Canadian companies, from getting them in touch with the right people and helping them set up operations here, to looking at options in terms of financing. We look at why and how they want to come to this part of the world, whether they really are prepared and have the right budget. Then we analyze what’s the best approach, such as whether they should open a local office or find a strategic partner or financial sponsor. If they need funding and want to look at acquisition, we can help with that as well. Basically, we explore what’s best in terms of structure, strategy, approach, people and cost for penetrating the market here, as well as penetrating the wider Middle East market. That is where our experience of being here in this part of the world allows us to act as an accelerator.
“It’s not realistic for companies to think they can go and offer a product and a price and expect an order a few months after…but for businesses that are committed, it can be very rewarding over the long term.”
How can Canadian companies prepare for entering the UAE market?
Depending on the business or service, the UAE market – with about eight million inhabitants – could be small if targeted alone. The market can be expanded to cover the Gulf Cooperation Council(six markets in the Gulf area) with a population of more than 55 million inhabitants. First, businesses need to understand who their customers are in this part of the world. That requires a lot of effort: the language is different, the mentality is different and the way of doing business is not the same as it is in Canada. I would advise seeking local expertise, for example, for establishing a legal entity, helping with logistics or doing a market survey. Companies should also know that the success of a particular service or product depends on the competition that is coming from the local market, the region or the international space.
How can the Canadian Business Council help?
We educate Canadian companies based in Dubai and Northern Emirates about the opportunities in the UAE. Both the UAE and the Middle East are rapidly growing markets. Demographics and distribution of age are aiding this process since most of the people living in the UAE are young and have a high amount of disposable income. Youth in the Middle East are 26.5 per cent of the total population compared to 17.4 per cent in North America. While we also help with general advice and initial connections to the market, companies need to have their own plan on market penetration in place.
What kind of challenges should businesses expect to face?
I highly recommend that companies planning to enter the UAE conduct a full SWOT analysis of the market (Strengths, Weaknesses, Opportunities and Threats). In many cases, the offer to the UAE should be adapted to the local and regional norms and needs. Regardless of what services or products companies offer, the volume doesn’t usually come from their visit or the first year in the market. I’ve been working with McCain Foods for a long time. When we started in the UAE, the market volume was very small. Now, after 23 years, the volume is substantial and justifies having a full office here, as well as a proper distribution channel that covers the different segments of the market. It’s not realistic for companies to think they can go and offer a product and a price and expect an order a few months after. It definitely takes longer, but for businesses that are committed, it can be very rewarding over the long term.
“The benefits of setting up in a free zone are that companies can own 100 per cent of the business with zero taxes.”
What are the key benefits for Canadian companies of setting up in a free zone?
The benefits of setting up in a free zone are that companies can own 100 per cent of the business with zero taxes. There are no currency restrictions and they can open a bank account with any UAE bank. Other incentives of operating a business in a free zone are the freedom to do business and to benefit from very competitive rates. Businesses also have direct access to major transportation hubs, like the airport and seaport.
What are the limitations of doing business in the UAE from a free zone?
Businesses are limited to opening and operating an office space in the free zone they are registered in. The disadvantage is that free zone entities have to operate within their zone boundaries – they are not licensed to operate elsewhere in the UAE or bid on local projects there.
How can you help companies with the decision on whether to choose a free zone and select the most suitable one?
With more than 12 years of experience in corporate services, I’ve formed more than 1,000 companies in different sectors and industries. In addition to client meetings, where we advise businesses about the best option for their needs, we arrange road shows and presentations to draw attention to opportunities in the free zones and also in the Middle East. We can also help with documentation for licensing, visiting various sites suited to clients' requirements, assisting with visa applications and residence permits, and banking.