Managing Organizations in the United Arab Emirates

Dynamic Characteristics and Key Economic Developments

V. Bodolica, M. Spraggon

• Publisher: Palgrave Macmillan
• Year: 2014
• Print ISBN: 9781137409195
• eBook ISBN: 9781137409201
• Topic: Volkswirtschaftslehre
• Subtopic: Internationale Wirtschaft

Managing Organizations in the United Arab Emirates seeks to familiarize readers with the nature of doing business and managing organizations in the Middle East by bringing together case studies on United Arab Emirate (UAE) organizations, one of the most dynamic and rapidly growing economies in the world.

CHAPTER 1

Dynamic Characteristics of the UAE

Abstract

The United Arab Emirates (UAE) is a mesmerizing Middle Eastern nation that has experienced vertiginous economic growth over the past years. Considering that the country has attained noteworthy regional and international standings in a short period of time, the purpose of this chapter is to uncover and discuss the specific sources of the UAE’s competitiveness and innovation. To illustrate the recent accomplishments of the UAE in espousing the principles of the knowledge-based economy, the chapter benchmarks the country’s rankings in terms of global competitiveness, innovation, human capital, the gender gap, networked readiness, and travel and tourism. The proposed analysis is relevant and timely both for understanding how this constantly evolving economy has achieved its current level of development and for delineating strategic priorities that may allow an effective implementation of the UAE long-term vision.

Keywords

UAE, national competitiveness, innovation, knowledge-based economy, sustainable growth, global and regional rankings

Introduction

The United Arab Emirates (UAE) is a fascinating nation that has ­witnessed fast-paced economic growth and technological development over the past several decades. Since the discovery of oil in the 1960s, the UAE has evolved rapidly from a trading society heavily reliant on the pearl diving and fishing industries into a booming economy with modern facilities and state-of-the-art technology (Furr and Furr, 2013). All the Emirates constituting the UAE federation, and particularly Dubai and Abu Dhabi, have made significant financial investments in developing their infrastructure and providing their citizens and foreign residents with a high standard of living. These efforts have led to the emergence of internationally recognized brands in the airline (Emirates Airlines), real estate (Emaar), hospitality (Jumeirah), and marine terminal operations (DP World) industries, which pose serious competitive threats to well-established global brands that were traditionally located in Western markets (Bell, 2009). The country is home to many world-class attractions such as Burj Al Arab (the only seven-star hotel in the world), Dubai Mall (the biggest shopping center ever built), Palm Jumeirah (a palm tree–shaped artificial island hosting the famous Atlantis, The Palm hotel), Burj Khalifa (the tallest man-made structure to date), and Yas Island Ferrari World located in Abu Dhabi, to name just a few.

Since the UAE proclaimed independence, the rulers of the different Emirates have been setting ambitious long-term development objectives and displaying a relentless commitment to funneling excess oil revenues toward a broader industrial diversification to secure sustainable national growth (Swan, 2013). According to the 2013–2014 Global Competitiveness Report (GCR), which benchmarks 148 economies, the UAE is ranked eighty-third in population (World Economic Forum, 2013a) and is currently considered one of the wealthiest nations in the world (Tlaiss, 2013). With a Gross Domestic Product (GDP) of US$ 358.9 billion, the country is thirty-third in the GCR ranking, while with a GDP per capita of US$ 64,840, it is placed sixth worldwide, being preceded only by Luxemburg (first), Qatar (second), Norway (third), Switzerland (fourth), and Australia (fifth). In terms of the “sectoral value-added as a share of GDP,” nonmanufacturing industry makes the largest contribution (48 percent) to the UAE’s GDP, followed by services (38 percent), manufacturing (12 percent), and agriculture (2 percent) sectors.

The UAE is one of the six founding members (along with Bahrain, Kuwait, Oman, Qatar, and Saudi Arabia) of the Gulf Cooperation Council (GCC), which represents a political and economic union of Gulf-based Arab states (Bodolica, 2013). The country is ranked fifth in terms of the “government budget balance as a percentage of GDP,” taking the lead over other GCC countries such as Saudi Arabia, Oman, and Qatar, which place sixth, eighth, and tenth, respectively (World Economic Forum, 2013a). With regard to both the “national savings as a percentage of GDP” and the “general government debt as a percentage of GDP,” the UAE occupies eighteenth position, being preceded only by Qatar (third on the former indicator), Saudi Arabia (fifth and fourth, respectively), Oman (eighth and fifth, respectively), and Kuwait (sixth on the latter indicator). As far as the “imports of goods and services as a percentage of GDP” are concerned, the UAE is ranked twenty-ninth followed by Oman (seventy-sixth) and Qatar (one hundred nineteenth), whereas on the “exports of goods and services as a percentage of GDP” indicator the country secured a higher standing (16) with Qatar, Oman, and Kuwait at 22, 24, and 25, respectively. As indicated in the latest GCR, the UAE’s seventeenth place worldwide on the “prevalence of foreign ownership” of companies represents the highest ranking in the GCC region, followed by Bahrain, Oman, and Qatar, which are ranked twentieth, sixty-third, and sixty-eighth, respectively.

Taking into consideration that these noteworthy regional and international standings were attained in only a few decades, it is worth uncovering and discussing the specific sources of the UAE’s competitiveness and innovation. Despite the detrimental effects of the recent financial crisis, which hit the Emirate of Dubai hardest because of its greater exposure to deflated real estate prices, the nation has been working on finding plausible ways to recover and maintain its pace of growth by adopting the principles of a knowledge-based economy (Madichie, 2011). To illustrate the pillars on which the UAE relies to secure its competitive advantage, this chapter benchmarks the country’s rankings from the latest Global Competitiveness Index, Global Innovation Index, Human Capital Index, Global Gender Gap Index, Networked Readiness Index, and Travel and Tourism Competitiveness Index. This analysis is both relevant and timely for understanding how this constantly evolving economy has achieved its current level of development and for delineating future strategic priorities to successfully implement its long-term vision.

The UAE’s Culture and Society

The UAE was formed in 1971 as a federation of seven Emirates: Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al Quwain, Ras Al Khaimah, and Fujairah. Although Abu Dhabi is the largest Emirate in terms of geographic area and the federal capital of the nation, Dubai is the most populous city and often makes headlines because of its significant investment in grandiose real estate projects and its commitment to continuous development of the financial sector and tourism and hospitality industry (Spraggon et al., 2010). As a constitutional federation of absolute hereditary monarchies, the UAE is governed by a Federal Supreme Council composed of the seven rulers of the Emirates with the emir of Abu Dhabi holding the presidency and the emir of Dubai holding the vice-presidency and the prime minister position.

The country is located on the Arabian shore of the Persian Gulf and is part of the broader Middle East and North Africa (MENA) region. Apart from the coastline and some mountainous areas, the vast majority of the UAE’s territory is occupied by the Arabian Desert, which is responsible for the frequent sand and dust storms. Since the country lies in the arid tropical zone, the dominant features of its climate are elevated summer temperatures (over 40°C / 104°F), especially in July and August, high humidity levels, and a reduced incidence of rain. Yet, during the winter, daytime temperatures oscillate between 20°C / 68°F and 30°C / 86°F, making the months of December through March particularly pleasant for enjoying outdoor activities.

The significant growth and diversification of the UAE’s economy have attracted many foreign workers and expatriate professionals, contributing to the formation of a multicultural demographic landscape in the country. With an increasing influx of Westerners and people originating from South Asian nations, the UAE’s total population has grown rapidly over the years to attain a figure of 7.9 million in 2013 (World Economic Forum, 2013a). The native Emirati citizenry currently accounts for only 12 percent of the total population of the UAE, where the vast majority represents self-initiated expatriates (Forstenlechner et al., 2012). Many foreign corporations have successfully established their subsidiaries in the country, while several local entrepreneurs have entered in franchising agreements with major international brands to respond to the needs and demands of the culturally diverse resident community (Bodolica et al., 2012).

UAE law prevents majority ownership by a foreign citizen unless the business is located in a free zone. Some examples of free zones established prior to 2005 are Dubai Media City, Ajman Free Zone, Hamriyah Free Zone, SAIF Zone, and Jebel Ali Free Zone. Founded in 2010 in the Emirate of Abu Dhabi, Kizad has ambitions to become the largest industrial park and free trade zone in the world that permits 100 percent foreign ownership. An alternative arrangement allows foreigners to launch their own ventures by entering in partnership agreements with Emirati sponsors (Spraggon et al., 2010), stimulating entrepreneurial activities that contribute to the surge of small and medium-sized enterprises (SMEs). Representing 94 percent of all economic entities in the country and employing more than 84 percent of the labor force, SMEs make an impressive contribution of over 60 percent to the UAE’s GDP (Global Federation of Competitiveness Councils, 2013).

Arabic is the official language of the UAE, but English is widely spoken and used as a major language of business in companies operating in the country. The national currency is the dirham, which is practically pegged to the American dollar at an exchange rate of 3.675 Emirati dirhams (AED) for one dollar. The UAE is a Muslim nation where the relationships among different constituencies are governed by the rule of Islam. Friday is the Muslim holy day when the congregational Jumu’ah prayer takes place, apart from the five daily prayers that occur during the week. The typical work week in the UAE runs from Sunday to Thursday, with Friday and Saturday as the weekend, although many private sector enterprises and banks operate on Saturdays. The calendar of Islamic religious holidays, such as the Prophet’s Anniversary and breaking the fast after the holy month of Ramadan (Alshaali and Bodolica, 2013), is based on the lunar cycle and celebration dates are commonly subject to change.

In Muslim society, men are traditionally invested with the role of economic provider for the family, while women are expected to assume domestic functions and take care of children. Family principles such as brotherhood, respect for elderly family members, and family trust and loyalty are highly valued by the local Emirati population. The interactions among the different generations of the same family are very hierarchical, with the eldest male representatives typically exerting the right of the final say and playing the most decisive role in decision-making processes that relate to the family. As highlighted in the 2013 Global Gender Gap Report, parental authority regarding a daughter’s marriage or life after divorce is very high (World Economic Forum, 2013b). Although the UAE is typically considered a male-dominated country, this tendency is gradually changing with larger percentages of Emirati women pursuing higher education in foreign institutions located abroad and assuming important leadership roles in both the private and public sectors.

Because of the critical importance of family values in UAE society, many family-run companies have been established by local and expatriate families, representing one of the most important contributors to national wealth creation and the country’s development on the international scene (Bodolica and Spraggon, 2010; Spraggon et al., 2012). Family businesses in the UAE represent a key source of employment, a major driver of women’s involvement in the private sector labor force, and a dynamic engine for industrial diversification beyond the traditional oil industry (Bodolica and Spraggon, 2012). Some family firms, such as Al Futtaim Group, Juma Al Majid Group, Al Habtoor Group, Al Jaber Group, and Al Ghurair Group, which were launched by Emirati families in the early 1960s or 1970s, diversified into various industries to become large conglomerates whose operations extend beyond national and regional borders (7Days, 2005; Shahid et al., 2014). According to a report by Booz & Company (2009), among the unique factors that contributed to the successful development of family-owned organizations in GCC are privileged access to business information, entrepreneurial networks and diversified sources of capital, extensive growth opportunities due to low levels of external competition, and respect for cultural heritage and traditions related to succession management.

Benchmarking the UAE: International Rankings

The 2013–2014 GCR clusters the included economies in five different categories based on their respective stage of development, namely stage one (factor-driven), transition from stage one to two, stage two (efficiency-driven), transition from stage two to three, and stage three (innovation-driven). As indicated in this report, the UAE, Bahrain, and Qatar are located at the stage three of development, while the remaining GCC states are transitioning from stage one to two (Kuwait and Saudi Arabia) and from stage two to three (Oman). With 97.8 billion barrels (Nagraj, 2013) and 6,089 billion cubic meters (CIA World Factbook, 2013), the UAE possesses the world’s seventh biggest proven reserves of crude oil and natural gas. Yet, although the UAE is a res...

Table of contents

• Cover
• Title
• Copyright
• Content
• List of Exhibits
• Acknowledgments
• List of Abbreviations
• 1 Dynamic Characteristics of the UAE
• 2 Managing Small Firms
• 3 Venturing in Entrepreneurial Undertakings
• 4 Addressing Family Business Challenges
• 5 Future Developmental Prospects of the UAE
• Notes
• Index