Doing Business and Investment in the Middle East
Consumers in the Middle East are changing their buying behavior. International companies looking to do business in the Middle East must take these points into consideration. Then, they must adjust to the new trend.
What is the Middle East?
The Middle East has been referred to as the crossroads of the world because it connects the three continents of Asia, Africa, and Europe. The Middle East is used with different definitions. Some use it for Gulf Cooperation Council (GCC), which is in six countries: the United Arab Emirates, Saudi Arabia, Oman, Kuwait, Qatar, and Bahrain. However, the Middle East is more than GCC.
A variety of countries make up the Middle East. Saudi Arabia, Kurdistan, Qatar, Israel, and Lebanon are some of them. We are talking about a population of 700 million, which is roughly 10 percent of the global population and $4 trillion of GDP.
The complexity of the region is very interesting. The region has some of the world’s oldest civilizations—be it Egypt or Mesopotamia, —and some of the youngest countries. The majority of the countries were created in the middle part of the 20th century.
There are some of the richest countries. If you take the GDP per capita of the richest country and the GDP of the poorest country, it’s almost 100 times while it’s around 15 times in Europe. So that gives us a big sense.
We also look at population. There is a population of 70 million in Kurdistan, and 90 million-plus in Egypt. Bahrain’s population is 1.5 million.
The contrast between the different countries actually is quite stark. That’s what makes the region very complex. People talk about the Middle East as one setup, as one country but it’s not.
Business and Investment
Looking in from the outside, the Middle East has been through a bit of a rough patch. Fluctuations in oil prices, political instability, the war against ISIS, etc.
On the one hand, there are other people who basically say, “Well, let’s wait and see,” because they’re skeptical about the geopolitical situation. They’re skeptical about this kind of volatility of economic activity, which is also driven a lot by oil prices over the last few years. Most importantly, this group is skeptical about the success of the transformation
On the other hand, however, there are people that actually are very bullish about the region because they see the ambitious transformation. They see a young population that is thriving and wanting to make a difference. They see a market that actually could be attractive and that is very big. Thus, they see some of the big investments. So, glass half empty, or glass half full.
The Business Strategy
If you’re a CEO looking to do business in the Middle East and thinking about “What’s my Middle East strategy?”, it is very important for to think about this region in a much more granular way. Country by country, city by city. If we think about Saudi Arabia, it is different than Iraq. Or in Saudi itself, every region is very different. The regional differences are quite big. Thinking about this region in a granular way is the number-one step for any strategy that should be set here in the region.
Let’s look a bit from a historical view. Over time, a lot of international companies came into the region. These companies had only sales kinds of operations, which means that everything was produced outside. Everything was developed outside, in countries like the USA, Germany, South Korea, and the UK.
Nevertheless, now the consumers in the Middle East are much more demanding. Consumers are changing their buying and consuming behavior and they are spending even more cautiously than they have in previous years. Also, they are requiring something that is much more tailored to them, their lifestyle, and their customs. Moreover, consumers are also becoming less brand loyal, more health-oriented options and locally sourced products.
Therefore, requires international companies to be closer and closer to this market and to learn the market. You cannot just apply what you’ve done in other markets and come here.
Services in the Middle East?
Companies that expand to the Middle East come in with hubris. They say, “We bring this product, and this is the best for you.” This is a misconception too. Hence, that’s the thing I urge international companies to think about, is to be humble and respect the knowledge of the local players here. On that account, that would require them to invest time and money to understand who the local players are that they need to partner with.
At the same time, the costs of doing business in the Middle East keep inching up. In the last 4 years, companies in the Middle East were affected by new value-added taxes and reductions in utility subsidies.
We expect these trends to have staying power. That means companies won’t survive unless they undertake a strategic refocus—and quickly.
Yet this tough business environment should not discourage new entrants. International companies in the Middle East must adjust to the new trend. It’s no easy task. But by staying abreast of changing consumer trends, they can deliver what consumers want. Assertive start-ups, for example, have entered the fray and are growing fast.