Factors to Consider when Establishing Hospitality Company in UAE

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Market Entry Report The United Arab Emirates (UAE) is located in the Peninsula Gulf in the Middle East and is one of the largest producers of oil in the world (ECA InternationaL, 2018). The country obtained independence from the British rule in 1971 with seven states coming together to form a federation that is today referred to as the UAE. The seven states are known as Emirates, whereby each state is politically independent of other emirates. Unlike in the past when the country’s economy heavily depended on production and export of oil, other sectors such as tourism, agriculture, real estate, and ecommerce are playing a crucial role in the growth of GPD and other economic indicators (ECA InternationaL, 2018). The government is investing heavily in infrastructures such as roads, airports, hospitals, and other social amenities. Moreover, the UAE is considered one of the safest countries in the world with zero tolerance for crime. High class infrastructure and being safer makes the country one of the best tourist destinations in the world. In addition, improved spending on infrastructure and economy has made the UAE an attractive nation for investment, both for domestic and foreign companies (ECA InternationaL, 2018). Another interesting fact about the UAE is that the expatriates constitute larger part of the total population. The current paper analysis the UAE’s business environment, providing a comprehensive description of economic, political, social, and legal factors that may influence business operations in this country. Various business opportunities and challenges a company can face in the UAE will be discussed in details with reference to establishing a hospitality company in the country. The hospitality entry company that will be discussed is a hotel.   Political Factors According to Kaufmann et al. (2008), the UAE ranks among the countries with the highest level of governance effectiveness, the rule of law, and top in the control of corruption. The report by Kaufmann et al. (2008) suggests that the UAE is one of the most politically stable countries, with the fewest political issues (Kaufmann et al., 2008). Regarding governmental organization, the UAE has a monarchy system of governance, with the presidency assumed by individuals from Abu Dhabi emirate and vice president coming from Dubai Emirate. The presidency and vice presidency are hereditary, with the president coming from the Al Nahyan clan and vice president hailing from the Al Maktoum clan (ECA InternationaL, 2018). Abu Dhabi produces the president because it is the largest emirate in terms of oil production. On the other hand, Dubai produces the vice president due to the fact that it is the most developed emirate in terms of infrastructure and has more developed sectors such as tourism and hospitality (ECA InternationaL, 2018). What makes the UAE the most stable country as far as politics are concerned is the fact that all emirates retain some level of autonomy from the federal government in Abu Dhabi. With this type of governance, it is less likely that the central government will face domestic opposition, which provides a conducive business environment. The country is not facing any foreign invasion threats because it has no history of engaging or supporting terrorism activities or manufacturing weapons of mass destruction. What makes the UAE even more attractive as far as business is concerned is the participation of government in promoting a favorable environment for doing business (ECA InternationaL, 2018). For instance, both emirate and federal governments have formulated very active policies that encourage the diversification of commerce and trade. One of such policies includes the establishment of free trade zones in a bid to encourage foreign investment to achieve trade and commerce diversification (Department of Tourism & Commerce Marketing, UAE, 2006). The UAE government has not sought to participate in the operation or ownership of companies apart from in situations that have a huge impact on the economy of the country such as petroleum and telecommunications. While Islam is generally considered the source of legislation, the law is not strictly applied in the business sector (Ferris HA, 2004). Economic Factors Unlike most Middle East countries, the UAE has an open economic system that is supported, increasing yearly trade surplus, favorable tax laws, robust monetary and fiscal policies, and favorable export and import duties. Consequently, the UAE is a well-known trading center within the Gulf region. According to Statista (2019), the UAE GDP is expected to hit $427.88 billion by the end of 2019, which is an increase of $3.24 billion of 2018 GDP. The GDP is projected to continue increasing by a huge margin and is expected to reach $538.37 billion by 2024 (Statista, 2019). Its current GDP per Capita is $39,102, which surpasses most of other Gulf countries. The UAE has been consistently ranked second highest GDP among the Cooperation Council for the Arab States of the Gulf (CCASG) nations. Since 2008, the population in the UAE has been growing at a rate of 3% and was approximately 9.1 million in 2016 (ECA InternationaL, 2018). What makes the country attractive as far as business is concerned is its favorable consumer purchasing power. Economic Intelligence Unit (2007) indicates that although the population in the UAE would continue expanding, it would not at any point exceed the real GPD, which will enable per capita income to increase (Economic Intelligence Unit, 2007). The hospitality industry has been contributing a considerable amount in the total revenue. For example, in 2016, the hospitality industry contributed a massive $7.5 billion from 2011’s $4.5 billion. Nevertheless, like many other countries within the Gulf, the UAE heavily depends on oil production. Subsequently, the government has recognized the importance of decreasing this dependency and is focusing more on boosting non-oil growth by re-investing the oil money in other sectors, including tourism (Shadab, 2018). For instance, the government has invested in ultra-modern infrastructure in Dubai, which has played a key role in transforming this Emirate into one of the best tourist destinations. Having the ability to attract more tourist around the world, the UAE will be the best place for hotel entrants. Likewise, the country holds shopping festivals such as DSF (Dubai Shopping Festival) that attracts millions of people. The festival is a one-month shopping extravaganza, whereby goods and services in malls are offered at huge discounts (Euromonitor International, 2007). Other similar festivals include the Abu Dhabi Festival of Sales, Sharja Ramadan Festival, and Dubais Summer Surprises. Along with various policies such as no customs duty on personal effects and no currency controls, such festivals have played a fundamental role in attracting a considerable number of tourists. Social-Cultural Factors The total number of expatriates working in the UAE exceeds that of the native population. Regarding gender, males are more than females, standing at approximately 67.6% and 32.4%, respectively (Ministry of Economy UAE, 2005). The population of the country is highly concentrated in the two emirates of Dubai and Abu Dhabi. The official language of the country is Arabic, but English is commonly used in business settings. Other languages commonly spoken in the UAE include Urdu, Hindi, and Persian. The overwhelming majority practice Muslim faith, even though a good number of people are adherents of other religions such as Christians. While Islamic and Arabic cultural influences are common, western culture plays a crucial role, and business operations in UAE bear a resemblance to those in western countries such as Great Britain and the United States. Regional             The UAE Foreign policy indicates that the country will try as much as possible not to interfere with the internal affairs of other countries and will pursue wherever possible peaceful resolutions to the disputes, along with unwavering support to international agencies. The country is a member of several international agencies such as the Arab League, the Greater Arab Free Trade Agreement, and the Gulf Cooperation Council (GCC), which operates as a customs union. Infrastructure The UAE is regarded as one of the most important trading centers in the Gulf and a distribution channel through which most of goods and services reach countries in most of the West Asia region (Euromonitor International, 2007). The country offers exceptional infrastructure services in sectors such as airport facilities, seaport telecommunications, and transportation, together with logistics support. By 2005, more than 86 airlines and 170 shipping lines linked Dubai to more than 100 countries (FDI Magazine, 2005). To date, these numbers have risen massively, and more and more airlines are operating in Dubai and other Emirates in the UAE. Bilateral Ties Further, the UAE has excellent bilateral ties with other countries and is a trading partner to most countries around the world, including GCC, the United States, European, and Asian among others (Euromonitor International, 2007). The country has signed several bilateral agreements to create a legal framework to develop and enhance relations with other countries. Improved relationship with other countries translates to more governments willing to allow their people to travel to Dubai for shopping and tourism (Euromonitor International, 2007). In addition, enhanced relation will enable foreign companies to operate in Dubai without legal hindrances.   Some Challenges a Business May Face in the UAE One of the challenges any business would encounter in UAE is the presence of Federal Commercial Agencies Law that requires the franchisee, distributor, or agent to be a UAE national. Under this law, the local business partner is protected in several ways that do not favor foreign investors (Al-Futtaim, 2008). For instance, the statutory protections include foreign investor has no right to withhold renewal or terminate the relationship. Another challenge an entrant may face in the UAE is ...