Business In The Middle East:
A Primer for the American Corporate Director
published in "Directorship", Vol. XXIII, No. 5, 1997.
among your priorities as the director of a large corporation
is supporting your firm's business growth. One of the leading
options for growth is the entry into new and emerging markets
such as the Middle East This article provides Middle East
regional highlights, discusses major business opportunity
sectors and provides ideas for success.
The Middle East has a sizable--150 million--population, and one
of the fastest growing in the world. In addition to its own expanding
market, the region has long established connections to vast Asian,
African, and former Soviet markets, and thus serves as an important
conduit to these areas.
The building blocks for doing business successfully in the West
are also appropriate in the Middle East. You must understand
your market, your competition and your own capabilities, and
then develop appropriate strategies. You need good products at
competitive prices, the right distribution channels to reach
your customers and the support to service them. However, doing
business in the Middle East poses unique challenges which are
driven by the different language, customs, business practices
and political systems. Being aware of the Middle East "terrain" and
being able to navigate it are essential to success in this region.
Several characteristics peculiar to the Middle East are critical
region is going through a technological revolution. Changes
that took centuries in other parts of the world are occurring
in decades, mixing the most advanced technologies with
a traditional way of life.
are huge differences among countries in per-capita GDP,
varying from over $16,000 in the United Arab Emirates to
$1,000 in Egypt.
Middle East is an area rich in petroleum, boasting two-thirds
of the world's oil reserves, as well as huge gas reserves.
There is a critical dependence on the petrochemicals sector,
with the main oil-producing countries as direct beneficiaries
and the others as secondary beneficiaries through job creation.
governments are running budget deficits, with oil revenues
failing to keep pace with public spending and rapid population
To improve their economies, Middle Eastern countries are pursuing
- maximizing oil revenues;
- diversifying sources of revenue to decrease dependence on
- transferring government services to the private sector;
- training citizens to fill jobs currently held by foreign
- importing technology to create jobs.
Middle East countries require a local business person to
be the agent of the foreign enterprise, sometimes with
majority ownership of the business. In addition to running
the business, the agent plays an important role in opening
doors, navigating through the government, shielding you
from accounts receivable problems, obtaining visas and
introducing you to local contacts. You should choose your
agent carefully personal trust and chemistry as well
as demonstrated competence are key. The agent relationship
is to be viewed as long term; breaking it is often very
difficult, costly, and time-consuming.
on the Arabian/Persian Gulf has emerged as the preferred
location for setting up regional headquarters. It features
world-class business infrastructure, political stability,
remarkable religious and ethnic tolerance, and a longestablished
tradition of trade. Its Jebel Ali free trade zone allows
you to set up a business with 100 percent foreign ownership
and without a local agent. Jebel Ali's shipping, warehousing
and distribution facilities are well regarded.
The major producers of petrochemicals are Saudi Arabia, Kuwait,
the UAE, and Qatar. Subjected to OPEC production quotas, local
economies are driving to maximize revenue from every oil barrel.
This has led to expanding refining capacity, oil shipping and
retailing, and integrating petrochemicals with other manufacturing
enterprises (such as the use of excess refinery heat to smelt
aluminum, in Bahrain).
Bahrain, Saudi Arabia, the UAE, and Kuwait have the most developed
banking sectors. Many of the purchasing decisions are made at
the banks' headquarters (likely in Hong Kong or London). There
is a consolidation taking place in the banking sector and a rise
in the number of Islamic financial institutions; even Citibank
has set up an Islamic bank.
There are huge opportunities for Western business in the government
areas of defense, industrial zone development (e.g. in Jubail
and Yanbu in Saudi Arabia), desalination and transportation.
Desalination is of great importance as the Middle East is home
to both very scarce water resources and the world's highest rate
of population growth.
The rapid growth in business and commerce is driving the needs
for a massive increase in transportation facilities. Highway,
seaport and airport construction are flourishing as the establishment
of airlines and ground transportation systems.
Some countries require offset programs for government contracts.
These programs are intended to channel a percentage of the contract
revenue back into the country's development. The offset obligation
is more easily fulfilled through investment in some areas, such
as human resource development, than investment in others, such
as real estate development.
Telecommunications: voice and Internet
This sector is a prime example of how the Middle East is leaping
into the most advanced technologies. Voice communications use
the most advanced switches, fiber optic and satellite systems.
Mobile telephone usage is ubiquitous. Internet usage, which started
only within the last few years and is still small in comparison
with the United States, is growing exponentially, with usage
at times doubling monthly.
Consumer goods sectors
The market for automobiles, foods and beverages, clothing, personal
computers, and consumer electronics continues to grow at double-digit
Tips for Success
The following guideposts are essential for your corporate success
in the Middle East:
1. Get qualified Arabs and Americans on your team
Look for people who have bridged the cultural, language and business
practices gaps between the two environments to guide you. These
are Arabs who have strong experience in Western business and
Americans who have operated successfully in the Middle East.
2. Utilize available resources
Examples of these are the US State Department, the US Department
of Commerce, commercial attaches in US Mid-East embassies, the
National US-Arab Chamber of Commerce, and Middle East consulting
3. Cultivate the right mindset - don't think differences -- think
Many Middle Eastern businessmen have been educated in the West
and most speak English, but your developing some familiarity
with the Arabic language will be appreciated.
Islam is one of the three monotheistic religions and honors both
the Old and New Testaments. You should become familiar with the
Muslim religious practices, holy days and diet restriction.
Both cultures value the importance of families and friendships.
4. Be prepared for the longer sell cycle
It is said that here in America we first conduct business, then
go out for a drink. In the Middle East, you first drink (coffee),
then conduct business. This is not a quick sell territory. Relationships
are particularly important here; once formed, they can last for
Zuhair M. Suidan