INSTITUTE OF PROFESSIONAL EDUCATION AND

RESEARCH

ASSIGNMENT OF INTERNATIONAL BUSINESS

ENVIRONMENT ON:
INTERNATIONAL TRADE OF UAE

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 Industries Achieving Success In U.A.E

Introduction of U.A.E:-
The UAE is a major player in the global oil industry (4th in the world) and its oil resources are
the main basis of the country's growth. The emirate of Abu Dhabi alone contains 10% of the
world's oil reserves (98 billion barrels). The trade industry is also booming as each emirate has
established a Free Zone to encourage companies to setup there. The emirates of Ras Al Khaymah
and Fujairah are the main agricultural centers as they are both substantially better watered than
the other emirates. The emirate of Dubai has become a commercial center and has now
consolidated its position as the key trading route between the East and the West. It has also been
named the business capital of the Middle East and has become a large tourism attraction.

The oil and gas industry of UAE contributes to the Government revenues. The largest producer
of oil in the UAE is Abu Dhabi. The prosperity of the United Arab Emirates and its rapid
transformation from a backward desert region to one with a booming economy has been made
possible by revenue from oil exports. The UAE possesses nearly 10 per cent of the world‟s total
reserves, and there is no doubt that oil will continue to provide the income for both economic
growth and the expansion of social services for several more decades at least. . In a matter of a
few decades, Abu Dhabi, supported by Dubai, turned the UAE into one of the major players in
the international oil export industry. Proven recoverable oil reserves in 2000 were put at 98.8
billion barrels.

The United Arab Emirates is a constitutional federation of seven emirates; Abu Dhabi, Dubai,
Sharjah, Ajman, Umm al-Qaiwain, Ras al-Khaimah and Fujairah. The federation was formally
established on 2 December 1971.

Industries Successful in U.A.E:-

i. Oil & Gas Industry

ii. Real Estate
iii. Tourism & Service Industry
iv. Logistics Industry

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 PORTER’S DIAMOND THEORY
Firm
Strategy,
Structure
and
Rivalry

Factor
PORTER'S
Demand
Endowmen
ts
DIAMOND Conditions
THEORY

Related
and
Supporting
Industries

1) Oil and Gas Industry:-

The UAE is a major player in the global oil industry (4th in the world) and its oil resources are
the main basis of the country's growth. The prosperity of the United Arab Emirates and its rapid
transformation from a backward desert region to one with a booming economy has been made
possible by revenue from oil exports. The UAE possesses nearly 10 per cent of the world‟s total
reserves, and there is no doubt that oil will continue to provide the income for both economic
growth and the expansion of social services for several more decades at least. In the coming
years, natural gas will play an increasingly important role in the UAE‟s development –
particularly as a fuel source for power generation, petrochemicals and manufacturing industry.
By far the biggest deposits of oil in the Emirates have been found in Abu Dhabi. The emirate
controls more than 85 per cent of the UAE‟s oil output capacity and more than 90 per cent of its
reserves.

Abu Dhabi’s Involvement in Overseas Operations:

Aside from developing its own oil industry, Abu Dhabi has investments in several overseas
ventures through the government-owned International Petroleum Investment Company (IPIC). In
October 1999, IPIC announced that it had reached an agreement with South Korea‟s Hyundai
Group to acquire a 50 per cent controlling interest in the latter‟s Korean oil refining and

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marketing subsidiary, Hyundai Oil Refinery Company (HDO), with Hyundai affiliates retaining
the other 50 per cent. The 50 per cent acquisition was effected through the purchase by IPIC of
new HDO shares to the value of Won 612.7 billion (US $510 million).

MICHAEL PORTER’S DIAMOND MODEL

FACTOR ENDOWMENTS

World oil markets

Oil continues to be the world‟s most important source of energy. It met 38% of global energy
needs in 2003 while its nearest rivals, coal and natural gas, met only 26% and 24% respectively.
Oil‟s share is even higher than this in most regions. The exceptions are Asia-Pacific, where coal
(44% of consumption) is the leading energy source, and the former Soviet Union (FSU), where it
is gas (54%).

THE FACTORS MAINLY REQUIRED ARE:

1) Resources (raw material): UAE‟s abu dhabi and dubai are the most favorable places to
acquire raw material i.e. crude oil.
2) Cost: cost incurred in extracting and processing oil is less as compared to other countries
is less.
3) Infrastructure: the oil can be easily transported and exported.
4) Technology: technology required for this industry is easily available in the country like
UAE.

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Where is it?
The Middle East dominates proven reserves of oil, specifically oil that has been discovered and
is considered economic to produce at today‟s prices, cost structure and technology. The Middle
East currently has almost two-thirds of the 1.15 trillion barrels of the world‟s proven reserves
(BP Statistical Review), which is why the region has disproportionate geopolitical importance.
The distribution of proven reserves is only a rough approximation of how oil is distributed
around the world. For example, the deep waters of the Gulf of Mexico and offshore West Africa
have only been added to the proven reserves list relatively recently, as technology to develop
their oil has become available. In addition, countries that are open to private industry tend to be
underrepresented, because commercial incentives encourage companies to hold only as many
reserves as they can develop and bring to market within a reasonable timeframe.

DEMAND CONDITIONS
Global trends:-

World oil demand averaged 78.1 mb/d in 2003, a fifteenth consecutive new high and now more
than 17% greater than 10 years ago, helped recently by China‟s burgeoning economy. This
sustained growth parallels the path that demand followed in the 1970s but contrasts sharply with
what happened in the 1980s. As that decade began, Middle East instability helped to drive prices
to record highs, in what became known as the second oil price shock. Struggling with the
repercussions of this price run-up and subsequent recession, world oil demand initially slumped,
and then finished the 1980s at a level barely higher than its earlier, 1979 peak.

Globally, oil demand growth has lagged economic growth because the world has become much
more energy and oil-efficient. The US, for example, uses just two-thirds of the energy and half
the oil per dollar of GDP that it needed 25 years ago.

Regional trends:-
Demand in the former Soviet Union (FSU) dropped by 40%, or over 3.5 mb/d, in the first four
years after the collapse of communism in 1990, slowing global growth to a crawl. After 1994, as
the FSU‟s demand decline slowed, world growth picked up to 1.6 mb/d annually, tripling its
average early 1990s rate. The 1998 Asian financial crisis abruptly and almost completely
reversed this pickup. Asia, with its fast-growing economies, urbanization and industrialization,
has been the driving force behind the most recent period of sustained growth in global oil
demand. It accounted for two-thirds of the nearly 14 mb/d of growth between 1985 and 1997,
even though it initially represented less than 20% of global demand. As a result of the deep
recession that swept across Southeast Asia in 1998, Asian oil demand, instead of maintaining its
trend rate of growth of 700,000 barrels per day per year, declined for the first time since 1985.
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The region has however recovered, with demand in 2003 growing over 850,000 barrels per day
due largely to China‟s oil-intensive growth.

Product trends:-
The growth in oil demand has been biased toward the higher-quality, harder-tore fine products,
as the graph below illustrates. Light distillates (gasoline and naphtha) and middle distillates
(diesel, jet fuel, heating oil and kerosene) now account for two-thirds of world oil demand. Each
has a market share that is at least double that of residual fuel oil, which has dropped from 23% to
12% in the last 18 years. In the US, residual fuel oil has been almost completely substituted and
now accounts for only 5% of US primary energy demand.

FIRM’S STRATEGY, STRUCTURE AND RIVALRY:-

The UAE which, from the earliest days of oil discoveries, has demonstrated its realization of the
need for constant technological improvements in the oil industry to keep pace with the world at
large and the necessity to strive for an increasingly efficient and safe industry, is ideally suited to
act as a catalyst for the research needed to adapt oil products to the stringent environmental
regulations of the twenty-first century. Given the UAE‟s determination to keep its place among
those nations that are quick to realize the need of oil producers to adapt to changing
circumstances and consumer demands, it can look forward to many more decades in which its oil
and gas industries will provide a secure and dynamic base for economic growth. Rivals are
already discussed above.

RELATED AND SUPPORTING INDUSTRIES

The supporting industries of the oil industry are automobile industry which helps in supplying oil
in UAE and transport industry that supplies oil worldwide.

The related industry is:

 Lubrication, and
 Power industry

2) Real Estate in U.A.E:-

The UAE is one of the largest and fastest growing economies in the Middle East. The country
has witnessed massive investments in the construction industry from both public and private
enterprises during the past few years. It outpaced Saudi Arabia and became the largest
construction market in the GCC region in 2008. The UAE accounted for around 20% of total
Arab construction industry in 2008. Despite the sluggish growth in 2009 amidst the global

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financial distress, the UAE construction industry managed to record strong growth during 2007-
2009 and contributed approx. 8% to the country‟s GDP in 2009.

According to our new research report “UAE Construction Industry Outlook to 2012”, the UAE
construction industry is expected to grow at a CAGR of around 7% during 2010-2013. Rapid
economic development is the major factor driving construction activities and infrastructure
development in the UAE. The country has drawn investments from around the world. Most of
the investments are mainly focused on the development of infrastructure for hospitality, retail,
real estate, and healthcare industry. Moreover, the government efforts to diversify its economy
from oil-based to other industries will boost infrastructure investments in future.

Despite the global economic slowdown, the UAE will continue to develop several projects in
tourism, housing, industrial & commercial facilities, education & healthcare amenities,
transportation, communications, utilities, and ports & airports.

The report has analyzed all emerging trends including the important drivers and key challenges
confronted by the industry. It has also identified the possible growth areas for expansion and
presents a broad overview of competitive landscape in the UAE infrastructure industry. The
report presents a complete and coherent analysis of the performance of the UAE construction
industry.

FACTOR CONDITIONS: are human resources, physical resources, knowledge resources,

capital resources and infrastructure. Specialized resources are often specific for an industry and
important for its competitiveness

The factor condition of construction cluster are geographical condition, labour productivity, level
of technology for business processes, product development, construction plants and equipment
implementation policies, roles of professional associations & construction associations,
construction services board, government and the availability of basic infrastructure

There has been a shift away from residential and commercial construction towards large
infrastructure projects. Financing and delivery of the some of these large projects, particularly in
the power and water sector, have opened up to the private sector. Transport projects are taking
centre stage. Abu Dhabi is building and rejuvenating a series of large ports. Government
investment in Abu Dhabi is flowing into regional areas such as Al Ain in the south, and Al
Gharbia (known in English as the Western Region). Green building and sustainable
infrastructure is being championed and mandated in Abu Dhabi by the Urban Planning Council
and Department of Municipal Affairs under new building codes effective Over 100 building-
related Australian companies have established themselves in the UAE. Many take advantage of
the UAE‟s advanced transport, financial and communications infrastructure and make the UAE

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their regional base. Australia's advanced engineering and building-services, innovative products,
„can-do‟ approach and ability to deliver are ideal for the UAE's large infrastructure programs.
The UAE Government is continuing to invest heavily in infrastructure projects which present
opportunities for Australian companies.

DEMAND CONDITIONS:-
In the home market can help companies create a competitive advantage, when sophisticated
home market buyers pressure firms to innovate faster and to create more advanced products that
those of competitors.

The demand condition in construction cluster is represented by construction market and its
growth prospects, transaction processes, client's quality requirement, cost, services, delivery and
quality level of the implementation.

Some years back Dubai real estate market got badly hit by great slump and got crashed like a
deck of cards. Now after considerable period of time Dubai property market is regaining its lost
status. Although, currently Dubai is not enjoying the same high status as it was some years back
but as far as construction sector is considered, it is now on the right path of restoration. Authentic
data shows that in the year 2010 approximately 3500 buildings were completed in the first 9
months worth more than DH 25 billion.

Recent reviews state that the construction sector is currently heading towards the crossroads of
success. Banks and financial institutions will also capitalize the growth out of necessity. The
overall growth of construction of buildings in 2010 is 24 percent more than the previous year.
The growth is expected to further boost due to Qatar's winning bid to host FIFA World Cup
2022. Qatar government has showed its interests to invest more than 57 billion dollars on its
infrastructure. This will directly impact the construction companies of Dubai and Abu Dhabi real
estate sector as they will get major share of projects.

The growth of construction sector can also be estimated by looking at the record breaking
buildings of Dubai. In the fourth quarter of 2011 world's tallest residential building will be
completed. The princess tower located at Dubai Marina is 107 storey high and will break the
record of world's tallest residential building. These types of buildings are the avid proof of the
conditions of construction companies located in Dubai. When the slump hit, Dubai market was
on its peak and the major reason of slump was oversupply of completed projects. The supply was
increased and the demand decreased. Now as the market is stabilizing itself, the demand is also
started to increase in a steady manner. This will ultimately push the construction companies to
start the construction works again.

Besides all this, government of Dubai is also encouraging the construction companies by
introducing different rules and laws to protect Dubai property market in future. According to
reports government has funded one fifth of total value of all completed projects in the year 2010.

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Different property experts are of the view that the coming years will prove to be the pre-booming
years of construction sector as well as of Dubai property market. The whole discussion above
shows some positive signs about the construction sector of Dubai and it all tells that Dubai still
hold the potential to gain its lost regime.

RELATED AND SUPPORTING INDUSTRIES: It can produce inputs which are

important for innovation and internationalization. These industries provide cost-effective inputs,
but they also participate in the upgrading process, thus stimulating other companies in the chain
to innovate. The rise in oil income, Progress toward diversification into service sectors
such as high- tech, logistics , port s , tourism, financial services , health, education and
media, Global increase in oil consumption and oil price rise, Private sector- led
economic expansion, promotion

Oil - rich country, Political stability, International business and investment from overseas
Growing non-oil sector, Tax free environment, Attractive salaries.

FIRM STRATEGY, STRUCTURE AND RIVALRY:

It constitutes the fourth determinant of competitiveness. The way in which companies are
created, set goals and are managed is important for success. But the presence of intense rivalry in
the home base is also important; it creates pressure to innovate in order to upgrade
competitiveness.

The context for structure, strategy and rivalry of the construction cluster are the level of
competition among construction companies, the level of trustworthiness and fairness, the entry
barriers in the forms of policies that prevent new entries, and the ratio between direct and
indirect costs.
The 2007 financial market collapse affected and still affects the construction industry in the
UAE. Projects were delayed , put on hold , or cancelled at an unprecedented rate . Comp
anise confidence declined and organizations began to rethink their strategy and prepare
for a dramatically changing lands cape by analyzing their micro- environment : markets ,
customers and competitors . Many organizations experienced problems adapting to the
environment all changes, and, unprepared for a change, they adopted a survival strata gy
rather than a growth strategy.

The changing dynamics in the competitive environment heralds the end of the previous
market expansion and suggests that the companies need to reassess their strategy in
order to remain viable and move forward . The 2007 recession in the construction
industries economic environment created severe competition and changed the nature of t h
e business. Consequently, there may be major structural changes in the industry. The
severe competition may force organizations to submit tighter tenders, and it will push

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companies to reduce their labor force. Companies will be required to adopt even more
flexible forms of organization and management in order to quickly respond to change ,
for example , a numerical flexibility so as to vary the headcount according to
changes in the level of demand ,such as an increase in the number of temporary
contracts . Companies also may start to outsource the production of materials to sub-
contracting companies.

3) Tourism in U.A.E:-
Factor Conditions:-
The most important factor conditions that have benefited Dubai‟s tourism cluster have been its
excellent physical infrastructure, and abundance of immigrant labor. The physical
infrastructure, in particular the fast growing airport, has provided Dubai‟s tourism cluster with
the tools to leverage its geographic location; 130 airlines operate out of Dubai International
Airport, flying to 220 destinations in 6 continents. As a result of continued investments in
Dubai‟s airport, the UAE has consistently ranked in the top 5 of the GCR for airport
infrastructure. It was also recognized as the „Best Worldwide Airport in 2010. It is the 15th
busiest airport in the world by passenger traffic. There have also been strong investments to
aggressively improve the local transportation infrastructure through new roads and a metro
system. The UAE has been climbing up the GCR for quality of road infrastructure and currently
stands at 5th. Dubai‟s attractiveness to low-skilled foreign workers is particularly critical for a
service sector like tourism. Another factor that deters locals from this sector is its perceived low
status in society. The lack of participation of foreigners in higher skilled jobs can be explained
by the fact that these firms are run by Emiratis, who seek to fill these positions only with their
fellow Emiratis. Emirates Airlines is one exception, which hires several high skilled foreigners,
and is in fact run by foreigners.

Demand Conditions:-
Dubai‟s demand has showed consistent growth from 4.3 million tourists in 2004 to 6.3 million
tourists in 2008. The recent economic crisis slowed down this growth. This decline has come
primarily from European and American tourists, which declined from 2.8 million to 2.4 million
visitors. In contrast, demand from neighboring Arab countries increased during the same period
from 1.5 to 1.7 million. Instead, Dubai‟s lavish shopping and high-end hotel industries largely
drove demand from high-end tourists. As with Singapore, Dubai has built a base investment of
airports, ports, and shopping infrastructure that is sufficient to drive future demand without the
need to constantly build megaprojects. Another important driver to Dubai‟s demand was the
tourism resulting from its foreign transit passengers.

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Related and Supporting Industries:-
Despite little natural demand for tourism, Dubai‟s strategic location and forward looking policies
fostered the development of four clusters that were most influential to the development of the
tourism cluster: the transportation, retail, real estate, and finance clusters. In the transportation
cluster, the airline industry provided the most important boost for tourism.

Dubai‟s airline industry started with the development of the Dubai International Airport in 1965.
Since then the airport has developed to be the busiest airport in the middle-east and the 15th
busiest airport in the world by passenger traffic with over 4 million passengers handled in March
2010. The airport serves over 130airlines and 220 destinations in six continents. Much of the
passenger traffic goes through Emirates Airlines, which is the world‟s largest airline, flying to
106 destinations with 142 aircrafts and serving 27.5m passengers in 2010. Emirates Airlines has
also played an important role in marketing Dubai as an international tourist destination. Beyond
airline transportation, Dubai has also built ports that host cruise ships from around the world, and
was recently awarded as the Middle East‟s leading cruise port in 2010.

The real estate cluster has been the primary driver for the development of hotels, with help from
the finance clusters to finance the projects. As over 80% of visitors visit Dubai to shop, Dubai‟s
retail industry has been a key driver to the development of the cluster. To satisfy the needs of
these shoppers, Dubai has built more retail space than any other GCC country and has the most
retail space under development.

Context and Strategic Rivalry:-

Dubai‟s openness to foreign investment, secular policies with regard to issues such as alcohol,
and diversification away from oil has led to an environment that is conducive to the development
of the tourism cluster. Dubai‟s Government also promotes the growth of the clusters directly
through government owned companies and through the government-run DTCM. The
Government promotes open competition in most sectors despite having large state-owned
companies that compete directly in each sector in the tourism cluster. For example, despite
having its own national carrier, Emirates, Dubai‟s open skies policy promotes open competition
between airlines and ensures that there is sufficient competition in the logistics cluster. Qatar and
Abu Dhabi are also appearing as competitors through Qatar Airlines and Etihad respectively.

Despite the promotion of competition, competition in sub-clusters within tourism, especially

tourism and shopping is still very low. Emirates Airlines and Flydubai, both government owned,
still control 62% of Dubai Airport. Emaar Malls, another government owned entity control, 49%
of the retail space in Dubai. Only the hotel sub cluster is competitive, with 47 international
brands present despite the Jumeirah Group‟s prominence.

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4) Logistics Industry in U.A.E:-
Dubai as a logistics cluster is one of the most successful cluster at the global level. It is a highly
developed region of the United Arab Emirates (UAE). The country enjoys with relatively high
income per capita (approximately 36.2 thousand USD). In the UAE the service sector represents
47 percent of GDP. As for Dubai, it has the most dynamic economy within the UAE where
logistics play very important role in economic activities. Its share in GDP is 8.8 percent
(including communication). Besides logistics are an industry that influences on the
competitiveness of an economy. Logistics comprise transportation, inventory, material handling,
warehousing, and packing and also very often security services.

Dubai has developed a dynamic logistic cluster that is playing a central role in the Europe-Asia-
Africa trade. It also serves local markets and operates as a regional trade hub. Three main factors
must be underlined in explaining why Dubai is such a successful logistic cluster. These factors
are: advantageous geographical location, market conditions, and the role of the government.

Factor Conditions:
From firm strategy point of view 6 factors must be highlighted: open markets in logistics and
transportation sector, business supportive economic policy, favorable complementary policies,
massive infrastructure investments, attractive regulatory and business environment, and growth
oriented governmental companies. In fact these became contributors of Dubai‟s logistic cluster
development. It is also worth noting that massive and aggressive infrastructure spending became
a key element for a success.

Demand Condition:-
Dubai‟s ability to operate as a regional trade hub has been spurred by the demand conditions as
well. Six main demand conditions can be underlined: Jebel Ali Free Trade Zone, domestic
manufacturing sectors, Dubai Industrial City, population growth, increased import caused by
economic growth, and trade measures against Iran. Among them most important factors are free
zone, industrial city and domestic production. These determinants create economic activities and
push significant demand for logistical services and much of it is captured by Dubai.

Related Support Industries:-

Related and supportive industries play considerable roles in the Dubai‟s logistic cluster
development. It, in fact, includes not only industries but also trends in related sectors, clusters
and markets, associations and supportive governmental organizations. There are 6 main factors
in this regard: highly developed finance, insurance, construction, and tourism clusters,
substantial increase of FDI, and rise in local capital markets, cluster associations, Dubai
Industrial City, and rapid growth in trade. These industries and organizations provide necessary

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services, markets and information for improvement and strengthening of competitiveness of the
logistic cluster.

Dubai‟s logistic cluster has some beneficial factor conditions – in particular its natural assets
(harbor, oil, and gas), advanced physical infrastructure (ports, airports, highways) and
geographical proximity with the potential suppliers (mainly China and India) and buyers (EU,
Asia). All factors listed above reinforce the potential of Dubai‟s logistic sector to be competitive
at the global level.

State plays very important and active role in Dubai‟s logistic cluster. In order to promote logistic
sector the government (both local and central) actively intervenes. It has 5 main priorities: 1.
Spurring growth by massive infrastructure spending; 2. facilitating collaboration (public-private
and personal relationships); 3. Strengthen links between port, free zone and customs; 4. Evolve
innovations (for example airport in the port), and 5. Develop complementary policies (trade,
fiscal, business environment improving).

Context and Strategy:-

The UAE‟s government succeeded in creating world class infrastructure in transportation
(seaport, airport, roads) energy, communication, and tourism sectors. This infrastructure is a
strong asset and plays essential role in encouraging logistical development. Recently, for
instance, a new logistics centre in Dubai Logistics City has been launched.

The UAE government attempts to facilitate interactions between the government and business
sector. This is crucial for a success of the logistics cluster because public-private and personal
relationships are central issues in improving the competitiveness (Porter, 1998). In this regard,
the major institution is the Chamber of Commerce. Its objectives are: encourage collaboration
with private sector and support the development of small and medium sized enterprises.

It is also worth noting that the UAE government also uses complementary policies to spur
logistics sector. It implemented business friendly tax system (very low corporate tax) which
significantly reduces the cost of doing business. I addition, creation free zones also have positive
impact on the cluster. It attracts capital from abroad and raises mobility of it.

Hence, the main forces that make Dubai‟s logistics cluster successful are favorable geographical
location, market (factor, demand) conditions, effective complementary policies, highly
developed related industries, and the world class physical infrastructure.

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 THANK YOU.

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