Saturday, December 14, 2013

Global Business "Doing Business in UAE"

INTRODUCTION:
This document shows the cultural differences between Australia and United Arab Emirates (UAE), which is a middle eastern country with a promising market for all western business by the virtue of the level of infrastructure the country possesses, the population being quite wealthy due to the fact that they are expats from other countries and enjoy a lot of expat perks as part of their packages and also no income tax is payable to the govt.
UAE has also setup Free Trade Zones which are very attractive for foreign companies who wish to move locations or add another location in a country which would be cheaper to run the business and low cost labour.
In order to identify the cultural differences between Australia and UAE, both countries have been put through the framework from chapter 3 of the book “International business” Peter Dowling et all, 2009. The points compared are Social structure and mobility, Religion, Language and Hofstede’s cultural values dimensions. As every segment is described in the document, potential risks, challenges and recommendations are discussed underneath.
    

EXECUTIVE SUMMARY
UAE as a country is inviting foreign investment with greatly promising market and infrastructure. Dominated by Islam as a religion is is quite obvious to expect the cultural differences between Australia and the UAE. In order to look deep into this tempting market we put it thru the test of the cultural difference frameworks mention in page 91 to 120 of the book International Business, peter dowling et all, 2009. Most importantly the Hofstede’s cultural values dimensions.
It is found that both countries are quite contrasting cultures and makes it very important for the Aussie firms to take outmost care when dealing in there. UAE has a very prominent social stratification and Sheiks who are from the ruling family demand respect by the virtue of the wealth they possess and the positions they hold in the country. Islam is the most popular religion and causes a bit of work day difference added to the time difference from the time zones.
A high context culture prevailing in UAE brings the unspoken language in the limelight and western firms who come from a low context culture need to be aware of this. A special job role in every company called “Mandoob” (http://www.bayt.com/en/job/?xid=1583618) or the PRO helps bridge this gap.
Hofstede’s cultural value dimensions report for UAE suggests very high power distance, high uncertainty avoidance and low individualism. Hence companies need to take care on the fact the UAE is a collectivist culture by the virtue of religion or place of origin of the workforce, and Managers and Staff will never sit on the same table to bounce ideas as Aussie firms would be used to.
COUNTRY PROFILE
The United Arab Emirates was formed in Dec 1971 as a constitutional federation of seven emirates. Each component emirate has its own govt institutions and the rulers of the emirates drew up a constitution for the federal govt with allocated powers and responsibilities. Federal ministries include examples like Health, Air traffic control, Defence etc.
The ruler of each emirate is a member of the Federal supreme council and between them a president and vice president is elected for a period of 5 years which is renewable. In Dec 1971 Sheik Zayed bin sultan al Nahyan was elected as the first president of UAE and was subsequently re-elected until his death in 2004.
UAE is situated along the south eastern tip of Arabian peninsula and 80% of its land is arid dessert. The temperatures in UAE vary between 24 deg and 5 deg in winter and can get to more than 40 deg cent in summer months of June to September. Due to this extremely hot temperatures most of the UAE works on a split day working schedule. General business hours are 8 am to 1 pm then, there is a break for about 3 hours when the employees take rest and typically sleep for a few hours before commencing work again at 4 pm to finish at about 7 pm as compared to a 9-5 schedule found is most organisations in Australia. Also due to the same reason the typical annual holidays for the schools and working staff is during the summers as compared to Christmas for Australia. (http://www.communicaid.com/access/pdf/library/culture/doing-business-in/Doing%20Business%20in%20the%20UAE.pdf )
When comparing the weather with Australia it is important to note that UAE has a very high humidity and Australians will find it very uneasy when working in UAE. (http://www.everyculture.com/To-Z/United-Arab-Emirates.html#b)
UAE does have a wealth of oil situated beneath its soil however the resources are very limited and this was realised by the govt quite early, hence the govt is set to shift the revenue stream of the country towards tourism and business. The country as of 2005 had an FDI of over 10 Billion USD and a non oil sector contribution to nominal GDP of 64%. (http://www.emirates.org/about.html)
   
DETERMINANTS OF CULTURE
Religion: Islam is the principle religion followed in the UAE. Although practice of other religious beliefs are allowed but being and Islamic nation has a very strong affect on the business environment and the economy.
UAE has a 5 day working week but instead of a Saturday Sunday weekend they have a Friday Saturday weekend and the first working day of week is on Sunday. A Friday holiday resonates with the fact that Islam followers need to attend the prayer every Friday afternoon. UAE also celebrates the holy month of Ramadan where Muslims fast from dawn to dusk. In this month Muslims only work till midday and then have the option of taking leave for the rest of the day. Those who choose to leave after midday are still eligible for a full day wage and need to be replaced by staff who potentially earn overtime wage. (http://www.communicaid.com/access/pdf/library/culture/doing-business-in/Doing%20Business%20in%20the%20UAE.pdf )
Eid is an important holiday and the Eid holidays can extend up to a week or 10 days, during this time the schools will remain closed and also the govt offices will work minimum hours if at all.
Food and beverage business have to face a regular problem of change of regulations and inspections with respect to service of alcohol and pork both of which are not appreciated by Islam.
Potential Risks and Challenges:
Challenges which Aussie companies would face while working with the UAE is first of all there are 2 days of the week clashing Friday and Sunday where in either office is expecting the other to be working. Secondly some Muslims need to pray 5 times a day usually 1 of this time is during business hours for this a prayer room needs to provided and over that no meeting or appointments can be scheduled with the people who need to go to pray. One of the challenges is that we cannot get to know which of our staff will pray during the afternoon as sometimes some people pray only during certain periods.
Muslims have 2 Eids every year, one of them come after the holy month of Ramadan. It is challenge to have a correct balance between Muslim and other religion staff due to the fact that during Ramadan the Muslims will finish work at midday and then this period needs to be covered by the working staff. This increases costs as the staff need to be paid overtime wages and the Muslim staff need to be paid full wages for half day work. Eid is also the time for gift and an expectation of bonuses is around this time.
  
LANGUAGE
Spoken:         Arabic is the national language and is widely spoken in UAE, however English is also popularly spoken and understood in the country as a business language. Another widely spoken language comes out of one of the states of India, Kerala. The language is called Malayalam. There are a very heavy number of Kerala natives along the UAE and extending to other gulf countries like Saudi Arabia, Bahrain, Oman and Qatar etc. (http://www.ethnologue.com/show_country.asp?name=ae)
Potential Risks and Challenges:
Even though UAE is a land of immigrants but Arabic as a language is very popular even within the immigrants. All official documents are in English and Arabic it is important to know that Arabic is written right to left.
Unspoken:    Very prominent high context culture prevails in the UAE. Body language and local slangs are very important to be taken into context while dealing at any level. Men often greet with a hug and touch in this culture and these can often communicate different information. Terminologies like Habibi  “my friend” is very widely used and the zest of the context needs to be considered. (www.bobriel.com/pdf%20files/cultural%20context%20-%20uae.pdf )
Potential Risks and Challenges:
The unspoken language in UAE determines the need of a PRO in every company. The public relation officer or the MANDOOB is person with connections and will deal majority of the govt work. As UAE is a gift giving culture, foreign companies need to trust on the mandoob to draw the line between gift and bribe as the consequences of bribe can be very harsh. 
Social Structure:
Social groups prevail very dominantly in UAE. They society is grouped by religion the biggest being Islam. They can be grouped by country of origin due to the fact that a big chunk of the population is expats and come from different countries mainly India, Pakistan, Sri Lanka and Philippines and groups are formed due to similar language and lifestyle.

Social Stratification:
The population of UAE can be divided in 2 major social categories, locals or citizens, and expats or foreigners.
The locals are further divided in 4 social classes:
a.         The Sheiks. They are families who rule various emirates of UAE. These people hold the powerful position in the govt and possess a lot of wealth and are treated with a great amount of respect.
b.         Merchant Class. They form the business class of UAE and trade in international consumer goods
c.         Middle Class: UAE has recently started to see an emergence of middle class who are professionals who have benefited from the free education provided by the govt and have qualified themselves into skilled professionals. They work in govt departments like immigration, police army etc.
d.         Low income group: Represented by Bedouin nomads and former pearl divers and farmers.
Social Mobility in the above is quite difficult, moving into the Sheiks class is impossible as it is by dynasty and birth. However with a business perspective it is important that the business class and the middle class be taken into careful consideration as the merchant class with where the joint ventures will take place and the middle class are gatekeepers of any and almost all govt offices.
Due to the fact that UAE locals only account to small percentage of the population of UAE the major workforce is foreigner. In the immigrants there is some more social stratification by the virtue of economic rewards. Very highly paid top company executives, middle level skilled professional and labour class. While doing business in UAE the top class professionals play an important role, these are the people who have the signing powers for any business venture. (http://www.everyculture.com/To-Z/United-Arab-Emirates.html#b)
Potential Risks and Challenges:
Aussie companies are not used to social classes in a business environment especially classes with less mobility between them. UAE on the contrary has a very defined class structure which need to be dealt with especially when dealing with the Sheiks and the business class. Almost every foreign company need to have a partner local and under most circumstance it is the top 2 classes. Very heavy sponsorship royalties are paid to these classes.


HOFSTEDE’S CULTURAL VALUES DIMENSIONS
POWER DISTANCE: UAE is a country with a PDI of 80. A large power distance is quite expected due to the fact that the different classes prevail in the country. Also that they have a ruling class which is prevalent by birth or dynasty clearly creates an environment of high power distance.
UNCERTAINITY AVOIDENCE: A UAI index of 68 complements the PDI, hence managers and bosses are expected to pass quite clear instructions to the subordinates and are also expected to stand responsible for the directions given by them.
INDIVIDUALISM: An IDV ranking as low as 38 as compared to a world average of 64 determines that UAE is a very collective society. This resonates to the fact that UAE is a country of temporary migrants and social groups prevail in the society. Loyalty is on a very high priority in a collective society.
MASCULINITY INDEX: The MAS is at 52 which means that the women have limited rights however a major reason of this could be the religious belief and not culture.
Potential Risks and Challenges:
Aussie businesses are used to a very low power distance, essentially everyone does everything. However in a high power distance environment you need to hire more staff as everyone does not do everything. Also lot of ground level information has a potential of not coming to the meetings as those people do not attend staff meetings or the managers are not working at that level to be able to pickup that information. “This is not my job” is a frequently used phrase and aussie manager will have to learn to tackle this phrase.

REFERENCES:
International Business, Dowling et all 2009

Contributors
1. Param Ramanan

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