The University of New York in Prague School of Business Bachelor of Business Administration Program FINAL PROJECT What should foreign investors and companies know about the cultural differences and barriers in the UAE to successfully enter and navigate the market? Author: Hamza Aboshi Mentor: William Pattison Due Date: Sunday, 28th of April 2019 Acknowledgments I would like to genuinely to thank my HighsChool ex-teaChers Mr. MiChael Walkoski, and Dr. Paul Dillon for acCepting my request to have an interview with me to ConduCt it in my final projeCt. I will also like to aCknowledge the help of my family and peers that have helped throughout this semester and on my Final ProjeCt. I want to thank my mentor personally, and professor William Pattison as he gave me an essential tip on finishing out this Final ProjeCt. I want to thank him for tolerating me when coming during breaks asking for feedbaCks. 2 Abstract / Executive Summary This project explored many aspects of the Middle-Eastern country United Arab Emirates and addressed what should the foreigner investors and companies know about cultural differences and barriers to navigate the UAE market. The project illustrates the cultural differences in detail and what to expect when coming to the country whether in the workplace or in communicating with people. The main goal of this project is to let foreign companies come and invest in the United Arab Emirates. There is also a list of benefits, incentives, advantages to overcome the cultural challenges and barriers. The project shows an overview of the cultural challenges and differences in the UAE of the business world which exemplified directly to foreigners. This project was illustrated by the help of books, either written in Arabic or English, in addition to websites and articles that are relevant. Also, there will be several interviews with foreign people living in the UAE for more than a decade and even an interview with the managing director of Toyota automobile company in Dubai. There are several case studies, which was illustrated throughout this project and a list of recommendations on how to overcome the cultural differences. 3 4 Table of Contents Chapter 1 – Introduction …………………………………………………………..1 1.1 – Overview ……………………………………………………….1 1.2 – Project objection ………………………………………………..9 1.3 – Project benefit …………………………………………………..10 Chapter 2 – The Theory ……………………………………………………………..10 2.1 – Cultural differences………………………………………………11 2.1.1 – History…………………………………………………..11 2.1.1 – Islam……………………………………………………..12 2.1.3 – Cultural norms……………………………………………12 2.1.4 – Language…………………………………………………..13 2.1.5 – Working hours……………………………………………..13 2.1.6 – Food and drinks……………………………………………14 2.2 – Barriers ……………………………………………………………..15 2.2.1 – Trade barriers………………………………………………15 2.2.2 – Islamic banking system ……………………………………16 2.2.3 – Sharjah emirate …………………………………………….16 2.2.4 – Wasta (Nepotism)…………………………………………17 2.2.5 – Packaging and labeling products …………………………17 2.2.6 – Permits and visas ………………………………………….19 2.3 – Business etiquette and culture……………………………………….20 2.4 – UAE government protocol and censorship ………………………….21 2.4.1 – Internet freedom……………………………………………..21 2.4.2 – Free speech …………………………………………………21 2.4.3 – Prohibition of child labor…………………………………22 2.4.4 – How could it impact foreign companies and investors …23 2.5 – Benefits and Incentives ……………………………………………23 2.5.1 – Free-trade zones ………………………………………….24 2.5.2 – UAE Cabinet changes …………………………………….24 2.5.2.1 – Long-term residence visas ………………………..24 2.5.2.2 – 100% international business ownership…………24 2.5.3 – EXPO 2020………………………………………………..25 2.5.4 – Location…………………………………………………..26 2.6 – Advantages ………………………………………………………..26 2.6.1 – Economic stability ………………………………………28 2.6.2 – Political stability …………………………………………28 2.6.3 – Social security……………………………………………29 2.7 – The cultural impacts on Exports and Imports in the UAE ……….30 Chapter 3 – The Practice ……………………………………………………………30 3.1 – Case studies …………………………………………………….31 3.1.1 – Hofstede Insights ………………………………………33 3.1.2 – Doing Business……………………………………………..35 3.1.3 – Unsuccessful foreign businesses in the UAE………….36 3.1.4 – Successful foreign companies in the UAE……………….36 3.2 – Interviews …………………………………………………………36 3.2.1 – Interview with foreigners living in the UAE ……………38 3.2.1.1 – Interview with Mr. Michael Walkoski………41 3.2.1.2 – Interview with Dr. Paul Dillon ………………42 3.2.1.3 – Key findings ……………………………………44 3.2.2 – Interview with Mr. Saud Abbasi …………………………44 5 Chapter 4 – The Findings and Results…………………………………………….. 44 Chapter 5 – The Recommendations……………………………………………….. 45 Conclusion …………………………………………………………………………….. 45 Bibliography …………………………………………………………………………. 47 List of Abbreviations Abbreviation Stands for UAE United Arab Emirates AEC Alajmi Engineering Consultant VAT Value Added Tax LLC Limited Liability Company FZE Free-Trade Establishment GDP Gross Domestic Product EXPO Exposition, Large-Scale Public Exhibition GPI Global Peace Index GCC Gulf Cooperation Council UN United Nations HNW High-net-worth Human Rights Watch, a non-governmental organization that researches HRW Human rights internationally 6 List of Arabic words meanings Word Meaning Sharia Islamic Law Riba Usury Quran Islamic Holy book Permissible – usually used for (The Islamic way of slaughtering animals or Halal poultry) Haram Prohibited – opposite to “Halal” The ninth month of the Islamic Calendar, where all Muslims should fast from dawn Ramadan to sunset Emirati United Arab Emirates’ Demonym Wasta Nepotism Hijab Headscarves Muslim women wear means Chief “for men” (typically used as a title for people in the royal family in Sheikh the UAE) A female member of the Royal family (usually used as a title for people in the Sheikha royal family in the UAE) 7 Chapter 1 – Introduction 1.1 – Overview UAE is the abbreviation of the United Arab Emirates, which is a federation of seven Emirates; The United Arab Emirates established in 1971. After Saudi Arabia, the UAE has the largest economy from the Persian Gulf. According to Trading Economics website, UAE has expanded it is Gross Domestic Product (GDP) from 0.80 percent in 2017 from 2016, and since 2000, UAE averaged 4.51 percent of GDP Growth Rate. UAE has seven different states, or in better words, they call them "Emirates," however, foreigners prefer two main cities in the UAE for the business wise. Firstly Abu Dhabi is the capital city, and the second largest city, and responsible for mainly the head office of Administration and the center of the Gas and Petroleum industry. Secondly, Dubai, the largest city in the UAE and the most recognizable city in the where some people think it is the capital city and sometimes mistaken that Dubai is the name of the country instead of UAE. On the other hand, Dubai is known for its fast growth and responsible for the construction and tourism industry. The Locals or Emiratis cover only around 20% of the total population, which makes the country one of the largest countries containing immigrants that are mostly expatriates. To support that, according to Jure Snoj, an author from the BQ Magazine mentioned in his article UAE's population – by nationality "Similarly, to its neighbors in the GCC, UAE is relying heavily on foreign labor to keep its projects and economy running. Alongside Qatar, the country has the highest percentage of immigrants about its citizens, with the latter amounting to about 10% of the total population" (Snoj, 2015). Culture is a fundamental characteristic of any business, which a lot of people disregard. UAE has a significantly different culture than westerns, which a lot of people do not give importance to. UAE's official religion is Islam, religion in UAE is widely important because Islam shapes many aspects in their culture, like cultural, social and professional life. On the other hand, it also set different rules in financial and investing wise, for example, interest rates are forbidden in Islamic banks. Unlike western countries, religion is not considered as a cultural aspect and religion is not involved in commonly in their culture. As a foreigner, it is crucial having brief information about the UAE's culture and especially about Islam. Nevertheless, freedom of religion is founded in the UAE, and people can practice their beliefs with full respect. As I mentioned above that UAE is, has a fast-economic growth, but firstly I would like to address, why do businesses go to the UAE in the first place? There are many reasons, 8 Firstly, UAE's strong economic performance, in terms of UAE's financial performance, the UAE have one of the most successful economies between the Gulf countries, especially in the oil sector. Back in 2009, during the setback due to the recession, the UAE's economy has back much stronger than ever, due to several factors such as logistics, trade (imports and exports) and tourism. Secondly, their location, UAE's place is very strategic. They have straightforward access to the surrounded countries, which they around 2.2 billion consumers, from different time zones. Thirdly, their population, in fact, the UAE have more expatriates than nationals which is abnormal. The UAE nationals are around 170,000 while the expats are more than 2 million in the current year. On the other hand, investors would like to know which industries often go to the UAE for business, and there are several, firstly, the production/manufacturing, automotive industry, secondly, the construction industry, due for the professionals in the building sector such as engineers, and investors