International business concepts and applications

International Business

Country a -- United States

Country B - United Arab Emirates

Industry -- Telecommunications Equipment

The United Arab Emirates (UAE) is a federation of seven emirates situated on the Arabian Gulf and bordered by Saudi Arabia and Oman. The UAE has become an economic source of power in the region throughout recent decades, with the original momentum arising out of its petroleum exports. In a few years, the UAE has branched out its economy as a regional financial, services and tourism center. This movement to a non-commodity-based export economy has provided opportunities for U.S. businesses to tap into a progressively more multifaceted economic environment in the UAE. The UAE is recognized in the region as a business-friendly nation with a government focused on economic improvement and diversification (U.S.-UAE Business Council, 2008).

The UAE's telecommunication market has shown remarkable growth throughout the recent past, mainly propelled by the government programs aimed at the deregulation of the market and introduction of competition. The TRA (Telecommunication Regulatory Authority) remains at the front of the success of the nation's telecom sector. With competition further increasing in the market and operators looking at a variety of alternatives to boost their revenue from mobile and Internet services, the telecom market in the UAE is expected to grow at a CAGR of around 10% during 2008 -- 2012 (UAE Telecom Industry to Amplify in Forthcoming Years, 2012).

The government has viewed an advanced telecom infrastructure as a way to attract foreign investment and to expand the dependence of the economy from oil-based resources. Also with increasing education and business in the region, demand for Internet services has also augmented during the past few years. Even though dial-up subscriptions currently dominate the Internet market, it is projected broadband subscribers to account for nearly sixty five percent of internet subscribers in coming few years (UAE Telecom Industry to Amplify in Forthcoming Years, 2012).

The UAE has a well-developed and technologically advanced telecommunications infrastructure and has high mobile telephone and Internet infiltration. Majority government-owned Emirates Telecommunication Corporation Ltd. (Etisalat) operates, preserves and develops the national and international fixed-line network, mobile telephony, Internet access and cable TV services but its monopoly has been done away with. The company has been increasing its attendance in a number of countries. Broadband Internet connections are accessible by Digital Subscriber Line (DSL) and cable, with DSL line numbers growing quickly (United Arab Emirates Internet Usage and Marketing Report, 2010).

Incumbent Etisalat and alternative operator are competing to offer quicker broadband packages over a combination of ADSL, mobile broadband and FttH in a market that already has one of the highest broadband penetration rates in the Middle East. UAE governments at both federal and emirate level have been very dominant, particularly Dubai, with programs to persuade computer and Internet use. Government policy has also incorporated encouragement for media, IT and Internet related businesses and Dubai has become a regional center for the industry. Satellite delivered television is a predominantly strong industry in the Middle East region and much of it is now also headquartered in Dubai (United Arab Emirates Internet Usage and Marketing Report, 2010).

Analysis of the United Arab Emirates

National Business System and Cultural Conditions

The UAE has an open financial system with a high per capita income and a considerable yearly trade surplus. Flourishing efforts at economic diversification have decreased the part of GDP that is based on oil and gas output to twenty five percent. Since the discovery of oil in the UAE more than thirty years ago, the UAE has undergone a deep alteration from a poor area of small desert principalities to a contemporary state with a high standard of living. The government has augmented expenditure on job formation and infrastructure development and is opening up utilities to superior private sector involvement (The World Factbook, 2011).

The country's Free Trade Zones that offer one hundred percent free foreign ownership and zero taxes are helping to draw foreign investors into the country. The global financial crisis, tight global credit, and depressed asset prices tapered the economy in 2009 and 2010. UAE authorities tried to dull the crisis by escalating spending and increasing liquidity in the banking sector. The crisis hit Dubai the hardest, as it was greatly exposed to depressed real estate prices. Dubai lacked adequate cash to meet its debt responsibilities prompting global uneasiness about its solvency. The UAE Central Bank and Abu Dhabi-based banks bought the biggest shares. In December 2009 Dubai received a supplementary ten billion loan from the emirate of Abu Dhabi. The economy is anticipated to carry on a slow recovery. Dependence on oil, large expatriate personnel, and mounting inflation pressures are important long-term challenges. The UAE's strategic plan for the next few years focuses on diversification and creating more occasions for nationals through improved education and augmented private sector employment (The World Factbook, 2011).

The Emirates have an extensive cultural heritage but the tribal links are very strong within each Emirate. The three most inhabited Emirates are Abu Dhabi, Dubai and Sharjah; approximately eighty five percent of the total population belongs to these Emirates. The official language is Arabic, and all communications with the government must be in Arabic, even though among the expatriate communities a variety of other tongues are often used. Foreigners will find that English and Hindi / Urdu are widely understood, but English is used for all written communication between businesses (Doing business in the UAE, 2009).

In general, the government seeks to make available a free-market economy with minimal regulatory restrictions. In order to attract foreign and local investment, the federal government and the governments of the individual Emirates have developed a contemporary and sophisticated infrastructure and provide a business environment largely free of taxation and exchange controls. Additionally, the UAE in recent years has signed double tax and investment protection treaties with several nations. The laws and regulations governing foreign investment in the United Arab Emirates are favorable to foreign investment. Each Emirate has its own customs authority, while a national committee formulates general policies (Doing business in the UAE, 2009).

The UAE imposes virtually no foreign exchange limitations. Equity capital, debt capital, interest, dividends, branch profits, royalties, management and technical service fees and personal savings may be freely remitted abroad. The government does not compel debt-to-equity ratio requirements on corporations. The UAE has created several free trade zones. Foreign companies founding businesses in the free trade zones are offered special allowances, including exclusion from the condition of having local ownership or a local sponsor (Doing business in the UAE, 2009).

A very accepted way for foreign companies to benefit from one hundred percent foreign ownership is to open a branch office of the parent company. A branch office is legally looked upon as part of its parent company and does not have a separate legal identity from that of its parent company. Consequently, the name of the branch office will be the same as that of the parent company. Branch offices are nonetheless required to have a UAE national as a service agent. Only UAE nationals or companies one hundred percent owned by UAE nationals may be selected as local service agents. Local agents are not involved in the operations of the company but aid in acquiring visas and labor and are paid a lump sum and/or a proportion of profits or turnover. One of the circumstances for establishing a branch office in the UAE is that it may only be engaged in activities comparable to those of the parent company. It is significant to note that a branch office is allowed to carry on the business of importing products of its parent company, provided that the parent company is involved in the production of such products (Doing business in the UAE, 2009).

The dissimilar regulations and laws regarding the use of telecommunications equipment between the nations of the world makes some devices good for use in some countries while not so good for use in others. In this sense most of the countries around the world have developed their own technical standards and specification which regulate the use and function of the telecommunications equipment without causing any harm to the users or various communication networks. Type Approval regime is a requirement for the approval of telecommunications equipment before being allowed to enter the United Arab Emirates as it tries to regulate the importation and sale of communications equipment in the United Arab Emirates through the dealers and suppliers qualified by the TRA and by giving certificates of type approval of equipment in compliance to specifications necessitated by the TRA. This approval is only given after ascertaining the availability of all the specification and technical requirements (Type Approval, 2012).

Assessment of the pattern and trends of trade between the U.S. And the UAE

The United States and the UAE enjoy a vigorous trade and investment relationship, much of which now has little direct relationship to UAE oil exports. This is one of the fastest growing U.S. economic partnerships, both globally and in the Gulf region. The UAE has one of the most open economies in the world. And its vigorous economic partnership with the United States reflects the UAE's function as a regional leader in terms of economic restructuring, openness to international trade and investment, and political stability (UAE-U.S. Economic Relationship, 2011)

The volume of U.S. exports and foreign direct investment into the UAE in recent years has grown considerably and is likely to continue to grow in the future. This growth reflects the progressively more diversified UAE economy as well as the country's leading role as a modernizing power in the Arab world.

The country is the biggest export market for the United States in the Middle East and, in 2010, was the 21st largest export market for the United States internationally.

The UAE buys goods from every state in the United States, as well as the District of Columbia, Puerto Rico, and the Virgin Islands.

UAE customers purchased almost twelve billion in U.S. goods in 2010.

The UAE pegs its money, the dirham, to the dollar.

More than 750 U.S. firms have an existence in UAE (UAE-U.S. Economic Relationship,

2011)

Assessment of the implications of international institutions

The United States and the United Arab Emirates have developed very strong economic ties in recent years, with the growth of trade and investment among the highest of any major U.S. partner. This enhanced economic partnership reflects the UAE's role as a regional leader in terms of economic reorganization, openness to international trade and investment, and political stability. President Bush's choice of the UAE as a potential free trade agreement (FTA) partner with the United States is evidence both to the UAE's economic strength and the U.S. aspiration to deepen this affiliation (U.S.-UAE Business Council, 2008).

This relationship clearly has been distinguished by quickly expanding trade and investment flows. The near total absence of serious bilateral trade disagreements with the UAE is indicative of the health and stability of this jointly beneficial relationship. There have been no cases of either nation bringing the other to the World Trade Organization (WTO) for review by the Trade Dispute Body. This reflects the lack of serious frictions between the two trade partners and that if trade disputes do arise, they can be dealt with without recourse to formal WTO procedures. The only major disagreement to arise between the two countries occurred when Dubai Ports World planned to invest in U.S. port facilities, but the scarcity of such troubles is noteworthy (U.S.-UAE Business Council, 2008).

The UAE presently provides a very open environment for international competition. One demonstration of that commitment is through its multilateral trade policy administration, conducted under the sponsorship of the WTO. The UAE became a contracting party to the General Agreement on Tariffs and Trade (GATT) in 1994 and was an original member when the WTO was founded. Consequently, the UAE has taken on all of the rights and responsibilities of membership in those associations. The UAE's tariff is reflective of the ordinary external tariff developed within the GCC. A recent profile of UAE tariffs released by the WTO indicates the maximum tariff that can be charged under international obligations for all goods is about fifteen percent, compared to a five percent tariff actually imposed by the UAE in practice. For agricultural goods the average bound rate is twenty five percent, while the average applied rate is six and half percent. These differences are a significant reflection of the UAE's commitment to a more open international trade environment than mandated by international agreements. This compares favorably to other countries (U.S.-UAE Business Council, 2008).

D) Foreign Direct Investment

Foreign direct investment (FDI) plays an extraordinary and increasing role in international business. It can offer a company new markets and marketing channels, cheaper manufacture facilities, admission to new technology, goods, skills and money. For a host nation or the foreign firm which gets the investment, it can offer a source of new technologies, capital, processes, products, organizational technologies and management skills, all of which can provide a strong momentum to economic development. Foreign direct investment is defined as a company from one nation making a physical investment into building a factory in another nation. The direct investment in buildings, equipment and gear is the opposite of making a portfolio investment, which is an indirect investment. In recent years, given fast growth and transformation in global investment patterns, the definition has been expanded to comprise the attainment of a permanent management interest in a company or venture outside the investing firm's home nation. As such, it may take many appearances, such as a direct acquirement of a foreign company, construction of a facility, or investment in a joint venture or strategic coalition with a local company with assistant input of technology and licensing of intellectual belongings (Understanding Foreign Direct Investment (FDI), 2005)

In the past decade, FDI has come to play a main role in the internationalization of business. Reacting to changes in technology, growing liberalization of the national regulatory framework governing investment in ventures, and changes in capital markets intense changes have taken place in the size, scope and methods of FDI. New information technology systems, turns down in global communication costs have made management of foreign investments far easier than in the past. The sea change in trade and investment policies and the regulatory atmosphere globally in the past decade, including trade policy and tariff liberalization, easing of restrictions on foreign investment and attainment in many nations, and the deregulation and privatization of many industries, has been the most important catalyst for FDI's extended role (Understanding Foreign Direct Investment (FDI), 2005).

U.S. foreign direct investment into the UAE has augmented four-fold in the last few years, which reflects a strong vote of assurance by U.S. multinational firms in the UAE's future financial and political stability. In particular, the U.S. Bureau of Economic Analysis reports that the stock of U.S. foreign direct investment (FDI) in the UAE rose from just over eight hundred million in 2001 to at least four and half billion in 2006 on an historical-cost basis. This increase in the stock of U.S. investment in the UAE in fact far surpassed that of Saudi Arabia, where U.S. FDI increased by only twenty two percent, from almost four billion in 2001 to over four billion in 2007 (U.S.-UAE Business Council, 2008).