International competition in the Middle East

Middle East Region

There is no hard and fast rule that defines what constitutes Middle East. It traditionally includes countries or regions in Southwest Asia and parts of North Africa. Persian Gulf is considered as the main centre the area around which is generally referred as Middle East. Bahrain, Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Syria, Turkey, the United Arab Emirates, Yemen, and Palestinian Territories are collectively known as Middle East. Middle East region shot to fame because of its vast reserves of oil. The economy of most these countries took a boost based on the oil resource. However, with passage of time region has esteblished its own peculiar identity in the world. Gulf region with UAE as a model of succcess is now known all over the world.

Oil-based Economies

Middle East is the region which has the greatest reserves of oil in the whole world. The reserves present in Saudi Arabia, Iran, Iraq & Kuwait exceeds the reserves present in different parts of the world. So, the world oil supply is mainly provided by large companies operating in countries with large reserves of oil. Price is generally a market factor but in case of oil the price is controled by the group of these oil rich countries that have made a cartel with the name of OPEC (Organization of Petroleum Exporting Countries). OPEC can greatly influence the world oil prices. The first biggest oil crises was faced in 1973 when OPEC oil export embargo was imposed by many of the major Arab oil-producing states in response to western support of Israel. Again 1979 brought in its wake Iranian revolution and oil crises. Similarly Gulf War has also affected the oil prices. This region has alaways been considered startegically important mainly beccause of oil. Some of the Gulf States in UAE have gone beyond oil and have created diveres economies for themselves. Initially the example Saudi Arabia was given but its economy mainly remained dependent on oil. On the other hand Daubai and also to some extent Israel adopted different approaches and stand apart in the community of nations.

Saudi Arab's Rise

Saudi Arab was initially considered an example of growth and development before other Gulf States emerged as clear winners. Saudi Arab used its oil resources and the money earned into the development of the country's infrastructure. However, the fall in crude oil export volumes, as well as in prices stirred a cause of concern for the economy. Saudi government replied by starting major expansion projects in order to add value to oil exports. These expansion schemes were launched to help secure international markets. Petrochemical Companies in Saudi Arabia even went ahead with foreign partners for joint ventures in the sector. The Kingdom has clear advantages in the form of in low cost of producing oil and gas. Therefore when world demand falls its feed stocks still compete for sales. The Saudi Arab continues to reap advantage of its oil resources even today but it has also realized that like other states in the region it has to open its door to the world economy and globalization. "The Saudi government has also taken steps to encourage more private investment in the economy. Although progress has often been slow, the need to curb spending given the rising budget deficit, together with a growing conviction among a new generation of Saudi officials that subsidies, especially for utilities such as power and water, cannot be continued forever, is giving rise to moves to open up investment channels. The Al Zamil flotation, for example, was made possible by new regulations issued by the Ministry of Commerce that encouraged the merger and share offering. Privatization of the Saudi telecommunications sector is also a case in point" (Smith, 1998).

The changes in the policies and business outlook are seen necessary if Saudi Arabia has to maintain a competitive edge in the world market. No country can afford to have an inward looking and closed approach. So, today the country's entry into the global economy is marked by private businessmen and investors, independent public offerings (IPOs), mergers of public companies with smaller private companies, privatization of state-shareholdings and the involvement of private investment in utilities and infrastructure projects etc. These changes are essential to enhance the competitive edge regionally and globally which in return could also open up more opportunities for Saudi investors on the capital markets. A sustainable development and progress is definitely the foal of present day Saudi Arabia but it has to learn that oil cards alone are not enough for the country years ahead.

The Dubai Model

Dubai's story starts with a man named Rashid bin Saeed al Maktoum who saw potential in a small creek village on the shores of Persian Gulf and borrowed millions of dollars from Kuwait to dredge the creek He implemented his plans by building warehouses, roads, schools, buildings and his dream turned into reality with skyscrapers, world-class port, & colossal Duty free shop. Today Dubai is building man made islands and attracts more tourists than the whole of India and has economic growth that exceeds many times that of China. People from 150 diverse nations come here to work. Dubai is a success story from the Middle East region and has become a model for others to follow. Other in the region now feel that if Dubai can do it then why can't we.

Dubai along with other sic emirates is the part of the United Arab Emirates or UAE. Dubai has emerged as one of the most exciting places on planet earth. The mega city attracts crowds from all over the world making it a proverbial world capital. Tennis stars Andre Agassi & Roger Federer made this city famous when their pictures playing an exhibition match on the rooftop helipad of the opulent Burj al Arab hotel splashed all across the globe. Burj al Arab hotel is also known as the world's tallest hotel. Dubai is also going to have the world's tallest building which is under construction by the name of Burj Dubai. Today it has become a shopping paradise where millions of people go to buy all sorts of items from clothes to diamond-studded cell phones. Dubai International Airport is one of the busiest in the world."The United Arab Emirates, of which Dubai is part, has gone from being one the most oil-dependent Gulf economies in 1980 to one of the least dependent. People returning to Dubai after a few years' absence say they hardly recognise the place as towering office blocks, housing estates, shopping malls and business parks spring out of the desert. Forty part-built apartment towers - the world's biggest single-phase housing project - loom over Jumeirah beach, along which tribesmen would lead their camels until only two decades ago. Advertising campaigns revel in superlatives to draw the eyes of the world to Dubai: the world's tallest tower, the biggest man-made islands, the richest horse race, the only underwater hotel, the only seven star hotel, a ski slope in the desert" ('Dubai Shows Gulf There Is Life after Oil', 2005).

Multiculturalism is one important aspect of the emerging Middle East and Dubai in particular. For example, all kind of eateries and restaurants Italian, Chinese etc. can be found. Indians, Filipinos, Pakistanis, People from Arab countries and people from Western countries comprise the workforce in Dubai whether it is white collar or blue collar job. The new cultural wave of tolerance allows foreigners to spend wee hours of the night in a pub while at the same time call for five times prayers also fill the air of Dubai. "Dubai's tolerance can also be a good thing. Alongside its bars & night clubs there are mosques and churches and Hindu temples and for a city with so many competing religions and nationalities, it is remarkably free of ethnic conflict. 'I don't know who is a Sunni and who is a Shia and I don't care' Sheikh Mohammad told the scribe in a brief meeting. ' if you work hard, if you don't bother your neighbor then there is a place for you in Dubai.' Even Israelis can do business (quietly) with Dubai" (Molavi, 2007).

Dubai Ports World went ahead in competing internationally when it purchased a British firm that managed six U.S. ports. Even though the fact is that UAE ports host more U.S. Navy ships than any port outside the United States, the decision garnered mixed response from U.S. experts. The reason for apprehension was 9/11 incident in which Arabs were involved but afterwards UAE has shown itself as a strong supporter of U.S. In its war on terror. The apprehensions shown by Americans were rebuffed by the management of Dubai Ports World saying that if there business is not restricted to America and they could find a lot of business all over the world considering their competitiveness.

In a world that whines about the rising Islamic extremism, Sheikh Mohammad the current ruler of Dubai is known as a modernizer. The parallels are of Sheikh Mohammad are drawn with King Abdul Aziz of Saudi Arabia who used oil to build the foundation of modern Saudi Arabia. He can also be considered a CEO who is managing his emirate like a big company using the modern management principles. He is using the principles of modern participatory management as he does not confine himself to boardrooms or high power meetings and actually visits workplace and construction sites. He is also known to make tough decision on the spot by rewarding employees for good work while also firing poor performers. Another important aspect of Sheikh's policy is encouragement of women workforce. He not only hires women but also encourages them to go ahead in their career ambitions while also bringing along more women in all business fields. He is also known to be a staunch supporter of foreign educated locals. He encourages these modern and educated individuals to curb the forces of red tapism. He has a vision for his emirate and he also knows how to make others feel the same vision.

Dubai has created its advantage by creating the most dynamic business environments in the world. This has not happened only because of buildings, islands and hotels; they in fact facilitated all necessary requirements of a good business environment. The requirements provided by UAE and Dubai include laws & regulations, no corporate & income taxes, property & ownership rules and last but not the least the liberal social environment. Now Dubai Stock Exchange is going to make waves in the world's stock market."The new Dubai International Financial Exchange (DIFX), expects to open its door to issuers and investors of any nationality. The new bourse will offer settlement / clearing facilities and corporate governance standards on par with prime exchanges, notably New York, London and Tokyo. It will target potential issuers in the UAE, other GCC states, Levant, North Africa, Turkey and India. Steffen Schubert, chief executive of DIFX, explained:;Our role is to allow companies an alternative to listing in Europe or the U.S. And to list on a market that is in the same time zone'" (Siddiqi, 2005).

The Israel Model

Israel is the only Jewish state surrounded by Arab nations in the Middle East. Unlike other Arab countries in the region Israel's competitive advantage lies in its home grown & multi-billion dollar arms industry. Israel's arms industry is the most technologically advanced in the Middle East. Israel offers its clients a wide range of defense products; small arms, light armor and practical equipment refinements, complete major weapons systems and defense equipments. They have not only developed these systems but they also continue to upgrade packages. Israel's defense ministry exports most of its equipment to a world market. They cater to USA, Australia, UK, Croatia and South Korea & South American markets. Israel has also maintained successful business relationship with Turkey in the realm of arms supply. Not only arms but Israel has also made its name in space technology. "Israel's defense industry also put that country into the space age - its aerospace companies, who cut their teeth on defense contracts, made Israel in 1990 only the 8th country in the world to launch its own satellite of indigenous design and manufacture (Offeq), using its own launcher (an indigenous Israeli Aircraft Industries three-stage rocket, Shavit). Israel has become one of the world's top 10 defense manufacturing nations by volume; its defense industry is the largest manufacturing employer in the country and now the biggest single earner of industrial exports" (Smith, 1997).

Marketing skills & a lead in technology are clearly the competitive plus points of Israel. Among other advantages Israel has also been credited for nurturing a democracy in its country as Israel is one of the few states in the Middle East allowing democratic election of government. However at same time Israel has been criticized for its unhealthy relations with most of its neighbors. Human rights organizations continue to blame Israel for its violations in the Palestinian territory. Amidst tension there is always this hope that relations of Israel will continue to improve with the countries of the region shift from tension and conflict to economic competition. Peace and amiable relationships are prerequisites if Israeli products seek to have a serious edge, or penetration in surrounding states' markets.

Competitive Edge

In business branding strategies are adopted to succeed in the competitive business environment. The brand is not just marketed as a product that provides benefits and fulfills needs but efforts are made to adopt strategies to make it a long-term success. Similarly nations become brands in the global environment and states and governments make efforts to gain competitive edge. The success of the region depended not only on the development of a strong financial & banking and telecommunication sectors but the portrayal of a softy image was also necessary which they achieved by encouraging tourism.

Tourism Strategy

Middle East destinations like Egypt, Jordan, Israel, Morocco and Tunisia have always been known for tourist attractions all over the world for all kinds of tourists. Foreign visitors when visiting a country for the sake of traveling then they also bring along their foreign currency. Apart from the a few countries most Gulf States remained unconcerned with the tourists. Regional governments preferred business travelers but they did not give any importance of tourist development within Gulf States in particular. Attracting pleasure tourism was the least of concern for the region. Business travelers from Paris, London or New York came to Gulf only for business purposes and did not bother to stay back and always looked out for the first plane to home. Tourist visas were also difficult to obtain for the region. "While destinations such as Egypt, Morocco and Tunisia have long been popular with foreign holidaymakers, the delights of certain Gulf states have remained largely unknown to the vast majority of people outside the region. However, over recent years this situation has been changing and will continue to do so as more ambitious and expensive promotional campaigns find a growing audience in Europe and the United States. Recent years have seen a growing sense of fascination with countries that were previously only regarded as venues where big business was conducted. Saudi Arabia, although not yet opening its doors to a wide spectrum of visitors attracts more than a million Muslim pilgrims" (Lancaster, 1995).

Business visitors bring new technology or foreign goods and services with them and their prolonged stay is definitely beneficial to the long-term & sustainable development & progress of the region. Various trades flourish when a country or region opens itself to the world. When Gulf region in particular emerged as the most lucrative market in the world Islamic states & conservative governments relaxed their strict moral codes. These states created a cosmopolitan atmosphere with elements like golf, sailing, water sports, tennis, dining, dancing and cabaret etc.

Transformations started with Bahrain and Dubai with relaxation in laws and codes such as consumption of alcohol Doha, Dhahran & Dubai started experiencing a new wave of change as they underwent economic diversification to reduce dependency on oil. Bahrain and Kuwait also opened up & their banking and finance industries developed. Qatar with world's largest known natural gas fields also realized the importance of developing a tourist industry. This change not only benefited foreigners but different Arabs also started exploring these new territories for relaxation for example families from Saudi Arabia would also cross over in Bahrain. Today even most closed countries like Oman has opened its doors to tourism. The country developed the infrastructure and also has one of the world's most opulent hotels like deluxe Al Bustan Palace. Gulf Air, Emirates, Oman Air, Qatar Airways, and Saudi Airlines along with European and North American carriers move all over the world

Iraq & Iran are two important countries which are not using a tourist strategy to get an advantage. Iraq obviously is not a destination for anyone due to law & order situation. However, Iran still has a strict code of behavior that it adopted when Ayatollah Khomeini came to power in 1979. Today, the majority of the Arab countries in the Middle East are trying to play their tourist strategy card not just to attract tourist but at the same time development of business. Ambitious development and industrialization programs are supported by tourist programs that allow access to foreigners to explore regions of extreme beauty. Gulf States and Dubai model in particular today show how tourism can boost the business environment. Tourism therefore, can definitely be considered an important strategy in creating a competitive advantage.

Development of Banking & Financial Sector

Banking & financial sector is considered a backbone of growth and development of any country. Middle East has been growing very fast with many economies booming resulting in tremendous opportunities in private and investment banking. In its plan to stay ahead in the competitive world market the region realized importance of developing its banking and finance sector. Driven by domestic reforms the region has developed as a financial hub and has boosted its financial and commercial ties with the outside world. On one hand Bahrain and Dubai are competing to become the Gulf counterpart of Singapore. While on the other hand there are still need for radical banking reforms, especially in Syria and Algeria.

International banks also play their due role in the development of the financial sector. International banks are increasing their presence in the Middle East in general and the Gulf in particular. International banking groups have been stepping up their interests in the Middle East by setting up local subsidiaries and joint ventures. The number of players in the market increased. Well-known names like HSBC, Citigroup, Liechtensteinische Landesbank (Llb) of Switzerland, Standard Chartered Bank, Barclays Bank all have their presence in the region. Dubai, Abu Dhabi, Saudi Arabia, Bahrain, Lebanon and Turkey became the centers where ABN Amro made its presence felt. The competition offered by international banks has resulted in improved services and banking rates for both personal and commercial customers, forcing local banks to respond if they are to compete in an open market. "There is no doubt international banks are increasing their presence in the Middle East in general and the Gulf in particular. It is difficult to assess whether this process is primarily being driven by domestic reforms or the increased opportunities on offer, but one thing is certain: Increased competition will improve services and banking rates for both personal and commercial customers so, once established, the foreign firms look set to stay, forcing local banks to respond if they are to compete in an open market" (Ford, 2005).

The better facilities offered by international banks affect local banks as their wealthiest clients took their funds to international private banks. Domestic private banks had no other option but to respond to the changes in the environment by developing their own services. "Globally, the private banking market is becoming more competitive, and the Middle East is no exception. David Rosier, who is chairman of the Private Client Division at Mercury Asset Management, part of Merrill Lynch, says: 'In the past, the older generation of nationals in the Arab Gulf tended to be comfortable in a long-standing relationship with a Swiss bank. The money, largely, would be placed on deposit. We think that has changed. The new generation, especially, want to see the money work harder.' According to a recent study by Merrill Lynch and Gemini Consulting this group controls wealth in excess of $1 trillion" (Clifford, 1999).

There are different demographic factors that affect the changes in financial and banking sector. Muslim middle class in the Middle East is rapidly growing. In this scenario local banks have distinct advantage in the form of Islamic banking solutions not just for local nationals but also to expatriates from neighboring Islamic countries. These local banks also understand cultural peculiarities and have an understanding of local needs. However, international conventional banks could not have missed this aspect of economy as they also opened Islamic banking windows offering an ever wider number of Islamic banking products. Not only this but a collaboration of foreign and local company also started as Swiss bank Pictet et Cie, for instance, teamed up with Kuwaiti-based finance house the International Investor to develop a joint venture private banking service aimed at Islamic investors. Merrill Lynch also set up its offices in Dubai. These Private banking international giants not only stir the growth of local industry but also offer global reach.

Unprecedented expansion in the retail and corporate sectors, tourism receipts and new investments by the Gulf States have benefited the region in the form of growth of financial market, thus creating further opportunities for regional bankers & liberalization of the financial industry, which enables more investors both regional and international. Especially growth in the real estate and construction sectors resulted in sustained & strong growth in the corporate clients. Due to the growth in these sectors major Gulf banks continue to expect to record higher earnings. Previously there was a strong tendency of investing petrodollars into western capital markets. With the establishment of regional financial industry, substantial wealth is spilling over into the wider region. Countries like Egypt, Jordan, Lebanon, Morocco and Tunisia are, also, benefiting from the boom in financial markets.

The Middle East region wants to sustain its advantages that it has gained over the years and therefore the industry is adopting and bracing all the modern practices in the sector. For example, Dubai Islamic Bank introduced the region's first-ever mobile banking service in Arabic. Bahrain, Saudi Arabia, Qatar and the UAE would be among the few non-G-10 countries to adopt the Basle II Capital Accord scheduled for implementation in 2007 or 2008. The new accord replaces an institutional approach to credit/market risk with a systemic risk-based approach. Sophisticated risk management systems and advanced technologies have well prepared major Gulf banks for Basle II. With private banking, re-insurance, fund management, back-office services and a world-class exchange for dealing in equities, bonds, Islamic products, derivatives and commodities the region is all set to meet the challenges of times ahead.