uae skyscrapersIn our many years of working in the Middle East, we have developed a deep understanding of what does and does not work when launching a business venture in this region. Success is dependent on a combination of factors and the approach to each is critical. We believe that by following the approach set out in this roadmap, you will increase the likelihood of a successful journey to launch.

Local Partners

The right local partner with the right deal is one of the keys to success in Middle East region: their contribution to market verification/connectivity, legal compliance, localisation and logistics/services support can be crucial.

Click here to find out more about local partners, and read our top five golden rules.

Free Zones

Free zones are often marketed by their sponsors as a panacea to the challenges of “onshore” establishments: fast track licensing and registration, 100% ownership with no local involvement and taxation advantages being the main selling points. But it is not always straightforward and some heavy strings may be attached.

Click here to find out more about free zones, and read our top five golden rules.

Personnel Contracts

Senior personnel may be deployed and transferred across a number of jurisdictions as their career evolves and sometimes the legal documentation can trail in their wake with unintended problems and consequences. Unfortunately, the shortcomings may only come into focus in the context of a contentious exit and the mistakes may prove to be expensive ones.

Click here to find out more about personnel contracts, and read our top five golden rules.

Taxation

Avoiding the tax traps and ensuring compliance is an essential facet of a successful business expansion venture otherwise unexpected and welcome taxation bills, profit margins turning to losses, fines and penalties, and damage to working relationships with Government authorities can all come to pass.

Click here to find out more about taxation, and read our top five golden rules.

Managing Credit and Payment Risks

The Middle East, as much as any international operating environment, is marked as one with high credit and payment risks. Contracts held directly with NOCs or major tier 1 contractors are rarely characterized as payment risks, but payment delays are not uncommon. However, businesses further down the supply chain in fiercely competitive EPC and O&M contracts can be highly exposed. The risks accentuate towards the end periods of contract when the services and product may have already been supplied and the supplier is chasing payments without the ability to suspend or deploy other commercial levers against unscrupulous cost-saving strategies.

Click here to find out more about managing credit and payment risks, and read our top five golden rules.

Localisation and In-Country Value (ICV)

This is a highly topical theme in the Middle East with Saudi Arabia rolling out its IKTVA (In-Kingdom Total Value Added) programme and Abu Dhabi’s ADNOC and Oman pushing forward with their ICV policies. Localisation policies can come in various shapes and sizes including minimum shareholdings, participation in management, investment, procurement of goods and services, employment and training of nationals, and technology transfer. It is now widely accepted that a solid and effective ICV strategy is one of the cornerstones for successful ventures in the region.   

Click here to find out more about localisation and ICV, and read our top five golden rules.

Laying the Foundation Stones for Equity Joint Ventures

Equity Joint Ventures or EJVs are commonly used for Middle East ventures, even where 100% foreign ownership is permitted and, as discussed in my last note, localisation and in-country value programmes are driving these mechanisms at the expense of agency and distributorship trading.  In definitional terms, an EJV structure applies where both the local and foreign partners are true investors and where their initial capital contributions and shares of cash calls, profits and losses are borne proportionately to their shareholdings. The relationship is much more integrated and involved than purely contractual co-operation arrangements.     

Click here to find out more about laying the foundation stones for EJVs, and read our top five golden rules.

Choosing Acquisitions to Fast(er) Track

The answer to the perennial question of: “How long does it take to penetrate a target market in the Middle East region?” is usually: “Much longer than hoped or planned for.” The conventional mechanism to fast track international business expansion for companies having the scale and resources to do so it to acquire an existing business in the target territory and to piggyback on its infrastructure including licences, vendor registrations, bank accounts and personnel visas. A cold start, especially if a technology trialling is involved, can easily result in 36 months of negative cashflow (or worse). But acquisitions can be the most expensive and riskiest mechanisms to deploy and in the Middle East region there are additional hurdles and risks to accommodate.   

Click here to find out more about choosing acquisitions, and read our top five golden rules.  

Isolating the Reasons for Why Ventures Fail

It is easy to quote large market sizes and bidding opportunities in the Middle East which makes the region highly magnetic commercially, but it does have inherent challenges and risks which need to be overcome or at least mitigated. It is rarely, in my experience the reason for failure is isolated at the client’s products or services as these may have been already successfully commercialised in the North Sea, Gulf of Mexico or elsewhere.   

Click here to find out more about why ventures fail, and read our top five golden rules.

Rolling Out Innovative Business Structures to Succeed

There are six conventional business models used to internationalise: direct export sales; agencies, distributorships & licensing; contractual collaborations; branch or subsidiary formation; equity joint ventures and acquisitions. The first three routes are rarely fit for purpose when dealing with advanced energy technology and know-how businesses where clients and ICV policies demand local presence in depth on the ground. The second three models involve a significant commitment of investment and a high degree of risk. We believe there is a need for an intermediate business model – a bridgehead cluster venture (BCV) - which sits between the options of the first three grouping and the options of the second three grouping.

Click here to find out more about innovative business structures, and read our top five golden rules.