Table of Contents
The United Arab Emirates is one of the most progressive countries in terms of investment providing a good environment for startup businesses. The country has established itself as a major trade and investment center in the Middle East and other regions. The World Economic Forum 2013-2014 ranked the UAE at position 19 in the world in terms of Global Competitive Index. At the same time, the World Bank ranked it at position 23 during the same period in Doing Business Report as the most improved country having moved three places up. A number of factors, including rapid population growth, improved GDP and economic and political stability, as well as transparency and integrity among government officials and businessmen, have contributed to the good business environment in the UAE (World Bank, 2014). Current paper aims at analyzing the contemporary issues that need addressing by startup firms in the UAE. It will be done by integrating information on new business startups and how such information affects new businesses in the country.
The UAE provides an open and free environment for startup businesses in the country by both local and foreign investors. The country has designated areas described as free zones, where business activities are done. In such areas, small businesses that import goods from other countries can start their business and access storage facilities without import duties. These are areas where startup businesses can enjoy exemption of certain restrictions and taxes. One of the attractive features of the free zones in the UAE is the tax exemption where the only requirement for businessmen is to have the UAE national sponsor and allow the businessmen to enjoy 100% control and ownership of their businesses.
The country also provides efficient infrastructure and flexible licensing process that remain attractive to foreign and local investors. Within a region, which is characterized by emerging markets, the government has been legislating and formulating economic policies that bolster a good business environment to small businesses. The economic policies inspire national and foreign finance in all the areas of economic activities (World Bank, 2014). For example, the regulations and standards for businesses operating in the country are liberalized with flexible social and travelling requirements to allow businesses to operate their activities across the borders.
Startup businesses are required to consider a number of factors before they establish their operations in the country. Such factors include the location, the type of the company and the available finances that the business want to invest in the startup. For startups, the country has tax exemptions economic policies and foreign ownership that have attracted foreign investors. The free zones are particular in their focus on activities and businesses that start operating in them. Each free zone is managed by different policies and, therefore, startups must consider them before setting up their operations (Ahmad & Sultan, 2014).
The protocols for starting business, space requirements and regulations are also different according to each free zone. The issuance of license and assistance to start a business are managed by the authorities in charge of the zone. In addition, minimum capital investment, which in most cases depends on the type of business, is applied. To this end, business owners can register their businesses as free zone companies or free zone establishments or even as a branch of an overseas company. Startup firms in such zones are all categorized as limited liability companies and are allowed to operate their business activities within the applicable free zone (Ahmad & Sultan, 2014). Such startups are also allowed to import products and equipments from foreign countries with exemptions on custom duties. The only exception is some kinds of products, which are not allowed in free zones.
The Process of Starting a Business in the UAE
Like in many other countries, starting a business in the UAE begins with registration. It is specifically for foreign investors even though local nationals can operate small businesses without a formal registration license. The department of economic development is charged with the responsibility of registering all the businesses that operate in the country. Entire process of registering a startup business is simplified and takes only a short period of time—around 8 days compared to other countries in the region. The entire process involves stages of identifying and reserving the company name. The person intending to start the business makes a request to the department of economic development for name reservation. The business person must identify the activities that he/she wants to engage in, trademarks and the identity of the business shareholders (Balakrishnan, 2011).
The second stage involves a presentation of the memorandum of association which must be legalized through the support of the business lawyers. The memorandum of association must be accompanied by application forms showing the names of the business owners and the applicable fee. Upon the submission of the original business documents, the business obtains the commercial registration certificate from the department of economic development, as well as a letter allowing the business to establish itself in the area that it wants to operate. The final stage involves issuance of the original letter of approval of the business and the application for a business card from the ministry of labor (Balakrishnan, 2011). The business can register local employees with the ministry of labor in accordance to the existing laws of employment. Such process requires copies of employer’s passport, trading license, employment contract and confirmation of nativity document.
Foreign investors and business owners must obtain a visa to operate their businesses in the UAE. Nevertheless, there are some countries which are exempted from such requirement. Foreigners who want obtain the visa must have a sponsor operating on their behalf. Sponsors are designated by the government to allow for application of Visit Visa and Tourist Visa depending on their categories. The duration of visa also depends on the category of the sponsor. The UAE organizations are also allowed to sponsor a foreigner depending his/her business activities in the country (World Bank, 2012).
The exemptions on visa requirements involve investors from Gulf Countries Convention who are required to have their identification card and country passport to start a business in the country. In addition, citizens from countries that have entered in some form of regional relations with the UAE are given a visa without the limitations applied to citizens from countries without any regional economic relations with the UAE. The entire process involves application for a visa accompanied by passport copies and business registration certificates, an identification letter from the sponsoring organization and a definition of the type of visa (Hussein, 2013). In addition, there is a limitation on the duration of the passport before expiry date, which must not be below six months.
Business Analysis of the UAE
Most of the startup businesses in the UAE face a challenging business environment leading to a high failure rate. The reason for the failure is a liberalization of the economy in the country, as well as lower levies that encourage local and foreign investors to start their businesses in the UAE. However, reports have shown that foreign investors are more likely to succeed in their businesses in the UAE than local businesses. Further cause of high rates of startup businesses failure is reduced bureaucracy issues, which make many people start their businesses in a fast manner (Maru, 2013). The quest for investors to start their businesses in the country is also based on the good infrastructure, as well as little religious and cultural barriers that would hinder the exploitation of the business opportunities. For instance, the UAE is among the few Arab countries that allow women to work alongside with their male counterparts.
Due to the increase in economic and high population in the country compared to other neighboring countries, many small business owners are attracted to start their businesses in the UAE. Majority of business startups usually have the advantage of a wider market that can absorb any products or services they want to offer in the market. The country is also one of the most politically stable in the region, with friendly policies that are attractive to local and foreign investors. The government is also interested in promoting businesses in the country through legislation of laws that seek to protect small business owners. The country has four major laws that are applied in regulating and controlling the business activities in the market. The laws include: the Industry Law, Companies Law, Government Tenders Law and Commercial Agencies Law (Hussein, 2013). However, observers of such laws have argued that Federal Companies Law acts as an obstacle to small startup businesses, especially for investors that want to engage in foreign direct investment.
Issues Facing Businesses Operating in the UAE
Despite the conducive environment created by the government in the UAE to facilitate the operations of startups, businesses are still exposed to some challenges that must be addressed. Among the most outstanding challenges is the language difference in terms of international trade. Arabic is the official language of the UAE but business owners who want to trade with most Western countries must understand English (World Bank, 2014). Majority of the countries that business owners trade with at the international level speak other languages apart from Arabic. Challenges are also witnessed in the human capital, since majority of people working for startup businesses are foreigners who understand little Arabic. The problem arises in retaining such employees despite their good skills and talent in their work performing. Most of the customers are only fluent in one language and it can hinder the level of communication with business owners. The country’s ability to attract investors with great financial power can also threaten the existence of startup businesses. Most of them do not have the massive capital to compete effectively with big companies operating in the country.
The country also has numerous obstacles towards funding of businesses, including the requirement that 51% of the business shares must be owned by an Emirati national. It hinders the level of capital investment that an owner can put in the business activities to enable it become competitive in the market. With powerful and financial stable competitors, startup businesses are likely to fail in the UAE more than in other countries where regulations are not so stringent (World Bank, 2012). Startup businesses sometimes invest capital raised from friends and family, as well as personal saving, which is not enough to gain a competitive position. In addition, the process of funding viable business projects is difficult and may require many approvals. In the recent past, startup businesses have also had to deal with issues of corrupt and fraudulent government officials at registration centers but the government has taken steps to solve the problem through punitive legislations to corrupt officials. Where corruption prevails, the big organizations have better opportunities to start and maintain their business operations than small startups with little money to give as bribes.
The ongoing legislation and policy formulations have ensured that investors in the small businesses in the UAE enjoy maximum benefits for their work. Among the benefits that startup businesses can enjoy include limited foreign exchange controls, making it easier for business owners to import goods from other countries. There are also no trade barriers and quotas to inhibit or impede on the process of doing business in the country. Furthermore, the government encourages competitive import duties with exemptions. Infrastructural development in the country has led to competitive cost of energy, favorable rental costs and high level of liquidity on properties. It has also led to competitive financing opportunities and exemptions from tax for small businesses (World Bank, 2014). The country is also not susceptible to social instability and high crime activities. It also has a stable monetary and financial system that supports the operations of startups.
The government is also investing heavily in systems to advance capital markets based on modern technology and universally applicable policy and economic systems. The country enjoys an environment that supports foreign direct investment and balanced business relations. The legal system in the country also distinguishes a business entity from ownership requirements so that it is easier for businesses to stop operating without causing further problems to the owners. Moreover, the government facilitates the activities of startups by investing in infrastructure such as energy and telecommunication systems that are among the best in the world. The business environment is further promoted through specialized free zones, business parks and high class seaports. It also has world class international airport, modern highways and reliable utilities across the country. Also, developments in banking, shipping, legal firms, hospitals, schools and finance ensure that business owners are accessed to essential services that they require to operate their businesses (Balakrishnan, 2011).
The proposed business will operate in import and sale of Ford Mustangs (defected) for a cheap value from the United States of America shipped in containers to the UAE. The business will also offer the following products and services:
- Fix and sell the car (in case the total cost per buying, shipping and fixing the car is less than market price by 20%);
- Importing used Ford Mustangs (defected) for a cheap value from the USA to the UAE in containers;
- Disassemble cars in case of severe damage or not passing previous category and store functional parts for selling them as used spare parts;
- Buy car accessory items and consumable parts from wholesalers in the USA and ship them in the same container with the cars;
- Perform basic maintenance for cars for a little cheaper price than the market one, and other cars for a price a little more expensive than that in the market;
- Provide 1 year warranty on personally delivered cars and 6 months warranty on used items;
- Provide possibility to order cars, parts, accessories through the website;
- Provide booking facilities through website, to book maintenance, test drive among others;
- Provide possibilities to ship cars, items, accessories locally and globally (customer bears shipping).
The company will be formed through the described process by registering in the department of economic development. It will acquire all the necessary licensing documents. The employees of the business will be recruited from the locals as per the requirements in the registration documents. The business will be located in one of the free zones that have tax exemptions to startups in Abu Dhabi. From its shop, the business will serve customers from the rest of the Emirates.
Funding for the business will be taken from personal savings, friends and family contributions, as well as capital investment from banks. The banking system in the country provides an opportunity for startup companies to borrow a certain amount of money to invest into the business. A total amount of DH 100,000 will be required to start the business from registration to actual operations. 10% of the amount will be used to register the business, 20% used for contingent activities, including recruitment of employees, and the rest will be used to import the merchandize to sale in the market. The fixed and variable expenses will be covered within the 20% amount. The company will have two directors who will also be the owners of the business. It is expected that the business will make profit on investment within a period of six months operation.
Issues Analysis and Critical Risk Statement
The business will need to identify the best methods to ensure that it operates in a region that is favorable to startup businesses in the country. The owners of the business will require the understanding of the applicable laws and policies governing the starting and operation of small businesses in the country. The service of legal advisors will be needed to ensure compliance with all requirements in terms of registration fees and need for visas and permits to the owners. The advisor will also help identify a local investor to invest into the business, as well as asses the available infrastructure within the region that it serves. As a startup business, opportunities are available to the business in the area of Ford Mustangs provision. The business is faced with the threats of competition from already established businesses offering the same products and services. As a business depending on products from a foreign country, its cost of doing business may escalate beyond the budgeted due to the charges applicable in the country of import (Barrow, Barrow & Brown, 2012).
The business will have a website to be used for its operations. The website will facilitate the importation of goods by facilitating the liaison with suppliers of the goods and services. It will also be used to serve clients by informing them about the available products and services offered by the business. The home section on the website will contain the names of the business directors, physical location and the contacts that clients can use to reach the company. A section on products and services will list all the items and services offered by the business and the applicable prices.
The above analysis has provided an evaluation of business startups in the United Arab Emirates. The business environment in the UAE is simplified for businesses that want to establish their operations in the country. A survey of the legal requirements in the UAE shows that the country has one of the most favorable business conditions in the region. With free zones, businesses are exempted from tax and import duties that are applied in many surrounding countries. Moreover, the country has invested heavily in developing infrastructure such as roads, communication systems and legal structures among others, to promote the activities of businessmen in the country. However, reports from the department of economic development show that most startups fail due to the fact that there are many other competitors in the country.