The Growth and Direction of FDI in UAE: Samsung

1 The Growth and Direction of FDI in UAE: Samsung The Growth and Direction of FDI in UAE: Samsung Introduction United Arab Emirates prides itself as the only economy with unmatched form of wealth and with a rapid pace of development in the entire world. The rapid growth of UAE has attracted investments from both the developing and developed economies who view the UAE as an avenue of increasing their foreign receipts. Foreign direct investment plays an important role in the growth and development of international business (Sekhar 2009). It provides a platform where firms harness new markets and adopting new marketing channels. The quest for new markets enables a firm to locate itself in a locality where production costs can be decreased with a subsequent increase of revenues. Investing in a foreign country enables a firm to access mother country financing, cheap labor and new technologies. A foreign direct investment brings with it a number of advantages to a host country. These advantages are both direct and indirect. When a firm establishes itself in a foreign country, it brings with it investment in infrastructure i.e. business premises, machinery, and other equipment required to foster its operations.

Buy this excellently written paper or order a fresh one from acemyhomework.com

2 On the other hand, investment in portfolio can be considered an indirect form of foreign investment. The last decade of the 20th century realized scramble for investment regions by both the developing and developed economies. Despite going global, most countries have been keen on investing in UAE. This is because United Arab Emirates economic muscle is rapidly increasing. In addition, this business hub is famous as it offers cheap labor i.e. in terms of factory force. The demand for the UAE market by foreign firms and economies is due to the real sector boom. In addition, United Arab Emirates has done pretty well in eliminating trade barriers.

Moreover, this economy prides itself as a liberalized market that appeals to all types of investors.

This essay seeks to assess the benefits and problems faced by a digital giant, Samsung in its quest to invest in United Arab Emirates.

Samsung alliance with Trigon Samsung is a big mover and beneficiary of foreign direct investment (FDI). Samsung is a dynamic digital giant whose trading and market share is ranked the biggest in the telecommunication industry. The company is moving a considerable amount of its products to the United Arab Emirates. The firm is accruing most of its benefits from its positioning in the international market. The company prides itself of being a partner with UAE telecommunication firm, Trigon. Trigon is a renowned IT firm that specializes in the distribution of products from a manufacturer to final consumer. It has built its reputation from the distribution of world brands in the sector to UAE electronic clients. Samsung strategy has helped it thrive in the United Arab Emirates Market. Among the strategies adapted to aid in international business is acquisition and mergers. The primal intention of Samsung is to penetrate into new markets without much increase in its costs. To achieve this, the firm has aligned with local industry players while acquiring firms that have a dynamic base and unique setup to help it conquer new markets that

3 sometimes is rigid. To improve the operations of the acquired international companies, Samsung has dispatched a patch of experts to train the existing personnel. In addition, the firm is keen to introduce state of the art technology to eliminate wastes and enhance productivity in the establishment (Griffin & Pustay 2006). Like any company in business, Samsung is looking to benefit from the advantages of economies of scale.

Strategic position and Economies of scale Sound strategies are meant to accelerate the profitability of the company in both the short and the long run. In addition, the move seeks to enhance the efficiency of Samsung while keeping down the costs incurred in the course of business. Moreover, the realignments with local companies and acquisition of a good number of them are optimistic approaches by the firm whose move is aimed at implementing the beliefs of the company. According to experts, well handling of the aforementioned strategies will enhance Samsung growth in the competitive UAE market (Tainer 2006). Established digital companies look at the advantages they will accrue from economies of scale. To achieve this, positioning themselves well in the global market is paramount. Indeed, most of these companies have the muscle through their large brands to drive up sales while checking on costs. To enjoy the benefits of economies of scale, fostering efficiency in production is paramount. Conquering new markets i.e. the UAE serves this purpose well as providing access to increased sales and checking of costs. Some of the costs that hamper the growth of business include the packaging, labor, energy costs and the cost of raw materials.

International companies are outsmarting the local companies (Nnamdi 2011).

UAE investment policies To ascertain the level of impact a foreign policy has on a country, firm assets i.e. factories and land ownership is looked into. United Arab Emirates investment policies have

4 become important drivers in the global economy. Most of its efforts are directed towards the acquisition of “not so traditional markets” i.e. in the developing countries. Developing countries have a lot of potential in line with future business development and expansion. Developing countries potential lies in the establishment of basic infrastructure. These infrastructures include road network, railways, electricity and other important social amenities. The alignment of UAE is in line with the third world country development needs. The effects of their investment policies are imminent in the developing countries. According to policy analysts, United Arab Emirates direct investments towards African countries have relatively doubled over the last decade. This move has raised eyebrows, with its traditional competitor in the African market, the United States criticizing its policies (Gopal 2005).

United Arab Emirates has grown and developed strong economic relationship with a number of viable economies in both the traditional and global markets. This move has enabled it realize a significant growth in its foreign direct investments and trade as a whole. The conquering of new markets and its move to position itself as a giant investor in foreign spheres has made United Arab Emirates a regional and global leader. The aforementioned is in line with the firms’ role in the liberalization of global markets and enhancement of important economic reforms. United Arab Emirates policies on investment have enhanced relationships with the United States of America. Through its cordial business relationships, the United States has been able to increase its exports to the UAE i.e. to $14.5 billion by the year 2008 (Bitar 2011). This is a good statistic as it subverts any other trading figures with an Arab world, Saudi Arabia included. This bilateral trade between the United States of America and United Arab Emirates makes them largest trading partners.

5 Challenges faced by Samsung Competition in the telecommunication sector is rapidly high. This has been accelerated by the level of industry concentration that is relatively high. In addition, as the companies are trying to muscle for UAE market share, new brands have been advanced in accordance to the market demand. Consumer demands for electronic products changes over time. This keeps the manufacturers and distributers on their toes, Moreover, the costs of exit are relatively high. This implies that the firms that are already established in the industry cannot easily opt out of the market. This is so because of the high costs incurred during initial investment. Therefore, firms whose performance levels are minimal can opt to merge with other firms or accept to be acquired together with their market level.

In line with the potential entrants to the telecommunications market, it is observable that Samsung faces adverse competition from international entities. To guard markets and prevent competition by international digital companies, most countries opt for tightened legislation.

Insensitive legislations hamper the penetration of Samsung to new markets. However, through realignments in the industry and subsequent cooperation, the industry player has been able to penetrate these markets. In relation to the consumer power, there are relatively low switching costs. This implies that consumers’ loyalty to a brand is limited. In addition, it is not easy to monitor the devices used by clients (Cateora 2007). However, availing products to near markets using a distributer can accelerate their level of purchasing.

The power of distributers cannot be neglected in the analysis of the telecommunication industry. Considering the magnitude of competition in the market, distributors’ loyalty to a digital company is limited. They distribute digital products according to what the company is willing to offer in return. A low payment to distributers implies that the firm will lose out its

6 competitors. To survive in such a market, the company needs to be well versed with industry offers to distributers.

Samsung Benefits The telecommunication market of United Arab Emirates is experiencing reduced dominance by local companies. Foreign digital firms such as Samsung are in control of a giant share. The revenues realized from some digital brands, for instance LCD monitors has grown remarkably well over the first decade of 21st century. The increased sale of the brand is associated with the sale of Samsung brands in the supermarkets. This implies that individuals unable to Samsung retail shops can easily access their brands during traditional commodity shopping. Samsung is a reputable firm whose brands are received remarkably well in the market.

However, more needs to be done to help retain the attracted customers. The ever-changing consumer tastes and preferences needs to be factored in during the production of digital products.

This diversification of products is aligned well with the firm’s level of technology. Therefore, it is apparent that to thrive in a customer-controlled market, a firm needs to be innovative. This will ensure that the needs of individual consumers are met. A trend for quality development of consumer lead production is another dire factor that cannot be swept under the carpet by a firm seeking to oust its competitors. The 21st century generation demands are different from the one of the 20th century generations. Youths in the 21st century have been influenced much by advanced devices. Meeting the demands of the youthful market will help firms increase their command levels in the market (McKern 2003).

The strategic positioning of UAE to attract FDI United Arab Emirates has made significant progress in its overseas investment.

According to the annual investment meeting statistics, FDI figures stood at $13.7 in 2010.

7 However, the UAE government through its foreign trade ministry estimates that in the same period the FDI figure was in a higher figure i.e. over $15 billion in the same period. Despite the error margins, it is apparent that the foreign direct investment is experiencing relative growth.

The global economic crisis is believed to have impeded the investment levels. Most countries, UAE included, were forced to relook at their foreign strategies to cushion themselves from the aftershocks of the crisis. This led them to adopt a ‘wait and see’ attitude. However, overseas investment received a boost after the crisis, as most of the developing economies were not largely affected by the global crisis. This points out to a robust engagement in the future.

According to UNCTAD, the world is experiencing a significant increase in foreign direct investment flow, i.e. to over 1.4 trillion dollars in the year 2011 (Abdurabb 2012). The United Arab Emirates managed to attract 1.8 billion dollars of foreign direct investment in the same period. From the aforementioned figures, it is apparent that favorable business environments are paramount for the thriving of foreign direct investment. The macroeconomic climate of a country dictates the levels of investment at any particular time. To enhance good investment environment, government intervention to formulation of sound rules of engagement is paramount. The governments need to advance sound economic laws that govern the investment by foreign firms. In addition, existing investment laws needs to be aligned with international requirements (Forbes 2012).

Foreign direct investment competition is stiff in the global arena. To be able to compete effectively with international players, United Arab Emirates is working in updating its policies to ensure it stays ahead of its competitors. Emirates competitiveness council (ECC) is keen at strengthening the state of competitiveness of UAE in the global markets. According to economic experts, the move is imminent to enable it enhance its muscle of enhancing influence in the ever

8 changing economies. Expert opinion is often valued by the United Arab Emirates. ECC and other responsible trading authorities have been instrumental in the strengthening of UAE FDI policies.

The effects of their move are evident in UAE achievements in international endeavors. One of the outstanding achievements of United Arab Emirates is its rank in global undertakings.

According to the world economic forum global competitiveness report, UAE is position 25 of 139 countries while according to the Word Bank, among 183 serious countries doing business, United Arab Emirates is ranked position 40. In addition, United Arab Emirates is boasting of its achievements in Middle East. Although its foreign direct investment occupies 2% of total global investments in the Middle East, the figures are expected to increase to a remarkable 6% or even more in 2012 (Abdurabb 2012). The figures are a good indicator of the major strides United Arab Emirates is making in the global business arena. It shows that the trade volumes are relatively on the rise. In addition, it puts UAE in a position where it will be ranked among the influential FDI nations. Moreover, its international ranking will improve relatively in both the short and long term. The impacts of United Arab Emirates are evident to both local and international individuals and economies. In a world recovering from the global economic crisis, the investments by UAE has created employment opportunities to millions of people. In addition, the nation’s infrastructural base has been enhanced through the direct channeling of resources to such projects.

Socio-economic development Citizens of UAE are individuals with improved standards as their colleagues in developed nations. Their lifestyles and income positions have increased relatively over time. This state of socioeconomic development has allowed them to afford highly priced equipment i.e. Samsung

9 products, cars and other highly priced materials. In addition, the hyped standard of living attracts foreign individuals to invest and work in the country in lucrative posts (Beaudry 2004).

Conclusion United Arab Emirates liberalized economy and a sound investment policy provides a platform where different products can compete at an equal footing. The aforementioned encourages foreign direct investment as it increases profitability of participating firms. United Arab Emirates has it reasons of becoming an attractive region of investment. First, the region is famous for its amazing sceneries. This region attracts a good number of tourism each year as it provides a hospitable environment for adventure. In addition, the investments in real estate provide better housing units for the influx of foreigners. Secondly, firms such as Samsung have an advantage of investing in the region as it offers cheap labor that cuts down on operating costs.

The opening up of United Arab Emirates Market is a prudent move to attract radical industry players who will increase the development of the nation. Finally, the region has an appealing populace, both in terms of numbers and hospitality. This population provides a ready market for manufactured goods. Importantly, services advanced to other nations needs to be quality and meet international requirements.

10 List of References Abdurabb, K., 2012, UAE attracts $1.8bn FDI in 2011. Arab News. [online] Available at: http://arabnews.com/economy/article588914.ece [Accessed 6th April 2012].

Beaudry, J., 2004, Economic indicators: Essential information for economic projections in 185 countries/territories, Square One Data, Durham.

Bitar, Z., 2011, Foreign Direct Investment in the UAE to soon reach previous peak. Gulf News, [online] Available at: http://gulfnews.com/business/economy/foreign-direct-investmentin-the-uae-to-soon-reach-previous-peak-1.806044 [Accessed 06 April 2012] Cateora, P., 2007, International marketing, McGraw Hill Irwin, Boston, MA. Forbes 2012, Thoughts from billionaires past and present. Forbes, 189(5), pp. 262-262.

Gopal, A., 2005, Research and markets: Doing business in Shanghai. Presswire, [online] Available at: http://www.researchandmarkets.com/ [Accessed 06 April 2012].

Griffin, R., & Pustay, M., 2006, International business: A managerial perspective, Prentice Hall, London.

McKern, B., 2003, Managing the global network corporation, Routledge, Hungary.

Nnamdi, M., 2011, “Made-in" Nigeria or "owned-by" Ireland? Country-of-origin cues and the narratives of Guinness consumption in London. Management Decision, 49(10), pp. 16121622.

Sekhar, G., 2009, Business policy and strategic management, I. K. International Pvt Ltd, New Delhi.

Tainer, E. M., 2006, Using economic indicators to improve investment analysis, third edition.

John Wiley and Sons, Hoboken, NJ.

11

UAE Sectorial Strengths

Appendix

Source: 2DAYDUBAI, http://www.2daydubai.com/pages/dubaieconomy.php&usg=__tmU2q5kUb

12 UAE tops GCC countries

Source: Go Wealthy, htttp://gowealthy.com