Price: AED 10
What do SMEs in Dubai Need? The business conditions needed for SMEs to flourish, and what is required to help their growth and development
Is Direct Marketing Working for You? Direct marketing empowers small business owners and SME marketers to give customers a better experience
More than Meet and Greet Networking groups are sources of knowledge and starting points to new business relationships
Special Focus: Free
Deal of the day One-day deals, offered online, have caught the interest of buyers of all ages
Deal of the day
The UAE’s infallible free zones
Size matters to brain matters
IFRS for SMEs
Auto owners beware, spare parts prices still on the rise
12 14 20
Business updates SMEs, rise to the occasion Think twice with free zones
What do SMEs in Dubai need to be successful?
Does social media work for a small business?
Go global with a local brand
More than meet and greet
Is direct marketing working in your favour?
34 Let’s get social
46 Attaining a winning mind
Now, stop de-motivating your employees
50 52 56 58
What’s in TIS Events Events Calendar One Last Word
Editor’s page ❘ Chief Executive Officer & Publisher Shantanu A.P Account Director Vijay G.
EDITOR’S NOTE he UAE is on the move. There is a general flurry of activity all around. There are also reports that the economy is set to grow 3.5 per cent in 2011.
Agreements are being signed for collaboration and co-operation all around. We see agencies such as the Dubai SME, Khalifa Fund, and the other bodies enter into agreements with financial institutions to give a fillip to the business space of small and medium enterprises in the UAE. The authorities seem to be taking the initiative to ensure that SMEs are enabled to their fullest potential. There is a general urgency now to support the most hardworking tier of the economy – the SMEs that form 90 per cent of the total contributing companies in the UAE. The authorities have, now, slowly begun to wake up and take note of the contribution by this sector. The time is ripe for SMEs, being the centre of attention, to take advantage of these initiatives and boost their productivity. For this to take place, SMEs will also have to fulfill a few conditions as well. They will need to buck up and keep their books in order to access the credit market. The SMEs will have to invest in talent and better technologies, which is a major requirement to achieve and sustain significant growth over a period of time. Before I sign off, I want to add here that SMEs—not all, but quite a few— have to be aware of the various requirements that are absolutely necessary for doing business profitably. And this could range from trying to access funding from banks to auditing their books. There has to be a method of ensuring that a level of competency is achieved in each industry vertical, while offering customised solutions for this segment. TIS has tried to tackle these subjects in this issue, and we hope to add more to this in the upcoming ones.
Editor Sandhya Divakaran Consulting Editors Utpal Bhattacharya Trevor Lloyd Jones Expert Contributors Kevin Abdulrahman John Lincoln Alexandar Williams Ludger Moreas Dr Swaroop Savanur Zed Ayesh Kristina Nyzell Cecilia D’Cunha Anesh Jagtiani Tara Asok Art Director Aneesh Varghese Web Designer Hoze M Editorial Enquiries & Contributions Tel: 04-2659704, 04-2650312 Fax: 04-2690566 E-mail: firstname.lastname@example.org Sales & Marketing Jaswanth Prakash Lima Farren Cindy Advertising Enquiries Tel: 04-2659704, 04-2650312 E-mail: email@example.com Subscription Enquiries Tel: 04-2659704, 04-2650312 E-mail: firstname.lastname@example.org Response Executive Melanie Castro
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Industry insight ❘
Auto owners beware, spare parts prices on rise Tara Asok sheds light on the prevailing shortage of spare parts in the UAE market, a situation that is affecting small businesses. n unnerving lull is in place in the UAE auto market, reflecting the global scenario. The reason for this situation can be attributed to a number of factors, including the recent Tsunami in Japan and the global downturn.
While the Japanese impact is only a recent occurrence, no industry expert has yet pinpointed a specific reason for the ongoing crisis afflicting the auto industry, not to mention the obvious ripples felt in the ancillary industries. Spiralling prices caused by a shortage of spare parts and accessories, show no sign of abating and, if market sentiments are to be relied upon, an automobile owner is in for yet another onslaught on his purse strings. Conflicting reports have shrouded the prevailing situation in the auto spare parts market in the UAE. A five per cent increase in prices of spare parts in the past one month, has been unwarranted, especially in the price of interior parts, which are in big demand throughout the year, and more so, during summer. Sources say that suppliers are hoarding stocks of both genuine and fake spare parts, creating an unnatural shortage in the local market to trigger a further price hike, and hence, add to the compounding problems of consumers, believed to have originated in Japan.
Explanation Ask any secondary agent or trader in the UAE and they will try and throw you off the track with a standard response, quite contrary to the actual market situation and, in fact, negating the very law of supply and demand. Most agents will say: “There is no shortage, but yes, prices have increased and will continue climbing in the next few months.” Of course, there is more to it than meets the eye, points out Abdul Kader, general manager of Al Shamaali Auto Parts LLC, Dubai. A fluctuating yen, in the wake of the
series of catastrophes, has almost sealed the fate of the auto industry and those of dealers and distributors the world over, he explains. “The yen has risen 20 per cent, leading to our profits nose diving. Besides, in the prevailing, gloomy economic situation, customers are constantly looking for credit, while we have to pay hard cash for our procurements. When payments do not come on time, we are forced to hike prices to survive in the business,” says Kader. A global increase in steel prices has also been seen as a major factor
❘ Industry insight
leading to high prices. Some suppliers say that shipment delays arising out of problems at the port of shipment is also causing shortage in the market. Occasionally, the UAE auto market, they say, has been depleted of stocks for lack of quick clearance at ports here, they point out. Although shipments may arrive as per schedule, delays occur due to meticulous checking at the point of delivery for any signs of radiation in parts imported from Japan. Auto parts trader Habibullah of Al Ahsaan Trading, Sharjah, explains: “Such instances are well beyond the control of individual distributors or suppliers since it is, sometimes, days before a shipment is cleared and stocks reach the market. This, naturally, creates a shortage in the market and results in high prices.” Counterfeit spare parts Industry players say that prices of original spare parts have climbed nearly 25 per cent over the last three months, and car owners in the country have been at the receiving end, and even forced to buy counterfeit parts, which have flooded the market at the price of original items. In fact, some hold this situation responsible for local suppliers denying any shortage in the market. At the recently concluded Automechanika show in Dubai, a majority of the participants insisted that there is indeed a severe shortage of genuine spare parts and unless stringent controls are introduced to crack down on distributors of fake items, prices will continue its upward march. Mahendra Gupte, senior assistant sales manager at Auto Parts Centre, Oman says:“The UAE is a seller’s market. Those people who have piled up stocks can do good business now, but smaller enterprises will not be able to hold on because of
payment issues. The wobbly yen is not doing the industry any good. It is not only playing havoc with prices in the local market, but also paving the way for a drastic shortage of genuine parts. “ Divya Auto Spare parts, Sharjah, suppliers of major Japanese brands like Toyota, Nissan and Mitsubishi, is one such company, which claims to ample stocks. General manager Anwar says they have been able to constantly cope with the market demand. He also attributes the rise in price to disruption of supplies from shipment delays. “There is always fear of a sudden price hike from the Japanese end, and, when this happens we are forced to follow suit. We experience shortages when a dealer is unable to deliver products on time. As a result, sometimes, we are not able give our buyers definite delivery dates. A delay in delivery of about 15-20 days is inevitable in our business these days,” adds Anwar. Although car manufacturer Toyota has resumed operations in all its plants, a shortage of parts in Japan
itself continues to hamper full swing manufacturing. The repercussions are being felt in the UAE and elsewhere, but the bigger fear is for the future. The question being asked is when things are likely to normalise. If the shortage continues, then, the much revered Japanese cars and parts could become a rarity, although that is one extreme position that only a minuscule take. However, unless vendors chip in to stabilise the market and control prices, the road ahead looks treacherous for automobile users in the country.
“A fluctuating yen, in the wake of the series of catastrophes, has almost sealed the fate of the auto industry and those of dealers and distributors the world over.“ Abdul Kader
General Manager of Al Shamaali Auto Parts LLC
Industry insight â?˜
Deal of the day UAEâ€™s tryst with group buying as a powerful online marketing tool is a recent phenomenon. A TIS report on how the industry is shaping up. he success of group buying companies, globally, has largely depended on their ability to win customersâ€™ confidence and impressing upon them the value of e-commerce and online buying. Regionally, the landscape is more complex, as in addition to convincing customers of the genuineness of such an enterprise, these companies are challenged by a declining purchasing power of consumers and political unrest.
Group buying companies, in the UAE, do not seem much bothered, though. They claim that the economic downturn and shallow pockets have worked to the advantage of consumers, as well as smaller companies with whom they tie up. In the present economic scenario, offering cheaper and competitive prices online has given consumers the option to spend less on products that they would never consider buying. The idea is to bring in a specified number of customers to a company, which features its products online, and this is the responsibility of a group buying company, which, then, shares the revenue. As such, one-day deals, offered online, have caught the interest of buyers of all ages and, it is a virtual race against the clock before the offer expires. From honeymoon packages to cars to discounted restaurant offers and spas, they have it all. Positive impact A recent study conducted by GoNabit, the first social-media based
❘ Industry insight
coupon site to be established in the Gulf, showed that group buying generally had a positive impact on consumers and served as a great entry point to e-commerce for consumers new to online transactions. Dan Stuart, CEO and co-founder of GoNabit, says: “E-commerce is our goal and if your e-commerce model can provide at least two aspectsconvenience and availability- then you have created a compelling case for behavioral change for buying online. We also have a definite commitment towards improving the online credit card business in the region.”
others and refrain from advertising the same deal over and over again. While our competitors put their deals on websites for days, we have drawn up a schedule where we do not display it for more than 48 hours. We also do not encourage the same companies from advertising with us continuously.” In the UAE, most group buying companies cater to the local population, which prefer visiting Arabic portals and paying cash over credit. Companies like Cobone and GoNabit have a slight edge over the bigger
People need to be convinced of the usage of credit cards for online transactions and it is the trust aspect that comes into play here. Most group buying companies stress on the necessity to develop a trust base with customers where they are encouraged to use credit cards for online transactions. The safety of credit card usage is often a matter of concern for consumers, as ideally a majority of them prefer a “cash on delivery” system. Advertising opportunity According to Stuart, being associated with social websites also means that several small and medium scale companies get an opportunity to advertise their products and reach across to a greater number of people. As per a GoNabit survey of its total user base, at least 53 per cent of the people spent more than three hours daily online. For companies like GoNabit, associations with social networking sites like Facebook and Twitter have been quite positive. Stuart adds: “For our kind of model, we really don’t have a big marketing budget and websites are our main source of reaching across to online buyers. We try to be different from the
international players like Groupon-a pioneer in the field of online buying-because of their access to the local Arab population. Groupon recently started operations in Sharjah, and according to a statement issued by its UAE CEO Faisal Haq, the company “aims to offer local residents unbeatable deals on the best that Sharjah has to offer while driving customers to area merchants.” Success Stories The extent of the success of GoNabit and Cobone in the UAE can be judged from their recent deals.
GoNabit sold over US$360,000 of Banyan Tree Villa nights in Ras Al Khaimah and over US$220,000 of Ferrari World passes in Abu Dhabi. According to recent figures published online, Cobone’s most expensive deal in the UAE was sealed when it recently sold four Nissan Pathfinders at a discounted price of AED94,000 each (AED17,000 less for each vehicle). In fact, Cobone has set a record of sorts and emerged the highest selling e-commerce site through its “Vapiano Super Deal,” costing a mere AED10 and selling at a constant rate of AED10 every two seconds. The success of the existing group buying companies has spurred many new entrants to take a plunge into the UAE market. The number of such companies will continue to grow, and which would mean that the existing ones will have to ensure a deeper market penetration to be able to sustain growth of business. Customer service and satisfaction will have to be given significant priority to retain customers while reaching out to newer ones. This also means educating associating companies on the necessity to deliver quality products, while always ensuring that one-day deals make lasting impact on customers.
Some of the few online deal sites available in the UAE
www.groupon.ae www.cobone.com www.gonabit.com www.yallabanana.com www.arabianoffers.com
Business News ❘
Business Updates Kenexa unveils StandOut R business solutions provider Kenexa, launched an online strengths assessment product from Marcus Buckingham. Called StandOut, this product is designed to highlight an individual’s top two strength roles, plus deliver practical techniques to help managers and employees “win at work.”
Ajman Bank launches Mahra Ladies Banking jman Bank announced the launch of Mahra, a ladies banking service to meet the professional requirements and lifestyle needs of women across the UAE.
Mahra customers receive benefits, including a Mahra debit card with discounts at high-end retail outlets, restaurants, hotels and resorts across the country. They will also be eligible for unlimited access to facilities at Ladies Clubs in Abu Dhabi, Dubai and Sharjah. “The role of women continues to evolve here and across the wider region. We understand that Ajman Bank must keep pace with the times. We are, therefore, extremely proud to announce the launch of Mahra,” said Maryam Al Shorafa, head of Ladies Banking, Ajman Bank.
Dubai World special tribunal amends old rules n line with its commitment to transparency and judicial independence, the special tribunal for Dubai World has proposed to amend the rules that it currently applies, by way of public consultation. These amendments, which are based on judicial and Tribunal users’ experience and case requirements, will be made available for a one-month period on the Tribunal’s website (www.dubaiworldtribunal.ae).
The special tribunal was established on December 13, 2009, by Decree no. 57 of 2009 (subsequently amended by Decree 11 of 2010). The Decree provides that “the rules applied by the Tribunal shall be the Rules of the DIFC Court as may be amended by the Tribunal.” Following public consultation, amendments will be made to the Rules of the DIFC Courts, which shall then be referred to as the “Special Tribunal Rules.” Any such amendments will not, however, affect or adjust the rules currently applied by the DIFC Courts. So as to ensure the proposed amendments are in line with users’ needs, they have been made available for general public to review and to provide feedback.
“Crucial to effective workforce management is the ability to optimise performance by leveraging employee strengths in the right roles,” said Dr. Courtney McCashland, president of Kenexa’s Global Assessment Division. “StandOut enables Kenexa’s clients to focus, reward, engage and challenge their employees to produce the best thinking and business outcomes.”
‘Nissan Freedom’ Launched rabian Automobiles, dealer of Nissan, Infiniti and Renault in Dubai and the Northern Emirates has announced the launch of its personal contract purchase programme titled ‘Nissan Freedom.’ The scheme has been designed to provide customers with flexible finance options and added long-term value.
Under this incentive, customers can settle 50 per cent of the loan amount on the purchased car over three years, and then choose one of four options to deal with the balance amount. The customer has the choice to keep the car and refinance the outstanding balance or pay the outstanding amount. Alternatively, the customer can return the car to Arabian Automobiles by meeting the agreed terms and conditions. The customer also has the choice of trading in the car at the guaranteed buy back price and upgrade to a new Nissan model at the end of the tenure. More details on Nissan Freedom on www. nissanfreedom.com
❘ Business News
Business Updates New infrastructure solutions P announced several Converged Infrastructure solutions that improve enterprise agility by simplifying deployment and speeding IT delivery, through the Converged Systems, Storage, Data Center, and HP Server Automation 9.1 software.
UPS relies upon HP Converged Infrastructure solutions to help deliver more than 15 million packages daily and keep its website available at all times for tracking. HP Converged Infrastructure allows UPS to scale technology resources to meet changing demands and support the organization’s highly distributed environment.
Rise in equities’ values ndividual investors on NASDAQ Dubai increased their share of equities traded value on the exchange to 11.6 per cent in May 2011, up from 8.9 per cent in April and 5.7 per cent in March.
ADIB launches Gold Priority Banking slamic financial services group Abu Dhabi Islamic Bank (ADIB) launched its Gold Priority Banking service that is designed to meet the needs of affluent customers. Gold Priority Banking is a strategic initiative for ADIB’s retail business, designed to deliver a wide range of premium products, services and lifestyle benefits.
ADIB Priority Banking involves a comprehensive wealth management solution, including investment opportunities such as the gold, BRIC and commodity notes specially developed by ADIB. These are designed to present contemporary investment opportunities to clients who can benefit from current trends. Takaful insurance options, home finance solutions and other convenience solutions, such as the Visa Infinite Covered Card are amongst many options available to priority banking customers.
ADNEC wins second ‘Green Prize’
The continuing expansion came after NASDAQ Dubai started routing all its equities trades through the trading platform of Dubai Financial Market (DFM) in 2010, in order to improve access by individual investors. The value of equities trades by individuals rose to US$7.3 million dollars in May 2011, up 14 per cent from 6.4 million dollars in April 2011. Total equities traded value - by institutions and individuals - fell 12 per cent in the same period, to reach 63 million dollars in May. Jeff Singer, chief executive of NASDAQ Dubai, said: “The steady increase in trading by individuals, in a difficult period for the regional capital markets, is a welcome development on NASDAQ Dubai’s market.“
he Abu Dhabi National Exhibition Centre (ADNEC) has secured a pan-regional honour for its ‘green leadership’ in the events industry.
ADNEC was presented with the ‘Outstanding Contribution to Sustainability’ (Venue) prize, by the Middle East Event Awards jury at a ceremony held in Dubai. “Winning twice-in-a-row points to our unrelenting commitment to industry leadership is a testament to our continued emphasis on sustainability in support of the Abu Dhabi’s government’s focus on the environment,” said Khaled Ali Al Hashemi, ADNEC’s Chief Operating Officer. ADNEC’s environmental leadership is built on a successful recycling programme, which currently covers paper, cardboard cartons, plastic, cans, and scrap metal.
Business News ❘
Business Updates E-services to get better
Strategic platform for SMEs to interact
he Dubai Department of Economic Development (DED) signed an agreement with Al Tamimi & Company to strengthen eServices offered to customers, speed up the issuance of licences, and simplify the process of doing business in Dubai.
Mohammed Shael Al Saadi, CEO, Business Registration and Licensing Division of DED, and Essam Al Tamimi, founder and senior partner at Al Tamimi & Company, signed the agreement at the DED headquarters. Al Tamimi & Company will have a qualified team to use the licence and business registration system of DED for reserving trade names for its customers, while ensuring the accuracy of data that is entered into the electronic system, which is aimed at easing licensing procedures.
Macquarie Bank to operate from DIFC acquarie Bank Limited announced that it has received a Category 4 branch licence from Dubai Financial Services Authority. The licence allows Macquarie to operate as an authorised entity from within the Dubai International Financial Centre.
Macquarie will develop the local product offering from its fixed income, currencies and commodities business focusing on the provision of interest rate derivatives, foreign exchange derivatives, commodities (both physical and derivatives), investor products and structured finance. Macquarie will seek to service clients in the Gulf Cooperation Council states with particular focus on the UAE, Oman, Qatar and Kuwait. Macquarie has been active in the UAE since 2005 and has offices in Abu Dhabi and Dubai. Its services include corporate finance and advisory and infrastructure funds management.
he National Network for Small and Medium Enterprises organised a strategic forum to promote the growth of the SME sector in the UAE.
The event, titled ‘Tabadul,’ was attended by over 200 entrepreneurs, SME-related establishments and funding organisations that drive the growth of the sector in the UAE. Ahmed Al Midfa, chairman of the National Network for SMEs and chairperson of Ruwad, Abdul Baset Al Janahi, CEO of Dubai SME, and Dr. Ahmed Al-Mutawa, CEO, Khalifa Fund for Enterprise Development were present at the event. The forum was in line with a broad range of initiatives planned by the National Network to strengthen the business environment and promote SME growth.
“Outlook of precious metals market bullish” he outlook for the precious metals market remains extremely bullish, according to Gerhard Schubert, head of precious metals at Emirates NBD. Addressing the Annual General Assembly of the Dubai Gold & Jewellery Group (DGJG) recently, he said that there were a range of compelling reasons to believe that the future price outlook for precious metals remains positive.
Highlighting the weakness of the euro against the dollar and the serious sovereign debt issues across much of Europe, which will further support the precious metals market, Schubert said that there are now clear signs of fatigue among France and Germany, to support the euroendlessly and at all costs.“At the same time, consider that the Mexican Central Bank purchased some 93 tonnes of gold this year, increasing their reserves 13-fold. Those purchases were made at or near all-time high market prices, which is another very bullish sign.“ When it comes to precious metals, all of these international indicators are pointing in the same direction – and that direction is upwards, concluded Schubert.
Industry insight ❘
SMEs, rise to the occasion The transport and storage industry in the UAE needs to be strengthened in order to function efficiently, to facilitate growth. A TIS report. eing a trade-reliant economy, the UAE needs to improve its transport and storage industry to the fullest. A recent study conducted by the Dubai SME, an agency of the Dubai Department of Economic Development, recommended the need for stringent regulations and use of technology to foster the transport and storage industry.
The study focused on development, growth opportunities and areas of improvement in the transport and storage industries. Commenting on the study, Abdul Baset Al Janahi, chief executive officer of Dubai SME, said: “Understanding the competitive landscape, operating environment, risk-reward structures, international orientation, and overall growth prospects will help investors, funding agencies and policy-makers adopt the right SME approach. Ultimately, any sound investment and policy has sustainability as the end goal.” Al Janahi added: “Identifying and evaluating SME prospects and
opportunities is part of our remit to enable realistic SME growth in Dubai. The strategic plan of Dubai SME stresses on an industry-specific perspective, as firms grow in the context of their respective industry.” The transport and storage industry is a key service sector that drives Dubai’s economic growth. Global and regional trends mandate the strengthening of this industry. Productivity and efficiency One area highlighted in the study was the need for enhanced productivity levels through innovation, skill development and use of new technologies. For instance, according to the 2010 Logistics Performance Index, UAE was ranked 24 among 155 countries. However, in terms of quality, productivity, technology and technical competitiveness and timeliness of shipments, the ranking was considerably low. Being ranked third in infrastructure quality in the Global Competitiveness Index 2010-2011, there is a serious need to work towards maintaining
According to the 2010 Logistics Performance Index, UAE was ranked 24 among 155 countries. However, in terms of quality, productivity, technology and technical competitiveness and timeliness of shipments, the ranking was considerably low. and enhancing certain areas. One of the main reasons for this could be the lack of adequate competency assessment, according to Prof. P J Mathews, chartered member of Logistics & Transport International and professional development advisor for CILT, UAE & GCC countries. He stresses the need for professional competencies within the industry. Research and development Coupled with professional competency assessment for enhanced productivity is research and development. Presently, there is very little research and development initiated by companies, or undertaken by the authorities to improve the industry. “Companies need to keep themselves updated with the latest technologies to be on par with global standards, and there should be continuous assessment,” advises Prof. Mathews.
❘ Industry insight
Dubai SME has suggested the support of universities towards this need. Also relevant would be a Logistics Technology Development Centre to develop awareness on the availability of technologies and their benefits, adapt and test possible technology solutions, and to create awareness among SMEs of the latest technology through workshops, pilot projects, and availing of discounts for new technology in partnership with companies that offer these systems. “Technology is not being used to the fullest and the right people are not there to use these technologies. There is no research done by the Port authorities or Customs. If they carry out timely research they will get a better picture of the current scenario and improve on the procedures, while planning out for the future,” notes Vijay Shetty, Business Development Manager at Capricorn Logistics, a company operating in Jebel Ali Free Zone. Lack of training The study also highlighted the lack of training among the workforce in the transport and service industry. The workforce most often, lacks even basic language and numeric skills, which makes formal training difficult. “There is no proper training provided when a new system is implemented and there is a major language barrier, as the languages spoken at the port and among all authorities is either Arabic or Malayalam. Fluent English should be compulsory among all,” suggests Shetty. “We should also provide training to the local population, to enable them to take up these jobs. CILT has started training programmes for the personnel of Dubai Trade,” says Prof. Mathews. He adds that some courses should be made mandatory for all staff in the industry, where a yardstick for measuring competency of the personnel, should be in place. “There are several European standards that can be adopted in the UAE, such as Eucolog, Solutions for Logistics Skills among others,” he
opines. At the university level, we should define the right pathway for learning and growth, Prof. Mathews points out. Dubai SME suggests that skilled assets should be fully utilised to improve efficiency, while improving on service quality, and implementation of new technologies. This requirement could be compensated through training programmes, and creating more awareness to attract qualified talent into the industry. Some solutions for the various small and medium enterprises that do not have access to training include providing short intensive courses for those who want to learn. There should be awareness programmes that publicise these courses, so that qualified personnel willingly join these short-term classes. Some training must also be made mandatory, such as handling of specialised goods for drivers and warehouse staff, safety driving and security handling, according to the study. Rules and regulations Smarter regulations for land transport and warehousing are also a key area. The setting up of a centralised
regulatory or development advisory government body is a prioritised solution. To ensure quality of services, stringent regulations should be in place, states the study. The regulations are far more relevant for companies functioning outside the free zones. Regulatory body A solution to this need is the setting up of a centralised regulatory body that can propose changes in rules or provide more inputs as and when the need arises. Prof. Mathews advocates the setting up of Dubai Trade as the regulatory body in this instance. SMEs, trade associations, and key government departments can build a joint committee to provide solutions as well, suggests Dubai SME. This would promote coordination and interaction between various components in the industry. For the UAE to turn into a global transportation and storage hub, much has to be done. The future of the industry would depend on how well the companies within this sector enhance their services to tap into the regional demand, retain domestic business and serve as a global hub.
Special focus ❘
The UAE’s infallible free zones TIS tries to understand the growth and evolution of free zones in the UAE, and the convenience of services they offer to entrepreneurs. here are more than 30 fully functional free zones in the UAE, each with an authoritative body in place, located either near seaports or airports, or as clusters of companies in key locations.
The free zones were established by Emiri decree as early as 1985, with the Jebel Ali Free Zone (JAFZA). Ever since the success of JAFZA, the government has invested heavily in developing the free zone model with adequate space, infrastructure and other resources. The sheer number of free zones functioning in the UAE emphasises the importance the government has accorded to the diversification of trade in the economy. The UAE’s trade, which was primarily limited to oil and oilbased commodities for a long time, was opened up, inviting foreign companies in varied sectors, to
set up shop at the country’s free zones over a period of time. This strategy has served to open up the economy, while creating a business environment and rules and regulations that have been more conducive to attracting foreign direct investment into the country. “Many international companies and investors prefer to have 100 per cent ownership of their businesses, which is only possible in free zones, as the commercial law in the UAE enforces the 51:49 per cent equity holding in favour of local partners. The establishment of free zones since the ‘80s has helped the UAE economy while contributing significantly to its GDP,” says Dr.Mohammed Al Zarooni, the director general of Dubai Airport Free Zone (DAFZA). Milestone The number of free zone companies in the UAE has soared over the years. The numbers continued to rise even
The reach of UAE’s free zones and the success of their marketing strategies can be gauged from the fact that they have together attracted companies and investors from more than 106 countries, the majority of these being in Europe and Asia. at the time of recession, which is a testament to how comfortable international investors are with such an arrangement. Oussama El Omari, CEO of Ras Al Khaimah Free Trade Zone, says: “The cumulative number of registered companies, in our free zone, since 2000, stands at 9,702. Currently, we have more than 5,000
RAKIA aims to be UAE’s No. 1 free zone The Intelligent SME (TIS) caught up with Dr.Khater Massaad (KM), CEO of Ras Al Khaimah Investment Authority (RAKIA), on RAKIA’s plans. TIS: What is the USP of RAKIA that distinguishes it from other free zones in the UAE? KM: In addition to managing free zones, RAKIA delivers a comprehensive range of complementary services, such as investment advisory services, a key feature that gives RAKIA a distinct
strategic advantage over other free zones in the UAE. RAKIA issues licences for industrial, commercial, consultancy and media companies; awards certificates of incorporation, construction permits and approvals; and facilitates membership in the Chamber of Commerce. Moreover, it provides facilities for typing services, and employment and residence visa
❘ Special focus
stop shop” providing offices, warehousing, visas, basic amenities, accommodation, legal assistance as well as business consultation facilities. This multi-faceted nature of the UAE’s free zones is the primary reason for many businesses opting for this business environment when they decide to incorporate their companies in the country.
companies operating in our different parks.” A majority of the 5000 companies set up at the free zone are small and medium enterprises like in most of the other free zones in the UAE.
Slowdown It is important to note here, that, despite the increase in the numbers of free zone companies in the UAE even during the slowdown, the rate of growth of these numbers, year on year, was hit, as many companies were forced to close down. This also meant that free zones were deprived of their skyrocketing targets and growth records of the past. However, the hold up is being now described as only “a minor setback,” as growth rates are, again, showing signs of increase.
“We have already issued 491 new licences in the first quarter of 2011, including as many as 130 licences granted in April. Moreover, we have renewed around 556 licences so far this year,” discloses Dr.Khater Massaad, CEO of Ras Al Khaimah Investment Authority (RAKIA).
Companies such as TECOM Investments have grown from strength to strength, with 4,500 companies, segregated according to industry clusters in its Business Parks portfolio. TECOM comprises 10 business parks across information and communication technology, media, education, sciences, and manufacturing and logistics sectors. A free zone is structured in such a way that it serves as a “one
services. RAKIA thus essentially serves as a one-stop-shop offering the entire gamut of services to help investors and businesses set up operations.
TIS: How is RAKIA positioned, and how has it contributed to the economy? Please supply statistics of the number of companies incorporated year on year.
In addition, RAKIA has also signed cooperation agreements with various banks to provide financing to firms for their projects in Ras Al Khaimah. Another very important factor that is raising the profile of RAKIA is its very affordable rates. This is on top of the standard business incentives, such as 100 per cent foreign ownership, zero customs duty and no income tax or corporate tax.
KM: Established following the Emiri Decree No. (2)/ 2005 issued by the late H.H. Sheikh Saqr Bin Mohammed Al Qasimi, Supreme Council Member and Ruler of Ras Al Khaimah, to promote and oversee the economic development of the northern emirate, RAKIA has emerged as a socioeconomic growth catalyst, attracting thousands of local and foreign investors and spurring
Dr. Zarooni puts it into perspective when he says that the UAE’s free zones continue to grow, albeit at a slower rate compared to what was achieved during the time of peak economic activity in the country. “We factor our growth through two important indicators – new companies established, and the new hires, which figures in the number of visas issued to free zone companies in a year. Based on our calculations, Continued on page 18
major infrastructure development all over the emirate. Since it was established in 2005, RAKIA has already generated around US$3 - 3.5 billion in total investments, while continuing to achieve robust growth figures in foreign and local investments. There are now over 7,000 businesses from several countries that are registered under RAKIA. There are 4,170 land-based business licences issued by RAKIA since 2006, broken into 1,190 consulting/service companies, 1,291 trading/general trading businesses, 694 commercial companies, 660 Continued on page 18
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2009 was a slow year owing to the onset of the economic downturn. But we were able to pick up the momentum in 2010, and in 2011. We have so far, been able to maintain growth,” asserts Taryam Mattar Taryam, director general of Sharjah Airport Free Zone. Value addition The various free zones in the UAE have developed their own niche in attracting companies. Rules and regulations of these free zones also differ, with each zone having its own authoritative body, and catering to different industry verticals. The authorities follow a strict policy of assessing the value that companies can bring to the country before giving their go-ahead for setting up within a free zone. These free zones also pursue a number of marketing strategies and policies to attract international companies, while ensuring that these are adding value to the country’s economy. Taryam says: “We have a consistent policy; we believe in giving the same service to all, irrespective of their productivity or profits. We also try to do our best for each individual company by providing them adequate resources.”
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industrial firms and 335 media businesses. Thousands more are registered under RAKIA’s off-shore facility. These figures continue to grow and we have, in fact, already issued 491 new licences in the first quarter of 2011, including as many as 130 licences granted in April. Moreover, we have renewed around 556 licences so far this year. TIS: What are the measures taken by RAKIA to attract more companies? KM: RAKIA has been proactive in creating greater awareness about the investment opportunities that are being offered in the emirate through
“Free zones have very strong external networking connections with many consultants and representatives in targeted markets. We have liaised with the UAE’s ministry of foreign trade to strengthen our presence in the regions and countries where we feel it is important. We organise several visits to the target markets and attend business forums and seminars in the UK, Malaysia, Japan and the US,” adds Dr.Zarooni. “To extend the free zone reach within the UAE and globally, RAK FTZ has set up business and promotion centres in Dubai and Abu Dhabi, to cater to the needs of existing and
Successful promotional strategies with competent sales and marketing teams have continued to attract foreign investors and business to these free zones through both good and bad times.
participation in regional, national and international trade shows, and various road shows that are specially organised in different countries. With Ras al Khaimah’s competitive edge in terms of offering highly competitive business costs, we also made significant progress in attracting European companies that are looking to expand their presence in the Middle East. International trade events where RAKIA has sent high-profile delegations include the Hannover Messe and Industries Lyon in France, where we generated tremendous interest from several companies from Europe and other regions. In the first four months of 2011,
potential clients, and international liaison offices in Germany (Cologne), Turkey (Istanbul), India (Mumbai), and the US (Miami), to support our international marketing activities and provide certain customer services,” explains Omari. The reach of UAE’s free zones and the success of their marketing strategies can be gauged from the fact that these free zones have together attracted companies and investors from more than 106 countries, the majority of these being from Europe, Asia and the US. Contribution to economy Recent reports released by the Federal Customs Authority emphasise the role played by the country’s free zones in the national trade and economy. With a 23 per cent year-on-year growth, the UAE’s free zones together account for nearly AED1.1 trillion of the trade volume in 2010. While helping the UAE reinforce trade relations with countries, such as China, India, the US, Japan, South Korea, the UK, Malaysia, Germany, Switzerland, and France, these zones of growth have immensely contributed to the country’s economy. For instance, DAFZA alone contributed AED 52 billion to the total volume of Dubai trade in 2010,
RAKIA has also organised road shows in Pune, India, New York and Detroit in the US, Dubai and Ras Al Khaimah. We likewise took part in networking events such as ABC networking meeting in Dubai, Micro Machine Summit in Ras Al Khaimah and roundtable meetings organised in Mumbai, India, by the Organisation of Plastic Processors of India and the Indian Speciality Chemicals Manufacturer’s Association. As you can see, we are very serious in our efforts to create global awareness about the exciting opportunities that have emerged not only in Ras Al Khaimah, but in the rest of the UAE.
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representing 5.8 per cent of the total volume of trade. Successful promotional strategies with competent sales and marketing teams have continued to attract foreign investors and business to these free zones through both good and bad times. RAK FTZ grew by 10 per cent in 2009 in terms of new company registrations, and in 2010 these numbers rose 14.65 per cent over the previous year. In spite of
this tremendous growth, each free zone is continually analysing their potential, and seeking ways of expanding, or making adjustments to their regulations to accommodate more foreign companies to set up base in the country. Some experts even argue that 30 free zones are not enough, and the UAE needs more of these zones to further boost trade and commerce in the country. Government officials say
that they are ever open to new ideas in the UAE. There is always the space and scope for another free zone and the next in the UAE, as these have all worked well until now. The belief is as long as a new free zone targets a unique clientele base, it will always work for the UAE, as not only there is enough demand in the market, but the model has already proven to be a runaway success.
A frontal view of the RAK Free trade zone
TIS: Could you give us a ratio of the type of companies, with respect to country of origin? How is RAKIA trying to attract companies from the European segment? KM: RAKIA has attracted investors from at least 96 countries. Around 29 per cent of these investors are from India, 20 per cent from Europe, 20 per cent from the Middle East, six per cent are from Asia and the Far East, and the rest are from other parts of the world. As I have mentioned earlier, RAKIA is aggressively participating in international trade shows and networking events in different parts of Europe, including France and
Germany. We are also conducting major business conferences in Manchester and Munich which are scheduled for this autumn. We believe that this is a very productive way of educating the global business and investment community about the strategic advantages of Ras Al Khaimah as an investment destination and to facilitate business meetings and meaningful interaction with our target audiences worldwide. TIS: What are your expansion plans? How do you see RAKIA in 10 years? KM: RAKIA’s primary objective is to plan and direct the socioeconomic development of the emirate. It is our
intention to continue to focus on this mandate that the government of Ras Al Khaimah has entrusted upon us. The unprecedented economic progress that Ras Al Khaimah has achieved within a short period of time indicates that we are moving in the right direction. We will build on this momentum and help the government institute more reforms and enact more business-friendly policies that will further strengthen the emirate’s socioeconomic standing. Having put all the right systems in place, RAKIA is looking forward to establish itself as the UAE’s number one free zone in 10 years’ time.
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SMEs, think twice with free zones Stephanie Déschamps examines the pros and cons of setting up companies within free zones in the UAE. COVER STORY AK Maritime City, an AED520million industrial free zone and port covering 800 hectares was launched recently in Ras Al Khaimah. The free zone targets international companies in medium or heavy industries. This mega free zone will compete against the Jebel Ali Free Zone (JAFZA), the UAE’s oldest free zone. This will not be an easy task because JAFZA is one of the largest free zones in the Gulf, and accounts for 25 per cent of Dubai’s GDP. In comparison, the free zone in Dubai Airport (DAFZA) contributes only 2.27 per cent annually to the GDP of Dubai, according to the seventh edition of Forbes Middle East’s freezones study. RAK Maritime City is the second free zone for the northern emirate, while there are already 30 in the whole federation.
Free zones have had a lot of success, as these offer cheaper and easier options to companies for setting up businesses in the UAE. Among major advantages these free zones offer, include the 100 per cent ownership option and the avoidance of many administrative hurdles in incorporating a company in the UAE. Free zones in the UAE are recognised at an international level, as these are a favourite way to start business
in this country. And this is evident from the trade figures available to us. The UAE’s total exports to Asia (China, Japan, South Korea, Malaysia and India), Europe (United Kingdom, Germany, Switzerland and France) and the United States of America, reached AED136.1 billion in 2010. This is a little less than 70 per cent of the total value of UAE imports. The UAE’s total trade with the rest of the world grew 23 per cent in 2010 at AED352.8 billion, according to a report from the Federal Customs Authority, Abu Dhabi. But is a free zone an affordable proposition for a small or a medium enterprise? Some certainly aren’t. The new RAK Maritime City is not targeting SMEs, but heavy industries instead. Depending on the sector, some free zones are more dedicated
to small and medium enterprises. Usually, free zones gather similar businesses (media, logistics, technology, industry, among others), and getting sector players together in a common area creates a kind of cluster, where small and medium business can find easier business opportunities, in a dedicated and sectored environment. On the side of this cluster function, a free zone offers legal and financial advantages, thanks to its extra-territoriality. One of the main challenges that some expatriates face, trying to start a business in the UAE is the 51 per cent obligatory local ownership. For a small starter, this obligation becomes a heavy and delicate process, as its risk is more significant than, for example, a local subsidary of an international
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company. A free zone allows having 100 per cent ownership. In addition, free zone gives to businesses the benefit of zero corporate, custom duty and personal income tax. Not that there are many taxes in the UAE, but a free zone also helps in terms of benefits repatriation and avoiding currency restriction. A free zone is allowed to issue trade licences, work permits and residency visas, in the name of the government. However, small and medium businessess should look for additional advantages while researching to incorporate their company in the UAE. They need to look at what some of the smaller emirates offer. In order to compete with the international reputation of Dubai and Abu Dhabi, the four other emirates (Ajman, Sharjah, Ras Al Khaimah and Fujairah) tend to offer interesting deals. While incentives such as cash offerings
and government partnerships are not looking that attractive, especially after the financial crisis, smaller emirates are making up by offering other incentives. Free zones are often a significant part of their revenue. For instance, the Fujairah free zone trade brings nearly 50 per cent of Fujairahâ€™s GDP. Some of the free zones in smaller emirates offer lower rents compared to the more established ones; these emirates often offer the possiblity to rent a virtual office. The e-office concept suits small businesses very well, as an office space can be hired paying a monthly fee of AED2000. The e-office comes with a central desk facility, which forwards mails, answers and redirect phone calls. A virtual office is allowed to provide a trade licence, up to five working/residence visas and a corporate bank account. Prices start at AED17,500 (annual fee and
one-time registration). It can go up to AED35,000. Ras Al Kaimah, for instance, has three virtual office centres, one of which is located at the Fairmont hotel in Dubai. Virtuzone, another one, e-office operates in Fujairah and in Dubai in JBR. Sharjah has set up the Hamriyah SME Zone, close to the port. The zone is divided into seven clusters; it also offers the e-office and specific assistance for start-ups.
Free zones have had a lot of success, as these offer cheaper and easier options to companies for setting up businesses in the UAE.
What needs consideration before starting a business in a free zone he first question an SME should take into consideration while setting up in the UAE, is the target of its business. Free zones can be very attractive, as it does away with cumbersome administrative issues and taxes. But incorporating in a free zone bars a company from trading within the UAE territory (onshore). A free zone company can only conduct business within that free zone or internationally. In case the SME owner wants to trade in Dubai or in Abu Dhabi, the company has to hire a commercial agent or distributor on the onshore territory. This means additional costs, which a start-up has to take into account.
Moreover, outside the free zones, the capital required to start a new limited liability company is often quite significant. However, some reforms have been introduced in order to facilitate the setting up of a business in Dubai. The second point that needs attention is what type of activity an
SME is involved in. There are 30 free zones in the UAE, mainly gathered by sectors. In Dubai, the major zones for SMEs are those of Tecom Investments (Dubai Media City, Dubai Internet City, Knowledge village). JAFZA, more famous as the Jebel Ali port, is the oldest and the largest free zone in the UAE. There are also Dubai International Airport Free Zone (logistics, international freight) and Dubai International Financial Centre that also houses the NASDAQ Dubai stock exchange (banking, finance, insurance). Abu Dhabi has five free zones (port, airport, media, industry and economic). The five other emirates have between one and three free zones each, usually attached to a logistic infrastructure. Thirdly, before being allowed to start a business in a free zone, a company has to show up a detailed business plan. There are two options for an SME to set up: either as an individual or a company establishment. A Free
Zone Establishment (FZE) suits an individual, when the company has one shareholder. The Free Zone Company (FZC, FZCO, FZ-LLC) can be set up to accommodate between two and 50 persons. The minimum number of shareholders required for a company is two and the maximum is five. An SME might need a commercial representative for onshore activities, and this is an important point to take into account. Taking the time to choose a free zone is not a waste of time. The offer of free zones in the UAE is large enough to justify spending some quality time before deciding where to incorporate oneâ€™s company. Besides, each free zone has its own requirements and specifications, and unless one is fully aware of these, an applicant will end up spending a lot more time in legwork than is necessary. Finally, a word of caution that an SME should be prepared to accept some amount of bureaucracy even in a free zone.
From size matters to brain matters Kristina Nyzell explains how business models are changing rapidly, while ways to measure success still remain archaic.
was meeting a new potential client the other day and, after the initial niceties and pleasantries had been exchanged, we ventured down the path of sizing each other up.
“How big is your office? How many employees do you have?” My first reaction to these questions is: Does size really matter? As if the size of my office and the number of employees appear to be some mythical number, which, for some unexplainable reason, should
indicate towards not only my past and future success as a free zone business partner, but also past and future wealth. I take my time to ponder over before answering the questions. My answer, finally, is: “I don’t measure my success by the size of my office or the number of employees that I have, but by the number of recommendations that I receive which results in a profitable business transaction, as well as the profitability per square metre.” I also measure success by the
number of new innovative solutions that my company and business community is able to develop and implement in the market place individually, and as a group. The percentage of new innovations is an indication of how well we, as a community, are working together. Our shared, collaborative and cumulative wealth and intelligence reflect our success. In a free zone the growth of one’s business is linked to the growth of one’s real estate. In other words, the number of employees that a single free zone company is able to employ
is linked to the area of square metres one is able to rent from the “mother ship,” in my case the Knowledge Village free zone. The business model for the Knowledge Village free zone is, hence, based on an assumption that with business growth, there is an inherent need for employing more people and acquiring more square metres. This is not necessarily the case, especially for a company that is running large programme management teams and in-source experts from a variety of disciplines and companies to deliver and meet client expectations. Another good example of this model could be an internet-based intelligence business. In both instances, business growth is dependent on a company’s ability to nurture and build collaborative relationships outside the business as opposed to growing internal fixed assets, such as real estate and the number of employees. The other challenge small business owners are faced with when registering a new business is about defining their business. In other words, explain in brevity what one’s business is all about. Many a time the narrowly defined business definition which free zones use, do not accommodate companies operating in a new paradigm of learning or an innovative or disruptive business space. The new space is to be found in the boundary between
“The notion of a free zone is based on the assumption of social separation (foreigners and locals). The future success of small businesses in the UAE will very much depend on the opportunity to bridge the two.”
industries rather than within the predermined SIC codes. Finding a suitable business definition to be able to register one’s business in a free zone feels a bit like having to make the same choices Cinderella’s sisters had to make: should I chop off the heel or the toe to fit into the glass shoe (receive my office space and free zone licence)? Change or die The old world order of associating business growth with office space and number of employees does not take into consideration the changing world order of business. How quickly free zones are able to adapt to the new world of work will most certainly determine their survival rate. Having said that, the Knowledge Village free zone does have its advantages. It allows me to own and run my
own company (within the stipulated restrictions of the free zone), albeit at a very high running cost (rental cost per square metre and a transactional fee-based tax system based on activities within the free
zone, such as free zone visas, free zone identity cards, visiting visas and permissions to travel, all at a cost). A changing world order In my view, businesses are increasingly working across geographical, industrial and company boundaries to initiate new ventures, new experiences and new value propositions while delivering goods and services to customers. Innovating and creating the future is a collaborative and collective process, which cuts across office, business, cultural and geographical boundaries. The notion of a free zone is based on the assumption of social separation (foreigners and locals). The future success of small businesses in the UAE will very much depend on the opportunity to bridge the two. Joint and shared development projects that bring together skills from different industries, backgrounds and experiences are required to build a new world order, which gets customers’ orders delivered in a different way from how they have been done in the past. This will set a new pace to the economy, while transforming it and making businesses more sustainable and robust in the future.
Kristina Nyzell is the owner and M.D. of Disruptive Play FZ LLC, a Dubai-based Human Resource Consultancy. She is an experienced strategy consultant specialising in open source, lead user/collaborative innovation and community development.
IFRS for SMEs - Accounting made easy Jitendra Gianchandani explains how IFRS for SMEs is a boon that will help adopt less complex reporting standards. n any economy, SMEs form a powerhouse of entrepreneurship, and the UAE is no exception. A thriving SME sector in any country is a barometer of enterprise activity and it reflects a strong pull factor of any economy to move forward.
A significant and large share of the UAE business comprises SMEs. The government has realised the need to promote these enterprises, which, together, contributes some 85 per cent of the total jobs in the emirates and has a share of 46 per cent in the overall national GDP. The imperative of nurturing SMEs in the UAE is evident from its size in the economy. The country is home
to over 70,000 companies across various economic verticals. The size of the SMEs and their contribution to the economy is on par with the global average. Largely, these SMEs are very successful in their own rights, but the question is whether they are enabled to innovate and maximise their potential. Growth demands are more than the entrepreneurial spirit, and, this is where the need to support SMEs comes into play. No doubt, there is strong government support to the UAE SMEs; however, some of the major factors that could stifle their growth are a lack of access to timely resources and an inability of these
enterprises to integrate into the growing capital market culture of the region. It is very important that SMEs are facilitated to integrate into the larger economy, so that they can continue innovating, and fuel growth for themselves and the economy. Government support and professional guidance apart, SMEs also need to act on their books for better transparency and accountability so as to be able to approach public financial institutions for crucial developmental funds. In this context, one good thing which has happened is the IFRS for SMEs, which takes away a lot of otherwise cumbersome procedures of accounting and auditing stipulations, which are not needed for small and
medium enterprises. IFRS for SMEs is a simplified version of the full IFRS and it is a boon to these small and medium enterprises, as it will help adopt less complicated reporting standards. SME entrepreneurs can certainly look at these standards as a stepping stone in their path towards transparency, which in turn will help them access bank credit and, in the long run, can even pave the road to an IPO. In a study that we did recently, we found that most SMEs in the UAE were unable to get bank credit largely because of lack of transparency in book keeping. Unlike in the case of large companies that are answerable to regulatory authorities, small and medium enterprises have largely been free of these accountability diktats. From their point of view, there was no clarity for SMEs on the different accounting standards. Yet another deterrent was the heavy cost and work load these companies have to bear in adopting full accounting standards, which were not commensurate with the size of their businesses.
â€œIn a study that we did recently, we found that most SMEs in the UAE were unable to get bank credit largely because of lack of transparency in book keeping. Unlike in the case of large companies that are answerable to regulatory authorities, small and medium enterprises have largely been free of these accountability diktats.â€?
The introduction of IFRS for SMEs is a major step, as it contains tailor-made accounting standards stipulations for SMES, and should pave the way for more and more SME companies adopting prudent and transparent book keeping standards. There are already indications that many of the growth-focused companies are
utilising this tool and, banking and financial institutions are keener than before to lend to SMEs. The rising power of the SME segment in the UAE is great news, as it is bound to have tremendous positive impact in the economic growth of the country in the years to come.
Jitendra Gianchandani, Managing Partner of the Jitendra Chartered Accountants (JCA), has enormous experience in auditing, accounts and finance. A member of the Institute of Chartered Accountants of India, he has been exposed to the Dubai corporate world since 1997. He handles a diverse portfolio of clients, especially in the SME sector, and has garnered extensive commercial experience.
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What do SMEs in Dubai need? Alexandar Williams writes on Dubai SME’s first ever comprehensive survey to identify development needs of Dubai’s small and medium enterprises. ollowing the launch of the first official definition of Small and Medium Enterprises (SMEs) in Dubai, Dubai SME - a government agency under the Dubai Department of Economic Development (DED) – has embarked on various research studies to get a comprehensive understanding of the emirate’s SME sector. The findings of these studies will go towards building new policy initiatives that would help in furthering the status of the SME sector in Dubai.
In this regard, Dubai SME engaged Dun and Bradstreet (D & B) to undertake the study to determine the
development needs and challenges faced by Dubai’s SME sector. The survey also sought to determine the business conditions required for SMEs to flourish in Dubai, and the enabling structural and policy changes needed to help the growth and development of SMEs. The survey was conducted in two phases – a first phase covering the qualitative dimension of open-ended discussions with 55 SME owners, and a second phase of structured questionnaire, which was discussed one on one with 212 SME CEOs based on the inputs of phase one. A total of 1,200 pages of interview transcripts were content-analysed
for developing the framework of the phase-two questionnaire. The framework constructed for the factors affecting the SME sector’s development is shown in figure 1. The methodology was centered on the objective of understanding the decision-making process of entrepreneurs/SME owners in Dubai which may lead to development. Hence, the subject of the research was the “Entrepreneur/ SME Owner.” Broadly, the entrepreneurial decisionmaking process is affected by three types of factors: policy factors, structural factors, and external factors.
SME Development Model Structural Factors
Type of Business
Stage of Business Development
Size of Business
Age of Business
Clarity on Government rules & Procedures
Kind of Organisation
Planning /time horizon
Transparency of Price
Uncertainty of Policy
Visibility of Policy
Transparency of Evaluation Process
Need for Coordination among deptartments
Entrepreneurial Decision Making Factors Access to Skilled People
Access to Know-how
Access to Finance
Importance of Networking
Short term residency
Ownership of IP
Uncertainty of Inheritance
SME Growth & Development
Cost of Operations
Legal Ambiguity & Uncertainty
Guidance & Advice
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SME Development model
and access to skilled people.
Additionally, manufacturing firms y New Business line y Geographic Expansion have stressed the need y New products y New Customer in new market to obtain the latest y Investment to increase scale of operation plant and machinery; while services firms, specially the younger Development ones, have highlighted y New customer in existing market y Introduce new products the challenge in y Product variety y Product variety in existing products y Expansion of facilities y Product awareness getting the right skilled y Branding y Invest in technology to improve manpower for their productivity business growth. The Existing participants at the New survey also mentioned Existing Product that skilled manpower and access to finance were vital for firms to Policy factors: SME decisiondevelopment, as conceptualised in achieve their objectives for better making for growth and development figure 2. In essence, development is productivity and development of new is influenced by governmental defined as follows: products and services. In essence, policy interventions. Various there was a general agreement that aspects of the legal environment, Developing existing markets: it was talent, at all levels, that makes such as ownership laws, laws of SMEs are focusing on finding new the difference. inheritance, and contract laws customers in the existing domestic impact the decisions SME owners markets, offering more product In terms of access to finance, the and entrepreneurs take for business variety and creating a distinct identity issue of obtaining short-tem working growth and development. of their products and services. capital was not a major issue, but most participants pointed to the Structural factors: These factors Developing new products: SMEs challenges of obtaining long-term reflect the internal structure of a are introducing new products, asset financing. The survey found business in terms of ownership, undertaking product innovation and that SMEs were critical of the industry sector, business vintage, investing in technology to improve banking sector, which has lesser size in terms of annual turnover and productivity to serve customers in risk appetite for asset financing. number of employees, accounting the existing market. There was a general perception that techniques and planning horizon for banks did not understand long-term growth and development. Developing new markets: SMEs business expansion plans of SMEs, are focusing on expanding their especially with regard to asset External factors: Factors external operations to external geographies investments. to a business organisation, such by finding new customers and as banking procedures and offering products and services. Longer planning horizon opportunities in domestic and export SMEs in the manufacturing sector markets, also affect entrepreneurial Diversification: Small and medium were found to have a higher planning decision-making. SME owners have enterprises are investing in a horizon of between one and three little or no control over these factors, different line of business or different years compared to the services and, are limited to operating their line of products and services. sector. This may be due to the businesses in a given environment. investments done in fixed assets The framework identified 21 factors Survey findings and manufacturing facilities. Service for testing in phase-two of Out of the 21 factors in the firms such as advertising, media the survey. framework, seven factors were and IT businesses have indicated identified to be significant. These shorter planning horizons of 12 to Defining development are: Enforcement of commercial 18 months. However, the worrying In the survey, development was contracts, clarity of government rules factor is that the planning horizon is defined by SMEs as the action and procedures, access to knowlow at an overall level. It is difficult to of meeting a stated objective to how, access to finance, ambiguity expect organisations to emerge from create new value through either and uncertainty of business survival mode and think of taking up new markets or new products conditions, cost of operations, Develop New Markets
Industry insight ❘
their operations by a notch, unless they have a longer planning horizon. External contextual factors At a time when Dubai, along with rest of the world, is passing through one of the worst recessions in recent times, businesses have been severely affected by delayed payments and issues with regard to receivables. It is not surprising that information on suppliers, clarity in enforcing commercial contracts, information on credit worthiness
To create better access to finance for growth and development, SMEs and banks should have platforms that enhance communication, by way of seminars and other interactive sessions. SMEs must be educated on methods and advantages of maintaining proper books of accounts and financial statements. An “SME Bankable Initiative” should be launched to help SMEs develop enabling skills to improve financial literacy and management, including ensuring that proper financial
information about their suppliers and customers, the survey said. The survey also noted that SMEs need clarity on processes and procedures to enforce commercial contracts, and they need a platform for all queries relating to commercial contract laws and the process to enforce commercial contracts. The lack of recourse to enforce their commercial contracts has led many viable SMEs to face severe challenges in cash flow and even sustainability. The recommendations in the survey will be explored in detail, to assess implementation feasibility and cost-effectiveness. Some of these suggestions are already being taken up. The survey established, to a large extent, the validation of many widely held perceptions of Dubai’s SME development needs.
of customers and greater clarity on government policies are the top parameters that influence investments by SME owners. SMEs looking for product development and differentiation have indicated that insecurity in the ownership of their intellectual property may affect their investment decisions in business. Younger SMEs expressed the need for more clarity on government policies and procedures as compared to the older SMEs. Recommendations The survey noted that one of the major solutions to the challenge of finding new customers or markets should be to create SME networking platforms that would enable them to share and access information. More importantly, SMEs should be provided with regular market information that offers insights into current market conditions, new developments and opportunities that could be explored.
reporting standards are adopted, the survey recommended. In order to combat the issue of obtaining skilled manpower, the survey suggested that SMEs should be provided information regarding the availability of trained human resources that can be hired as per job requirements, and be assisted to tie up with HR training and developing firms at an affordable cost. Enterprises should be given specialised education and online access to business knowledge reservoirs. Alongside, they should be tied up with an SME credit rating agency to receive reliable
A key immediate step is for the relevant government entities to engage more intimately and extensively with the SMEs directly through different channels, such as industry-based seminars, capability development workshops, and CEO breakfast sessions, including policy dialogues. There should also be an action plan to respond to any feedback and take concrete steps to improve any policy and regulation that hinder the development of SMEs. There is also a need to categorise and segment SMEs for engagement, based on a reasonable set of criteria, since the SME sector is not homogenous, and a “one-size fits all” approach is a non-starter.
Alexandar Williams is the director, strategy and policy with Dubai SME. He has over 20 years’ experience in strategy and policy planning for SME sectors of various countries. He has an MSc in Public Administration from the London School of Economics and Political Science.
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Does social media work for an SME? Gregory Bolle helps demystify the social media marketing approach for SMEs.
ocial media is the new marketing trend followed by all companies in today’s market. After the digital revolution, companies have invested further to communicate and exchange directly with their customers using online technologies.
Companies have different business agendas, but, social networking is rapidly becoming the most preferred Web 2.0 marketing tool for most of them. Today, you interact with two kinds of marketers: the ones that argue that social media platforms help them explore new marketing horizons with their customers and, the others, that pretend that it is a waste of time and energy for an organisation. The truth is that social media platforms are new and are still reinventing themselves constantly – which makes it tricky to create concrete business modeling process. This article will endeavour to demystify the social networking marketing approach, providing some practical tips and explaining why social media works for SMEs. Definition To define social networking marketing, let me start with a simple but significant analogy. One Dubai-based Iranian commodity trader shared this insight with me few months ago. He said: “Chinese traders are doing extremely well in the UAE – all over the world – not only because they have the best to offer, but more importantly because they have strong commitment and respect for any business relationship.” The art of relationship in the Chinese business culture is called “Guanxi.” It seems that these Chinese traders are already well equipped to develop proper social media marketing strategies since they
❘ Social media
have understood the two basic pillars of any social networking marketing solution namely, consistency and relationship. If you are running an SME, you must be already aware of the importance of maintaining consistency in your daily operations. A business needs to be consistent. Consistency is a good marketing idea, as it helps your business to grow. Even when you decide to explore social media marketing opportunities, consistency will continue to be a critical factor for success. In the same manner, networking, meetings and enhancing relationships with clients and prospective clients are vital to SMEs. They need to constantly reinvent and enrich their relations with their customers. Social media, then, becomes a great tool if you commit to respect this new digital form of interaction. In other words, social media marketing recognises the long-term value of customer relationships and extends communication beyond intrusive advertising and sales promotional messages. Ultimately, to develop an effective social media strategy, you will need to identify what BPG Maxus calls a “Shared Ideal,” a balanced combination of your business social objectives and your customers’ passions or needs. My best advice will be to rely on common sense. If you commit to both consistency and building relationships, then social media is no more complicated than any other medium. Choose your platform Talking about common sense, how would you choose the best social media platform based on your predefined business objectives? Many social media experts are promoting Facebook as the ultimate social network. You need first to find out on which platform your message will be the best valued. Facebook, YouTube, Twitter, LinkedIn, among many
other tools are all great social media platforms, but all of them serve a particular purpose for your audience. Thus, you may avoid pure business discussions on Facebook or share private information on LinkedIn. Create measurable goals Your social media goals should be specific, measurable, attainable, realistic and time-sensitive (SMART). Sometimes, marketers believe that the digital world makes everything lightning fast. But that is a myth as far as social networking marketing is concerned, as you are trying to build a sustainable relationship with your audience. The idea is to create a network, and then to grow it progressively with relevant and interesting content for your audience. Integrate online and offline Ideally, you need to convey your conventional communication and your new social media-style of communication. In other words, online and offline strategies must be used in the most efficient manner, based on the pre-selected key performance indicators of your communication campaign.
purely at the number of comments, followers, likes and retweets to estimate the effectiveness of your social media strategy. Does social media work for SME? The answer is yes. However, as explained previously, you should not consider the social media platform as a quick cash cow. Often, companies see social media as a sales channel itself. While it is proven to be effective, if used in the SMART framework, social networking marketing is even more powerful. If SMEs or marketers change their current mindset to start thinking that social media platforms are one of the most important strategic assets, they can develop a customer base, enrich conversation with clients, get insights instantly and thus, essentially gain an edge over your competition. To conclude, if as an owner of an SME, you agree with the quote of the marketing guru Peter Drucker - the purpose of business is to create and keep a customer - then start using social networking marketing without anymore delay.
Measure ROI and ROE As explained previously, your social media goals must be measurable. Two main indicators to consider are the Return on Insights (ROI) and Return on Engagement (ROE). ROI is less tangible than the ROE, as you will look at the business perspectives of your SME based on the feedback, and insights expressed by your audience. ROE is easier to measure as you will look
Gregory Bolle joins BPG Maxus as Vice President - Strategy, bringing with him several years of multi-industry experience in strategy and business development. In France, he founded the online B2B publication Sport Strategies and then became the managing director of Carat Sponsorship. Prior to BPG Maxus, he worked as a business advisor with Wunderman and the management firm Value Partners LLC. He has studied management at the University of Paris XI Orsay and the Tanaka - Imperial College of London.
Social media ❘
Let’s get social Do you have any questions on social media and promoting your business online? UAE-based social media consultant and award-winning advertising strategist Farrukh Naeem answers your queries on using Facebook, Twitter, YouTube, AdWords, SEO and any other online services. Send your questions to firstname.lastname@example.org
Q. What is the difference between Facebook Groups and Facebook Pages? Which one should I use for my business? A. Facebook Groups are better suited for groups and teams of people to interact with each other – these can be open groups, closed groups (requiring approval of membership) and groups by invitation only. Once a Facebook
group crosses 5000 members, you cannot send a common group update to all your members. Facebook Pages are best suited for businesses, public figures and brands. Pages get indexed by search engines and in many cases come up in searches above thousands of websites. Identities of administrators show up when they interact in
groups, but updates on pages show only a page name, which is ideal when a team is posting on behalf of your company. Pages can have numerous applications added to them. There is also no limit on the number of fans you can have, while these pages can be customised to include subscription forms, product
❘ Social media
catalogues and even online ordering mechanisms. A Facebook page can be created at http://www.facebook. com/pages Q. How do I create a promotion for my Facebook page? A. Before you launch a promotion on Facebook, it is best to go through the promotion guidelines at http:// www.facebook.com/promotions_ guidelines.php. You need to manage the promotions through your own custom Facebook application. To keep things simple, if you do not have the resources to develop your own application, you can use ready-to-run promotion templates by third party app service providers like http://www.wildfireapp.com, http:// fanappz.com, http://northsocial. com and http://www.facebook.com/ easypromos. The more established apps like those by Wildfire adhere to Facebook rules and update their promo creation templates accordingly. Q. How expensive are Facebook ads? Are they suitable for a small or medium sized business? A. Currently, Facebook ads can be run for less than US$1 per click or per 1000 impressions. In many industries, this could be higher than what you will pay for another Pay per Click service like Google AdWords. However, as a small or medium sized business, you can save ad costs by using Facebook’s audience targeting features intelligently to have your ads served only to those most likely to be interested in your services. Facebook enables you to target people by age, country, city, gender, education, and most importantly, by what they ‘like’. You can even target people on their birthdays. You could have a Facebook ad campaign running for as little as US$1 per day, which is a great advantage for smaller businesses that might face a barrier in
advertising in offline publications because of a significantly higher cost to run a single ad for just one day.
support, promote events, share valuable content and develop new business too.
Q. Is it worth investing time on Twitter? Can it be used to promote my business? A. Yes. In recent years, Twitter has been one of the fastest growing social sites worldwide and in the region. Because it is primarily textual and does not currently offer many options for advertisers, it is usually low on the social media marketing list. However, it is a potent tool to build relationships with customers instantly (or lose them).
Worldwide, Dell is one of the most active brands on Twitter and has a high ROI on its Twitter investment. UAE brands using Twitter very well include Du and Wild Peeta. Twitter also offers advertisers to run sponsored tweets and trends for a fee. For more info, visit http:// business.twitter.com
Power users of Twitter are predominantly first movers and trendsetters. They are also quite vocal about their brand experiences. Active engagement with local Twitter influencers can be very valuable for your brand. Twitter can be used to promote offers and deals, handle customer enquiries and offer product
Twitter has been one of the fastest growing social sites worldwide and in the region. Because it is primarily textual and does not currently offer many options for advertisers, it is usually low on the social media marketing list.
Q. I have a YouTube channel for my business. But I don’t get any views. Help! A. YouTube is now considered the world’s most important search engine (after Google) as more and more people are spending time watching videos rather than reading long pages of text. Videos can also beat web pages at times in organic search results when optimised well. For your videos to be seen and viewed more, you must spend time optimising them, just like you optimise your website for search. Video titles must be written keeping in mind the search phrases your audience is most likely to use. Video titles and tags must be relevant. Video descriptions should have links to your website that offers more information. Also, encourage sharing and embedding of your YouTube videos through multiple channels, including social media sites. If you make helpful videos, these have the potential to be embedded by bloggers and shared by people, thus giving more exposure to your message.
Farrukh Naeem is a digital strategist and social media consultant based in Abu Dhabi, UAE. His marketing blog (copywriterjournalist.com) has a readership across 140 countries and his tweets (@farrukhnaeem) are followed by more than 12,000 people worldwide. Farrukh has worked with global brands like Microsoft, Adidas, HP, Honda, Xerox, Siemens, the United Nations, etc. and has over 12 years of marketing experience in Asia and the Middle East.
Marketing insight ❘
Going global with a local brand Local brands will have greater challenges than ever before as the global business landscape is influenced by changes in online, mass and mobile communications, elucidates Zed Ayesh.
ocal brands don’t always have the ability or an opportunity of emerging as a global player, even though some of the regional conglomerates spend large sums of money on marketing and advertising. Most businesses within the region do not understand the fact that brands start at the core; brands are built inside out.
The major obstacle that will always deter any local born business of becoming a global brand is the weakness of its internal systems, and which in turn hinders its ability to reflect value, efficiently and professionally, while engaging customers through its business points of contact. Demonstrate value Customers’ engagement with a brand is not limited to the transaction process; it is much more than that. It is the entire process in which a company or entity does business with its customers. The core of the engagement is to demonstrate value (or perceived value) by a business to its customers and mastering the delivery mechanism of such value in a framework called the system. Customers’ engagement has to do with the entire brand touch points with the customers and the way they both interact together. Brand touch points include the simplest thing that represent the brand, such as a business card or the colour of the storefront to the most complicated issue, like after sales service and
handling customers’ complains. Most companies in the Arab world are more dependent on individuals rather than systems; even where there are systems, these are primitive and created based on the knowledge and capabilities of individuals. Invariably, these systems stay put in a company as long as its owners or managers feel things are “okay” within the company; changes are made only when things go wrong or when there is a management change. Disconnect There is a good amount of disconnect between the frontline, middle management and the upper management of businesses within the Arab region. It is the frontline that transfers a brand’s values to customers, and that is the point where engagement happens. And so, managers and owners have to ensure that a company’s frontline is properly trained and empowered to be able to deliver the best brand value to customers. In short, there is no escape for a company when it comes to investing in training for its frontline staff, if it is serious about creating a global image for the brand. Another important issue that goes quite unnoticed is the role of the middle management in regional companies. The function of the middle management in Arab companies is to, primarily, stop customers from reaching the upper management, while also ensuring that frontline personnel show up to work. The middle management in
â?˜ Marketing insight
Arab companies is a very weak lot; they lack capabilities and proper customer engagement skills, and they do not connect with the frontline staff well. Most importantly, they are not empowered at all. Of course, companies could have many other issues that stop them from emerging even among top local brands. However, for most Arab companies the main issues that stop them from emerging as global brands are purely internal. Exceptional brands All is, however, not lost in the region. There are some exceptionally successful brands from the region. Local born brands such as Emirates, Masafi, DP World, RAK Ceramics, and UAE Exchange are among them. Also, Jordanâ€™s two strong brands, Arab Bank and Aramex, and Zain from Kuwait were able to demonstrate value to their customers and master the delivery system of their products and service to their audience, but the overall framework which is the internal system, is still the weakest link in the entire branding equation. I am a big fan of two Arabic born retail brands, Bateel, which is headquartered in Saudi
Arabia, and Patchi that started in Lebanon. The challenge now for these companies is to be more successful. The good thing is that the secret formula is no secret anymore: the road to success is quite well defined and recorded, and these companies need to just follow that path. With the way the world is going, these companies must strengthen their middle management and empower both middle and frontline personnel to provide exceptional services to customers. These brand leaders in the Arab region must emphasise on creating, implementing, reviewing, adjusting and improving their systems; their core must be strengthened, and their focus must be customers at all times. Management of businesses that wish to become a brand have the full responsibility of aligning their businesses to be consistent, focused, offer value - credible, different or specialised and genuine - to itself and to its customers, and if it can be done in a simple way, it will be more powerful. A closer look at Arab brands will tell you that the UAE is the most dominant country with regard to creating and nurturing Arabic born brands.
Brand leaders in the Arab region must emphasise on creating, implementing, reviewing, adjusting and improving their systems; their core must be strengthened, and their focus must be customers at all times. It is quite evident that the UAE provides the best environment among the regional peers for businesses to start and grow into becoming regional and, subsequently, global brands. Rules and regulations in a country do play an important role when it comes to building global brands. And so, it is imperative for Arab countries to support businesses with more flexible rules for starting and establishing businesses. Governments should also encourage training and educational resources, and provide funding for small and medium enterprises. It is important that the external environment, represented in the form of laws and regulations, should work in favour of businesses; it is crucial for Arab governments to consider growth of local businesses beyond local borders. As a matter of national interest, it should be an objective to have open markets within the region for Arab brands, which will help both the brands and the economies where the brand originated, to prosper and grow.
Zed Ayesh has over 20 yearsâ€™ experience in management and business development. He is currently the managing director of Flagship Consultancy based in Dubai, and works with clients on many aspects of the business from strategic planning, business development, marketing strategies, pre-sales and sales management, across different sectors such as government agencies, real estate, media companies, manufacturing, contracting, engineering firms, retail and shipping companies.
Marketing insight ❘
Is direct marketing working for you? John Lincoln gives an insight on what a small business should consider before executing direct marketing strategies and initiatives.
irect marketing is an effective marketing tool that SMEs should use as part of their everyday marketing activity. It is one of the most useful ways a small business can acquire new customers, retain existing ones and/or increase the revenue potential of an existing base of customers.
A lot has been written on direct marketing. Most of what you will find on the web is on e-mail based direct marketing or digital marketing. For purposes of brevity and not boring the reader, I will skip discussions on this aspect of direct marketing, namely digital marketing, e-mail marketing, social media marketing, and, all the good buzz words often used and written without much thought or consideration on how a miscalculated execution can adversely affect a small business. For the rare, uninformed small business owner, digital marketing includes the activities of marketing on social media sites like Twitter, Face book, LinkedIn, Google Buzz and others.
I will also exclude discussion on e-mail, mobile text and web-based direct marketing in this article. The small business owner or investor should know that most of these so-called pundits aired their opinions on these topics during the early days of mobile penetration, internet deployment as well as right after Web 2.0 took off. The novelty of these tools tends to wear off as newer online products are being discovered. Your SME customers will not only become familiar with these new tools but slowly and surely they can turn into an annoyance for an average customer or recepient. Don’t get me wrong here. I do believe that digital marketing is important for any small business because of its productivity, efficiency and cost effectiveness. However, since expert opinion is so rampant on this subject, I will not discuss it. (Food for thought - I am assuming that most of you, probably, use your anti spam or junk filter more than any other features in your mobile, webbased or POP-based emails. Enough said on that for now!) Definition First, let me try and define what direct marketing is, and, what it is not. This is one of those terms that has the potential to confuse anyone. It is so, because, most marketers feel that any marketing activity, promotions or communications will invoke a direct response from a customer. (Not really!) There are multiple versions of how direct marketing is defined by many
authoritative sources. For me, what it means is that, direct marketing is the marketing communications of a “for profit” company, where direct contact is made, initiated or invited, between a seller of propositions and services, and its current and potential customers. From my perspective, it is important that the results of a direct marketing activity could be directly measured to assess the intended or the actual financial return on a direct marketing investment. In other words, a small business owner or an SME marketer should be able to exploit a relationship between a small business or SME and their prospect or customer as individuals. Tactics The tactics to execute direct marketing activities are direct mail, direct response, advertising (including infomercials and teleshopping), personal selling and telemarketing. Before I go into the details of each of these direct
Mass advertising benefits vs. direct marketing ●
Breadth of coverage versus a depth of relationship-building potential Communicated to the mass versus a targeted audience Attention of all, including competitors versus a targeted selective attention of intended customers Elicits recall or remembrance versus direct response Generates a customer’s functional or emotional impression versus leading to, or making a decision In mass advertising you pay for the universe of potential customers versus paying for a targeted and segmented cluster of customers
Marketing insight ❘
marketing tactics, it is important for a small business owner or SME marketer to be aware of the advantages and disadvantages of direct marketing.
a bad name. (Just like the annoying call I received from two banks while writing this article – they were offering me credit cards and cash backs!)
Advantages First and foremost, direct marketing empowers small business owners and SME marketers to give customers a better experience than mass marketing.
Another example could be a wrong mailing. Sending the wrong mail to the wrong target not only has the potential for financial disaster to a small business, but it can disproportionately increase the annoyance factor of their potential customers (like the mail catalogue I personally received at home in San Francisco, for women’s underwear. My wife Carol was certainly not amused. Neither was I!)
Direct marketing can help SMEs build deep relationships and segregate customers as individuals. Direct marketing has the potential to build continuing relationships with an existing customer. This is possible because a small business owner or SME marketer is able to maintain and manage a customer database, capturing all relevant information of a customer (For comparison, try to imagine the information or rather the lack of it on “walk in” customers in a retail environment). Direct marketing also enables a small business owner and SME marketer to test the market and measure as to what works and what does not. It also enables small business owners and SME marketers’ better flexibility to manage and control their costs. Small business owners and SME marketers are able to predict the outcomes of a campaign far better.
response that can be attained through traditional advertising from a potential buyer. No business can enhance their brand salience and therefore, the brand equity, with any mass communications strategies.
Significantly, direct marketing has a higher preponderance for customers to be motivated to respond. It also enables small business owners to better segment and target their customers.
When do you use direct marketing? Direct marketing is used when a small business has a narrowly defined target, or an SME needs to explain its product proposition in detail and if it aims to elicit a direct
Disadvantages Small business owners and SME marketers should be aware that if their direct marketing strategies are wrongly or poorly executed, then it could have severe negative consequences. For instance, junk mail, annoying telemarketers and intrusive direct sales campaigns have given direct marketing tactics
Direct marketing can sometimes be too direct, so much so that it fails to evoke the emotional
response from a potential customer or an existing one. Critical success factors There are two critical success factors that any small business owner should know before embarking on a direct marketing campaign. First, it is essential to keep in mind the target, which has to be selected on the basis of potential or perceived interest. The other critical success factor that small business owners and SME marketers should consider seriously is the offer itself. They have to consider seriously as to what it takes to provoke or elicit a response. As I conclude this first part of my two part series on direct marketing, small business owners and SME marketers should understand and internalise the following facts: the more we need our potential customers to react, the less willing they are to do so; the more the level of resistance from our potential and existing customer base, the more expensive it will be to buy the cost of sales time (i.e. the direct marketing costs). There is an inverse proportionality to the cost of persuasion and a pre-existing interest within a pool of potential targets. This means that if a potential customer is unaware or lacks an interest, or if a direct marketing list is not targeted correctly, it will cost a lot of money to persuade a customer in this universe to bite the bait! The lifetime value of a customer matters. There is a direct relationship to the lifetime value of a customer and the acquisition costs. Therefore, the more it costs to acquire a customer, the life time value of that customer decreases. The article will be continued in the August issue
John Lincoln has over 20 years of experience in telecommunications, worldwide, and is currently the vice president of marketing (enterprise) at Du. He has extensive senior expertise in international telecommunications sales, marketing, business development and customer service delivery.
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More than meet and greet Networking groups are sources of knowledge and starting points to new business relationships, writes Sandhya Divakaran.
e often find men and women exchanging business cards without even a glance at the name of the person they are talking to. This is a typical occurrence at most networking meetings, where collecting business cards is the name of the game.
It is important to understand that networking meetings are much more than mindless business card exchange opportunities. They are venues for building relationships, and then furthering a business. Organisations like Business Network International (BNI) provide value for business owners by way of referrals. National director of BNI Middle East
and East Africa Bijay Shah says: “We believe in building relationships; our networking meetings are structured in such a way that the members try to learn more about each other.”
an easier, more successful method of doing business, while being very cost-effective,” says Hamdan Mohamed, chairman of the Arab Business Club.
Productive BNI meetings are held early in the morning. “Our members find it easier to commit to the weekly meetings this way. Traffic is not a problem during weekdays, and the meeting does not even interrupt busy schedules of business owners. Some members even find the day of the meeting to be the most productive day of the week,” adds Shah.
Networks such as the IBWG and Heels & Deals are some of the prime networking groups that facilitate women. “We believe that every business woman, no matter her nationality, culture or belief, deserves to be supported in her efforts to be recognised as a professional career woman as well as a companion, wife and mother,” says Sue-Sharyn Ward, President of IBWG.
“Networking has been more successful after the recession. It is
“The reason we made Heels & Deals female only is because we spoke
to a lot of women and found that they didn’t feel all that comfortable attending some of the more male dominated networking events available,” says Claire Fenner, co-founder of Heels & Deals. “This was at a time when the country, and the world, was reeling from the economic depression and business owners needed to network more than ever to help get the exposure their business needed and to create trusting relationships with others they could do business with or be referred by,” she adds. Heels & Deals is especially popular for its speed networking nights, where entrepreneurs have two minutes to explain what their business is and what their specific needs are. They then swap over for two minutes, then one of the lines move down, almost along the lines of speed dating. It is a time-effective way for women to get to meet a lot of their peers or even potential clients in one evening. The women can then re-connect at the end of the evening or at another convenient time. Knowledge These groups also have sessions where speakers impart knowledge and insights, as well as explain local developments. “We have a lot of Europeans who need to keep abreast of local developments, such as changes in government regulations with regard to business, hence we conduct such sessions as well. Our most recent one was on the change in labour laws. It was quite successful,” says Mohamed. Referrals have been a huge part of the networking events held all around. “In the last 12 months alone, BNI has had 9,400 referrals,” says Shah.
Organisations such as these have helped tremendously to further business relations, especially during times when the business climate in the UAE was at its worst. There has been a lot of support offered at these organisations to entrepreneurs, business heads and decision makers. Relations “There was definitely an increase in the number and variety of networking groups that set up from mid to late 2009. The year 2010 saw a lot of industry specific groups set up as well. When times are tough, and business is not running in, or even walking through their doors, they need to go out and bring business in. At the end of the day, people like doing business with people they know, like and trust, so, business owners and professionals need to establish and nurture those relationships,” opines Fenner. Fast business deals The Arab Business Club also believes in this approach. The Club is a high-level networking platform for the top management of global enterprises and believes in facilitating faster business deals by giving opportunities for business
heads and decision makers to meet. Ward believes networking groups have been on the rise as early as 2002. The UAE now has a good representation from most global networking organisations. However,
“Networking has been more successful after the recession. It is an easier, more successful method of doing business, while being very cost-effective.” Hamdan Mohamed Chairman of the Arab Business Club
❘ Networking Industry insight
networking is not an activity that can bring in the business overnight. “We have transient markets in the UAE, owing to a large expatriate population. These are long term efforts. One cannot expect immediate results. Business relationships have to be cultivated,” advises Shah. “People need to be careful to not over-network. The art of successful networking is in the follow-up and nurture of relationships made. With so many networking events, the danger is in attending too many and not having the time for
“We believe that every business woman, no matter her nationality, culture or belief, deserves to be supported in her efforts to be recognised as a professional career woman as well as a companion, wife and mother.” Sue-Sharyn Ward, President of IBWG.
“When times are tough, and business is not running in, or even walking through their doors, they need to go out and bring business in.”
quality follow-up. Being active in three different types of network is generally recommended as sufficient so people should choose their networks wisely,” adds Fenner. “I’ve been with BNI for the past 18 years, and I find structured networking has real value. Networking helps to make new contacts especially for expatriates who don’t have any connections in the UAE,” says Graham Moore, a professional speaker, trainer and coach at Moore Success ME FZE. Networking can be a great activity for those who need a gentle push towards acquiring new clients. But just like every endeavour in business, one has to continually work hard. Being a part of a networking group is not a shortcut, but a stepping stone to success.
“We have transient markets in the UAE, owing to a large expatriate population. These are long term efforts. One cannot expect immediate results. Business relationships have to be cultivated.”
Georgina Hearson Founders of Heels & Deals
National Director of BNI Middle East and East Africa
Attaining a winning mind The only sustained edge any individual or group can possess today, is the quality of their mind, says Kevin Abdulrahman.
wo salespeople representing two different companies in the same field travel to establish whether there are opportunities to open up and expand into a new market.
Let’s assume, for the sake of this example, that the new region the companies are looking to expand into, is Africa, and the industry being the manufacturing and distribution of sandals (if you are not in the industry it’s ok, the lesson you will learn applies to everyone, whatever you are into). So, these two salespeople fly over, and, within a few days, they get on the phone and speak to their respective senior management teams and CEOs. The first salesperson turns around and says, “Well, I have been looking around and, frankly speaking, I don’t see any opportunities here. I think we should stick to what we are doing, or, look elsewhere. Let’s not be too worried about this market.” The CEO might say, “why not?” The salesperson turns around and with absolute disappointment utters (long sigh for dramatic effect), “It’s pointless. No one here wears sandals or shoes.” As a result, opportunities are apparently nowhere to be found for this first company. The other salesperson makes a similar call to update his management team and CEO of his findings. He says, “Prepare the manufacturing plant to increase their production. I need you to make things happen and have a container
packed with sandals sent to me right away.” Hearing the enthusiasm and excitement in the salesperson’s voice, the management and CEO can’t help but ask, “What’s with the excitement? What makes you think there is a market for sandals?” The salesperson, bursting with energy, turns around and says, “You have no idea how beautiful this market is. It is absolutely untouched. No one here is wearing sandals or shoes. With research, a lot of hard work and persistence, this can be ours for the taking. We will have the first movers’ advantage and dominate the marketplace.”
Same industry, same environment, same market. Two different salespeople. Two different results, both for the individuals, and ultimately, the outcome for their respective companies. Questions to ask What’s the difference that will dictate the results as to whether one salesperson’s career flourishes, while that of the other goes from bad to worse? Taking it to one step further and on a larger scale, what is the difference that will make a company boom, moving forward, or become yet another failing statistic? Before I answer, allow me to ask you
a very quick and simple question that I regularly pose to attendees of my talks to illustrate my point: What do we see with? The most common and quickest answer I get is, “I see with my eyes.” Yet, I will suggest that what we see with is not our eyes. We see through our eyes. You don’t see with your eyes. Your eyes are like a camera that captures a picture. A picture on its own has no meaning. You are bombarded with information to take in every second of every waking moment. It is the interpretation you give the picture that brings life and meaning to it, which is done by your mind. You, my friend, see with your mind. In life and in business, you will be dealing with events that will affect your results. On a day-to-day basis you will be tested and placed in positions where the difference between seeing an opportunity or a challenge will come down to the quality of your mind. So, what is the difference that will determine whether an individual (our two salespeople and their respective companies) would flourish or flounder? It comes down to the premise of many of my talks and trainings, which once grasped, you will realise is simple, powerful and crucial moving forward – the quality of your results is a direct reflection of the quality of your mind. We live in a world of rapid change. You can have the best systems in place. You could have spent big money on your marketing, advertising, IT infrastructure, distribution, product or service. But these can all be copied in a matter of months if not weeks, and today, you can be quickly outdone and outdated. As a company or group, the quality of your results is a direct reflection of the quality of your collective minds in your group.
The year 2011 can be seen as another year where you continue to complain that opportunities are nowhere to be found. It can be another year where your people can say that it’s impossible to hit their targets. The year can be filled with rejections and the much dreaded “No’s.” The alternative will be to do what winners do and take control. You can make 2011 the year to ensure that as a leader, you are continually striving to attain a winning mind, and equally important, invest in providing the mind nutrition for your teams to do the same. Raising your results will be a direct reflection of having raised the quality of the collective minds in your group. For those of you who do, you will be able to turn cries of opportunities being “nowhere” to “now here.” Those who invest in nourishing their minds will be able to see past the overused word “impossible” to see “I’m possible.” Only when you attain a winning mind will you realise that with every “No,” comes your edge over your competition to realise that it’s “On”. The only sustained edge any individual or group can possess today is the quality of their mind - the edge of Attaining A Winning Mind. Your individual and Group’s edge will come from the ability to interpret any given information or situation in a winning light to take advantage, achieve and, surpass yours goals.
Those who invest in nourishing their minds will be able to see past the overused word “impossible” to see “I’m possible.” Only when you attain a winning mind will you realise that with every “No,” comes your edge over your competition to realise that it’s “On”.
Kevin Abdulrahman is considered to be Asia’s most sought after motivational and leadership speaker who has Athletes, Celebrities, CEOs, executives, government entities models, musicians, private companies, public organizations, royalties, schools, sports teams and universities as his clientele. He is sought after to consult, coach, train, work with and speak to groups, helping them take their results to the next level. Kevin Abdulrahman is also the creator of training programs in the fields of self improvement, motivation, leadership and public speaking. Visit Kevin’s website KevinAbdulrahman.com or contact the management team on lubna.allaham@ kevinabdulrahman.com
Stop de-motivating your employees! Most companies get it all wrong. To get it right, managers don’t have to motivate their employees, but stop de-motivating them, says Anesh Jagtiani.
great majority of employees start a new job enthusiastically. But a survey, conducted on the employees of 52 companies in the UAE, found that 85 per cent of the respondents’ morale sharply declined after the first six months – and continued to deteriorate for years afterward.
Here are three ways to stop de-motivating your employees: Instill an inspiring purpose A critical condition for employee enthusiasm is a clear, credible and inspiring organisational purpose: a “reason for being” that translates for workers into a “reason for being there” that goes beyond money earned. Every manager should be able to expressly state a strong purpose for his unit. Starting a mission is a powerful tool, but equally important
is a manager’s ability to explain and communicate to subordinates the reasons behind a mission. The best way to do this is to use the power of stories, as they connect straight to the heart and can be remembered. Provide recognition Now get this: almost two-thirds of employees say that the higher management is much more likely to critcise them for poor performance than praise them for good work. A pat on the back, simply saying “good going,” a dinner for two, a note about an employee’s good work to senior executives, some schedule flexibility, a paid day off, or even a flower on a
desk with a thank you note are some of the ways managers can show their sincere appreciation for good work. I still have a written thank you card that was given to me by my manager eight years ago! Feedback and improvement First and foremost, employees whose overall performance is satisfactory should be made aware of that. Performance feedback is not the same as an annual appraisal. Managers should give actual performance feedback as close in time to the occurrence as possible. They should use the formal annual appraisal to summarise the year, and defer from surprising a worker with past wrongs. Comments concerning desired improvements should be specific, factual, devoid of emotion and, directed at performance rather than at employees personally. One should avoid making overall evaluative remarks (such as, “That work was shoddy”) or comments about employees’ personalities or motives (such as, “You’ve been careless”). Instead, provide specific, concrete details about the task and how you feel the job needs to be improved. The reason you are giving feedback is to improve performance, not prove your superiority. If an employer or a manager is able to inculcate some of the above mentioned points in the day-today workings of a company, it is bound to boost employees’ morale and motivate them enough to be enthusiastic about their work.
Anesh Jagtiani is the CEO of Empowering Leaders, a leadership training company. Read more of his articles on www.elgme.com.
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Shooting pictures become easier amsung Electronics Co. Ltd, announced the launch of the NX11, an upgraded version of the NX10,
The NX11 comes with an 18-55mm i-Function lens, The NX11 focuses on usability, with a change in the grip design to make shooting easier and more comfortable for users. Additionally, it has a lens priority mode dial, to simplify searching for the best mode for each lens. The camera also includes a convenient, one-touch i-Function button that activates common shooting controls like aperture, shutter speed, ISO and white balance, meaning easier and quicker configuration while shooting. The NX11 also provides high quality video with 720p HD recording.
ony Ericsson has launched the Sony Ericsson Mix Walkman phone and the Sony Ericsson txt pro. The Mix Walkman phone offers musical entertainment, while the txt pro offers seamless social networking functionalities facilitated by its full slide-out QWERTY keyboard and friends’ application.Both phones integrate full touch functionality. The phones include 3 and 3.2 megapixel cameras enabled with video recording and WiFi connectivity for chatting and browsing.
Desktop visualiser with camera pson has announced the Middle East launch of the latest desktop visualiser ELP-DC11 with a 5 megapixel camera on a hinged arm, designed to share 3D objects. The ELP-DC11 offers an affordable pricepoint. The large A3 shooting area ensures objects do not need to be precisely positioned or continually re-adjusted. Rotate the head of the arm through 90 degrees to adjust the camera’s viewpoint.
What’s in Samsung’s new notebook amsung launched its new, sleek, Series 9 notebook. Weighing 1.31kg, the notebook comes in a screen size of 13 inches and measures up to 16.3mm at its thickest point.
Powered by Microsoft Windows 7 and the second generation Intel Core i5 Processor with up to 8GB memory, the Series 9 Notebook accelerates performance using Intel’s intelligent Turbo Boost technology 2.0. PowerPlus is Samsung’s optimized battery charging technology that extends battery life in concert with the notebook’s power-efficient lithiumpolymer battery. Equipped with a vivid ‘SuperBright Plus’ display (400nit) with 16 million colour reproduction, the Samsung Series 9 notebook will be available in major retail outlets across the region.
ASUS Eee Pad Transformer wows the UAE SUS’ much anticipated ASUS Eee Pad Transformer is now available in the UAE. Starting at AED1,899, the Android Honeycomb tablet features an optional docking station. This provides access to a full QWERTY keyboard along with unique Android Function keys, turning the tablet Transformer into a full-fledged notebook. The expandable keyboard docking station also extends the Transformer’s 9.5 hours of battery life up to 16 hours. The Transformer has built-in SRS Sound technology, which provides a dynamic 3D stereo audio experience and a 5MP rearand 1.2MP front-facing cameras.
A touchpad, 3.5mm audio jack, two USB ports as well as a built-in SD Card reader, is available with the Transformer.
Fly high with the HTC Flyer onveniently compact and light for travel, the HTC Flyer tablet has a seven inch touch-sensitive 3D display and a superfast 1.5 GHz processor. The HTC Flyer is also the first tablet in the world to feature the HTC Scribe technology that integrates natural onscreen writing with thoughtful and integrated innovations. The HTC Flyer also comes with 32 GB internal storage, two cameras and two speakers. It features an upload speed of up to 5.76 Mbps and download speed of up to 14.4 Mbps. It has high-speed wireless capabilities and it supports countless video formats. It features Adobe Flash support and multiwindow browsing.
IMPACT SERIES SEMINAR e are increasingly blind to banners these days. We are so immune to ads, that we need an ad to shock us,” said Dr. Swaroop Savanur.
Dr. Savanur, an expert in the field of Neuromarketing, was speaking at the recently held Inspiration Series of The Intelligent SME at the Media Rotana hotel in Tecom. The Inspiration Series are free, interactive sessions that address a topical theme for decision makers and CEOs of small and medium enterprises. “Ninety per cent of the ads we see fail to create the desired impact. Marketing is an art, but it is also a science,” noted Savanur. He also spoke of a “buy” button in the brain, that instigates decisions to buy a product or service. “Seven seconds before every reaction, there is a subconscious decision that is taken in our brain,” Dr.Savanur said. Neuromarketing is then a science that psychoanalyses the brain in order to understand what will influence a customer to buy what is being advertised. He said many tests have been conducted in this field that assert there is additional blood supply in different parts Right: Dr. Swaroop Savanur, Neuromarketing expert ; Below: Mustafa Ainen, GM of Media Rotana
Impact series brought to you by
of the brain that correspond to customer behaviour. “The different parts of the brain are responsible for the many decisions that we make, they have their separate functions,” said Savanur. The other speaker of the evening, John Lincoln, vice president of marketing (enterprise segment) spoke on the topic “The experience is the proposition.” Lincoln spoke on how experience has evolved into a major component from a product-based economy. He stressed on understanding the brand and the target group, before allocating resources to building the brand. “It’s all about the customer now, and there is an experience at every customer touch point,” he added. Shantanu Phansalkar, CEO of SPI Publishing, called on the support of the SME industry, to bring about a positive change in the economy. “Through The Intelligent SME, we will support SMEs by highlighting their successes and failures, and giving them the voice they lack. We want to build a higher ecosystem of mutual benefit,” Phansalkar said.
Shantanu Phansalkar CEO, SPI Group
John Lincoln, Vice President of marketing (enterprise), DU
Above and below: SME marketing heads and decision makers at the impact series interactive section
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Business meets Glamour eading designers Akl Fakih and Maryam Salman showcased their latest creations to a full house at the second edition of the Fashion Club Party recently. The energy at the Terrace, the roof top lounge of the Media Rotana was vibrant with great music by Dj Paul Hamilton.
An informal arena for decision makers to experience glamorous side of the fashion industry, the SPI group, came up with the idea to bring about interaction between both industries. The Fashion Club, an event
organised by the SPI Group, is dedicated to all those designers who have made a place for themselves in the industry and for those looking to make a mark. The Fashion Club Party is an occasion to hallmark what is fabulously cool and what is not. Fashion divas can showcase their glamorous designs, at the perfect setting. Guest of honour at the event, Akl Fakih gave the audience a glimpse of his resplendent couture, a dreamy collection encompassing various colours and fabrics like tulle, chiffon and taffeta; while Maryam Salman, an enterprising emirati designer, showcased her unique creations inspired by the beauty of colour and
the beach, with a touch of spring, at the party. Both designers showcased extravagant gowns, evening dresses, and exquisite bridal wear. Dubaiâ€™s very own soulful singer Layla added charm to the event by presenting the fashion show. The Fashion Club Party has been a collaborative event supported by Media Rotana, the hospitality partner, Gargash Group and Dubai SME, the alliance partners, RAK Bank and Du, the corporate partners, styling partners Tameem and Mohammed of Mawla Modelling Saloon and Asaad Khamil and Wassup Dubai, the media partners.
Photos by : Asaad Khamil
Paul Hamilton has been playing electronic music for over a decade. He is currently playing and producing deep house, vocal house, tech house, progressive house and techno in September 2005, Paul won the Global Heineken Thirst Dj competition (the worlds biggest Dj competition) impressing the likes of Sander Kleinenberg as one of the judges. He has worked with many artists such as Tiesto, Sander Kleinenberg, Roger Sanchez and Basement Jaxx.
Tameem & Mohammed Mawla
Upcoming Events ❘
Events Calendar July-August SBC Professional Networking Date: June 26, 2011 Venue: Spanish Business Council, DXB A professional networking meeting where new ideas and contacts are shared. The event will be held in Spanish. AED 50 per person. www.spanishbusiness council.ae INDIA AIDC SHOW 2011 Date: July 01 - 04, 2011 Venue: HITEX Exhibition Centre, Hyderabad, India International Exhibition & Conference for Automatic Identification & Data Capture Technologies featuring barcodes, biometrics, radio frequency identification (RFID), smart cards, electronic articles surveillance (EAS), real time locating systems (RTLS), mobile computing, wireless & networking solutions etc. www.indiaaidcshow.com JOAILLERIE LIBAN 2011 Date: July 01 - 30, 2011 Venue: International Fairs and Promotion Hazmieh, Off Jisr El Basha, Beirut International jewellery, watches and luxury goods exhibition that showcases the latest jewellery trends as well as new jewellery manufacturing technology. www.ifpexpo.com METALS INDUSTRY, MINES AND RELATED INDUSTRIES 2011 Date: July 01 - 30, 2011 Venue: Mashad Fair Grounds, Mashad, Iran Metals Industry Mines and Related Industries 2011 is an event featuring metal products and manufacturing technology industry. Metals Industry, mines and related Industries 2011 exhibition will showcase all types of metal manufacturing technology, metal products, tools and equipments. www.expo.ir
REED GIFT FAIRS - BRISBANE 2011 Date: July 02 - 05, 2011 Venue: Brisbane Convention & Exhibition Centre Reed Gift Fairs are Australia’s premier Trade only Exhibitions for the Wholesale Gift Products, Homewares, Fashion Accessories, Kitchenware and Jewellery Industries www.reedgiftfairs.com.au OFMEX 2011 Date: July 6-8, 2011 Venue: Tokyo Big Sight, Japan International Office Machines & Equipment Expo Tokyo is the world’s leading market for office machines and equipment. www.ofmex.jp FOODTECH AFRICA 2011 Date: July 17 - 19, 2011 Venue: Gallagher Convention Centre, Johannesburg, South Africa FoodTech Africa is designed to provide food and beverage manufacturers with the necessary inputs to meet the changing demands imposed by consumers. www.exhibitionsafrica.com RAMADAN FOOD EXHIBITION 2011 Date: July 17 - 29, 2011 Venue: Kuwait International Fairs Ground, Mishref, Kuwait The Ramadan Food Exhibition is the seasonal centre of innovation in food, foodstuffs and beverages. Local and international exhibitors not only source the latest products available but can keep abreast of industry trends, future developments and benefit from networking with key names from all sectors of the food and drink industry. www.kif.net SMPTE CONFERENCE AND EXHIBITION 2011 Date: July 19 - 22, 2011 Venue: Sydney Convention & Exhibition Centre - Darling Harbour, Australia
Best solutions for future projects for professionals working in Radio, Television, Film, Animation, Multimedia and Broadcast Engineering www.smpte.com.au
DEAL - DUBAI ENTERTAINMENT, AMUSEMENT & LEISURE SHOW 2011 Date: July 24 - 26, 2011 Venue: Dubai World Trade Centre Showcasing the newest equipment and learning at dedicated seminar programmes for networking with industry peers, developing relationships and providing new ideas among operators throughout the Middle East, African, Mediterranean and Asian countries. www.themeparksdubai.com
RAMADAN & EID FESTIVAL 2011 Date: August 09 - 30, 2011 Venue: Abu Dhabi International Exhibition Centre The popular exhibition combines a consumer show with traditional celebration. The event showcases family-friendly consumer goods, unique gift items, Arabic food, toys and games, as well as traditional song and dance to bring in the festivity and an ambiance of togetherness during the month of Ramadan. www.adnec.ae
CRTS CHINA CHINA INTERNATIONAL RAIL TRANSIT TECHNOLOGY EXHIBITION 2011 Date: August 22-24 Venue: Shanghai New International Expo Centre The latest developments on rail locomotive and rolling stock, rail infrastructure construction, information equipment, railway signalling and communication, urban rail projects and much more. www.hnzcrts.com
Where are the winners? Utpal Bhattacharya explains why banks need to beef up their data infrastructure capabilities and offer more asset products to SMEs. still get confused when speaking to bankers about the positioning of SMEs within the industry. Some argue that the segment should be bundled with corporate banking, others say that it should come under the retail head, and there are still others who suggest that SMEs should have their own space. I am unwilling to take any side, although I still feel that the issue is yet to find conclusion amongst top managers at banks, in the region. And that is also the reason why, when it comes to risk management, banks still have corporate risk managers analysing a bank’s SME portfolio and not the retail risk department.
The other day, I sat down over coffee with the analytics head of a bank, asking him a few questions on how his bank manages the SME case. His answer was quite blunt and straightforward. In short, he said that most banks, including his, have been only doing rudimentary work on SMEs. There is still no focus on either analytics or risk management when it comes to SME as a segment, he said. This is also the reason why most SMEs continue to face the downside of judgemental lending in the UAE. But do SMEs deserve such treatment, especially in a country like the UAE, where 90 per cent of businesses are small or, at best, mid-sized in their operations and turnovers? Unfortunately, the hangover of having to deal with names continues to affect lenders
in the country. They seemed to have not even learned from the recession, when large corporate houses and institutions were defaulting on their loan repayments. And so, the story continues, locally, that a larger name finds it easier to borrow, while an SME has to make do, either with personal loans, withdrawing cash against credit cards or, just bringing own capital. Not having access to a credit market does affect the growth of small businesses, and in the larger context it limits a country’s economic growth. With 30 free zones in the UAE that incorporates and nurtures mostly small and medium enterprises, the setting seems tailor-made for them, except for the lack of access to an unbiased loan market, equipped to handle and service the variegated world of the SME segment. I do not see heads coming together to beef up banks’ SME asset business yet in the UAE, although, on the liabilities side, there are some interesting products on offer. Nonetheless, I am optimistic that things will change in the near future, and senior managers at banks realise that there is money to be made from SMEs, selling both liabilities and asset products. Of course, for this to happen, banks will have to start investing in creating robust data infrastructure, which is missing today. Investment in right software has to be made a priority, while training should become a focus at the risk departments.
It is also important that banks should look at getting SME specific expert scorecards and indigenise these to suit the UAE market. The establishment of a national credit bureau should also go a long way to help in this regard. All these are too easily said than done, though; still, one has to keeping harping on these issues to change things in the system, as a country can ignore its SMEs only at its own peril. And, my last word for this edition is that those banks that take a lead in establishing effective risk management systems that serve the specific needs of the SMEs, will come out winners in the UAE, in the long run, as they will be able to offer great asset products that have a huge market, but hardly any supplier.
Published on Jul 2, 2011
The second issue of The Intelligent SME by SPI Group focuses on the free zones of UAE, the issues underlying the automobile spare parts shor...