2019

Evaluation of Business Prospects

in UAE Automobile Sector

Submitted By:
Anwesha Sahoo (18PT1-04)
Arunay Anand (18PT1-05)

Submitted To:
Ankur Roy
International Business
Management Development Institute
6/13/2019
Evaluation of Business Prospects in UAE
Automobile Sector by a US based Company

ABOUT THE COMPANY AND ITS NEW STRATEGY

 A&A Motor Company: USA based

 small cars to luxury cars including Electronic Motor Vehicles (EMV).
 Business expansion to the Middle East.
 The United Arab Emirates has a growing automobile market

Geographical diversification model is undoubtedly one of the pivotal strategies to ensure profitability in high R&D
expenditure and investment.

WORLDWIDE AUTOMOBILES TRADE

The top exporters of Automobiles

Germany($158B), Japan ($101B), the United States ($56B), Canada ($46.5B) and Mexico ($45.1B)

https://atlas.media.mit.edu/en/profile/country/are/#Imports

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A glance at The United States exports.

Automobiles are 3rd largest exports of USA. The U.A.E. is the 6th largest destination for U.S. exports of cars ($ 1.4 bn.)

https://atlas.media.mit.edu/en/profile/country/are/#Imports

Top Import products of UAE

In 2017 the United Arab Emirates imported $175B, making it the 25th largest importer in the world.

https://atlas.media.mit.edu/en/profile/country/are/#Imports

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Top import origins of UAE

https://atlas.media.mit.edu/en/profile/country/are/#Imports

UAE COUNTRY PROFILE

 an open economy with a high for every capita salary and a considerable yearly exchange excess.
 Hindrances to exchange are low, and business operations are supported by regulations that bolster open-
market arrangements.
 In less than four decades, the country has changed from a tribal society dependent on horticulture and
angling to an entrepreneurial example of overcoming adversity with world-class framework.
 The economy performs aggressively in numerous territories of monetary opportunity.
 upfront and constructive business atmosphere with high level of political strength – A significant domain for
business visionaries.
 significant improvement since its freedom and world’s 4th largest oil-maker
 it has changed the desert land into a place where there is six-path expressways & skyscrapers.
 the Business and Visitor Centre of the Middle East.

Tourism is one of the most important area where UAE is generating a substantial amount of income. The UAE is a
member and takes initiative in numerous universal associations, e.g. the United Nations (UN), the World Trade
Organization (WTO), the Arab League, the Gulf Cooperation Council (GCC), and so on.

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EASE OF DOING BUSINESS

Source - http://www.doingbusiness.org/content/dam/doingBusiness/country/u/united-arab-emirates/ARE.pdf

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As per latest ranking of Ease dong business – Dubai stands #11 at world ranking which is significant good rank for a
company to start their project. Couple of factors highlighted from above graphs are
 High score in Starting a business (94.06) which is very vital for our assessment
 Resolving insolvency is low – this can be a risk for starting a new project

The following are reforms implemented since 2008.

 Starting a Business: by improving online registration.
 Getting Electricity: eliminating all costs for commercial and industrial connections of up to 150 kilo-Volt-
Amperes (kVA).
 Registering Property: increasing the transparency of the land administration system.
 Getting Credit: introducing the possibility of granting a nonpossessory security right in a single category of
movable assets without requiring a specific description of the collateral, by allowing out of court
enforcement of the security interest.

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A COMPARISON WITH USA

Trade relation with USA:

 friendly relations since 1971.

 strong bilateral cooperation on various issues like defense, energy policy, non-proliferation, law enforcement,
trade, and cultural exchange.
 Promotion of peace and security and improving economic growth and educational opportunities in and around
the world.
 a robust trade and investment relationship mostly due to UAE oil exports.
 In 2017, the US had a $15.7 billion trade surplus with the UAE, the USA’s third largest trade surplus globally.
 Economic Policy Dialogue was formed in 2012 to promote development initiatives intended to strengthen the
economic, trade, and commercial relationships between the two countries.
 The United States provides Export and Border Security (EXBS) assistance to the UAE.
 The UAE and USA belong to number of the same international organizations, including the United Nations,
International Monetary Fund, World Bank, and World Trade Organization.

Barriers: The U.A.E.’s trade policies are always in alignment with. There are few trade barriers, like automotive parts
should not contain asbestos, and products should not have been manufactured or transited through Israel.

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Hofstede analysis
Dimension UAE
Power Distance: Very high score shows there is a hierarchical
order in which everybody has a place, and
which needs no further justification.
A collectivistic society in which people have a
Individualism
close long-term commitment to the member
‘group’. They have high loyalty andfosters
strong relationships where everyone takes
responsibility for fellow members of their
group.
Masculinity Score of 50
Neither Masculine or Feminine.
Uncertainty They prefer avoiding uncertainty. They have
Avoidance rigid belief and behaviour and are intolerant of
unorthodox behaviour and ideas. They have an
emotional need for rules. People have an inner
urge to be busy and work hard, be precision
and punctual.
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USA
Very low score on Power Distance(40)
in combination with high score of
Individualist (91) cultures
They focus liberty and justice for all.
Managers rely on team members for
their expertise. Both managers and
employees expect to be consulted and
information is shared frequently.
Score of 62
They accept new ideas and are willing
to try something new or different.
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CAGE Framework
Cultural Distance Administrative Distance
USA and UAE have high UAE and USA enjoy strong
cultural distance. Already bilateral cooperation on
explained under Hofstede. various issues like defense,
energy policy, non-
proliferation, law
enforcement, trade, and
cultural exchange. They
work together to promote
peace and security and
improve economic growth
and educational
opportunities in and
around the world.
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Geographic Distance Economic Distance
Geographic distance is not UAE has low barriers to
a hindrance for the trade. international commerce.
UAE has well developed The UAE has one of the
transportation most open economies in
infrastructures. the world. Economic
Policy Dialogue was
formed in 2012 to promote
development initiatives
intended to strengthen the
economic, trade, and
commercial relationships
between the two
countries.
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AUTOMOBILE INDUSTRY IN UAE

 The UAE is known for its flexibility and the automobile industry is also perceived the same; it not only braves
the slowdown in the sector - it is also gearing up for a brighter 2019.
 Major drivers that would be influencing market are high buying power capacity, rise in tourism and
infrastructure developments; and automotive trade.
 A culture of car lovers

Why the Middle East is a crucial market

 The Middle East boasts the highest per capita spending on luxury vehicles than any other region in the world.
 In the UAE, one in seven cars sold is from a luxury brand, with BMW, Audi, and Mercedes in highest demand.
What’s more, the desert life pumps up the SUV market: one in two cars purchased in the UAE is a dune-ready
SUV.

Growth drivers

 Low fuel costs

 Energetic development in every sector
 Low import tariffs
 High per capita disposable income
 A favorable tax regime
 Attractive insurance options
 Easily available finance options
 Sharply increasing population and increasing demand
 Increasing tourism in the country
 Increasing immigrants from neighboring countries with inadequate public transport
 Increasing number of vehicles coupled with hot climatic conditions and a rugged terrain, which affects the
lifespan of tires and batteries, has created a thriving automotive aftermarket in the region.

A sustainable future : Alternate Fuel Vehicles

 The U.A.E. has been promoting electric vehicles in order to reduce carbon footprint and is it also
focusing on its regulations governing EV’s.
 Government entities, like the Dubai Water and Electricity Authority (DEWA) and Dubai Silicon Oasis
Authority (DSOA) have installed EV charging stations in the UAE.
 UAE also working on standardization of imported EV’s in order to solve issues of overheated
batteries, operating in extreme heat and humidity, preventing drivers and passengers from the risk of
electric shocks and protecting passengers in case of front and side impacts.

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Barriers to market entry
 Compliance to safety regulations issued by the Emirates Authority for Standardization and Metrology (ESMA).
 Compliance to Head restraints in all seats and air bags for the driver and the front passenger.
 Compliance to Safety belts and Anti Braking System (ABS)
 Prohibition of extra seats in the aisles for any motor vehicle with a riding capacity of 4 or more
 Alarm to notify when drivers exceed speed limit of 120 km in cars
 Also, after export from origin country steering wheels must not be modified and there must be no damages
on the outer body and automobiles must be accident free

Threats

Toyota, Nissan and Mitsubishi are the leading sellers of automobiles. Out of total passenger car sales in the U.A.E over
54.3 percent sales are of these brands. From USA manufacturers, only Ford and Chevrolet are amongst the top 10
brands.

Major challenges faced by the automotive industry in UAE:

• The slowdown in the economy - The sluggish macroeconomic environment along with the constant softness in oil
prices has broadened the economic deficits to a record high. Subsidy cuts on fuels as a part of GCC Government fuel
price restructuring are influencing petrol prices. These factors are likely to impact the demand for vehicles adversely.
• Intense competition - GCC automobile market is highly competitive with several dealers. This results in low brand
loyalty and price sensitivity among consumers.
• The threat from used car industry - The booming used-car market is an additional challenge to already competitive
automobile industry in the region.
• Expensive imports - Increasing appreciation of the Japanese Yen, Euro or the Korean Won against the US Dollar
since the last year has influenced the GCC market making imports costlier.
• Government regulations - Government norms like the law of one dealer per automobile manufacturer in the UAE
are posing a challenge to entrants. Moreover, steps taken to deal with increasing environmental concerns over global
warming like a strict oversight on emissions are posing a challenge for manufacturers. Manufacturers need to pay
additional compliance and technology costs which ultimately increase vehicle costs. In addition to this, factors like
growing emphasis on nationalization of jobs and limited local talent pool are creating a challenge for the GCC
automobile industry.
• New challenges from the customers - In addition to this, high mobility and connectivity, growing consumer
expectations and a wide array of choices are posing challenges for manufacturers and dealers.
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STRATEGIES THAT CAN COME HANDY:

• Growing economy with the healthy banking sector, high GDP and increase in public spends along with the
willingness of global auto manufacturers for setting up and expand new production facilities and distribution networks
can boost the demand for LVs.
• Government incentives, availability of raw material and regional demand can further be the driving factors for new
set-ups of assembly/manufacturing facilities.
• There will be demand for small cars from expatriates and youth, luxury cars from wealthy families whereas SUVs are
preferred due to rugged terrain and large family size.
• Fleet sales growth and increasing demand for used vehicles are creating more opportunities for the dealers.
• Dealers and manufacturers can work together for optimization of parts distribution and expansion of maintenance
and service network.

CONCLUSION

 UAE market is favorable for setting up the business based through bilateral trade relations
between US and UAE.
 Also, it is being a buyers' market and with growing demand of automobiles its undoubtedly
highly profitable.
 As per experts view market confidence has grown due to economic growth of 3.5% in 2019
(as per IMF records). Also, EXPO 2020 Dubai is a strong driver of demand.
 We can surely explore Electric vehicle segment as its being supported by UAE Government
which will definitely give an edge on competition. This is going to have a long-term positive
impact on the business of the EV segment of our company.
 Further, weaker dollar over the Euro will add to our advantage, which will lead to cheaper
cars being imported from USA as compared to local Dubai currency.
 However, we need to focus on best customer service in order to have beat the competition
and have a wider customer base.

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