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Innovation critical to Dubai’s success

A lot has been said and seen about Dubai having built something out of what was considered nothing.

A long time ago, its founders started a tradition of welcoming people with diligence, ideas and perseverance to come here and prosper, which has continued in its various reincarnations. In recent years, its speed of growth and buildings evoked the envy of many a competitor and as the boom slowed down, the hankering began. While there are some areas where more prudence would have been desired, a lot of pioneering work often gets criticized. It does not require a rocket scientist to understand that time has come to reinvent and rebuild on the strengths, which are many, and build on its long tradition of entrepreneurial innovation.

Like our founding fathers, it’s time to welcome the creators. Creators are those who look beyond the ordinary and build things that leapfrog them and those around them into prosperity. Be it artists, designers, programmers, thought leaders or free thinkers – we need more of these to come and make Dubai the beacon of creativity and creation in the region. Remember a majority of jobs and opportunities are created by small businesses, those with less than 20 people. Reduction of licence fees, visa costs, rentals and front loading of the setting up process will make Dubai attractive for a lot of such people.

A case has often been made for the economic downturn having made Dubai an unattractive market. But then Dubai was never a local story – it was the best gateway to the whole region. The strength of its infrastructure, geographic location and connectivity are beyond compare, despite the financial downturn and impossible to match by any other city, by far.

Building on strength
Let’s build on this strength to remove all hurdles to its success. Let the government consider removing all barriers to setting up new ventures, and actually encourage small companies. In the past large corporations have had an advantage of being able to negotiate better terms due to their clout, Let’s turn it in favour of innovation and enterprise. Remove the link between license and real estate and the overemphasis on transaction-based clusters.
The downturn has made business in these clusters unviable and counter-intuitive to enhancement of small and medium enterprises (SMEs). Encourage the filling up of empty real estate by people who will actively commit to create, bring innovation to the fore and create jobs and support the economy.

Let their success be counted by the number of real partnerships and enterprises they generate with the national youth. Dubai was built by people who thought outside the box – encourage this pioneering spirit by reiterating the need for such initiatives. New leaders of the national workforce need to be guided, but at the same time encourage them to think anew and not to fear failure, nor be afraid to air their ideas.

What we need is a change in sentiment to one that is encouraging, inspiring and full of positive ideas for a future that beckons. Undue emphasis has been given by some quarters on the odd headline emphasising the eternal tussle of tradition and the drive to being a modern metropolis. With growth and modernization comes a lot of responsibility and balancing the yin and the yang is a delicate are. But, in the drive to excellence we need to focus on the larger goal and probably be prepared to such instances being blown out of proportion.

What will speak louder than anything is our success to build on our strengths to achieve the pinnacle in our carefully chosen areas of excellence. The new generation is not afraid of hard work, in fact, it revels in challenging times. It’s time to channel their drive and power through the guidance of the more experienced into making Dubai cement its position as an unparalleled hub of innovation, entrepreneurship and creativity.

This article originally appeared on Gulf News.

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Emiratis share ownership in 95% of firms

UAE nationals share ownership in 108,035 companies or 94.9 per cent of the 113,832 registered in Dubai (outside the free zones), according to Dubai Chamber of Commerce and Industry. The total number of companies registered in Dubai exceeds 135,000, including offshore companies and those registered with free zones. However, in terms of sole ownership, Emiratis own only 22.31 per cent, or 25,400 companies.

Indian investors rank second with partnership in 20,038 companies while Iranian and Pakistani businessmen share ownership in 7,634 and 6,532 companies respectively. This is under a complex companies ownership law that restricts foreign shareholding in a company to 49 per cent.

British and American expatriates share stakes in 2,200 and 997 companies respectively while Egyptians and Iraqis share stakes in 1,200 and 1,065 businesses. Bangladeshis rank ninth with shares in 752 companies while Germans own stakes in 546 companies.

Sleeping partner
However, analysts said the numbers might not reflect the actual ownership. Prasant Gulati, secretary general of the Indian Business and Professional Council (IBPC) said: “In such a complex companies law, it would be difficult to gauge the real numbers as most companies under the UAE nationals are actually owned and run by the expatriates. “By any count, the largest investor group is Indians. This does not reflect,” he said.

However the Dubai Chamber of Commerce and Industry said most companies with more than one shareholder were run by foreigners, with the Emiratis remaining inactive as a “sleeping partner” for an annual fee starting from Dh3,000. The Emiratis relinquished management rights by issuing a power of attorney in favour of the expatriate partner, either designated as managing director, partner or general manager. The partnership was renewed with the fee every year. While the sleeping partner remained responsible for labour approvals, visa and immigration issues, the expatriate partner undertook risks, finances and losses and gains.

Despite these limitations, the number of companies was growing, regardless of the current economic slowdown. “In the first half of the year, 5,098 new members joined Dubai Chamber, which is an 18.9 per cent increase from 4,289 in the same period last year,” said Dubai Chamber of Commerce director general Hamad Bu Amim.

UAE nationals also took an active role in some companies where they shared the risks and profits along with their foreign partners. These companies include Limited Liability Companies (LLCs), Establishments, and Professional Establishments, and did not include those registered with the various free zones in the emirate. Bu Amim said raising the foreign investors’ ceiling could help change the equation. “We expect increasing the share of foreign ownership to improve the appetite of foreign investments to come to UAE markets.

However, we need to keep in mind that higher ownership is not the only element that guarantees more FDI, there are other issues such as investors’ protection, cost of doing business, laws of dispute resolutions, bankruptcy law, etc.,” he said. “We also think that such increase of foreigners’ ownership stake should be restricted to certain sectors that the country would like to grow, or know-how and technology we like to attract, and limited to flow of high capital in hundreds of millions of dirhams.”

Main business
Although the Department of Economic Development (DED) remains the main business licensing authority in Dubai, it remains mandatory for registered companies to join the Dubai Chamber. Foreigners are required to forge a partnership with UAE nationals in order to obtain business licences under various categories. Foreign investors can, however, enjoy 100 per cent ownership in companies registered with free zones.

More than 20,000 companies are registered with about 20 free zones in Dubai, where companies are largely owned by foreigners. Apart from that, there are 10,000 offshore companies licensed by three offshore licensing bodies.
Foreign investment in free zones is growing faster than those outside the free zones. Dubai Airport Freezone (DAFZ) reported 63 per cent growth in sales during the first half of this year, while 875 new companies registered with Ras Al Khaimah Free Trade Zone (RAKFTZ) during the same period.

“Interest in free zones among foreign investors remains high. However, they invest in non-free zone licences only when they are required to do business within the country,” investment adviser Jitendra Gyanchandrani, chairman of JCA business consultancy, told Gulf News.

This article originally appeared on Gulf News.

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Stock options could benefit UAE companies

Giving employees a share of the business through stock options are an important incentive for staff and increases the resilience of a company during an economic downturn, according to a recent report by Cass Business School, in London. However, this staff incentive is not easily available in the UAE. While EOB’s have proven to be resilient during the downturn, the number of business in the Middle East offering this business model are much less common compared to the UK or US due to the local ownership regulations. In most cases, stock options for employees are simply absent.

“The set up in the UAE is not very conducive to employee-owned companies as our law here does not support stock options. It’s not easy to build mutli-levels of shares and it makes it difficult for people to use share holding as a form of incentive for employees,” Prashant Gulati, the secretary general of the Indian Business and Professionals Council in Dubai, told Gulf News.

While EOB’s have proven to be resilient during the downturn, the number of business in the Middle East offering this business model are much less common compared to the UK or US due to the local ownership regulations.

Part ownership

An EOB is a business that is owned in whole or partly by its employees. Employees are often given a share of the business after working with the company for a certain period. If local companies choose to implement this option, an offshore structure will have to be created which can be complicated and expensive.

“Although it is possible to build an employee-owned business in the UAE, the sponsorship model, the majority expat population, the transient nature of the work force, and company law requirements create an environment in which employee-owned businesses are more challenging to build and run,” Dr Armen V Papazian, financial economist and CEO of Keipr, a consulting firm that specialises in business analytics and intelligence told Gulf News.

The UAE business landscape is dominated by government owned corporations and family conglomerates which are not the typical candidates to introduce employee-ownership. Medium enterprises, which tend to be located either in free zones or as domestic companies set up in partnership with nationals have owners as employees for visa sponsorship purposes but the vast majority of them are not typical employee-owned businesses, Papazian says.

However, international companies such as Mott MacDonald a management, engineering and development consultancy that have extended their EOB model to the Middle East, say they are experiencing success.

“The EOB model has aided our growth in this market, as expansion is financed through the company funds with a confirmed policy of growth decision making. The model also provided us with more resilience during the economic downturn. We have been able to support our clients through difficult times, with a view to long term business relationships,” said Paul Looker, from Mott MacDonald. “In the Middle East at present many of our publicly owned competitors have been under stress with their stock market positions, so being structured as an employee-owned business has been a major benefit for us.”

“Resilience … has been neglected as a crucial aspect of company performance over the past two decades. Instead, business strategy and public policy have been dominated by an unremitting focus on maximising share value.” said Joseph Lampel, professor of strategy and entrepreneurship at the Cass Business School, London.

This article originally appeared on Gulf News

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Business Councils Vital Lifeline for New Entrepreneurs

Foreigners wishing to set up a business here can feel daunted. This is where business councils representing their country of origin can help. “In a country where a support network is so important, no small or medium enterprise can succeed without the help of others to understand the environment, local customs, and for contacts with private or governmental, French or local entities,” said Fabienne Lucas, director at the French Business Council, Dubai and the Northern Emirates. “Nothing is more precious than having someone who understands the situation explain to you the do’s and don’t’s as seen through French culture before starting [a business here].” Initially, language can also seem an insurmountable barrier. When you have difficulty understanding Arabic, translating written materials like contracts can get tricky. Here too, a business council can help as the FBC does by providing a low-cost service to translate official documents for its members.

Business councils representing various countries help newcomers to the UAE set up businesses. Almost all major communities represented in the country have business councils that assist them in the initial days.

Specialised knowledge
The specialised knowledge provided by the business councils about the local market and practices can point entrepreneurs on to the right track. “The business council can direct them to the right people or institutions,” said Lucas. “We benefit from our privileged relations with lawyers, free zones, official representatives and a lot of professionals specialising in setting up businesses in the UAE, and we share all our contacts with members.” The strengthening economic recovery will create more business opportunities in the region. New players find depend more on such support networks than established businesses. More so as many of them are small or medium businesses.

The FBC has recorded increases in the number of its member enterprises each year since 2002, with the proportion of SMEs in their ranks always being the largest. Moreover, its 2010 membership survey showed the UAE was the preferred base from which to do business across the region. “Connectivity is the major reason why SMEs look to Dubai as a base,” Prashant Gulati, secretary-general of the Indian Business & Professional Council (IBPC) told Gulf News. “It does however lack support in the setting up and the financial support required to set up and encourage small businesses, especially for expatriate-owned companies.”

Major presence
For every nationality that has a major presence in the country, there is a business council. “It is important that the business council provides whatever support it can to its countrymen, who are planning to set up, and assist in developing and enhancing the local economy,” Gulati said. Entrepreneurs who are starting up should inquire with their local business council about the services on offer for start-ups. The FBC can provide for a business centre, shared assistants and recruitment services. Another benefit to being a member is the opportunity to network. For instance, The IBPC regularly organises dedicated events where speakers are invited to provide specialised information to members of the network. “The biggest support SMEs can find is a chance to interact with their peers, especially the successful ones who have been here and are leaders in their line of business,” Gulati said.

The FBC recently created ‘Club Synergie’ dedicated to SMEs. Every two weeks, 12 to 15 SMEs interact over a three-month period. At the end of the sessions, they get to know each other better and are able to find and refer business opportunities amongst themselves. In other words, a re-run of the ‘One for all, all for one’ maxim.

The benefits to being a member of a business council:

  • The member can get help in conducting market surveys, find distributors, understand the best way to set up the firm and assistance in tapping human resources or hiring staff
  • An opportunity to network with potential clients, partners, distributors, other businesses from the same sector. To get in touch with all those potential contacts on your own will take years!
  • Knowledge of the market through experts in different fields
  • Benefit from the solidarity of the different business communities in a global network
  • To create awareness of SMEs by listing in the directory of the business council

This article originally appeared on Gulf News

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Industry ventures get low priority

Misguided perceptions, and not a lack of opportunities, are what prevent Emiratis from venturing into small industrial businesses in a big way. An almost ingrained sentiment that anything to do with industry is not a ‘glamourous’ calling prevents young Emiratis from making the most of the available opportunities. On the skill development side, the UAE has multiple technical institutions and colleges. But Emirati participation in industrial projects is limited to ownership while the actual management and day-to-day operations are handled by expatriates. A case in point is small industrial companies in Sharjah employing 69,000 workers of whom only 1,555 are Emiratis. Small businesses traditionally play a major role in lowering unemployment in countries. In countries such as the UK and Thailand, 27 and 71 per cent of the wor force is employed in small and medium enterprises.

On the skill development side, the UAE has multiple technical institutions and colleges. But Emirati participation in industrial projects is limited to ownership while the actual management and day-today operations are handled by expatriates.

Hassles
So why are Emirati entrepreneurs shying away from small to mid-sized industrial projects? “The reason is it’s not lucrative enough, it’s too much hassle, and too much risk which may or may not make it viable,” said Prashant Gulati, president of The Indus Entrepreneurs Dubai, an entity supporting aspiring business start-ups. Moreover, the overwhelming mentality of the UAE entrepreneur is geared towards the trade and services industries. “They are thinking of a quick profit, buy it today, sell it tomorrow,” said Abdul Sahib Al Sajwani, treasurer of the Entrepreneurs Forum. “The idea of setting up a factory just scares them.” Khalid Makled, business development manager at Ruwad, agrees. The problem, according to him, is that the “cultural heritage” in the UAE has ensured successive generations of Emiratis inherit commercial family businesses rather than industrial ones. This reduces the number of Emirati entrepreneurs who can potentially start industrial ventures.

But the problem may be far more deep-rooted than entrenched mindsets or societal considerations. There is little encouragement for Emirati entrepreneurs to set up small industrial projects, according to Abdul Baset Al Janahi, the CEO of the Mohammad Bin Rashid Establishment for the Development for SMEs. Lack of technology and high start-up costs, including buying suitable land, are major obstacles, while it is also difficult to compete with cost-efficient imports from China that pour into the UAE, Al Janahi said. There are problems on the skills side as well. Industrial businesses depend on “technical efforts” that do not attract Emiratis as they prefer managerial or administrative jobs, said Makled. “They have a certain level of job expectations and lack the skills, knowledge, and experience in manual labour.”

Education
Additionally, far higher numbers of Emirati university graduates find employment in the government or banking sectors, leaving fewer of them to consider self-employment. This, according to Makled, suggests there is no co-relation between improving the education institutions and the graduates’ initiative to set up a small business. But Al Janahi disagrees on this point. “The mentality of the Emirati as a manager or administrator is a stereotype created by expats about the job market and Emiratis. Dubai While the UAE has dedicated clusters for larger industrial ventures, such locations are limited when it comes to small and mid-sized industries. A focused government policy will help. Abdul Baset Al Janahi of the Mohammad Bin Rashid Establishment for the Development for SMEs, says this could be through granting industrial land, lower costs for a start-up, provide cheap energy, have trained labour, and protection from foreign competition. “There has to be clear policy and commitment to develop the industry,” said Khalid Makled of Ruwad.

Prashant Gulati of The Indus Entrepreneurs Dubai believes many prospective Emirati entrepreneurs consider the industrial sector as being too technical for them. Government agencies can change these perceptions by focusing less on technology. “That it requires a tech guy to manufacture goes against the business model,” said Gulati. “The idea that it requires technology is a restricting factor.” Traditionally, Dubai has focused on larger industries and missed out on the benefits of ancillary units, he said.

This article originally appeared on Gulf News

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Taking a bite out of the latest food frenzy

Stores selling the humble cupcake are popping up all over Dubai as the city goes on a major sugar rush and entrepreneurs clamber aboard the bandwagon. The trend reflects the go-getting nature of Dubai and the eagerness of its citizens and residents to latch on to any business opportunity. And the emergence of all those new outlets could be seen as a response to the economic downturn as people seek new financial opportunities in a weakened jobs market.

But though the little iced treats are selling like hotcakes some experts warn the craze could turn out to be half-baked. They say the cupcake economy reflects a classic get-rich-quick business pattern where a new type of product emerges and everyone immediately tries to grab a slice of the action.

As a result the segment grows too quickly and becomes too large, businesses over-extend themselves financially, supply greatly exceeds demand and eventually the bubble bursts. Comparisons are being drawn with the dotcom crash of 2000 and the proliferation of coffee shops in London a few years ago that left a number of people with burnt fingers.

Emirati entrepreneur Ahmed bin Shabib said the cupcake market was already saturated, while Prashant K Gulati, the head of the local arm of an entrepreneurs’ organisation, said new ideas were copied quickly in Dubai. “A lot of entrepreneurs do not put enough thought into market research,” added Gulati. “Instead they copy fads. I would be extremely careful not to ride another fad.”

However, store operators remain unfazed. Indeed, a rising tide of entrepreneurs and home business operators, buoyed by heightened demand, are drawing up business plans and sorting out their finances, while some are already making expansion plans. The global rise in cupcake uptake started in New York as a reaction to the recession. Experts there say the cakes are considered an “affordable indulgence” and are being lapped up by people looking for an instant sugar high. But in Dubai, the trend is being driven by the novelty factor.

Dalia Dogmoch, a partner in Kitsch Cupcakes, which opened last November, said: “Our sales have risen by 15 to 20 per cent each month. We have been very well received ever since we opened. In a climate like this, that is extremely fortunate.” The number of outlets trying to grab a slice of the cake in the UAE is difficult to determine as the segment is largely unorganised, with many suppliers operating from home – but competition is growing, say those in the industry. In the UK, researcher TNS Worldpanel values the cupcake market at £7.3 million (Dh43.8m).

Emirati entrepreneur Shayma Al Fardan, who claimed she and partner Fatima Al Abbas were the first to offer cupcakes with their Sprinklez business in 2006, said she was not surprised by the boom. “When there is a good idea everyone will catch on, and the number of new players has just been astounding,” she said. The company operates out of a kitchen and is planning to open its first outlet soon.

Canadian-born Farah Gokal-Ghazzawi, who runs Sweet Stuff with her sister Aaliya, dismissed the “fad” accusation. “Cupcakes have been around for the past 60 years or more,” she said. “If it was going to fade it would have done so. Also, Dubai is so competitive and businesses thrive on competition.”

Dana Jallad, who owns the Dubai franchise of Amman-based Sugar Daddy’s Bakery and is managing director of Sugar Daddy’s International, said her Dubai outlet had done better than the original store in Jordan. “As long as you put a quality product out there people will come to you, recession or no recession,” said the marketing executive-turned-entrepreneur, who opened her store last December. “But behind all of that there has to be a proper plan, a definite business model, for how one wants to take the brand forward,” said Jallad. “It has not been easy to start up the business but we have had a pretty good journey so far and we have had fantastic acceptance for our product.

Both Gokal-Ghazzawi and Jallad are already eyeing GCC expansion opportunities. Kitsch Cupcakes, however, does not want to “spread itself too thin”, said Dogmoch. “We would love to expand eventually but it is not about expanding quickly, but expanding properly,” she said. An increasing number of home-based cupcake bakers are jumping into the fray.

Lily Tejeda, who has been taking orders from home since February, is looking at a possible store opening next year with her business partner and friend Rima. Tejeda, who bakes under the name Lima’s Treats, does not think the cupcake industry in Dubai is undergoing a bubble cycle. “Cupcakes have been around for a long time, it is just that now they have gotten more exposure thanks to movies such as Sex and the City,” she said. “And no, I do not think it is going to go bust. Each cupcake store has its own identity, its own speciality and there is plenty of room for everyone.”

The emirate’s cupcake story, it would seem, is following hot on the heels of New York, with many outlets even replicating names. And that worries Gulati, President of the Dubai arm of The Indus Entrepreneurs (TiE), a global non-profit group dedicated to fostering entrepreneurship. Gulati admitted he knew very little about the cupcake industry, but said new ideas were copied very quickly in Dubai. “If one idea is successful elsewhere everybody thinks it is easy to do. That is when it becomes a bubble. Today, in every industry, you will find ‘me-toos’.”

He said Dubai’s aspiring entrepreneurs should carefully consider the nature of the business environment before starting out. “There are a million other elements such as rent, hiring people, getting permits, the cost of licensing et cetera. Then there is the whole issue of branding, advertising and differentiating yourself from the growing competition. Small businesses might not be able to afford that.”

Businessman bin Shabib, who publishes the bi-monthly lifestyle magazine Brownbook, said the cupcake craze was already over. “Let’s say you are targeting a population of 170,000, which is a generous estimate. And let’s say about 10 per cent would buy a cupcake, that is roughly 17,000 people who are potential customers. Of that, how many would buy cupcakes regularly? Compare that to the estimated number of players, and I am not so sure. “They need to make sure they are organising themselves in a way that will cultivate a regular clientele, a regular audience. All of this goes beyond just selling cupcakes.”

Roundup

Kitsch Cupcakes
Mixing fashion and cupcakes, Kitsch opened in November last year on Jumeirah Beach Road following the concept’s success in Beirut.

Sugar Daddy’s Bakery
Opened in December last year, this outlet on Jumeirah Beach Road’s The Village Mall has already eclipsed the original store in Amman, say its owners.

Sweet stuff
Started by sisters Farah Gokal Ghazzawi and Aaliya Gokal, this is Jumeirah Beach Road’s third cupcake outlet and opened in June this year.

Sprinklez
Not to be confused with New York’s Springkles, this is one of the first cupcake companies to take off in Dubai in 2006, according to its owners. Still working out of a kitchen, Sprinklez recently signed a partnership with Emirati animated television franchise Freej .

Lima’s treats
A home-run business by friends Lily Tejeda and Rima, Lima’s Treats is eyeing a store opening some time next year. Currently, their biggest orders come from corporate event organisers.

Sweet secrets
Run from home by mother-of-two Karen Van Zyl, Sweet Secrets currently caters for private parties and events. Van Zyl says she has no immediate plans to open a store.

Scrumptious Cupcakes
Another home initiative, the owners of Scrumptious Cupcakes have been catering for birthday parties, weddings and themed events.

This article originally appeared on Emirates 24/7.

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