International Business: The US – UAE Relationship

Introduction

This paper has proposed the USA as chosen country of expatriates living here originated from UAE for the product of Arabic style furniture. Here international business is the mode to enter into the USA for the proposed business category. Proposing country the USA has the economic strength amongst the major countries of the world. On the other side, foreign affairs between the USA and UAE are the motto that overwhelmed the business atmosphere them.

Based on purchasing power parity (PPP) the USA ranked the first and varieties of ethnic groups people migrated there to live. This country has fifty states that boundaries by 9.8 square km and are geographically placed in a significant portion. The estimated population is 306 million until October 2009. As a multicultural country, there have more than eight Ethnic groups who flight from the major countries of the world. It has surrounded by the 81.7 % are white, 12.9 % are black, Alaska native and Amerindians are 4.2 %, Asians are 1 % and 0.2 % are native Hawaiian when it has been argued as a country of migrants.

English is the Prime language of the USA that is widely spoken all over the country when a remarkable number of people use to speak in Spanish and French and placed as the succeeding administrative language. There are almost eight religious groups that are active where Protestants are accounted 52 %, Roman Catholic are 24%, 10% atheist, and the rest are the other minority groups. The currency of the country is the United States Dollar that is exchanged into 100 units of Cent. Both in the central government and at the Federal level the two most popular political parties are the Democratic Party and the Republican Party when the others are regional.

FCO, (2009) pointed out that, in order to trade, commerce, and international relation the country has been associated with United Nations (UN), the union of 191 countries of the globe when it is also concerned with NATO as well as NAFTA¹ and other regional cooperation among the neighbors like Canada and Mexico that deliberate different enjoyable trade facilities. The newly elected President is Barrack Obama the first black of history has been accompanied by Mr. Joe Biden as Vice President and Hillary R. Clinton as the foreign minister has been committed to change the politics of the USA in a new dimension. All of them were elected last November 2008 and started official performance in January 2009.

The US – UAE relationship

The bilateral relationships of the USA and UAE have faced several challenges. However, that was improving after taken some significant initiatives. Making an allowance for all of the challenges, the relation between UAE and the USA has been tagged in first-rate bilateral cooperation. Another significant issue is that UAE is a dedicated collaborator that fights against terror in a global war context. Both the countries enjoy close naval cooperation that strengthens their domestic security as well as their dedication.

Insecurity, their trade, and economic affairs not only are too strong and continue rapid growth. Since 2006, their percentage of trade growth is 40, and more than $ 13 billion that amount has been in generated from their bilateral trade. In the middle of that USA, sell to the country round about $12 billion. These are the reflection of UAE economies rapid growth as well as the significant focal point of regional logistics that represents the continuation of upward flow of the UAE. For the reason that of the UAE is flourishing its commerce and trade affiliation with USA and both the two countries are thriving their economic cooperation. For case in point, Emirates Airlines carry on a variety of new aircraft in each forty- five days that demonstrates the fast intensification of them.

In Middle East region the prevalent buyer of US goods is the UAE as well as their involvement is elevated in relation to the grouping of Turkey as well as Egypt. On the concern of this USA has well thought-out of UAE as bigger export-market other than India as well as Spain. Being has the appearance of excellent economics, logistics, transportation and communications the UAE titled as an outstanding business-hub by above 700 US trades.

According to Lavin, F., (2007), though there are few dilemma in diversity of culture issues but working environment in the UAE is too inviting that labeled them as world’s best business platform. Through out an uncountable diverse way and undoubtedly their base of economy are natural resources that move to an oasis of desert and all of these helps the community to contribute and to advantage US economy. Creation of entire of the Emirates encourage other seek to emulate. UAE and the Emirates is the witness of harmony that executed- technology, tradition and tolerance.

Challenges

Though there have a lot of opportunity but there also have few challenges as follow-

• After 9/11 visitors to the US suddenly has dropped and since 2004, it has cut down by 44 % though US continuously serve a welcoming atmosphere. With the vision to go further the US working hard and soul and there have 1300 Emirate student that make them very proud.
• There have a few modes that could be flexible by UAE in terms of trade and investment. Regarding this affiliation between two countries would go forward.
• In controlling export issues Emirates needs to enlarge their port activities like- volume and the size of the port considering the increasing demand. On the other side, export control laws are required to implement for a committed working environment and effective system establishment in order to execute their forward vision.
• Shift the transit for selling and manufacturing counterfeit goods and services from the block of free trade zones and the territories of the UAE to the different destinations.
• For trade affairs, US evolved in such business environment that continuously developed. This requires full ownership of the assets by foreigners through amend the Company Law. There have another requirement is that most companies have the right to concur UAE agent for operating approaches. These two are the forces that would foster and hold the business centre as leader.
• Lead those toward a bilateral Free Trade Agreement (FTA) both of the countries are committed to minimize their trade barriers. Taking into account the regions- Israel, Bahrain, Jordan, Oman and Morocco they already have passed a few steps though there have to need some reformation and preferable regional status.

Invest in US initiative

According to Lavin, F., (2007), in the major economies, the US government has no programme to encourage foreign investment as well as retain that inward but it should change its strategy for recession. In order to encourage Foreign Direct Investment, all of the major-economies utilize tools for example- investment promotion actions and investment boards. In viewpoint of US, there have numerous challenges in investment because global financial crisis has changed customer demands.

Recently there has been proposed to the federal government that with the purpose of facilitating FDI launched program for Investment in America. A set of reasons played behind those initiative programs as bellow-

• Global investment activities enlargement,
• Establishment of new markets that increase competition,
• Politicization free of the investment process is the most significant and utmost desire of this program.

American Business Group of Abu Dhabi, exhibits interest to invest in USA and for their investment partners they left a message that- US is open for investment. Besides these, they concentrate how foreign investments contribute in their economy and also encourage their people to get that. Presenting a substantial nature of FDI and seldom its scopes would be a hot case.

Over Dubai Ports World during 2006, a controversy held for the desire of such outreach. Base on a straightforward commercial deed US wants to avoid politics free investment decisions. This exhibits that there would have a role of the federal government in investment decision process. Views of attraction under the investment program are as follows-

• Secure and open markets: Buy and sell of assets are easy and also inputs are flexible to acquire.
• Establish reward considering the economic size and strength.
• Motivate investment and continuous product development there have low tax facilities.
• Availability of productive and flexible workforces,
• Irrespective of background, open society system easily attracts top talent and has the capability to retain that.
• Level of transparency stayed at high level.
• In order to protect intellectual property legal systems are effective and user friendly to in developing business.
• Both logistics and economics availability of world-class communications and infrastructures,

If the atmosphere does not exhibit, any welcoming gesture aforesaid forces would not have any significance.

Concentrate on above all the program

“The Invest in America Initiative” was designed under the Department of Commerce of US which emphasize on three major movements narrate as follow-

• Access into the international community: In order to directly engaging potential investors US globally employ their commercial attaches, as it should be.
• Dish up the international investment community in Washington prefer ombudsman concept: For investment facilities along with the Federal Government US emphasize on address impediments and red tape.

Lavin, F., (2007) has reported that there have an open business scope in the United States. Regarding these investors has numerous scopes to invest and some times FDI brought long term and strategic decisions. For the international investors business atmosphere of US serve a guaranteed low risk and outstanding approaches. Hitt, M. A., Ireland, R. D., & Hoskisson, R. E., (2001) added that cooperation between US and the UAE get benefited both of their investors. Make more attractive the US business; they pay attention more to get trust from the outsiders in order to build a strong relationship.

Competitive analysis

Get greater appreciation from the desired industry executives should analyze the competitive forces of the firm. Competitive analysis varies on the answer of the following forces-

• Current and potential competitor of the company,
• Vision, mission, goal, objectives, firm’s internal resources,
• Strategic intent of the firm,
• Strategies of the firm,
• Place and tools of competition

Industry analysis is complemented through competitive analysis. Pay attention on the major rivals and evaluate strengths and weakness of the firm ought to focus by the mangers’. Major areas of the competitive analysis are as bellow those helps to analyze company’s essential portions to foster forward.

• A distinctive competence: Compare to the rival a firm’s position is superior is the activity of this term.
• A competitive advantage: To achieve higher profitability could be ensured the firm’s superior position than its competitor. To do this, first the firm need to develop distinctive competencies and make use of it as for creative compete.

Process of competitive analysis

Competitive analysis is involved in a complex procedure described as bellow-

• Industry boundary and serve market selection: Sketch the boundaries of the industry is the first step of the competitive analysis. Then that based on customer’s need segmenting market for desired product and services. For more clarification, a graphical presented is given in bellow-

Evaluate industry life cycle

External factors turned an industry into an existing form and this form is continuously changed with change of time. Managers have to understand these changes throughout the sequential phase or stages of the industry life cycle as follow-

• Introduction or emergence: In this stage, technology of the firm is not well developed and offer products for a large market.
• Growth: In an industry life cycle this is an exciting phase and from this stage a firm start fighting to survive, gain profitability, market share acquiring and build brand name.
• Shakeout: A large range of change has manipulated here. Factors of shakeout are- industry saturation, evaluate industry growth rate and radical change forced by competitive factors.
• Maturity: In this stage, firm would breed to consider new factors. Kotler, P., (2004) argued that aggregate marketing process determines success of the firm.
• Decline: According to Kotler, P., (2004) a new phase of evaluation is entered termed as decline. It is a great challenge for an industry competes as declining industry.

Analysis the structure of the industry

Analysis of industry structure is fostered by following factors-

• Barriers to entry and exit: First entry into a market is a great challenge for a new firm. This barrier is of two types- tangible and intangible. On the other hand, exit from a market is a managerial decision examined because of market demand,
• Product differentiation level: Johnson, G. Seholes, K. & Whittington, R., (2006) argued that product differentiation is ensured through developing technology and aggregate marketing tasks.
• Concentration level: Increasing dominating sales portion of the industry is the concept of the concentration level.
• Scope of economics of scale: Economics of scale is a significant factor that patronizes large scale of production at a lower cost.

Evaluate the dynamics of the competition

In the phase competition dynamics is evaluated through five factors, define by Michael Porter. Five factors are-

• Potential entry: Porter, M. E., (2004), argued that potential entry is controlled through a number of variables those act as threat of entry into industry and reduce potential entry. Such variables are distribution channel, capital requirement, rules and regulation.
• Buyers bargaining power: Saloner, G., Shepard, A., & Podolny, J., (2001) stated that bargaining power capable a buyer influence the production capability of the industry.
• Suppliers bargaining power: Hill, C., and Jones, G., (2007) argued that suppliers influence an industry when they are few at numbers, lacking of substitute product, product price system.
• Threat of substitute product: Products that has the ability to fulfill same purpose is termed as substitute product. Exist of substitute product affects competitive dynamics and rivalry intensity.
• Existing competitors’ rivalry: Several equal balanced company, competition diversity, and slow growth rate, high fixed costs etc. are the forces that control Existing competitors’ rivalry.

Analysis of issues of the proposing countries

Making international business strategy considerable issues are described as bellow-

• Form of business: With the purpose of trade in USA, here selected form of foreign business is composed as- “International Business.” Arabian style furniture for the expatriates of UAE in USA business activities has conducted through- licensing, franchising, foreign direct investment (FDI), exports and imports.

Five drivers of international business

• Political: Both of the countries the US (host country) and the UAE (mother country) have continued stable federal governments that strictly govern by democracy. On the other side, with in seven Arabic Sheikh Kingdom only the UAE is structured its politics under federal government. Not only political design but also both of them continues a warm trade affairs that are benefited both of them.
• Technology: Both the countries have world-class logistical infrastructure and technological support. Exchange between them would brought enlighten trade affiliation and magnify this at utmost level.
• Market: Target market of the business is the expatriates of UAE who live in USA. Among them households, educational institutes and business holders are the clients of the product- Arabic style furniture of their demand for interior decoration. Market segmentation of this business could be showed through following table under product specialization strategy.

• Cost: One of the most significant factors of any kind of business as well as international business is cost of production. The Quality of a product and services floors on costs of production. Relationship between cost and quality of a product has describes in following figure-

Arabian style furniture requires high cost of production as an exclusive product. Not only production cost but also transportation, advertising are the factors of costs. These forces determined the value of an enterprise described as following figure-

Environmental forces

Under environmental force, two broad categories are involved as described follow. These categories of environmental forces evaluated the strengths, weaknesses, opportunities and threats of the firm.

External forces

Factors those are not under direct control of the organization as well as its industry and consist of competitors including outside factors are identified as external force. Factors of external environment profoundly influence the industry and the organization. Under strategic management, a critical component is environmental analysis that examines sufficient information for the future. Environment is also significant for environmental changing that capable the organization has benefited. Griffin, R. W., (2006) argued that for an organization, environmental analysis is helpful for identifying threats, opportunities and competitive analysis.

Features of external environment

For initiating external analysis of an organization, it requires to understand a number of features that ground external environmental analysis. Narrative form of this are-

• Type of external environment is not same for different organization but they are almost similar.
• For same product or services provider here Arabic furniture are same segment of market face different competitive external condition.
• External environment analysis should focus or tailor for such organization those yet not formulate strategy.
• It is also considerable that relationship, conditions and events are not static though they build the organization’s unique environment.
• Small number of organizations faces same categories of factors for a long time at same importance magnitudes.
• Legal obligations, customers’ tests and change of restraints make an organization’s position different compare to its competitor.
• Political environment is an important factor that influences all level of business by means of special interest group.
• Less predictable factors are-consumers demographic feature, alteration of society that are closely relate to value and attitude alteration.
• Distribution channel of these countries mostly prefer seaport specially Dubai Port World. Other than this, airways, roadways, order and payment by online or Internet are the modes of distribution channel.
• Economically both the countries are enough strong and it is mentionable that the USA has the most strong economy by purchasing power parity (PPP). On the other hand, the UAE has the world fifth largest oil stock that enriches its natural resources.
• Legal boundaries of the countries are flexible to trade and free trade agreement (FTA) including another 22 Arab countries is a significant scope that helps to continue their trade affairs.
• Logistics is another force that fluent the trade ways of these countries. Tools those used in this trade affiliation are considered as logistics.
• Labor of the both countries is efficient and productive so that they produce a high quality of products and services though they demand a high rate of wages.

Internal forces

Kotler, P., Armstrong, G., (2006) argued that strengths and weaknesses evaluation requires considering several relevant factors. Firm’s long-term survival and success manipulate by these factors. Common areas that are include in analyzing are as follow-

• Financial position: Ball, D. McCulloch, W. H. & McNett, J. M. (2008) argued that cash flow statement, balance sheet, financial ratio analysis and income statement are tool or techniques of financial analysis. These methods are useful to compare and capable available financial resources to utilize, examine financial position and took necessary steps in decision-making.
• Product and service position: Awareness of product and service position in market makes a business successful. For an international firm it is an important managerial task to categorize market share according to the market segment.
• Product and service quality: Another key issue of internal analysis is evaluating product and service quality. Continue survive and growth of a product and service prove guarantee of its high quality at a reasonable price.
• Marketing capability: Marketing capability make sure to deliver right product or services at required price in the right place. Regarding this marketing is the task or societal process that includes-product, place, people, promotion, distribution channels, market demand, market positioning and segment, advertising and target market.
• Research and development (R & D) capability: For new product development, today’s organization needs to adopt R & D either formally or in an informal way, moreover for an international firm it is difficult to survive avoid of advance technological involvement and practice of R & D.
• Organizational structure: For product manufacture and get in a market place there need to have an organizational structure. Corporate-level, business-level, functional-level and operational-level are the four essential layer of an organization and a multi-product firm should follow strategy considering diversification of the business. These layers are the gateway to assess internal strengths and weaknesses of the firm.
• Human resource management (HRM): Condition that ensures the competitiveness of the firm is providing proper facilities to the employees and proper utilization of the resources. Human resources are the employees who work for the organization where as human resource management would place right people in the right place. HRM also involve in all management practice and decision making that directly affects the organization.
• Project objectives and strategies: Previous and on going goals as well as policies are instruction or principles for future goals & strategies. That is why, internal environment analysis would be ideal if the firm consider previous and on going objectives and strategies as the indicator of future.
• Organizational culture: Culture of an organization composed because of national culture and this is the background why organization in different countries has diverse from each other.

  • Domestic: As the consequence of this paper, the UAE is the domestic country. Culture of this nation is conservative as a Muslim state. An official hour of this country has been determined by the Muslim traditions. In the period of Ramadan, all of the office has closed their activities before evening.
  • International: Probable host country for the international business is the USA who follows an open culture everywhere in their nations. On the other hand, a multicultural country practices secular approach though there have a significant discrimination between black and white. However, in the last election they start to alter this trend by electing an African as their President for the first time.
  • Decision making process: This international business of the UAE would make decision by following the sequential steps of figure drawn in bellow. This figure has described all of the points that require an international business as well as domestic.

Impact on business functions by culture

Anywhere in the world, all categories of business activities should consider the local culture of that country. Following are the issues that considered under culture of all forms business-

Socio-cultural forces

Whole USA is composed through 50 states. Aesthetics, attitudes and beliefs, Music and folklore, Religion, Education and Language all are affect the market.

Foreign direct investment (FDI) and international trade

Foreign direct investment (FDI) and international trade between UAE and USA has executed under a “Free Trade Agreement (FTA)” since March 2005. With the aim of liberalize bilateral trade barriers both countries agreed to operate businesses in both nations. Among the GCE countries, the government structure of UAE is different from others and it is ruled by federal government out of seven autocratic sheikhdoms. It is essential to mention that amongst them Dubai and Abu Dhabi has the largest oil reserves as well as most significant source of the UAE’s oil which is the fifth biggest in the world.

Unexpectedly, the discussion of free trade has been postponed because in 2006, the UAE agreed to sell Dubai Ports World that permits to run terminal operations at United State port under block-port agreement after congressional-efforts. The MEFTA² has been proposed by the Bush government in order to connect twenty Arab nations with in the year 2013 and it has close connection because of free trade pacts with Bahrain, Jordan & Morocco. At this time, Oman the neighbour of the UAE is predicted that congress will pass the contract by vote in congress to broaden relationship. The business connection between UAE and US is enhancing day by day and in 2005, almost $10 billion traded between them, which was hold the third largest position; however, Israel and Saudi Arabia hold first and second position accordingly.

International economic analysis

• Uncontrollable significant economic forces: Following economic forces present the recent economic figure of the USA.
• Gross Domestic Product (GDP): In the year 2008, purchasing power parity was $14,334 trillion and GDP per head was $ 47,025 trillion, which will be decrease in 2009.
• Annual GDP growth: In the third quarter of 2008, annual GDP growth was – 0.5 %.
• Exchange rate: Until April 2009, approximate exchange rate was 1.47 US Dollar = £.
• Unemployment ratio: During December 2008, 7.2 %,
• Interest rates: Interest rate is lower than any country only 5.4 %.
• National debt: 10,554 trillion $ in December 2008,
• Tax and Tariffs: these are important factors and profit mainly depends on tax and tariffs; moreover, local rules and regulation is also significant factor.
• Inflation: November 2008, inflation rate was – 1.9 %.
• Global financial crisis: the expansion of furniture market in USA will be affected for global down turns and if the recession lasts for long term, the situation of US market would turn in more dangerous and an unpredictable condition.
• Trade association of the market: Trade association of the market are- WTO (World Trade Organization), SAFTA (South American Free Trade Agreement), NAFTA, WTO (World Trade Organization), UN (United Nations), WCO (World Customs Organization) , IMF (International Monetary Fund), Interpol, IAEA (International Atomic Energy Agency).
• Terrorism: Terrorist activities have changed the mind of the local people to purchase products and government take action by imposing barriers.
• Government stability: the political stability is the positive sides, which influence to invest for expansion of furniture market.

SWOT analysis

Strengths

• Designer and efficient employees of this company are the main assets,
• It has advance technological support such as the designer use various software to design their products,
• It has strong financial position and administrative control to expand its business worldwide.

Weaknesses

• Production cost is high so price of the Arabic style furniture will be high for its quality,
• It will not be available for all sorts of customers because it’s a luxurious products,
• It expend relatively smaller budget for advertisement and promotion process,

Opportunities

• It has mainly targeted the Muslim customer,
• It has the opportunity to provide quick customer service with high satisfaction
• Most of the times for the high price of its Arabic style furniture become harmful for market and it may lose customers, therefore, it offers lower-priced products to attract to middle-income people who are unable to afford higher-priced products.

Threats

• Competitors are the main threats for the company,
• There are few chances of fraudulent activities in new market.

Recommendations

• Though USA is the chosen country but it should required to assess the current market position, as the most part of the up to date political economy of USA is very distressing. Credit crush as well as collapse US Banks has created a fracture on money flow.
• Many companies have collapsed and bailout bill has failed to pick up the market dynamics; therefore, hob cuts are tremendously increasing. Consequently, the recession has seriously effected the consumption and customers purchase power of US market. As a result, it ought to be more cautious to invest in U.S. market.
• It has been advised to configure its products; services and solutions in a portfolio originated on or after competitive operations with an inventive image of balanced strategy as well as value recognition.
• It should measure the market risk as recession has adversely affects on US currency; therefore, to save its investment from apparent inflation it should require to invoicing for its export items in Euro or any other than US dollar.
• It needed to consider the changing dimension and characteristic of the global furniture market by sustaining quality, demand and effort to guard the segment sales and profitability.

Conclusion

The firms that drive in foreign trade have to face most significant irrepressible forces that the managers have to deal with. During the entry in overseas markets, firms have to take into account of complex economic analyses for new environments such an overseas and multinational. The strategy designed for a particular economic provision of particular geographic area may not match with another market. A firm of UAE, one of the richest countries of the world with top GDP has driven its international operation to export Arabian style furniture in USA the world’s largest country of the migrant people. This comprehensive paper has included the industry life cycle and structure, five drivers of international business, Impact on business functions by culture and International economic analysis. The paper also incorporated a SWOT analysis and key recommendations.

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Footnotes

1. North American Free Trade Agreement.
2. Middle East Free Trade Area.