Foreign businesses looking to expand into the Middle East need to understand the local market better if they are to have any chance of being successful.
That’s the view of regional retail expert, professor Nitin Sanghavi of Manchester Business School, Dubai, who has warned Middle East companies to balance their portfolios at home and abroad to ensure future growth.
“There are a number of things businesses need to be mindful of and need to think about properly,” said Sanghavi.
“Many companies don’t understand the competition out here, or enough about the local market and local culture, and many don’t think enough about creating a point of difference; many don’t do enough research.
“Effective local partnerships are very critical. Companies need to find the right partner and be sure the chemistry works and support each, that’s very important.
“The key thing is brands need to recognise their customers and they need to continue to work on the ground. Many don’t do enough marketing and don’t rejuvenate the brand as much as they should.”
A recent report from Barclays shows the UAE is the most popular country in the MENA region for British retailers looking to expand into the market.
Two thirds of those polled said they expect their overseas sales to increase over the next five years and rank the Middle East as their fifth most preferred destination.
But why the Middle East and why the UAE? More importantly, are businesses entering the local market with the best intentions or are they jumping on the gold rush bandwagon?
Speaking exclusively to Gulf Business, Sanghavi said there are a number of reasons why the region has become a popular destination for foreign companies.
“The demographics, a young population, better disposable income, a large expat population – all of these are favourable conditions for retailers looking to expand abroad,” said Sanghavi.
“Some companies are trying to escape trouble by going overseas, but if you do that you will end up with bigger problems than you started with.
“If there’s pressure on the home market and companies are not making enough, they may think, “let’s look at a foreign market”. For example, Tesco’s UK market growth rate is minimal, but the international market rate is 15 per cent.
“More and more businesses are realising that for the future they have to have balanced portfolios. Look at the huge markets in India and China and the growth rate in the MENA region – they really have some substantial growth going forwards.
“It’s important to hold onto the home market but for future growth and profitability, you have to look abroad.”