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Country Commercial Guides FY 1999: United Arab Emirates

CHAPTER IV:  MARKETING U.S. PRODUCTS AND SERVICES

A.  Distribution and Sales Channels:

U.S. exporters do business in the U.A.E. by: selling directly to
the end-user; selling through an informal, nonexclusive re-seller
arrangement; selling through an agent/distributor; establishing a
company presence through a joint venture; or by authorizing a
local firm to sell its products via licensing or franchising
arrangements.   Re-seller arrangements avoid the legal problems
associated with U.A.E. federal agency laws, and they are suitable
for products where local promotion and after-sales service are
not factors.  While re-seller relationships are common because
they offer low-risk arrangements, they are also a passive,
reactive form of marketing with very limited growth and profit
potential.  Aggressive, proactive, and growth oriented marketing
programs select alternative methods to penetrate the U.A.E.
market.

Distribution and Sales Channels - Agriculture
There are numerous food importers, many of whom are also
wholesalers, distributors, and retailers.  Four to five companies
dominate the retail food sector.  Many fruit and vegetable
importers also import eggs.

Dubai is a major transhipment center for a variety of food
products.  It is estimated that about 75 percent of total U.A.E.
food imports are re-exported to other destinations, primarily
other Gulf countries, India, Africa and, increasingly, the CIS.


B.  Use of Agents/Distributors: Finding a Partner:
A foreign company can market its products within the country by
appointment of a commercial agent subject to the provisions of
the Commercial Agency Law No. 18 of 1981.

U.A.E. law does not distinguish between an agent and distributor,
referring to both as commercial agents.  All agents must be
registered with the Ministry of Economy and Commerce.  Selection
of the right agent is probably the most important decision that
the exporter can make.  Agents may not be terminated, except with
sufficient cause as determined by a government committee that has
usually ruled in favor of the local agent.  In most cases,
compensation to a terminated agent is required even if the
committee rules for the foreign firm.  Only U.A.E. nationals or
companies wholly owned by U.A.E. nationals can register with the
Ministry of Economy and Commerce as local agents.


The terms and conditions of agency contracts vary greatly. 
Commissions and other forms of compensation typically depend on
the amount of work required of the agent, and sales volume.  The
agent's responsibilities and performance measures should be
clearly defined.  Agents may be appointed on a project basis,
with the relationship restricted to that project and terminated
automatically upon reward or completion.

Establishing the geographic territory of an agent is critical. 
U.A.E. law automatically awards exclusivity to the agent in the
geographic area covered by the agreement.  An agent must have a
presence and be licensed to operate in each emirate he does
business in.  There is no blanket license for the whole of the
U.A.E.  Consequently, U.S. exporters seeking U.A.E.-wide coverage
must appoint a separate agent for each emirate, or appoint a
master agent with offices or sub-agents in each emirate. 
Virtually all of the most successful trading houses fall into the
later category.    


C.  Franchising:
The U.A.E. market is poised for considerable growth during the
next five years.  Currently, franchises are operating in fast
foods; dine-in restaurants and clubs; auto leasing; apparel; soft
drink bottling; beauty products; hotels; toys; photography;
jewelry; vending machines; dry cleaning; furniture; hardware;
natural health products; publications; and sporting goods.  The
largest segment is the fast food franchise group which is highly
sought after by local companies.  Most of the major U.S. fast
food companies are already established in the market.  However,
the industry is currently going through a restructuring with
several major franchises being sold to new owners.  These changes
are seen as a positive change from weaker to stronger management,
and not a reflection of weakness in the market.  There remains
considerable potential for franchises of all kinds.

There is no special legislation for franchises in the U.A.E. 
General contract and commercial laws apply to franchise
agreements.  U.A.E. law mandates that only U.A.E. citizens or
corporations wholly owned by U.A.E. citizens  are allowed to
conduct retail operations, the most common type of franchise. 
U.S. businesses must work through a local partner as licensee, or
enter into a joint venture.  Franchisees usually prefer to own
100 percent of the franchise themselves.  In other cases, the
franchisee enters into a joint venture with the franchisor to
operate all outlets as "company owned" stores employing local
managers.  
                 
As with other types of business operations in the U.A.E., the
selection of the local partner is critical.  One common practice
used by franchisors that, in many cases, has caused considerable
problems and significant lost sales is the selection of a master
distributor to cover the entire Gulf through the use of
sub-distributors in each country.  Each market is different and
requires qualified local partners to exploit its opportunities. 
Master distributors, when operating outside their primary market,
even with a local agent, often do not service these secondary
markets sufficiently, and lack the local influence to solve
problems that may arise.  In the U.A.E., an additional concern
must be the ability of franchisees to conduct business in each
separate emirate.  U.S. franchisors are strongly urged to
consider the above factors before appointment of any franchisee.  
 

D. Direct Marketing:
Other than for large orders, usually related to private or public
project procurement or large businesses for their own use, the
direct sale to the end-user approach is suitable only for
infrequent, low volume exports.  For most exporters seeking a
high volume, fast turnover sales network, a more aggressive
campaign executed through local distributors has been the best
marketing strategy. 


E. Joint Ventures/Licensing:
There are distinct advantages in maintaining a local presence in
the U.A.E.  Local businessmen and government officials prefer to
deal with someone they know and trust.  Personal relationships
are much more important to doing business in the Middle East than
they are in the United States.  In addition, local firms are
closer to the local and regional market, customers, contacts, and
other elements affecting business. 

In general, U.A.E. law requires that all companies be licensed
and at least 51 percent owned by U.A.E. nationals.  There are
exceptions to this rule, the most relevant for U.S. firms being
those for firms operating within free zones, professional or
artisan companies, and branches or representative offices.  Each
of these exemptions allows 100 percent foreign ownership, but
with restrictions on the allowable scope of business activities. 
These exemptions are currently under review and may be modified.

While joint ventures with foreign firms require local majority
ownership, profit and loss distribution can be prescribed.  There
is no need to license the joint venture or publish the terms of
agreement.  The foreign partner deals with third parties under
the name of the local venture.   

Banks, insurance, and financial companies must be run as public
share holding companies.  This requires a minimum capitalization
of Dhs. 10 million (us$ 2.725 million); the chairman and majority
of directors being U.A.E. nationals; and a more restrictive
distribution of profit than allowable under a joint venture. 
However, foreign banks, insurance and financial companies can
establish a presence in the U.A.E. by operating a branch or
representative office.  This option allows 100 percent foreign
ownership, but, in general, limits business activities to
offshore operations. 

Licensing of manufacturing processes is a growing market,
especially with the U.A.E.'s desire to increase the quality and
diversity of local production.  However, the total market for
industrial licenses remains relatively small due to the limited
amount of manufacturing done in the U.A.E.

The majority of licensing is done for the fabricating and/or
marketing of trademarked items.   Licensees of U.S. sports logos,
universities, animated characters, etc., are servicing a very
active market with one of the world's highest disposable incomes. 
Licenses to sell U.S. branded products (an authorized dealer), as
distinct from a standard distribution arrangement, or U.S.
logos/names/characters on a non-U.S. product, are becoming very
sought after, especially in the apparel market.  Licensing is
often the best way to rapidly and effectively meet the current
demand, especially among young consumers, for American styles. 


F.  Steps to Establishing an Office:

In the U.A.E., economic activity is regulated by the individual
emirates, as well as the federal government.  The exact
requirements that a U.S. firm setting up an office will face will
depend mostly on the nature of the business the firm is engaged
in, its level of involvement in the U.A.E., and the emirate where
it locates.  This last item is usually the least important, in
terms of procedure, because the laws are very similar among
emirates.

First, firms will need a local sponsor, both for the firm and for
its resident employees.  A sponsor must be a U.A.E. citizen, or
institution, such as a free zone.  The sponsor can be involved in
the business, or simply a service sponsor providing, for a fee,
legally required administrative functions.  

Second, firms are required to be licensed by the emirate of
domicile before beginning business activities.  In general,
individual emirates will issue:  Trade Licenses covering all
kinds of trading activity;  Professional Licenses covering
professions and services;  Industrial Licenses for industrial and
manufacturing activities;  and Vocational Licenses for craftsmen
and artisans.   Licenses for some categories of business require
approval from certain federal ministries and other authorities: 
for example, banks and financial institutions from the Central
Bank of the U.A.E., insurance companies and related agencies from
the Ministry of Economy and Commerce, manufacturing from the
Ministry of Finance and Industry, and pharmaceutical and medical
products from the Ministry of Health.  More detailed procedures
apply to businesses engaged in oil and gas production and related
industries. 

In addition to the required licenses, all firms must be
registered with the chamber of commerce in each of the emirates
where the business is licensed to operate.  In the U.A.E.,
chambers are part of the government and membership is mandatory. 

Firms must decide on the purpose of the office it wishes to
establish, as this will determine ownership requirements.   For
firms conducting regional marketing or administrative functions,
a representational office, allowing 100 percent ownership, may be
best.  For firms conducting offshore services, a branch office,
also allowing 100 percent ownership, is suggested.  Establishing
an office in any of the free trade zones available in the U.A.E.,
regardless of activity, allows 100 percent ownership.  While the
above options allow maximum ownership, they restrict activities
allowed in the U.A.E. market itself.        

The foreign company which opens a (representative, branch,
regional) office in the U.A.E. may conduct promotional activities
for the products and services provided by the parent company, and
facilitate contacts between the company and its U.A.E. clients. 
However, the office is not licensed to conduct business
operations or marketing directly in whatever manner, such as
obtaining credit facilities, submitting offers and participating
in local government tenders, within the country.  The following
documents are required to establish a branch office in the
U.A.E.:

1.  Articles of association of the company.
2.  Certificate of incorporation.
3. A resolution of the board of directors of the company to a)
set up the office and practice activities in the U.A.E., b) power
of attorney authorizing the representative to establish an office
and submit the required applications to the local government
authorities.
4.  The last two audited balance sheets of the foreign company
together with the auditor's report, or any other documents which
proves the sound financial position of the company.
5.  A copy of the national agent/sponsor agreement duly
authenticated.
6.  Photocopies of the passport of the national agent/sponsor.
7.  A valid lease agreement of the company's office premises.
All the above mentioned documents should be notarized and
authenticated by the concerned governmental authorities.  
    
U.S. firms wishes to establish an office to directly conduct
business in this market, U.A.E. law requires a joint venture with
U.A.E. nationals owning a minimum of 51 percent of the venture. 
Current exceptions to this rule include professional or artisan
companies where 100 percent foreign ownership is permitted.

G. Selling Factors/Techniques:
The commercial tradition of the U.A.E. is that of the middleman
or trader acting as a conduit for goods from large manufacturers
to South Asia, the Gulf, and East Africa. Today, with Dubai as
the hub, the U.A.E. services those markets and North Africa,
South Africa, West Africa, Central Africa, the rest of the Middle
East, and the newly independent states of Central Asia. 
International trade customs (predating letters of credit and
international bank financing) traditionally required merchants
trusting business associates from other tribes and ethnic groups
with items of value over an extended period of time and distance,
fostering a business style that put a very high premium on
personal relationships and perceptions of integrity.  Thus price
and personal relationships are the key determinants in the U.A.E.
market.

Traditional approaches to business are beginning to change. One
of these changes is a more sophisticated understanding of
long-term value, as opposed to initial purchase price.  There is
a
growing emphasis on quality, after-sales service, and maintenance
requirements and costs.  As traditional family businesses get
larger and more complex there is a layering effect that separates
the top echelon from all but the most important business
decisions.  The many expatriate managers of these firms are not
part of this traditional business world and bring with them more
modern concepts of management.

This new trend, of the impersonal businessman/consumer, has
changed some of the business style, but does not yet represent
the dominant practice.  Personal relationships, particularly when
U.A.E. nationals are involved, still predominate.  Since these
relationships take time to nurture, U.S. firms are advised to
invest time in the market with, preferably, a local presence, or
at least very frequent trips.  This is not an activity that can
be done long-distance.  Face-to-face contact is essential.  In
addition, U.S. firms should seek a local sponsor, agent, or
partner with sufficient access and influence in those circles
most important to that particular business.   

In addition to personal relationships, price remains most often
the dominant buying factor.  For U.S. firms selling to traders,
which is the dominant business type in the U.A.E., there is no
substitute for price. Government procurement also places heavy
emphasis on selection of the low bidder, as long as the lowest
price bidder is compliant with all technical specifications. 
  
Even though the U.A.E. is relatively less conservative than other
Arab states, and English is widely spoken, sensitivity to local
traditions and Islamic beliefs is essential, and the use of
Arabic in packaging and advertising is both desirable and
effective in the marketing of consumer goods.    

H. Advertising and Trade Promotion:
The U.A.E., in particular Dubai, serves as the commercial center
for the region.  From late September through May, with the
exception of the holy month of Ramadan, the U.A.E. hosts an
almost continuous and growing series of well attended major trade
exhibitions and conferences.  U.S. firms new to this region are
advised to consider participation in one of these shows as an
excellent method of market evaluation and initial penetration.

Advertising plays a significant role in sales promotion.  The
language of business is English.  Only about 30 percent of the
population are native Arabic speakers from the U.A.E. or other
Arab states.  The balance of the population is a mixture of South
and East Asians, Iranians, and European/North Americans. 
However, Arabic is the official language and required for all
governmental documentation.  In addition, dual English/Arabic
usage is common on sign age and for many publications. 
English-only promotional literature is acceptable, but those that
are in
both English and Arabic have a decided edge as Arabic speakers in
key decision making positions appreciate the extra effort and
sensitivity to their culture that bilingual publications imply.
Arabic labeling for consumer products, especially foodstuffs, is
an important advantage in competitive marketing. 

There are four major English language daily newspapers and
several weekly and monthly English language magazines that are
effective consumer market vehicles.  There are also Arabic and
third country language publications available.  Radio and
television broadcasts are primarily in English, Arabic, Hindi and
Urdu.  The U.A.E. and other Gulf states are Islamic nations and
have a different perspective on certain issues than non-Islamic
states.  U.S. firms are strongly urged to consider cultural
sensitivities in any promotional activity. 

It is important to stress quality since U.S. foods tend to be
higher priced than products from other origins.  Gulf consumers
recognize the high quality of U.S. food products and are willing
to pay a premium for such products.


List of Newspapers:

English Newspapers

Gulf News
P.O. Box 6519, Dubai, U.A.E.
Tel. 971-4-447100, Fax. 971-4-441627
Contact Mr. Francis Matthew, Editor

Khaleej Times
P.O. Box 11243, Dubai, U.A.E.
Tel. 971-4-382400, Fax. 971-4-382238
Contact: Mr. Nihal Singh, Chief Editor

Emirates News
P.O. Box 791, Abu Dhabi, U.A.E.
Tel. 971-2-451446, Fax. 971-2-453662
Contact: Mr. Peter Hellyer, Managing Editor

The Gulf Today
P.O. Box 30, Sharjah, U.A.E.
Tel. 971-6-591919, Fax. 971-6-532737
Contact: Mr.Dilip Padgaonkar, Editor


Arabic Newspapers

Al Khaleej
P.O. Box 30, Sharjah, U.A.E.
Tel. 971-6-598777, Fax. 971-6-598547
Contact: Mr. Ghassan Tahboub, Managing Editor

Al Bayan
P.O. Box 2710, Dubai, U.A.E.
Tel. 971-4-444400, Fax. 971-4-447846
Contact: Mr. Khaled Mohammed, Editor

Al Ittihad
P.O. Box 791, Abu Dhabi, U.A.E.
Tel. 971-2-455555, Fax. 971-2-451653
Contact: Mr. Obeid Sultan, Managing Editor
 
Al Fajer
P.O. Box 505, Abu Dhabi, U.A.E.
Tel. 971-2-488300, Fax. 971-2-484326
Contact: Mr. Obeid Al Mazroui, Chief Editor

I. Pricing Products:
For consumer goods, price is the primary buying factor for the
middle and lower classes.  These market segments are served
through small stores and shops in traditional souks, or markets. 
Retailers in this category operate under razor- thin margins, 1
or 2 percent is common, and rely on volume.  Since the population
of the U.A.E. is small, approximately 2.4 million, the volume is
supplemented by the more than one million business and tourist
visitors that come to the U.A.E. each year.  At the other end of
the scale is the very large number of U.A.E. nationals,
expatriate residents, and visitors that have considerable
purchasing power.  For this group price is not a primary buying
factor and retail margins are exceptionally high.   This segment
is serviced through specialty shops.  U.S. exporters must be
ready to use pricing aggressively to encourage market acceptance
of their products main features.   

The average importer markup on food products is about 10-15
percent.  Retail food prices are generally 20-30 percent above
import/wholesale prices.  


J. Sales Service/Customer Support:
The commercial and industrial markets are also very competitive.
For these markets price is also a key purchase factor, but
quality, durability, and after-sales service are increasingly
becoming dominant determinants for purchases by government and
business.  The increasing emphasis on after-sales service favors
those products backed by local distributors with adequate part
stocks and routine maintenance capabilities.  The training of
qualified maintenance and repair personnel is a critical
marketing factor when catering to the more sophisticated end of
the market. 

K. Selling to the Government:
Government buyers are either the federal or emirate governments. 
Federal purchases are administered through the respective agency
in Abu Dhabi or Dubai.  Purchases by the emirates are arranged by
the relevant local authority, often with the assistance of a
federal agency.  For most civilian purchases, government entities
will usually deal only with firms registered in the U.A.E., or
the particular emirate, and will favor local products over
imports.  Only when a good or service of acceptable quality is
not available locally will the procurement authority seek outside
sources.  It is common for bids not to go out on a public tender,
but are sent to select firms that were prequalified with the
organization in question.    

There was two military procurement systems within the UAE Armed
Forces under the Ministry of Defense: The Directorate of General
Purchasing at the UAE Armed Forces General Headquarters (GHQ) in
Abu Dhabi for national military elements (Land Forces, Air Force
and Air Defense, Naval Forces) reporting to GHQ, and the
procurement department of Dubai's Central Military Command.  The
later was merged recently with the UAE Armed Forces General
Headquarters (GHQ) in Abu Dhabi to form one UAE procurement
system. GHQ procurement rules allow the use of agents but in
large weapons procurement, may in some cases limit the use of
agents, and in sales over U.S. $10 million requires the foreign
principal to invest in offset ventures for 60 percent of the
value of the contract. 
               
For all types of government procurement and projects, U.S. firms
are encouraged to seek a presence in the U.A.E.,  and get their
goods/services prequalified to bid.  Competition in the public
sector is very strong.  Besides some very large military
procurement projects, governments in the U.A.E. are investing
heavily in infrastructure projects such as roads, power
generation and distribution systems, desalination facilities,
sewage systems, public housing, recreational facilities,
hospitals and other medical facilities and services, schools,
athletic facilities, refineries and other hydrocarbon facilities,
airports, government buildings, and many other areas.  U.S. goods
and services enjoy an outstanding reputation for quality, but,
with the exception of hydrocarbon-related industries, are under
represented in this market.

L. Protecting Your Product from Copyright Infringement:
The U.A.E. was a major center for the production, sale, and
export of pirated and counterfeit products.  However, during the
last five years the U.A.E. government has passed new IPR laws and
stepped up enforcement actions aimed at reducing or eliminating
such practices, and bringing its IPR regime up to international
standards.  While there has been considerable improvement in the
overall IPR situation, particularly in copyright enforcement for
audio and video recordings, there remain important IPR issues yet
to be addressed.  This is particularly true in the patent area,
especially for pharmaceuticals.  It is significant that the
U.A.E. has joined the General Agreement on Tariffs and Trade
(GATT), and has acceded to the World Trade Organization. 
Membership in the GATT requires adherence to certain minimum
standards of IPR protection, which should help sustain and expand
the initiatives already taken.  The U.A.E. remains on the U.S.
Watch List administered by the U.S. Special Trade Representative
because of its IPR deficiencies. U.S. firms wanting to register
their trademarks, copyrights, or patents in the U.A.E. should
contact local legal counsel for assistance.  


M. Need for a Local Attorney:
The need for a local attorney will obviously be affected by the
size, complexity, and nature of the business to be conducted. 
However, there are some general points that  firms should
consider before doing any type of business in the U.A.E.  First,
the legal system of the U.A.E. is very different from that of the
U.S.  Prior to the modern era, business was conducted according
to the dictates of religious law (Sharia) and traditional custom. 
Codified law based on modern norms is new and still evolving, as
are practices based on the law, such as court and other legal
procedures.  Second, where laws appear to govern certain
practices according to commonly accepted principles, terms and
definitions are often at variance with usual interpretations. 
What the law says is one thing, what the law means is another
thing.  Third, the requirements of licensing, registration,
sponsorship, immigration, and labor laws for a workforce almost
totally expatriate, the difficulty of termination of agency
agreements, partnership requirements, and the preferences given
to locals in dispute resolution, among other differences with the
U.S. system, argues strongly for U.S. firms to consult local
legal counsel.  There are many law firms with experience in
dealing with U.S. clients, and some U.S. attorneys experienced in
the local market. 

 
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