Page 153 - Aamir Rehman - Dubai & Co Global Strategies for Doing Business in the Gulf States-McGraw-Hill (2007)

A Piece of the Action: Strategies for Entering the GCC Market 137

The landscape of the GCC markets today includes examples of
all three levels (shallow, moderate, and high) of engagement
outlined in the Engagement Spectrum (see Figure 5.1). Each level
contains its own strategies, which have their own benefits and
drawbacks, and there is no “right” answer to the question of how
multinationals can best enter the GCC market. In the rest of this
chapter, we will explore some of the paths that leading global firms
have taken in their journeys into these new markets to see what
lessons we may draw from their experiences.

SHALLOW ENGAGEMENT HAS
BEEN THE NORM
The bulk of multinational firms that have a presence in the GCC
countries have approached the market through shallow-engage-
ment strategies. The most common approach has been straightfor-
ward distribution agreements by which a local firm markets and
sells the multinational’s products while paying for the goods and
(potentially) sharing in overall revenues. Distributorships are the
norm across a wide range of sectors—especially those of wholesale
and retail consumer goods, restaurants, and other consumer-facing
services. One reason for choosing the strategy of distributorships
has been the restrictive regulatory regimes (to be discussed below
at greater length) existing in the GCC states until only recently,
which have made higher-engagement strategies less attractive or
impossible. As well as the regulatory constraints, however, there
are some solid business reasons for choosing a shallow-engagement
approach to the GCC markets.
First, shallow-engagement strategies can make sense because
they minimize the multinational’s exposure to risk. In the case of
goods manufacturers, for example, the only financial risk they
might incur is that they might lose some inventory given on
consignment or with deferred payment terms. In the case of service
firms, there may be more oversight and standards enforcement
required by the head office, but their financial exposure is minimal.
Although there is a small amount of risk, the multinational receives
the benefit of having its brand and reputation spread across a new
region—increasing its global presence and demonstrating, to
whatever degree, its ability to compete with the comparable local