Page 170 - Aamir Rehman - Dubai & Co Global Strategies for Doing Business in the Gulf States-McGraw-Hill (2007)

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Regulatory due diligence is required for more strategic issues
such as the likelihood of ongoing reform and the long-term regula-
tory benefits and drawbacks of various market-entry strategies. A
multinational’s internal legal and corporate affairs teams, along
with outside advisors and in-market counsel, need to assess in
detail the pertinent regulations that would govern them and to
understand all of the implications. Without feeling comfortable
about the regulatory issues, for a company to move along the
Engagement Spectrum is a risky and potentially unwise venture.

HIGH-ENGAGEMENT STRATEGIES ARE
BECOMING MORE RELEVANT
Historically, the high-engagement strategies presented earlier in this
chapter—organic market entry and acquisition-based entry—have
not been possible in the GCC states. Since the boom days of the 1970s,
the governments of these countries have seen it as vital to protect
local firms (and promote the creation of new ones) by keeping foreign
entities from owning businesses in their homelands. Behind closed
doors, however, GCC leaders will readily admit that policy of
keeping their economies closed has had its costs. The rationale for
such a policy, they argue, is that local GCC companies were simply
not ready to compete with foreign firms at the time prosperity sud-
denly came to the region. Oil wealth made the Gulf a lucrative place
to do business and therefore a magnet for the attention of multina-
tional firms, yet the local firms lacked the capability to outperform
these multinationals on a level playing field. Whereas more
advanced economies had achieved their level of prosperity over a
period of centuries, involving industrialization, growing research
and development capabilities, ever-improving educational and train-
ing facilities, cultural changes including greater consumer awareness
and sophistication, and other key outgrowths of affluence, wealth in
the GCC came—literally—out of the ground and all at once, in a
geyserlike rush. It was out of a sense of responsibility toward a local
community, which they believed needed protection, that the rulers of
the GCC states adopted their restrictive policies. The restrictions on
foreign ownership is one reason why, according to industry statistics,
mergers and acquisitions in the entire region of the Middle East and
Africa make up less than 1.5 percent of the world’s total. 23