Dubai: Consumer product companies in the UAE expect the most expansion internationally in the next one to two years as businesses in Middle East and Emerging Europe are planning to do the same amid some common challenges of achieving sales growth, changing economic environment and managing working capital, according to a new Citi Corporate Survey.
That companies in the consumer sector in the UAE are most likely to expand beyond the national border is not surprising, especially in products where there is no value addition and the competition is severe, said Vincent Valladares, Middle East Head at Citi Commercial Bank.
“Companies in this segment also look at markets like Saudi Arabia and North and East Africa as these markets have a large population base, ideal for consumer products,” he told Gulf News in an exclusive interview.
To sustain sales growth, UAE companies’ foray into international markets is in fact following international trends even as others from outside feel inclined to set up their units in this country.
“UAE companies are setting up subsidiaries and branches across the world and similarly there is an influx of outside companies setting up operations in UAE to address the Middle East, Levant and African markets,” said Valladares. “Thanks to the logistical infrastructure (seaports and airports), banking facilities and ease of setting up/doing business, UAE would make it to the top of the list for companies to make UAE their home.”
The UAE climbed three slots to take the 23rd spot globally in the World Bank’s Ease of Doing Business report 2014, released last October.
In general, according to the Citi survey, 58 per cent of larger companies, that is, those with revenue above $35 million, and 37 per cent of the smaller ones with revenue below $35 million, plan to look abroad for growth and the most popular places for expansion are the Middle East and Europe.
And amid a business environment that breeds SMEs, which are a significant contributor to the UAE’s GDP and a large employer, 92 per cent of the medium and 70 per cent of the small businesses in the UAE are looking to expand.
“There is great government support and focus towards growing the SME sector, hence resulting in greater opportunities for SMEs to expand,” Valladares said. “I think the business environment is extremely conducive for companies to grow and almost every SME that we meet these days talk of expansion which is an encouraging trend.”
At the country level, the challenges vary. While 22 per cent of UAE and Turkish companies cite the need to increase sales, 21 per cent based in UAE, Czech Republic and Poland and 26 per cent in Russia cite international expansion as their greatest challenge.
Twenty-three per cent of clients based in Jordan, Turkey and Romania worry about changing economic environment and 21 per cent of Russian companies mention managing working capital.
There are some business norms in the UAE that pose as both opportunities and threats to capital management, Valladares pointed out. For example, as most businesses deal heavily with cash rather than credit from customers, there is a unique opportunity for customers to take advantage of this liquidity. On the other hand, companies also struggle with credit management as it expected customers to make delayed payments.
Of the 1,416 respondents, 81 per cent are senior financial executives and 61 per cent are CEOs, CFOs and Managing Partners from companies based in UAE, Bahrain, Jordan, Turkey, Hungary, Czech Republic, Romania, Russia and Poland. The study took a snapshot of data as of September 2013.