AUTO-PARTS MARKET IN UAE
- The Automotive and auto-parts sector plays a crucial role in Dubai's economy and its impact becomes more prominent if we consider Dubai's non-oil economy.
- The growing importance of the industry has been analyzed by Dubai World Statistics Department which appreciates the fact that in the near future the automotive industry will thrive in UAE. The precise and systematic statistical analysis ensures the auto parts industry's capacity and its capability to be a driving power in the economy.
- The total trade amount for the first half of the fiscal year in 2009 was registered as US$ 2.4 billion, Japan being the largest importer. Accessories and auto parts take the biggest chunk of the automotive industry of Dubai (52%). (CIA- The World Factbook - United Arab Emirates )
Free Trade Zone
Afree trade zone(FTZ) also known as export processing zone(EPZ) is mostly located at an airport or a seaport for faster access to transport facilities. It is a unique area and crafted specifically for trading of products. Some important features are:
- Such free trade zones come under special zones in a particular country as such countries do not levy trade barriers which come in form of taxes, quotas and also the legislative and bureaucratic restrictions as long as it is restricted to the free trade zone.
- No taxes in the free trade zone make it a hotspot for not only trading and storing good before shipments but also for manufacturing certain products, especially if the prerequisite raw material sources are scattered around the globe.
- By creating such trade free zones, countries' aim is to attract foreign investment and opportunity to create more jobs for their citizens. It surely also promotes trading in such areas. Jebel Ali Free Zone (JAFZA) being a perfect example.
JAFZA - Jebel Ali Free Zone
The Jebel Ali Free Zone, also known as ZAFZA is one of the most prominent free zones in the central part of the globe. It is located in United Arab Emirates (UAE) at is Dubai port. Some salient features of JAFZA are:
- JAFZA is a state owned free zone and a part of Economic Zones World, which indulges in developing R&D Industrial Parks, Logistics And most importantly Economic Zones.
- Started functioning in 1985 by providing warehouses; it expanded its facilities in 1990 to incorporate light industrial units.
- It is located at the entrance of the Peninsular Gulf right next to the Jebel Ali Port (largest port in Middle East) , providing it a prime location as it makes JAFZA easily accessible to the entire Arabian Peninsula, Asia, India, Africa and Europe.
- Constructed over a region of 48 square kilometers, it is one of the largest and swiftly growing free zone. (Dubai Government Information and Service Portal )
- Being a trade port its priority is to attract and retain maximum traders hence making it a customer service driven free zone which provides excellent environment and opportunities for constant growth.
- JAFZA was certified as an ISO 9001:2000 organization in1996 making it the very first free zone to win an ISO certification.
- UAE does not have any manufacturing units for automobile. Its 100% import export based, hence free trade zones like JAFZA become more important.
- The UAE automotive industry has about 1.4 million vehicles and it is constantly growing at around 10%. Oil wealth is the major reason and will remain for Dubai and Middle East to be a flourishing market for latest models of cars and any other latest development in the automotive industry.
- The major players in the motor vehicles manufacturing industry in UAE are General Motors, Nissan, Toyota, Jaguar, Mitsubishi, Mercedes, BMW, Volkswagen, Land Rover and Ford.
- Auto parts and accessories sector, which act as complimentary to the automotive industry is also experiencing rapid growth.
- The 65% of the auto parts and accessories imported are exported back to the various countries via the free ports and this process has been growing at an average rate of 20% per annum.
- Dubai Cars & Automotive Zone (DUCAMZ) is responsible for re-exporting cars and auto parts to the Asian and African regions which are the core markets for such products.
- JAFZA is responsible for supervising DUCAMZ and providing all the necessary assistance which include: customs and clearing, licensing, administrative services and various other issues which are kept extremely simple when they operate in the trade free zone. (Jafza - Jebel Ali Free Zone- The world's fastest growing free zone Dubai UAE )
- With JAFZA being a free trade port the various advantages to its customers are: space in a 1.6 billion people market; no taxes, import/export duties; and no restrictions on amount of trade, 100% foreign ownership.
- Hassle free clearance and JAFZA's aid in various formalities is also an important factor which promotes trade in Dubai.
Business Culture of United Arab Emirates:
UAE is a federation of seven small Gulf States; its society is a unique blend of culture and people. The union of religious influences combined with a progressive outlook and high economic opportunities makes UAE a unique place to do business. Understanding their culture is vital for anyone wishing to successfully do business in UAE.
- Religion has played a dominating role in shaping the society and culture of the UAE. Islam is the major religion and pervades almost every aspect of life. Lifestyle, daily routines, education, law and even conversations are also influenced by Islam. Understanding Islam's influence on everyday life and Emirati business culture is the first step to conducting successful business in the UAE.
- Family and tribal connections forms the base of their social structure. The family comes before anything else and its honor is protected by doing whatever it takes. Loyalty between family and tribe members carries over into business also where it is not uncommon for companies to be run by and employ many members of one family or tribe.
- Hospitality is a very important part of Emirati culture and is practiced in both social and professional context. Guests are received very generously. At home it means feast and at work it means meetings accompanied by Arab coffee and pastries. Foreigners should dedicate time in building up relationship with UAE counterparts.
UAE's Working Practices
- Traditionally Saturday to Wednesday are considered as weekdays. Thursday and Friday are considered official weekends. Office hours are 9am to 1pm and 4:30 pm to 8 pm and nowadays often go even later due to immense construction boom.
- Meetings are scheduled with extra time allocated in case it extends or start later than anticipated. Meetings are often cancelled at last moment so it is necessary to be flexible and come with a business card or letter to let them know.
- Attitude towards time is much more relaxed than in western culture. Family, people and relationships are considered more important. So, your Emirati counterpart could be late but foreigners are expected to be on time.
- The UAE people are considerably modern than the rest of the Middle East. Business practices are becoming more westernized day by day. But, it is still important to be respectful of some differences that may exist.
Structure and Hierarchy of companies
- There is strong hierarchy in most of the companies. Most are owned or run by a major (powerful) person (also known as fatherly figure of the company) who makes all the decisions. For successful relationship in business this person should be treated with respect.
- Key status factors are age, family connections and money. Family background is more important than achievements. So one can easily find many members of same family working in the same company.
- Status has high importance and has to be recognized with the correct title. If you are not sure about somebody, ask others or find out beforehand.
When meeting a group, one must greet the senior most first then others in decreasing order of seniority (preferably). Usually the oldest is the senior most. Always work out status and titles beforehand. Always use titles and status to show the right amount of respect.
- Emirates prefer to do business in person. Successful business interaction depends upon mutual trust and relationships and for this face to face meetings are necessary. One should spend time with their business counterparts to ensure the cultivation of the relationship.
- You should have someone in UAE who can introduce you there before starting business on your own. They prefer to do business with someone they know. So, being introduced by someone is a plus point.
- One should greet their business counterparts individually, general introduction starts with handshake.
- Initial meetings are long and conducted leisurely over tea and coffee with long duration of discussions. These meetings are essential part of their culture and hence some time should be allocated. Always do accept an invitation for a meal or social event. For doing business with Emiratis, relationships are important.
- Business cards are not essential in Emirati culture. If you intend to use them, make sure that the information is to be printed in both Arabic and English.
Hofstede's Analysis of UAE
It is identical with other Arab countries, in shaping their lives Islam plays a major role.
- Large Power Distance Index (PDI) - it indicates inequality in wealth and power is allowed to grow in the society.
- High Uncertainty Avoidance Index (UAI) - it indicates low tolerance level of society for uncertainty.
- Masculinity Index (MAS) - slightly higher than world's average could be due to Islam rather than cultural paradigm.
- Low Individualism (IDV) - it indicates Emirates as a collectivist society rather than individual culture.
High UAI and PDI indicate highly rule oriented society to reduce the uncertainty and inequality in wealth and power are allowed to grow in the society.
Infrastructure and services
UAE have the policy of investing heavily in industrial infrastructure, energy, telecommunications and transport. This has enabled some parts of emirates to become one of the best infrastructure facilities which contribute to attracting international business and it also contributes to ongoing prosperity significantly. The Emirates have 1 business park, network of 7 industrial areas, 2 world class seaports, 1 international airport and cargo village, 3 specialized and highly successful free zones of international distinction, 1 modern highway network, state of the art telecommunication & reliable power and utilities all of which deliver reliability, flexibility, efficiency, reasonable cost and size.
Emirates also have a sophisticated service sector that features , shipping companies, leading regional and international freight forwarders, banks and financial service firms, insurers plus major international hotels, lawyers, consultants, accounting firms, advertising agencies, first class hospitals, top international exhibition, conference facilities, high quality office and residential accommodation, shopping centers, schools and recreational facilities. (UAE- The official website- News)
The labor force in UAE is multilingual and skilled in some parts (e.g. Dubai). There is 76.2 % labor freedom (i.e. the labor market have relatively flexible regulations which could enhance job creation and overall productivity growth. Employing a worker of non salary cost is moderate. However a major part of the labor force in UAE is consisting of large number of low skilled expatriate workers. The profit maximization in such labor conditions is not good for long term economic growth. So a firm will need to train their labor force for long term profit maximization.
UAE is a low crime and politically stable country. It is also monetarily and financially stable. Emirates are a well developed country. The government is committed to pro business, liberal economic policies. It benefits from harmonious and stable industrial relations. There is a well defined and sound legal framework for business and set of ownership rules. The permitted ownership rights of a foreigner are from 100 % for the professional company's representative offices and branches to 49 % for limited liability companies.
The companies also have significant cost advantages:
- No trade barriers or quotas,
- No foreign exchange controls,
- Competitive import duties,
- Competitive labor costs,
- Competitive energy costs,
- Competitive real estate costs,
- No personal income or corporate profit taxes (except for branches of foreign banks and oil companies),
- High levels of liquidity
- Competitive financing costs,
- Tax: there is no personal income or corporate profit taxes (exception foreign bank branches and oil companies).
- Huge investments could be made on non oil diversification arenas. Dubai internet city has been developed as a free export zone in October 2000.
- Development of new free zones like the Jebel Ali Free Zone hosts 2200 companies was established in 1985.
Competitors in JAFZA
Some salient features of auto parts industry in free ports such as JAFZA and the stiff competition they face are as follows:
- As JAFZA serves as a free trade port and the state applies various relaxations for the interested companies there exist massive competition among the various automotive and auto parts companies which see it as an opportunity to boost their business via such free ports.
- Other than the automotive giants such as General Motors, Nissan, Toyota, Jaguar, Mitsubishi, Mercedes, BMW, Volkswagen, Land Rover and Ford; there exist numerous private companies which deal in auto parts and accessories.
- More than 1800 companies are registered with the various free ports across the UAE and JAFZA being the biggest holds and assist most of them.
- The automotive business is 100% import/export based as there is no manufacturing unit in Dubai for manufacturing either automotive or auto parts.
- Out of the total imports on automobiles and auto parts, 65% is exported back to the various African and Asian countries which serve as a major market for the companies operating with JAFZA.
- The constantly increasing market for the auto parts can be realized from the fact that this industry has turned out to be the major complimentary practice in the automotive industry.
- The business of the auto parts and accessories has grown more than 20% in the recent past every year and is still maintaining its pace. This has lead to developing interest of various firms to invest in this segment.
Some of the major players of the auto parts and accessories are as follows:
- Dubai Auto Trader
- Papyrus Auto Spare Parts LLC
- Total Auto Spare Parts Trading LLC
- Samira Auto Parts Co Ltd
And many more companies other than the obvious automotive giants stated before.
- CIA- The World Factbook - United Arab Emirates. (n.d.). Retrieved on April 5, 2010, from https://www.cia.gov/library/publications/the-world-factbook/geos/ae.html
- UAE Macroeconomics. (n.d.). Retrieved on April 5, 2010, from http://www.scribd.com/doc/6904566/UAE-Macroeconomics
- Dubai Government Information and Service Portal. (n.d.). Retrieved on April 5, 2010, from http://www.dubai.ae/en.portal?le_Business,le_Business,1,&_nfpb=true&_pageLabel=lifeEventBusiness
- Jafza - Jebel Ali Free Zone. (n.d.). The world's fastest growing free zone Dubai UAE Retrieved on April 5, 2010, from http://www.jafza.ae/
- UAE- The official website. (n.d.). News Retrieved April 5, 2010, from http://www.uaeinteract.com/news/default.asp?ID=320