Exploring The Impact Of UAE's BRICS Membership On Mid-Market Business Trends
The UAE's inclusion in BRICS in 2024 is set to significantly enhance trade and investment opportunities while its record foreign direct investment (FDI) inflow of over $22 billion in 2022 underscores its status as a premier investment hub in the MENA region. This favorable economic landscape presents unique opportunities and challenges for mid-market businesses in the UAE.
To understand how these dynamics are impacting mid-market businesses, a comprehensive survey was conducted by Kreston Global involving 1,400 C-suite business leaders across 14 countries. The survey targeted private sector companies earning up to £300 million annually and expanding internationally.
These leaders, referred to as 'interpreneurs,' provided valuable insights into their motivations, challenges, and strategies for global expansion. However, the UAE-based data was analysed to understand better what drives Middle East business owners when expanding abroad.
Optimism for Global Business Expansion
UAE business leaders are highly optimistic about global business expansion in the coming year, with 93% expecting an increase in overseas business activities. Specifically, 54% anticipate a significant increase, and 39% foresee a moderate increase in global expansion efforts. This optimism is reflective of the UAE's proactive government support and strategic partnerships aimed at attracting foreign direct investments.
Preferred Markets for Expansion
When considering international expansion, UAE interpreneurs have a clear preference for Western Europe, with 62% selecting it as their top destination. This is followed by the Middle East (54%) and North America (44%). Other regions like North Asia (34%), Eastern Europe (28%), South Asia and Africa (24%), South America (19%), and Australia/New Zealand (13%) also attract interest, albeit to a lesser extent.
Government support as primary attractor
UAE respondents were the only country to value government support the most attractive when considering expansion into a country. Cultural and language similarities to existing operations were valued as the least important.
The emphasis on future economic growth as a key trait for international expansion among UAE respondents highlights the region’s forward-thinking mindset. Additionally, the high value placed on local talent availability and openness to skilled immigration (45%) indicates a strategic focus on harnessing human capital to drive innovation and competitiveness.
Key Attractors for International Expansion
Government support emerges as the primary attractor for UAE business leaders when considering international expansion, with 49% emphasizing its importance. Other significant factors include:
- Availability of skills and talent (45%)
- Favorable trade agreements (42%)
- Advanced tech infrastructure and digitalization (42%)
- Future economic growth prospects (39%)
- Alignment with long-term growth strategies (39%)
Notably, cultural and language similarities are less important, highlighting the UAE's focus on practical and economic factors over cultural considerations.
Motivations for Expansion
The primary motivation for UAE businesses to expand internationally is market growth opportunities, cited by 50% of respondents. Additionally, 43% aim to outpace rivals by securing new market footholds, and 38% are driven by access to cutting-edge digital technologies and innovation. These motivations reflect a strategic approach to leveraging global markets for competitive advantage and technological advancement.
Challenges in International Expansion
UAE interpreneurs face several significant challenges in their international expansion efforts:
1. Managing Economic Volatility: Currency fluctuations, inflation, and low growth are the top challenges, affecting 46% of businesses.
2. Adapting Logistics and Supply Chains: Managing international shipping, distribution, and communication is a concern for 43% of respondents.
3. Finding Reliable Local Partners: Building trustworthy relationships with local partners is a challenge for 39%.
Additionally, navigating global tax regulations is a significant hurdle for 38% of respondents, underscoring the complex regulatory landscape faced by UAE businesses.
Risks to Global Expansion
UAE business leaders identify several risks to global expansion in 2024:
- Financial Market and Foreign Exchange Volatility: 44% view this as a major threat, with 11% considering it highly disruptive and 33% significant.
- Economic Slowdowns or Recessions: 42% see this as a disruptive or significant risk.
- Geopolitical Tensions and Instability: 42% regard this as a threat, reflecting concerns over global political uncertainties.
- Cybersecurity Threats and Data Breaches: 35% view this as a significant or disruptive risk.
- Talent Shortages and Skilled Labour Gaps: 32% consider this a moderate to significant risk.
These risks highlight the need for robust risk management strategies to navigate the volatile global business environment.
Funding Preferences for International Expansion
When it comes to funding international expansion, UAE businesses show a preference for various sources:
- Private Investors (including HNWIs): Preferred by 52%
- Debt: Chosen by 55%
- Venture Capital or Private Equity: Preferred by 47%
- Capital Markets (e.g., IPO): Selected by 39%
- Employee Equity Schemes and Government Funding: Both chosen by 36%
- Management Buyout and Crowdfunding: Considered by 34%
These preferences indicate a diverse approach to securing funding, with a notable reliance on private investors and debt financing.
Confidence in Global Taxation
UAE businesses exhibit varied levels of confidence in their understanding of global tax regulations:
- Extremely Confident: 43% have a deep understanding of global tax rules.
- Confident: 49% have a good grasp of key principles but may seek external guidance for complex situations.
- Not Very Confident: 8% rely heavily on external advisors for guidance and analysis.
This distribution highlights the importance of expertise in navigating global tax obligations.
Importance of ESG
Environmental, Social, and Governance (ESG) factors are increasingly important for UAE businesses:
- 41% Prioritize ESG: Reflecting a strong commitment to sustainable practices.
- 35% Value ESG: Though not as a top priority.
- 20% Consider ESG: If it does not interfere with other priorities.
- Only 3% Disregard ESG: Indicating widespread recognition of its significance.
This trend underscores the growing importance of ESG in corporate decision-making.
Readiness for AI Integration
UAE business leaders are highly confident in their ability to harness AI benefits for global operations:
- Strongly Agree: 60% feel prepared to integrate AI.
- Somewhat Agree: 34% share this sentiment.
This high level of confidence reflects a readiness to embrace AI as a transformative force in business operations.
A Bright Outlook
Sudhir Kumar, Senior Partner & Head-Corporate Communications, Kreston Menon: "The UAE Interpreneur report is precise and will be valuable for any investor. In the UAE, all foreign Governments are actively partnering with the UAE government to attract and bring in FDIs as Government support is key in expanding operations. Every Diplomatic Mission in UAE has set up their separate Trade Offices to attract UAE interpreneurs. And the investor numbers increasing regularly. New areas and sectors for investments are discussed and planned.
"The main challenges for UAE Interpreneurs for international expansion are market volatility, right business partner and talent. Most of the Governments have formed special Teams to handle international investors and that Team relates with the Trade Offices in UAE. This helps the Interpreneurs expansion plans go seamless. A trusted and knowledgeable advisor is what all interpreneurs look for to take them through the process."
The Interpreneur Survey reveals a dynamic and optimistic outlook among UAE mid-market business leaders regarding global expansion. With strong government support, a focus on technological advancement, and a strategic approach to navigating risks and challenges, UAE businesses are well-positioned to leverage international markets for growth and innovation. As they continue to expand globally, factors like economic volatility, geopolitical tensions, and cybersecurity will require careful management to ensure sustained success.
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