UAE Export: Marketing Research and Partner Search

The United Arab Emirates is a gateway to the markets of the Persian Gulf countries.

The United Arab Emirates has long ceased to be an exotic market for Russian products. The UAE imports significant volumes of diverse goods both for domestic consumption and, to a large extent, for resale to third countries. It is not without reason that they say that entering the UAE opens up broad opportunities for trade with most countries in the Middle East, North Africa, and South Asia.

Economic Ties between the Russian Federation and the United Arab Emirates

In 2020, the total volume of UAE imports amounted to almost 160 billion US dollars. The main partners for importing products into the UAE are China, India, and the USA, which together account for over 40% of all imports. The Russian Federation ranks 14th in the ranking of exporters to the UAE. In absolute terms, this corresponds to a trade flow of 2.9 billion US dollars (or 1.8% of all UAE imports). Meanwhile, exports of goods from the UAE to Russia amount to only 0.4 billion US dollars.

In turn, for Russia, the UAE is the 24th largest buyer among all countries worldwide. However, for the Arab region, it confidently holds first place in terms of export volume. Saudi Arabia imports Russian goods worth half as much (as of 2020).

So, what goods are most actively purchased by the UAE from Russian companies?

Firstly, these are various oils and other products obtained from the processing of bituminous minerals and coal, as well as bituminous mastics.

The second most important commodity group is diamonds.

These are followed by cereals, among which wheat and barley are the most significant.

Among other commodity groups and individual goods, it is worth noting semi-finished products of iron and steel, rolled products; electrical equipment; engineering products (engines, pumps, agricultural machinery, etc.); cocoa products; paper; measuring equipment; wood; various finished food products; chemical products and fertilizers; cosmetic goods.

Goods from most commodity groups are supplied to the UAE from Russia in small volumes, indicating significant diversification of export supplies.

In recent years, trade turnover between the countries has been quite stable, but opportunities for increasing supply volumes remain. The potential of many commodity groups has not yet been realized, especially considering the UAE's role as a transport hub in the Middle East, North Africa, and even for South Asian countries. This explains the attention that Russian businesses pay to the UAE market as promising for the development of export sales.

Marketing Research of UAE Markets

As noted above, most commodity markets in the UAE are highly competitive. This is due to the solvent demand from the local population and wealthy foreign citizens residing in the UAE, the transparency of trade relations, and the opportunity to expand their reach at least in the Maghreb and Middle East regions through partnerships with Emirati businesses.

Producers and distributors from all over the world actively work with the United Arab Emirates, which currently poses a significant barrier for new exporters, including Russian ones. We must not forget that the main volume of cargo to the UAE arrives by sea, and Russia's major ports – St. Petersburg and Vladivostok – are quite far from the ports of the Persian Gulf countries. All this does not contribute to the high competitiveness of domestic goods, including in terms of price and delivery speed.

This directly underscores the importance of having sufficiently complete information about the commodity market that a Russian company plans to enter in the UAE. Collecting it is possible within the framework of marketing research, which is advisable to conduct in advance to form a system for working with the market (at least at the level of 4Ps), as well as to calculate a financial model that will show the marginal profitability of supplies to the Emirates.

For UAE markets, it is advisable to conduct both desk and field marketing research, possibly using a certain combination of methods from both. This will allow gathering a sufficient volume of data for management decision-making.

Conducting pure desk marketing research on UAE markets is difficult because the volume of available data is very limited. First of all, it is worth noting the relatively low level of the statistical accounting system in the UAE: there are not many indicators in the public domain, while their relevance is low. This has both subjective and objective reasons. It is enough to say that due to the large number of labor migrants, even estimating the size and structure of the population is approximate. The indigenous population (citizens) are accounted for much better, but their share, according to estimates, is only about 11%.

On the other hand, e-commerce and retail in chain formats are well developed in the UAE. This allows for remote price sensing in the territory if we are talking about B2C markets. Also, in recent years, the quality and content of local company websites, both manufacturing and trading, have been improving. This allows forming an idea of both the competitive environment and potential partners in the territory remotely.

For industrial goods markets, as well as for types of products not actively promoted in retail chains and online, finding information without "fieldwork" in the UAE will be very problematic. Here, it is desirable to have "hands and feet" in the Emirates who can become a source of important and often closed information. This problem is even more characteristic of B2G markets, as many types of goods are mainly sold to meet the needs of companies in the de facto state sector of the UAE economy, especially in the oil industry. In this case, the information will not only be limited but also very expensive. It is impossible to collect it within the framework of desk research.

In practice, when performing marketing research on UAE markets, we most often combine methods of collecting and processing primary information, as well as sources of secondary information, to meet client requests at reasonable prices. After all, for most B2C goods, it is possible to work mainly "in the office." Although even in this case, we recommend conducting sensing in "live" stores of basic chains such as Carrefour or Lulu, as well as in traditional or specialty retail.

Another factor that significantly facilitates marketing research in the UAE is the high frequency of English language use, in which almost all important information is duplicated. Despite the weakness of the statistical accounting system in the Emirates, available data exists in both Arabic and English versions.

For desk research on the UAE, considering the country's role as a trade hub, it is extremely important to assess export and import flows. Websites aggregating world trade statistics are suitable for this. Using the data posted on them, it is possible to quantitatively estimate what volume of imported goods remains for domestic consumption and what is sold to third countries. But at the same time, we must not forget that production within the UAE is also growing rapidly. Many world brands in various product categories have built their factories and plants in the Emirates, establishing production using imported raw materials. So, in any case, an assessment of domestic production is required, which can play a significant role in certain markets.

After the marketing research is conducted and the answer is received that a market for the Russian product exists, and supplies can yield positive project economics, it is necessary to form a profile of a potential partner to then proceed with the search.

Searching for Partners to Conduct Business in the UAE

Finding a partner to conduct business in the United Arab Emirates is extremely important for launching an export project. There are many reasons for this, but the main one, perhaps, is that without a company representing the exporter's interests in the country, the import of goods will not take place. What are we talking about?

According to the rules, distribution of imported goods can only be carried out by distributor or agency companies that must be owned by UAE citizens or companies 100% owned by UAE citizens. This restriction poses a number of problems for a potential exporter to the UAE market, the most complex of which is the selection and conclusion of a contract with a specific distributor, because under UAE law, a distribution agreement can only be terminated if the foreign supplier or importer can present a "substantial reason justifying its termination or its 'non-renewal'."

An alternative to resolving this situation can be legal presence:

- in the UAE outside free zones in any emirate, to conduct business in that emirate or outside the UAE;

- in any free economic zone of the UAE as a free zone company to conduct business only within that free zone and outside the UAE;

- in any free zone as an offshore company to conduct business only outside the UAE.

Until recently, the main difference between registering a company in the UAE outside free zones ("local company") and registering a company in the UAE in a free zone was that for "local companies," there was a restriction on foreign ownership. Outside free zones, a foreign investor typically could not own more than 49% of the company's shares. In free zones, there are no such restrictions – there, an investor can own 100% of the company's shares. However, in 2020, Decree No. 26/2020 ("Amendment Law") was issued, which amended some provisions of the "UAE Federal Law on Commercial Companies" No. 2/2015. In particular, the standard requirement for at least 51% Emirati ownership in limited liability companies or joint-stock companies was abolished. Now company shares can be fully owned by foreign citizens, unless they are engaged in activities with "strategic impact."

Furthermore, the "Amendment Law" repealed Article 329 of the "UAE Federal Law on Commercial Companies," which required an Emirati citizen (or a company fully owned by Emirati citizens) to act as an agent for a branch or representative office of a foreign company.

Free economic zones are territories within the UAE created to attract foreign direct investment. In free zones, there is no restriction on foreign ownership, i.e., 100% foreign ownership is permitted. There are approximately 45 free zones in the UAE. Each zone is independent and has its own rules and laws. However, they still comply with certain UAE federal laws.

In free zones, three main types of companies can be registered. They can operate only within specific free zones and outside the UAE:

"Free Zone Establishment" (FZE) – this is the simplest form of legal entity that can be registered in free zones. Such a company can have only one shareholder. Requirements for minimum authorized capital will vary depending on the specific free zone chosen. If more than one shareholder is required, the FZE company can be converted into an FZCO or FZLLC.

"Free Zone Company" (FZCO) or "Free Zone Limited Liability Company" (FZLLC): an FZCO or FZLLC must have at least two shareholders. Requirements for minimum authorized capital vary depending on the specific free zone chosen.

If the exporter does not consider the option of presence in the UAE through opening a legal entity or branch, then it is necessary to approach the selection of a distributor or agent for organizing the sale of its products very carefully.

To form a cold list of counterparts, both Internet surfing tools and seeking assistance from companies providing market entry services to the United Arab Emirates can be used. But in any case, it is extremely important to assess the partner's reliability, considering the difficulty of replacing them later if necessary.

Also, for forming a contact list, it is recommended to study the participants of the main exhibition and fair events held in the UAE. As a rule, all key market players, including distributors, actively work at exhibitions.

Once the list of potential partners is formed, you can proceed to establishing warm contacts. Since most representatives of local businesses know English well, communication in written or oral form can be conducted in it. For the first contact, it is advisable to send a commercial proposal with a cover letter to the companies' email addresses. It is also possible to contact representatives of local companies through messengers, primarily WhatsApp, using the phones listed on the websites. The channel of business-oriented social networks, where many entrepreneurs from the UAE are represented, can also work well.

A high-quality commercial proposal is the basis for establishing business communication. It should be dedicated not only to the description of the product but also to the forms of interaction, prices, and delivery terms. At the same time, companies in the UAE expect prices at least including delivery to the port in the Emirates.

Businesspeople in the UAE are quite active, so an interesting commercial proposal will not go unanswered if sent to a targeted group of potential partners. If there is no response, it means the wrong selection of recipients or unattractive terms of the proposed deal.