Western Firms Face Stiff Emerging Market Competition in the Middle East

North American and European companies will increasingly have to compete with emerging market firms for business in the Middle East and North Africa (MENA) region as ‘south-south’ trade accelerates, according to research published by the Economist Intelligence Unit (EIU).

New routes to the Middle East: Perspectives on inward investment and trade, a report commissioned by HSBC, examines the MENA region’s attractiveness to investors and businesses from around the world. In a global survey of 618 executives, nearly one-half of whom are at the C-suite level or equivalent, respondents broadly expect the Middle East to feature more prominently in their business plans in the next five years.

According to the survey for this report, respondents from Europe particularly value the region’s burgeoning youth population, probably reflecting concerns about ageing populations and slowing economic growth in their home markets: 52% of European respondents cite the Middle East’s youthful population as a source of opportunities. However, for European and North American firms, the issues most likely to have a major impact on their plans are openness to foreign business and corruption (cited by 51% and 42%, respectively).

Other key conclusions of the report include the following:

  • The United Arab Emirates (UAE) is the most favoured business location in the Middle East. For most survey respondents, expansion plans centre on the wealthy Gulf states, which are also favoured because of the perception that political risk is lower there than in other countries of the region. The UAE is by far the most popular investment and trading location, cited by 63% of respondents overall. Latin American executives also showed strong interest in Egypt and Morocco.
  • Latin American executives are less worried than their peers in other regions about the impact of political turmoil on business in the Middle East. A total of 55% of respondents from Latin America (compared with 43% from both North America and Asia-Pacific) say that the political upheaval seen this year in the region is unlikely to affect business adversely in the medium to long term. This could reflect the fact that many Latin American countries have come through their own transitions from authoritarian or military rule to democracy in the past 25 years. Nevertheless, a majority of investors, unsure how to handle rapid change, say that if forced to choose, they would prefer stability to democracy.
  • Cultural factors present major concerns for emerging market businesses. The view that businesses and workers may face discrimination on the basis of gender, race or nationality in the Middle East is cited by a significant minority of respondents from all regions as a major issue. An average of 41% of respondents across all regions agrees with the statement that “attitudes towards women and ethnic minorities significantly hold back the economic development of the region”. Almost one-half (48%) of Latin American businesses also feel that the business culture of the Middle East is more suitable for firms from other emerging markets than it is for firms from developed markets.


Related reading