Doing Business In: Middle East

Doing Business with Middle Easterners

 

Arabia  

 

Arab

  • Muslim people • Islam religion
  • Descendants of Ishmael
  • (Arabs: outcasts, nomads, wanderers)

 

Palestinian

  • Muslims who occupied Israel prior to 1947 and continue to live in Israel

 

Persian

  • Iraq – Iran to India
  • Not descendants of Ishmael and Abraham
  • Not Arabs
  • Descendants of Lot nephew of Abraham
  • Major military power of the Middle East

 

Middle East

  • Bedouin Lifestyle
  • Importance of Coffee
  • Religion and Law are One
  • Planet as a Global Village

 

Arabia:  Value of “Patience”

capitals:  Speak Arabic

Mecca & Riyadh:  “Muslim” adherent of Islam

Jeddah = business

  • “Arab” Semitic people
  • “Your Word” vs. “Contract”
  • “Bukra insha Allah” – Fatalism, tomorrow “If God Wills”
  • Controls actions, behaviors
  • Freewill, freedom of choice vs. Islam fate, predestination

 

Arabia                      N                       W                 E                     S

Mediterranean Sea • Red Sea • Persian Gulf • Arabian Sea

Islam

 

After the Bible was completed, the Arab world fused into one vast empire.  The catalyst for this fusion was Muhammed (means “highly praised”) born in a tribe in Arabia in 571 at Mecca.

Age 25 married a wealthy widow, 15 years his senior, he had 12 wives, a number of children, but only one daughter survived.  He died unexpectedly on 8 June 632.

Muhammad was an unschooled man, but responsible for the Koran which one-seventh of mankind considers the embodiment of all science, wisdom, and theology.

Muhammad arrived to make Medina in Arabia his home on 24 September 622 when the famous Hegira took place and the official starting point of the Muslim Era.

Muslims are divided into:

  • 80%-85% Sunni, urban dwellers, in positions of leadership
  • 15%-20% Shiia, farmers and village dwellers, poorly educated

 

 

Who are the Arabs?

 

Arabs descended from Ishmael whose father was Abraham and mother the Egyptian slave Hagar.  Ishmael had 12 sons of 12 tribes.  (Genesis 25:16)

Arab today applies to others as the term is used to designate all the inhabitants of the Middle East and North Africa who speak the Arabic language and identify with Arab culture.

Arabs are descendants from Nomad tribes.  Arabs may look or dress differently depending on background and location.

Khiva (Russia) was long a center of Arab learning.

Al-Khwarizmi wrote Treaties on Mathematics, invented Algebra.  His original name was a long one that contained the Arabic system of numerals, one through nine plus zero, that the world uses today.

Arab Empire stretched throughout Europe, Africa, Asia and parts of China.

 

Arab Nations

 

At the Fall of the Roman Empire 437 AD the Arab Nations were among the World powers until defeat of the Moors at the Battle of Tours in 732 AD, then dropped to a place of relative obscurity.

Modern rise of Arab Nations began 26 May 1908 with first oil strike at Masjid-i-Salaman, Mosque of Solomon in Iran.

American Edwin L. Drake struck oil 27 August 1859 in Titusville, Pennsylvania.  In 1902 at Spindletop, the first oil well in Texas, near Beaumont.

Arabs crystallized their power in the 1973 Oil Embargo when oil revenue multiplied five times within a year after the embargo, enough to buy Bank of America in 6 days, IBM in 143 days, all the worlds’ listed companies on the stock exchanges in 15 ½ years.  Major power bloc overnight.

Much of Arab money has gone for arms than alms.  A standard of living, fighting for oil, instead of freedom & liberty, an ideology.

March 1938 dry oil holes redrilled, strike made Dhahran in Eastern Province of Arabia the largest oil producing country in the world, with largest known oil reserves (low sulphur oil).

 

Money Center of the World?

Wealthiest nations in the world:

  1. United Arab Emirates Abu Dhabi
  2. Qatar
  3. Arabia (Saudi) • Riyadh
  4. Kuwait

 

Riyadh airport larger than London’s Heathrow or Amsterdam’s Schiphol.

 

What is a Palestinian?

Israelis call them Arabs, but not Palestinians.

Arabs call the Palestinians, the Arabs that make (have) a claim on the land of Israel.

 

What is Israel? 

Israel is the most contested piece of real estate on earth.  Israelis claim title by the Abrahamic Covenant, the God promised blessing to Abraham, the families of the earth, and the nation Israel.

In December 1917, the Balfour Declaration and League of Nations Mandate of 1922 gave Palestine to the Jewish people for a homeland. The state of Israel became a country at midnight on 30 November 1947. The United Nations gave official recognition of Israel as a Jewish homeland on 14 May 1948. The UN Resolution Partition Plan of 1947 offered by the UN gave a tiny portion of the land to Israel as a state, the remainder to the Arabs, and declared Jerusalem an open city.

Palestinians were given and rejected Jordan. Palestinians believe Jews should return to the country of their origin. Palestinians believe that Israel was returned to the Arabs and the Jewish people are not to occupy Israel before Christ returns.

 

Middle East

 

 

 

 

The strategies people use to negotiate differ cross-culturally. But while substantial research describes how negotiation strategy is used in Western and East Asian cultures, the same cannot be said of Middle Eastern cultures.

Despite its thousands of years of history at the crossroads of trade between the East and the West and its oil resources upon which both Eastern and Western economies depend the Middle East is seriously understudied by negotiators.

 

Negotiation in Dignity and Honor Cultures

An honor culture theory could be used to predict differences in how Middle Easterners and Americans would use negotiation strategy. A key point in this theory is the idea of self-worth.

The U.S., for instance, tends to be what anthropologists call a “dignity culture”. This is because self-worth reflects social status, which is constructed and maintained somewhat independently from the social interactions in which an individual is involved. Middle Eastern countries, on the other hand, are described has having “honor cultures” because self-worth reflects a social status acquired through social interactions. People compete for primacy, sometimes by trying to protect themselves and their families from being taken advantage of, and other times by being generous and developing a reputation for warmth and hospitality.

Understanding a culture’s sense of self-worth matters when negotiating new business relationships, the researchers argue, because Middle Easterners are more likely than Americans to approach the negotiation as a competition and thus an opportunity to establish and protect honor. But Americans, for whom dignity should be little affected by the outcome, are more likely than Middle Easterners to approach the negotiation as a puzzle in need of a solution.

 

Cultural Differences Emerge

There are indeed significant differences in how American and Middle Eastern negotiators use strategy. The Qataris were much more competitive than were the Americans, setting higher aspirations while preparing for the negotiation just as predicted, given the extent to which honor cultures value preserving social status and appearing firm.

Another major difference is that Americans tended to exchange information more openly with each other, trying to make clear their needs, while Qataris shared much less information. This may be due to differing levels of trust in negotiations in dignity versus honor cultures. There is a notion in Western culture called swift trust when first interacting, people trust each other, unless their counterpart proves to be untrustworthy.

In Middle Eastern culture, trust is a commodity you have to earn through repeated social interactions. So when interacting for the first time, usually the Middle Easterner’s assumption is that I had better not trust you too much, until you prove yourself trustworthy.

Qataris were more likely than the Americans to use emotional tactics, such as showing anger, frustration, or sympathy to influence the outcome of the negotiation. People in honor cultures have strong norms for hospitality and warmth, but in a competitive situation like negotiations, in which their self-worth could be threatened, they are more inclined to get emotional and use aggressive negotiation tactics than Americans.

Moreover, the Qataris considered the hiring of a brother in the joint business more important than the Americans do perhaps reflecting the focus on family that is more characteristic of honor culture.

 

Forging Sustainable Relationships

Caution should be exercised in that there is still much to learn about how Middle Easterners negotiate differently from Americans. Yet, it would be useful for American managers negotiating new business relationships in the Middle East to keep in mind that their Middle Eastern counterparts are very likely to approach the negotiation as a contest to be won via emotional tactics, not a problem to be solved via trust and information sharing.  In order to build sustainable cross-cultural relationships between the West and the Middle East, people should try to first build strong relationships based on mutual trust before moving to the details of the negotiation.

 

 

7 Tips for Doing Business in the Middle East

 

1. Understand the cultural overlay – remember that we have different values

You cannot overemphasize how important it is to remember that when working with Middle Eastern counterparts you are not dealing with Australians or other Westerners. This means that you are likely to have a very different set of values and priorities to the people sitting across the negotiating table from you. Let me illustrate this point with an example.

While in Dubai I ran a meeting on behalf of a client about a potential collaboration with a high-profile Emirati. The key sticking point in the negotiation was the different values that the parties attributed to a) time and b) status. My client wanted to be compensated for their time and effort to develop a product for the Middle East market which, from a Western point of view seems entirely reasonable.

The other party did not see things this way at all. He argued that the value brought by the status of the potential Emirati partner was of equal or greater value than any time my client might spend working on the project. Essentially, he believed that we should be paying for the value brought by his name. This perspective is quite hard to accept in Western cultures, where a lower value is placed on status and hierarchy and our motto – to a greater or lesser degree – is “time is money”.

Nonetheless, in order to successfully close a deal in the Middle East, the ability to step out of your shoes and into those of the other side is essential. Failure to do so generally leads to a great deal of frustration and no deal.

 

2. Be flexible about timetables

Australians and people from other Western cultures tend to be very conscious of time and its value.   As a result, we are often quite attached to rigid scheduling and may become exasperated when things do not happen at the expected time, or in the order which we expect.

This approach does not work in Middle Eastern cultures which are far more flexible in their approach to time and scheduling. Being late for a meeting, changing times and dates, or even cancelling are not necessarily regarded as rude or problematic, and being flexible on timing usually works to your advantage. Let me give you a couple of examples.

I ended up attending my first meeting in Doha well ahead of my initial itinerary because of scheduling changes. A few days before my departure I received a phone call notifying me that a potential partner (let us call them Qassim Co.) could only meet at a specific time and date, several days before the meeting originally scheduled.  My client and I scrambled to get on flights from Sydney to make the date in time, and our flexibility paid off.  We received plenty of interest and positive feedback as well as a clear indication that Qassim Co. needed the client’s services and wanted to work with them.

One of our later meetings in the United Arab Emirates had been scheduled weeks in advance and reconfirmed the day beforehand. To my surprise, on the appointed day our 12 noon meeting became an 8.30 pm dinner which went on until nearly midnight. All went well, but we did move as far as mapping out a way forward and agreed to meet the following day. That meeting did not eventuate and has now been moved back about a month.

As these examples show, you cannot assume or expect that things will happen on your schedule, and your negotiations and the overall deal may well take longer to happen than they would in Australia. The worst thing you can do is to let this different approach to time put you off your game or discourage you from continuing the negotiation process. Adopting a long-term view and being prepared to be patient will get you much further.

 

3. Be prepared to modify your original ideas

Australians tend to be quite structured and linear in our thinking, and we are likely to arrive at any business negotiation with a clear idea of how we would like to proceed and by when. We will have arrived at this point through a combination of information provided by the other side and our own commercial agenda. Be prepared to put these plans aside, or at least modify them significantly when you sit down to negotiate in the Middle East.

My experience is that the Middle Eastern mindset is fluid and creative, and that schemes which would be regarded as outlandish in a Western culture are more readily accepted. Generally speaking, I also find that people in the Arab world tend to consult less, possibly because in Arab culture decisions are usually made by a single person or a couple of key people at the top of a hierarchy. The combination of these factors means that you may arrive at a meeting to find that your counterpart has dreamt up a grand plan and signed off on it internally, without ever mentioning it to you beforehand.

On at least three occasions during my recent visit, I was surprised to find that the other side had envisioned projects far beyond the scope of what we had originally discussed and in some cases was already moving forward to make them a reality. My counterparts were not being rude, they were just operating in the way that was usual for them.

The take-away here is that you should come prepared to listen to all proposals with an open mind. You do not have to agree to every proposal or take crazy risks, but you should be ready to stretch your thinking. As anyone who has visited Dubai and seen Buri Khalifa, the Atlantis Hotel or Snow World will tell you, sometimes even the most daring dreams can become a reality.

 

4. Commercial terms often come later

This relates to my points above about the different approaches that Westerners and Arabs take to time and ideas. As structured Westerners with linear minds, we want to initiate a business proposal, hammer out the commercial terms, punch through to a deal and get on with it. Time is money. Businesspeople in the Arab world are much more likely to want to get to know you first, decide if they like you, think about the deal for a while and come to the commercial terms later.

Agreeing commercial terms can often take several meetings, which can be enormously frustrating for a party with limited time and resources to spend abroad. Nonetheless, this is a reality of how business works in the Middle East and you must be prepared to make multiple visits to the other side to close a deal. Your best bet in dealing with this challenge is to either a) spend several weeks in-country or b) if the project includes elements based in Australia, get the other side to come to you. Their willingness to do so may give you an insight into their level of commitment to the deal.

 

5. Do not underestimate your interlocutor

In popular Western culture Arabs are often stereotyped as “bombers, belly dancers and billionaires”, or simply lacking in intelligence. These are quite simply just inaccurate stereotypes. As their success in business highlights, there are plenty of highly intelligent, highly educated, very savvy operators in the Arab World who have built fortunes through hard work and clever negotiation. Their ability to take a long-term view and to think creatively makes the Arabs brilliant negotiators – do not underestimate their ability to cut a deal, and do think carefully about what terms and conditions you are willing to accept.

 

6. VIPs in the Gulf usually operate through staff

The great majority of VIPs in the Gulf States only appear at key moments of a commercial negotiation, leaving the legwork to staff. Although I had met and socialized with most of the VIP business people with whom we were negotiating, in all but one case I dealt exclusively with their staff – none of whom were Gulf nationals – to hammer out commercial terms. Do not be offended that the main guy or girl is not spending hours with your team working over fine detail – that is just the way it is.

 

7. Follow-up – You need to drive the process

I sometimes hear business people trying to do deals in the Middle East say “we had a great visit, good meetings and then nothing happened”.

The motto of the story is that once your initial meeting is over you need to drive the follow-up process, particularly when dealing with wealthy Middle Eastern partners who need the deal less than you do. Do not adopt a tit-for-tat approach to follow-up, if you need to call three, four or ten times to get a response, then go ahead and do it without waiting for a response each time.

Use email where necessary, but always follow-up by phone, or if you can, in person. The Middle Eastern cultures are big on face time and much less keen on written formalities and depending on the country it is not unusual for people to take a long time to respond to email, if at all.

You can be captivated by the people, the incredible culture and the politics which absorbs everyone right across the region as it impacts upon them daily. The way in which relationships, firstly with family and then with friends, intertwine with day-to-day activity are as a friend of an Arab national, being invited to their home is the equivalent of opening their arms to you and trusting that you will support each other in friendship and in business. It is all part of the mix. Business is only done with people that they like and if that means sitting for 3 hours eating a heavy lunch and that is all part of the fun.

It is clear that many companies are growing their business in the Middle East. I is important to connect with the right people, both at home and in the region, so that you can secure that next deal.

On Bahrain’s position as a platform for doing business in Saudi Arabia and on the massive opportunities developing in the Gulf. Saudi Arabia is diversifying away from Oil & Gas, into other production; Healthcare; extensive Metro schemes and various Public Private Partnership initiatives. Education, including Vocational Training, offers incredible opportunities there, as the Saudi Government has committed over $1b to support its young population. Reform is well underway in that country and given that Saudis adore UK and US products. It is a market that you cannot afford to ignore.

The UAE almost always features at the top of the most successful Middle East export markets, even after the crisis. It is clear that the UAE is still a vital hub for companies that need great transport and links across the region.

Jordan can be well worth considering if you have healthcare, business services, ICT and other new technologies to offer. As a result you may see a thriving business as a result, through the high standards in science and openness to new technology that exists in the Jordanian healthcare sector.

Oman is another important hub with strong opportunities. For example, in the security and defence sectors, in education and perhaps surprisingly in agriculture and food, as they look to become less dependent upon imports to feed their population.

It is important to highlight that women can do business in the Middle East. However, you should factor in the need to dress quite conservatively as to wear a pashmina to meetings in Jordan, where it simply meant there would be less risk of giving mixed messages. It certainly helped reduce unwanted attention in the souks.

In Baghdad, when IBM was negotiating a contract, on behalf of the Iraqi company with the Secretary General of the Iraqi National Audit Office, the representative was a woman. Whilst she took advice from her technical team, she made those critical business agreements that led to installing the first online budget-crunching IT solutions that they had ever had to audit the country’s vast Government budgets. The credibility demonstrated by a willingness to visit her in Baghdad, to train her team in Jordan and then in Baghdad, and prove the skills of the Jordanian training team. Ultimately, if you are professional and patient, and you have a solution for their problems, you will win your Arabic friends over.

Understanding local customs is vital to success in any market. In the Middle East understanding wasta is key to doing business. Wasta is Arabic for connections and is part of the culture in all Arab countries. It is vital when doing business to ensure that you are speaking to the decision-maker, otherwise you will waste a lot of time.

Be reminded that shisha-smoking is a pastime that you should take up to feel part of the culture. Something that strikes anyone visiting the Middle East is the enormous warmth for people. The respect that you gain from building relationships and respecting Arabic cultural concerns means that you have a head start in doing business in this vibrant region.

 

Published by The Academy of Market Intelligence
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