Cross-border commercial due diligence in the Middle East

If you are going to invest in a company with international expansion plans, you want to make sure that their product or service has good chances of being successful in the countries where you have ambitions.

This of course is also important for the Middle East. Only with the right knowledge about demand, competition and regulations it is wise to invest in market entry.

Business opportunities in the Middle East

The Middle East is a region of significant business opportunities, driven by wealth, infrastructure development, and a growing consumer base. However, understanding the complexities of the market, including cultural nuances, regulatory environments, and economic conditions, is crucial for businesses looking to enter.

Key Market Numbers

The Middle East is a diverse region with both developed and emerging markets, offering different business dynamics across countries.

Population: Approximately 450 million people across the Middle East and North Africa (MENA) region (2023), with large populations in countries like Egypt, Saudi Arabia, and Iran.
GDP per capita: Varies widely; countries like Qatar, UAE, and Kuwait have GDP per capita well above $60,000 USD, while others like Egypt and Iraq have lower figures.
Urbanization: The region has high urbanization, with over 80% of the population in countries like the UAE and Saudi Arabia living in cities. Cities like Dubai, Riyadh, and Cairo are major economic hubs.
Economic Structure: The Middle East economy is diverse, with oil and gas being key drivers, though countries like the UAE, Qatar, and Bahrain are transitioning to service-based economies with growing sectors like finance, tourism, and real estate.
Ageing Population: Many Middle Eastern countries, particularly in the Gulf, have younger populations, with a significant portion under 30. This creates opportunities in sectors like education, technology, and consumer goods.

Language and Documentation

The Middle East is culturally diverse, and language and documentation play a critical role in doing business in the region.

Official Languages: Arabic is the official language in most Middle Eastern countries. However, English is widely used in business, especially in the UAE, Qatar, and Bahrain, which have large expatriate populations.
Language Considerations: For non-English-speaking countries, localization of marketing materials, packaging, and product documentation into Arabic is necessary. English is often acceptable for business communication in multinational companies, but local languages are vital for engaging with consumers.
Packaging and Documentation: Countries in the Middle East have specific regulations around product labeling, particularly in food, pharmaceuticals, and cosmetics. Arabic labeling is typically required for these products, and companies must comply with local safety and regulatory standards.

Consumer and B2B Buying Behavior

Consumer and business behaviors in the Middle East vary, influenced by local culture, economic conditions, and technological adoption.

Consumer Behavior: Consumers in the Middle East are increasingly sophisticated and value luxury goods, quality, and brand reputation. The region is also experiencing a shift toward e-commerce, with online retail growing significantly in countries like the UAE and Saudi Arabia. Mobile commerce is particularly popular.
B2B Buying Behavior: B2B decisions are often relationship-driven, with a strong emphasis on trust and long-term partnerships. Decision-making can be hierarchical, with senior executives playing a central role. Networking and personal connections are critical in establishing trust with local businesses.
Online Presence: E-commerce is expanding, with platforms like Souq (now Amazon) and Noon leading the charge. A strong online presence and localized marketing strategies, including social media engagement (particularly Instagram and Twitter), are essential for success in the Middle East.

Market Challenges and Opportunities

While the Middle East offers tremendous opportunities, there are challenges businesses must consider when entering the market.

Products/Services that May Struggle: Products that do not align with local cultural or religious values may face resistance. Additionally, products that are not perceived as high-quality or premium may struggle, as there is a growing demand for luxury goods in many Middle Eastern countries.
Test Market Potential: The UAE, particularly Dubai, is often seen as a “test market” for businesses looking to enter the Middle East. The city is cosmopolitan, business-friendly, and has a highly international consumer base, making it a good place to test new products and services.
Regulatory Environment: Regulatory requirements vary significantly by country. The UAE and Saudi Arabia, for example, have specific requirements around foreign ownership, with some sectors requiring a local partner. Additionally, the Gulf Cooperation Council (GCC) has unified regulations in some industries, but local variations remain, requiring thorough market research and local legal guidance.

Comparing performance in existing markets

If the company the we are assessing already has sales in different countries, you can determine distributor performance or sales staff performance.

One do this by correcting the actual turnover with data about:

the buying power in the market;
the geographical reach of the distributor or sales team;
the competition intensity;
the number of years active in the market.

Combining the data of the various countries over time leads to a growth curve where overperformers and underperformers can be easily identified.

You can then do selective interviews what causes any underperformance, and you can take corrective measures.

A curve like this also helps to estimate the potential in a new market.

Before you focus only on the Middle East

Please note that there are many countries in the world and the biggest ones or the ones nearby are not automatically the best choice. It all depends of the market growth, the competition and the barriers for entry.

Therefore we would advise you to make a short-list of at least three, but preferably five potential new markets and compare them against the same criteria.