Prices became uncompetitive, because of increased administrative and operational costs
Fierce competition from counterparts in other regions
The current global economic downturn could spell potential disaster for businesses, manufacturers, traders and exporters based in Dubai. Whether it’s a minor or a major disaster in 2012, business people remain concerned about their prospects and the business strategies they should adopt.
Many manufacturers and traders expect their export performances in 2012 to be unsatisfactory. The most optimistic are hoping for average performance. Reasons for those gloomy expectations are deeply rooted in the weak purchasing power, particularly in western Europe and the United States, the major export channels for consumer goods manufactured in the Middle East.
One of the serious challenges is that prices have become uncompetitive, because of increased business administrative and operational costs in Dubai.
Fierce competition from counterparts in other emirates and Gulf countries, along with the Far Est, also is a major concern for traders.
Are these challenges cyclical or structural?
The nature of the problem matters, because either one would require a completely different strategy. If the problem is cyclical, traders need only to tighten their belts and wait patiently for the good times to come around again. Structural problems, in contrast, are linked to fundamental business changes, which would require a more active approach to strive for change and improvement.
The Nature of The Challenge
The current economic climate is far from normal. What worries exporters most is the weak purchasing power in Western Europe and the US. The problems that most of the developedeconomies face will last for some time, beyond the usual economic cycle. Even though, a weak recovery can be expected for the US economy, employment and housing prices – the two factorsthat most affect consumer confidence – are still far below 2008 levels, and are unlikely to see strong rebounds in the coming years. In most European countries, private consumption is constrained by fiscal policies expected from governments facing great pressure to reduce their budget deficits.
Keener competition is a structural challenge, a consequence of the rapid development in the Asia’s manufacturing sector over the past decade.
The weak purchasing power in developed economies, even if not structural, will likely be a long-term concern for Dubai exporters.
Keener competition is a structural challenge, as it is the consequence of the rapid development in Asia’s manufacturing sector over the past decade. These challenges are not expected to beshort-lived.
Moving Up or Out
While the trend to higher production costs continues, manufacturers could choose to move to lower-cost regions. However, not many local manufacturers plan or are able to do so. The main reason is that a production base far from Dubai would be too difficult to manage. The city remains the best manufacturing location, with its comprehensive support services and developed infrastructure.
The Art of Raising Prices
Despite the challenges, Dubai manufacturers and traders react swiftly to the structural changes.
When “moving out” is not feasible, “moving up” the value chain by adopting higher value-added activity seems to be the only solution. Manufacturers need to pass cost increases to buyers. Buyers so far seem willing to absorb part or all the increased costs. No one is arguing at the supermarket. However, price increases typically should be accompanied by new products, or improvements in the quality of existing offerings.
Many exporters will have to develop brand new products and improve their product quality. They also should develop or strengthen their designs and brands.
Some overseas buyers are aware of the higher production costs borne by their suppliers and are willing to absorb part of these. Nevertheless, exporters can hardly pass on all increased costs,unless they continuously launch new products or improve their existing ones.
Despite the gloom, many Dubai exporters have reacted positively to the challenges they face. The majority increased marketing and promotion efforts. Stepping up market development, particularly in emerging markets is another option, because the drop in developed market demand could be a long term.
Alive and Kicking
As of now, many Dubai based companies are still expanding or steadily growing. Despite all the challenges, a significant new generation of companies is undoubtedly the best evidence of healthy growth and development in the sector.
Dubai’s trading sector has undergone considerable structural changes with the rapid economic development of the nearby emirates over the past decade. However, it’s not the first time the trading community has faced difficulties. It has a reputation for re-inventing itself, and that is the strongest card.