Why Entrepreneurs Discontinue Businesses in the UAE

This post provides a condensed exert from the GEM UAE 2011 Report and is copyrighted material of the authors of the report. It can be downloaded here: UAE 2011 GEM Report

If you would like to quote the report or this blogpost please use the following details: 

Van Horne, C., Huang, V., and Al Awad, M. 2012. “UAE GEM Report 2011”, Zayed University, UAE

While most attention is given to entrepreneurs starting businesses, the rate of discontinued businesses is considered as a significant component of entrepreneurial dynamism in an economy. The UAE has a relatively high rate of discontinuation of business amongst innovation-driven economies at 2.2%, but the percentage is even higher among Emirates at 4.5%. Discontinuing a business is not necessarily a negative action on the part of an entrepreneur – it can indicate sale of the business, market forces, starting a new venture or personal reasons. 

In 2011, the reasons given for closing an entrepreneurial venture in the last year was mainly due to the unprofitable nature of the venture at 39.4%, personal reasons at 23.5% and problems raising finance at 19.5%. The underlying rationale behind the reasons of this increase in discontinuation, is not fully captured through GEM data. However, it would be highly valuable to research this trend in further detail, as it may uncover key challenges to be addressed in an effort to further increase the chances of success of the smaller enterprise.

However, this high percentage of individuals indicating financial reasons for ending a business would seem to suggest a strong need for funding support mechanisms along the entrepreneurial process – from nascent entrepreneurs gathering the necessary resources to begin their business, to “baby business” owners striving to achieve competitive advantage, to more established businesses finding themselves needing to grow to survive. Starting one’s own company in the midst of an economic downturn may seem, to many, like a bad idea. Lenders are cautious, businesses conservative and consumers are on the defensive, which create less than ideal market conditions for young enterprises.

 Table 1: Reasons given by entrepreneurs for discontinuing operations

	Opportunity to sell	Non profitable	Problems Raising finance	Another job/business opportunity	Exit planned in advance	Retirement	Personal reasons	Incident	Other
2006	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%
2007	3.0%	18.1%	12.5%	17.4%	12.8%	2.0%	26.9%	7.2%	0.0%
2009	9.7%	22.0%	21.1%	20.9%	1.7%	0.0%	22.7%	1.9%	0.0%
2011	6.2%	39.4%	19.5%	2.6%	6.1%	2.3%	23.5%	0.2%	0.0%