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%

UAE tops in internationalization of SMEs

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

For small economies such as the UAE, entrepreneurs must look across their borders for bigger markets. An interesting story from the recently published UAE GEM Report is that the country was ranked the highest in its SME's international orientation. That is, a larger percentage of small and medium sized enterprises exported at least some of their products and services than any of the other 23 innovation driven countries which took part in the survey.

We know that, export intensive businesses generate more economic value for a nation than firms which operate primarily in the domestic market. The UAE is ranked number one among innovation driven economies with regards to the international activities and aspirations of its entrepreneurs.  Nearly 4 in 10 entrepreneurs operate internationally, which is close to double the 23 nation average of 19.57%.

From the 2011 GEM Global Report

When only the Emirati population is taken into consideration, the numbers are still quite high. While the percentages for Emirati entrepreneurs is slightly less than the average for all entrepreneurs surveyed based in the UAE, the percentages would still be significant enough to place the UAE among the top three nations. 

The UAE’s long term strategy is to be known globally as an export based economy driven by small businesses. Although the numbers reflect positively of international activities due to UAE’s long history as a regional trading hub, as well as hosting over 200 of the Global Fortune 500 companies in the Middle East, there is still room to increase the export activity of locally produced manufacturing goods and/or services. 

Youth Entrepreneurship in the UAE: Results of the GEM UAE 2011 Report

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

Youth are seen as the greatest potential resource in the Arab world, with 30% of the population between the ages of 15-24. However, unless these youth are able to find and sustain gainful employment this resource could turn into a drag on economic and social development, instead of the rich source of new ideas and energy. The UAE, in particular amongst the local Emirati population, has a large portion of its population under aged 20, and recent statistics indicate that there are high levels of unemployment amongst the young population, reaching 25%.

In the 2011 UAE GEM Report, the percentage of youth who expect to start a new venture in the next three years sharply declined from 2009. This mirrors the results of both the total adult population survey and the Emirati population (Table 1). The lowered intentions of youth to form new businesses should not be attributed to self-perceived business start-up skills, as the perception of their skills remains high and far exceed the levels seen in other innovation driven economies. There is a need to better engage the youth in new ways to better inspire a more entrepreneurial and innovative mindset as youth are a critical contributor to attaining sustainable economic development.

Table 1 Youth Skills Perceptions and Entrepreneurial Expectations

	Expects to Start-up in the next 3 Years		Skills Perception
	18-24 years	25-34 years	18-24 years	25-34 years
2006	8.5%	7.7%	48.3%	44.7%
2007	45.7%	45.4%	60.7%	62.8%
2009	34.2%	52.4%	50.2%	72.3%
2011	4.9%	6.4%	54.7%	64.8%

With government employment opportunities reaching saturation and low participation in the private sector, entrepreneurship opens up many possibilities for a dynamic and energetic part of the population.

It is highly critical therefore, to nurture entrepreneurial skills at an earlier stage by integrating entrepreneurship into the education system particularly at the primary and secondary levels.  Of course, this would require academic institutions to adopt the culture of innovation and entrepreneurship and qualify their teaching staff to better engage the youth in a meaningful way as they strive to prepare a new generation of entrepreneurial leaders.

It is hard to envision a prosperous and dynamic entrepreneurship ecosystem without a strong education, training system that prepares UAE youth for productive and self-sufficient lives. Entrepreneurship and education cannot be separated as the essence of entrepreneurship comprised of skill-sets that could be learned and taught through education, the UAE government has actively supported several educational reforms, strategies, and models in the past five years.

Some of these initiatives translated into great success, for example, the Injaz-UAE connects corporate volunteers to mentor youth (ages 11-24) through its programs, which prepare students to enter the world of work and succeed through interactive, impactful and practical mentoring sessions. Volunteers undergo an orientation and training before they start their experience to enhance their mentoring sessions and readiness to inspire youth. To-date, INJAZ-UAE has reached 15,000 students since 2005, through 1,500 volunteers at 43 schools and universities - and growing.

Another important initiative of the UAE to support the development of youth is the newly launched Emirates Foundation for Youth Development, which aims to empower, inspire and guide the youth of the UAE.  Initiatives are focused on Social Inclusion, Leadership and Empowerment and Community Engagement. Most notably is the successful Takatof program which trains volunteers for community events and local institutions. This program trains and provides skills to young people to better prepare them for the future.

In the Emirate of Dubai, the Young Entrepreneur Competition is an annual initiative by the Mohammed Bin Rashid Establishment for Young Business Leaders and is targeted at young Emiratis who have a business idea and wish to develop it. The program runs over two months and allows young people to learn the basic skills of the entrepreneurial process and culminates with the young entrepreneurs selling their products in individual stalls setup in one of the leading malls, providing youth with hands on experience in an entrepreneurial endeavour.

There are also youth led initiatives such as The Zayed University Entrepreneur Club (ZUEC) – a true exemplar of a student-led entrepreneurship initiative, which was founded by students at Zayed University, with campuses in the Emirates of Abu Dhabi and Dubai, aimed at inspiring and stimulating interest in entrepreneurship among Emiratis youth. Officially launched in the fall of 2011 with support of Mubadala, an Abu Dhabi government investment company, the ZUEC provides a conduit by which students can access entrepreneurial tools & resources, network opportunities with community entrepreneurs, and chance to share ideas. The Entrepreneurship Club is dedicated to furthering understanding about new and small businesses.

At Abu Dhabi University, the Entrepreneurship Incubator has been set up with the aim is aimed at supporting innovation and growth for new businesses in the UAE. The University cooperates with Khalifa Fund, as well as public and private business sectors in order to develop a real enterprise culture across the university and to provide immediate support and encouragement to all those who are able to potentially create new businesses in the future. 

Other examples of university based entrepreneurship activities include: Khalifa University Etisalat BT Innovation center, and the American University of Sharjah’s Start-up weekend, and HCT.

Advice to Emirati entrepreneurs at each stage of the entrepreneurship process

So, in researching and writing and writing and writing about Emirati Entrepreneurship and working with Emirati students on a daily basis I have come up with some simple advice for each of the four stages of the entrepreneurship process (read my blog post about it is you are curious about that). So here goes!

There are four basic phases of the process :

1.      Recognising opportunities

2.      Assembling resources

3.      Launch of venture

4.      Harvesting and succeeding

Entrepreneurship process

Phase 1: Advice to Aspiring Emirati Entrepreneurs       
 

Live your passion! Don’t just look for opportunities, turn your passion into your own business – this will ensure that you will gladly make the necessary time and effort commitments to turn your dreams into reality.

Become an expert! To overcome your fear of failure and lessen insecurities learn all that you can about your new business idea. Research on the internet, talk with experts, read biographies of successful entrepreneurs and learn all you can about your chosen industry on an international, regional and local level.

Find a mentor! Whenever we try something new it helps to have someone to turn to for advice and motivation. Find a mentor at school, at work, in your family or in the community. Attend local events organized for entrepreneurs and volunteer in the community to expand your network.

Phase 2: Advice to Budding Emirati Entrepreneurs

Don’t give up! The road to success is a long one and often full of challenges we don’t expect. But, if you believe in your idea and know your stuff, don’t let the challenges stop you – learn from them to better prepare for whatever life throws your way.

Seek advice from experts! Although we might not find an ideal mentor everyday, we can and will encounter people who would be willing to share their experiences with us. We can also read profiles of successful entrepreneurs and attend events where our entrepreneurs will be speaking – seek and you shall find!

Use your networks! We all have networks and sometimes we might be shy to ask people for advice when starting up a new venture. Don’t be shy, the worst that can happen is the person will not be able to help you, but they might or might direct you to someone who can help.

Phase 3: Advice to New Entrepreneurs

Watch your cash flow! In the early days there will be more cash flow out than in – but that is no excuse not to keep careful records and to watch your fils!

Listen to your customers and suppliers! Be a hands on owner and get to know your customers and your suppliers – they are your source of ideas for improvements, new products and services and also can tell you what your competition is up to!

Look for support! You are not alone, there are many organizations out there to help you. Look to your local Chamber of Commerce for training programs, local entrepreneurship agencies of women centres for support from fellow entrepreneurs.

Phase 4: Advice for Established Entrepreneurs

Be creative! There are many ways to expand your product/service line. Think “outside the box” for complementary industries or where your unique goods could be adapted for new uses.

Take calculated risks! Once we have established ourselves and have found our “comfort zone” in our operations we might not know what to do. Consider all options, do your research and take risks if you feel prepared and ready for growth!

Look for international opportunities! In the global scale the UAE is a small market – but look at where we are positioned! At the cross-roads of burgeoning markets, with access to over 200 nationalities on a local scale we can test our products at home before heading abroad!