The Changing Landscape of Doing Business in the Middle East

The wave of unprecedented political unrest in the Middle East will have a ripple effect on U.S. businesses currently doing or seeking to do business in the region for years to come.  For many decades, U.S. foreign policy in the Middle East has sought to support authoritarian regimes in favor of stability and the security of the oil exporting countries.  U.S. businesses have greatly benefited from this policy and strong U.S. influence in the region.  The political unrest has greatly diminished U.S. influence in the region and seemingly overnight, U.S. businesses are looking at a very different business landscape than what existed just a few days and weeks ago.  Businesses that are able to adapt to the new Middle East can be successful by adopting a new strategies.

Doing business in the Middle East has always been fraught with risk.  Many U.S. businesses forgo the opportunities for safer markets in Europe and Asia.In turn, European and Asian companies have taken a large market share in many industries in the Middle East.  Cultural differences, a checkered past of political and business upheaval, corruption, heavy government regulation, and barriers to market entry have all contributed to the reasons why most U.S. businesses have taken a pass on the Middle East.  Some U.S. companies have had a long and prosperous presence in the Middle East, particularly those in the petroleum and energy sectors.  More recently, IT companies such as Microsoft, Cisco, IBM, and Hewlett Packard have established a significant presence and market share in the region.

U.S. businesses will undoubtedly face a number of legal, political, economic, and social challenges in the new Middle East.  Initially the business climate is likely to be fluid and will be heavily influenced by political events.  Anti-U.S. sentiments are likely to be played out in a number of ways against U.S. businesses including demonstrations, boycotts, vandalism, and possibly ejection.  Aside from the local U.S. embassy, U.S. businesses represent the next biggest icon of American influence and will bear the brunt of anti-U.S. sentiment, especially those businesses that are highly visible such as fast food restaurants.

Short of pulling up stakes and abandoning a market of 360+ million, there is a lot U.S. businesses can do to survive the unrest and continue to have success in this market.  Undoubtedly the political and economic unrest will be costly to foreign investment in those countries that have been affected and those that are on the periphery.  Businesses would not be well served by closing up shop and moving out.  Inevitably the situation will stabilize and commerce will continue.  Undoubtedly there will be a period of disruption while the political process plays itself out.  Many U.S. businesses have pulled their expatriate staff out, sent local staff home, and shuttered their doors.  Certainly this is a prudent move during a time of incredible upheaval but it should be temporary and limited.

Successful U.S. businesses will redouble their efforts during the upheaval to follow events, stay in touch with local staff, keeping their network active and expanding upon their network.  Senior staff should be back on the ground as soon as it is safe.  Personal relationships are a critical component of doing business in the Middle East.  Business leaders should keep the lines of communication to local contacts hot throughout the crisis.

The upheaval in the Middle East is colossal and when the dust settles it is likely that there will be some form of more representative government and significantly more powerful Islamic groups.  As Hamas has taken power in Palestine and Hezbollah has taken Lebanon, so too will the Muslim Brotherhood have an expanded role in Egypt and elsewhere.  Any democratic or parliamentary system in Egypt will include representatives from Islamic parties and will thus move their societies in a more conservative direction.  In the new Middle East, businesses will need to take into account Islamic values more than before, especially when it comes to marketing.  Businesses will need to know how to deal with Islamic groups and make connections to influential individuals and groups in the religious community.

Some things will take longer to change and will look very much the same after the dust settles.  Large government bureaucracies will continue to play a limiting role on economic development and prosperity.  Artificial barriers to market entry and direct foreign investment, government control of key industries, and property ownership will continue in one form or another in the new Middle East.

Undoubtedly this will be a difficult time for U.S. businesses in the Middle East.  Some will look at the changing landscape and decide it is too costly to do business in the new Middle East.  For most other businesses, this represents an opportunity to redouble their efforts to invest in the Middle East for decades to come.  Consumer tastes will not change but the way businesses interact with the consumer must change.  Now that representative government and the Islamic reawakening have arrived on the scene businesses must adapt and retool their operations.

By, Dan Emory is a security consulting professional that has lived, studied, worked, and traveled extensively in the Middle East.  He holds a BA from Loyola Marymount University and an MA from the Monterey Institute of International Studies.