Dubai Startups: Analyzing Challenges, Future Trends & Opportunities

This report examines the challenges and opportunities for startups in Dubai, UAE. It delves into social issues arising from the blend of modern and traditional Islamic values, funding difficulties for innovative ideas, the impact of government policies and regulations, and infrastructure and sustainability concerns. The report highlights the importance of understanding local culture, navigating funding landscapes, and adapting to specific business practices like adjusted working hours during Ramadan. It also touches upon the diverse workforce and the need for entrepreneurs to align their business objectives with the values of investors. The conclusion emphasizes the positive aspects of operating in Dubai and provides recommendations for entrepreneurs to consider for success in the region.

Running head: INTERNATIONAL BUSINESS
International Business: Challenges and the future of startups in Dubai
Name of the Student
Name of the University
Author’s note

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Executive Summary
The purpose of the assignment is to understand the challenges and prospects of a startup
organisation in the UAE or more specifically Dubai. The country has seen a consistence upward
trend in the economic development showcasing a land of opportunities for startups and foreign
investment in the nation state. However, there are a number of challenges in the process of
operating in the region. Some of the challenges that are discussed in the assignment are
associated with the society, funding, government policies, infrastructure and sustainability. The
assignment concludes with the positive aspects and the factors that entrepreneurs must consider
while operating in the UAE.

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Table of Contents
1. Introduction..................................................................................................................................3
2. Challenges of startups and businesses in Dubai..........................................................................4
2.1 Social Issues...........................................................................................................................4
2.2 Funding of startups................................................................................................................7
2.3 Government policies..............................................................................................................9
2.4 Infrastructure & sustainability.............................................................................................12
2. Conclusion & Recommendation................................................................................................14
3. Reference list:............................................................................................................................18
4. Appendix....................................................................................................................................22

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1. Introduction
Startup is a word that is used to describe a business venture which is still in its initial
stage of formation. An entrepreneur perceives a business opportunity; this is the first step of
setting up a venture1. This venture is then nurtured with resource and capabilities that the
entrepreneur gathers as well as the external factors that support the growth2. During setting up
any business organisation the primary objective of the business is to earn profit and then with the
values and the principles of the entrepreneur, other objectives are based. In order to achieve these
objectives there are number of factors that the entrepreneur has to keep in mind. For example, the
external business environment consists of factors like political condition of the country of
operation, the dynamics of the society and the condition of the economy etc. While starting a
business venture an entrepreneur conducts a market survey in order to determine the prospect of
the idea. A SWOT analysis is one of the most common analytical tools that are used in order to
understand the feasibility of a business idea, while the strength and weakness are the internal
aspects, the opportunities and threats are faced due to the external factors. In this assignment the
opportunities and challenges that are faced by the entrepreneurs while starting up a business in
Dubai is going to be discussed3.
Depending on the nature of the business and the scale of operation as well as the industry
the challenges and the opportunities vary, however there are a number of factors that impact the
operations of any business unit in a country equally and these are some of the aspects that are
1 Fabrício Jr, R. D. S., da Silva, F. R., Simões, E., Galegale, N. V., & Akabane, G. K. (2015). Strengthening of Open
Innovation Model: using startups and technology parks. IFAC-PapersOnLine, 48(3), 14-20.
2 Shuaib, M., Al-Ameri, A., Zidan, M. F., Ahmed, H. S., Al-jaberi, S. M., Al-Kaabi, F., ... & Kilic, A. (2015,
November). Successful Management in New Offshore Field Startup: Meeting Challenging Targets and Exceeding
Expectations. In Abu Dhabi International Petroleum Exhibition and Conference. Society of Petroleum Engineers.
3 Pwc.de. (2018). Doing Business in UAE. Retrieved from
https://www.pwc.de/de/internationale-maerkte/assets/doing-business-in-the-uae.pdf

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going to be discussed in the assignment. As a startup one of the most important aspects is
funding and investment, financial support is the most essential aspect of forming a strong
institution. Dubai is one of the major cities in the UAE and is known for the extravagant lifestyle
of the people as well as cutting edge architecture. UAE’s economic condition has been
improving and the growth is on the rising trend, therefore making the nation state a land of
opportunities for business. However, with such opportunities there are a number of threats as
well which will also be discussed in the assignment.
2. Challenges of startups and businesses in Dubai
The opportunities that are discussed above are also combined with a number of
challenges and threats in the business environment. There are a number of limitations and
challenges that are faced by the investors while operating in UAE or Dubai to be specific.
2.1 Social Issues
Tradition and customs are some of the key elements in a business organisation and the
society is characterized by these traditions and customs. Though Dubai is a modern city but it is
backed up with several traditional and old ideologies. The society of UAE has a modern
approach with traditional Islamic rules, the government policies and the laws of the nation state
are based on the Islamic regulations. The impact of religion on several aspects of business and
investments are evident, and this can be a major barrier in the business opportunities based on
the areas of operation4. This makes it imperative for the investors to understand and comprehend
with the culture that is prevalent in the region. In UAE Sharia or the Muslim Law is applicable as
the region is an Islamic state. A company has to abide by and address the Islamic culture while
4 Bahrami, S. (2014). Entrepreneurship intentions and perceptions in the UAE: A study of moderating effects of
gender, culture and family. International Journal of Small Business and Entrepreneurship Research, 2(4), 37-50.

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setting up the organisation and in order to do so there must be enough understanding of the
aspects, this can be a challenge for a person who is establishing a new venture5.
One of the major differences in the region related to business is the working hours and
the holidays, for a multinational company in order to establish operations in the region. The
week serves from Sunday-Thursday as Friday is associated as a holy day in Islam. Not only that
during the month of Ramadan the working hours of all organisations are revised and shortened to
facilitate the people who are observing fast. For a business, catering to such organsiational
changes in the structure can be an issue. For example, a business organisation that serves clients
oversees will have issue with this format as the clients will be available for business during
Friday and Saturday as well. The clients and the customers have to accommodate with the times
accordingly which might be a barrier in the operation of the business6.
Another barrier can be the process and the tradition of communication in the region, the
official language in the UAE is Arabic, however English is the business language.
Communication is a large part of culture and the difference in the comprehension of the gestures
and body language can be misleading. However there are documents and records that are in
Arabic language making it difficult for a person who is new to the language or the region to
comprehend with the language7.
According to the Hofstede model of cultural dimension, the power distance dimension is
at 90, which means that the level of hierarchy is evident and is traditionally followed in the
5 Shuaib, M., Al-Ameri, A., Zidan, M. F., Ahmed, H. S., Al-jaberi, S. M., Al-Kaabi, F., ... & Kilic, A. (2015,
November). Successful Management in New Offshore Field Startup: Meeting Challenging Targets and Exceeding
Expectations. In Abu Dhabi International Petroleum Exhibition and Conference. Society of Petroleum Engineers.
6 Schneidhofer, Z. (2017). The Opportunities and Challenges of Foreign Direct Investment in the United Arab
Emirates(Doctoral dissertation, Empire State College).
7 Hammad, K. A. (2015). The Culture of entrepreneurship: a study of the entrepreneurial motivation and attitudes
towards business creation in the UAE in comparison to the US and Brazil (Doctoral dissertation).

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culture of the region, which can be difficult for organisations or investors form other cultural
background to adopt8. It is important to respect the position of the people in the society as well
as in the organisation. Top-down hierarchy is the most common organisation structure. The
society is characterized by one individual who is responsible for making a number of decisions.
The society is very punctual and uptight, people are disciplined and maintain a very scheduled
lifestyle, luxury is a part of life and people like to splurge as well. However, the people of this
region have a strong sense of punctuality. The society considers public display of emotion to be
extremely disrespectful, people are expected to behave in a certain manner in the public, and
even discussing someone in a negative tone is also disregarded by the society9. Thus, it can be
said that there is major challenge in people management by foreign entrepreneurs in the region.
There is also a difference in the way the two genders are addressed in the region, the tone and the
etiquettes are different based on the gender10. The people who want to establish business in the
region are expected to know these nuances of the society. This is also a challenge for any
individual who is trying to establish an organisation in the region11.
Another reason why people management can be a challenge in the city or in UAE is
because there is a large diversity of people working in the companies that are established in the
nation state. The society has a large diversity of people therefore making management of the
workforce complicated.
8 Hofstede-insights.com. (2018). UAE. Retrieved from https://www.hofstede-insights.com/country-comparison/the-
united-arab-emirates/
9 Marquardt, K. (2017, July). Smart services–characteristics, challenges, opportunities and business models.
In Proceedings of the International Conference on Business Excellence (Vol. 11, No. 1, pp. 789-801). De Gruyter
Open.
10 Khan, M. (2017). SAUDI ARABIAN FEMALE STARTUPS STATUS QUO. International Journal of
Entrepreneurship, 21(3).
11 Shahnawaz, M. R. (2015). Preliminary investigation of Emirati women entrepreneurship in the UAE: Motivating
factors, challenges and government initiatives. International Journal of Scientific & Technology Research, 4(8), 50-
61.

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2.2 Funding of startups
Investments and capital is the major challenge for any entrepreneur, unless the business
organisation is in a position where the operations are enough to churn out the capital that is
required to run the business, the management will require funds from outside. Most of the
startups in the region say that the issue of funding is the most significant challenge that they face
in the economy12. The investors in Dubai or UAE are always looking forward to a modern
innovative idea to invest upon; it is difficult to impress any investor in the region. The idea is the
key to get funded by an individual or an organisation. The entrepreneur is expected to have a
scalable business idea which will not only interest the investors but will also keep them engaged
so that they do not take away the funding. The investors in the UAE are controlled by a number
of factors such as profitability, social circumstances and cultural background of the investors etc.
for a bank the area of focus for any application for business loans are the provision of at least
three years of audited balances with positive figures and growth indicators. As discussed above
the society is driven by values and principles hence it plays an important role in gaining the
investors interest as well. The challenge for the entrepreneurs is to keep the objectives of the
business aligned with the values and principles of the investors13.
The business model of the company is important; the investor has to understand the
prospect of the business and should be able to align it with his or her interest. Therefore, it is
challenging for the entrepreneurs to find a fitting funding option for the business that will not
only support the business idea but will also believe in the idea. One of the recent takeovers of a
12 Arabiangazette.com. (2015). Funding Most Challenging For UAE Entrepreneurs. Retrieved from
https://arabiangazette.com/funding-most-challenging-for-uae-entrepreneurs/
13 Salamzadeh, A., & Kawamorita Kesim, H. (2015). Startup companies: life cycle and challenges.

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UAE startup organisation by an American company has raise the argument of the situation of
funding of startups in the region. Souq.com is a Dubai based organisation that has been acquired
by the e-commerce giant Amazon14. There is always a sense of controlled measures among the
investors of this regain which has given rise to the issue of low funding among the startups. With
every business idea there are certainly some amount of risks associated, however with a start up
the risk is even more15.
In the early stages of a start up business the funds are supplied by Angle investors, but the
real challenge is to keep the investment rolling, hence the stage that comes after the stage of
inception of the venture16. This is the growth stage here the investment that is required by the
firm is relatively larger than the initial stage, for example, $5m to $10m. As the mount of
investment here is large the risk associated with the investment is also huge thus making the
process even challenging for an entrepreneur.
There is also a lack in financial support from financial institutions, which make it even
more difficult for companies to continue their operations. The difference in understanding and
comprehending with the business model of the new venture is the barrier and this is the reason
for the challenge. Another issue that the investors face is the de-clocking of the funds, even after
the venture is being funds, the time that it takes to get processed impacts the business and its
prospects17.
14 Nagraj, A. (2018). Amazon completes acquisition of Dubai's Souq.com - Gulf Business. Retrieved from
http://gulfbusiness.com/amazon-completes-acquisition-dubais-souq-com/
15 Arabianbusiness.com. (2018). Impact investing in Middle East. Retrieved from
https://www.arabianbusiness.com/industries/banking-finance/381621-impact-investing-in-middle-east
16 Anstey, D. (2018). Investing For Impact In The Middle East. Retrieved from
https://www.entrepreneur.com/article/252936
17 Fahim Shelot, M. (2018). Impact investing and Islamic finance. Retrieved from
https://gulfnews.com/business/sectors/banking/impact-investing-and-islamic-finance-1.2045426

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In order to overcome such challenges the entrepreneur has to have a vision and a clear
focus of the idea. The idea that the entrepreneur has should be channelized in order to make the
investors understand the feasibility and the prospect of the business. A business plan is a good
idea while the business is in the initial stage; it is a document that clearly states the nuances of
the venture. This document can serve as a feasibility report with all the data points for the
investors to read and investigate for the prospect of the business. Another way of overcoming the
challenge of funding is to maintain a unique stand point for the business idea, the investors are
attracted to business idea and will always willing to channel their money in places with less
risks, hence the presentation of the idea matters while pitching it to the investors18.
Bootstrapping is another way, in which the problem of funding can be solved in simple
words it is self-funding, but as discussed above the issue in this process arises when the person is
out of funds in the growth stage of the start up19.
2.3 Government policies
During the analysis of the external business environment he policies of the government
and their support to encourage the business play an important role. There are various aspects of
the government policies that impact the business, for example, the taxation and the barriers in the
process of business are all a part of the government policies that regulate the trade in the nation
18 Bahrami, S. (2014). Entrepreneurship intentions and perceptions in the UAE: A study of moderating effects of
gender, culture and family. International Journal of Small Business and Entrepreneurship Research, 2(4), 37-50.
19 Jamshidi, M. (2013). The future of the Arab spring: Civic entrepreneurship in politics, art, and technology
startups. Elsevier.

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state. The administration of the UAE has been trying to ensure that the trade system in the
region is of the international standards20.
The first challenge for a person to set up an onshore venture in the UAE is to have a local
sponsor, who will be able to support the cause and the idea of the businessman. This sponsor
must have 51 percent share of the venture, this is one of the policies of the government that
makes business ventures or foreign investment a major challenge for startups. This policy takes
way the right of the entrepreneur with the business idea the liberty of taking decisions and
making policies in the organisation as per his or her vision. In case of money and business trust
and reliability play an important role thus making this policy even more challenging for an
individual to establish a venture21. Looking for a local sponsor can thus be a daunting task as
people would also not like to link themselves with a venture which they do not trust. This local
sponsor is also a point of contact form the legal perspective; therefore there is considerable risk
for the person who will agree to associate with the venture making the task of looking for a
sponsor even more challenging. However, there is a new policy that the government has come up
with considering the challenges that startup entrepreneurs’ face in the region is to provide license
for 100 percent ownership. This is a recent development where the individual can apply for the
incubator license online and then a checking process will be held and a committee will be set up
in order to determine the feasibility of the business22.
The new taxation policy in the region can also be one of the main barriers of the process
of developing a new business venture. In October 2016, the Federal Tax Authority was
20 Export.gov. (2018). United Arab Emirates - Market Challenges | export.gov. Retrieved from
https://www.export.gov/article?id=United-Arab-Emirates-Market-Challenges
21 Salamzadeh, A., & Kawamorita Kesim, H. (2015). Startup companies: life cycle and challenges.
22 Farouk Abdel Al, S., Jabeen, F., & Katsioloudes, M. (2017). SMEs Capital Structure Decisions and Success
Determinants: Empirical Evidence from the UAE.

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established it is a new government entity which is responsible for the implementation of value
added tax across the UAE. In 2018 a new value added tax has been introduced. 5% taxation will
be levied upon the business ventures, thus this would mean more cost of running a business. The
area that has been exempted from the taxation is the basic food items, education, and healthcare.
Previously the state was in a tax-free zone where any individual with a vision could legally set
up a business in the region, this was one of the reasons for the region to be more lucrative for the
investors. However, the process of adaption with the new policies of the government can also be
challenging for the entrepreneurs with a start up. The government has announced that there are
going to be a number of changes in the policies regarding the monitoring of the entry and
residency of the foreigners in the gulf region 23. There are also several penalties which will be
imposed upon the organisation that will not abide by the law. As a startup it is already
challenging for the entrepreneur to sustain the dynamics of the business environment, any change
in the process especially form the government makes the process of growth slower. Economists
believe that this change in the government policy of introducing VAT may give rise to an
inflationary situation in the economy, posing a bigger threat to any start up and increasing the
challenges they are already facing even further24.
There are also certain restrictions in the process of import and export of items. The UAE
authorities can restrict the import and export of certain commodities based on the Federal Law
No. 13 of 2007. Some of the criterions of restriction are goods which pose threat to the people,
environment, society and national security of the region and there are other restrictions on the
goods which are listed on the foreign policy of The UAE. There is a list of items or commodities
23 Almezel, M. (2018). UAE challenges the old way of doing business. Retrieved from
https://gulfnews.com/news/uae/government/uae-challenges-the-old-way-of-doing-business-1.2237026
24 Ceaușu, I., Marquardt, K., Irmer, S. J., & Gotesman, E. (2017, July). Factors influencing performance within
startup assistance organizations. In Proceedings of the International Conference on Business Excellence (Vol. 11,
No. 1, pp. 264-275). De Gruyter Open.