entering into the uae final copy (2)
TRANSCRIPT
Entering the United Arab Emirates Business Plan
By: Alex Wong, Jeffrey Ly, Rhyce Prescod, and Usman Skaukat
Disclaimer
Haskayne School of Business University of Calgary
MGST 571: International Trade Management
Instructor: Raymond Joyce
Winter 2016
This report is submitted in accordance with the formal requirements for the course MGST 571 in the
Haskayne School of Business at the University of Calgary. This report has been prepared as part of an
academic exercise under the guidance of Raymond Joyce and contains information only and not advice.
Please note that one or more students prepared this report and recommendations are implemented solely at
the responsibility of the client or involved organization. Neither the authors, the instructor, nor the University
of Calgary assume responsibility for the results obtained in its implementation.
Executive Summary
SAGE Energy Corporation (SAGE) has been a provider of natural gas compression and power generation solutions in the Canadian and global natural gas market since 2002. SAGE’s success is attributed to their knowledge and experience in the industry, and has been globally recognized for their quality engineered and manufactured compression systems. Their employees are well trained and have a deep experience serving customers, building new products, and developing better service to meet customer needs. SAGE continues to invent and provide innovative products and services for its customers. It is a company that thrives on its commitment and desire to build good relationships and to serve its customers. SAGE specializes in the following products: screw gas compressors, reciprocating gas compressors,
vapour recovery systems, acid gas compressor packages, fuel gas compressor packages, gas booster
compressor packages and natural gas generator units. SAGE also offers various services:
compression optimization services; 24 hour parts & service support; commissioning and start-up;
field and shop engine and; compressor overhaul.
Entering the United Arab Emirates (UAE) would be an excellent opportunity for SAGE’s products
and services. This is due to development of natural gas fields expanding in the UAE and their
demand for natural gas is expected to increase by 70% over the next four years. UAE claims 100
million barrels of oil and has 6.5 trillion cubic metres of proven gas reserves. Demand for oilfield
services and equipment are expecting an annual growth rate of 10%1. In the UAE there are vast
opportunities that exist in the LNG industry such as control valves/safety valves and systems,
general service pumps, booster compressors, high pressure separators and heat exchanges. Also 40%
of the UAE’s gross domestic product is directly based on oil and gas output of which SAGE’s
products and services would be in great demand.
The UAE is competitive in many areas of economic freedom; barriers to trade are quite low, and
regulations support open-market policies. The country is also one of the safest countries based on a
risk assessment of the Middle-East region, and in terms of business climate the assessment for it was
rated low as well in terms of risk. The UAE was only behind Qatar as the cleanest and least corrupt
country amongst the Arab countries and judged by international anti-corruption indexes to be
among the highest performing countries in the Middle East.
1 Alberta Canada Export Business, accessed on April 15, 2016, http://www.albertacanada.com/business/export/united-arab-emirates.aspx
Table of Contents
1.0 Overview of the Middle East
1.1. The Middle East 1.2 United Arab Emirates 2.0 Corporate Profile & Nature of the Business
2.1 Importance of Gas Compression
2.2 Milestones
2.3 International Expansion
3.0 Management
3.1 Organizational Structure
3.2 Key International Management Positions
3.3 Management Strengths
4.0 Environmental Scan
4.1 Geographical Issues
4.2 Communications
4.3 Business Customs, Religion and Culture in UAE
4.3.1 Dress
4.3.2 Religion
4.3.3 Meeting and Negotiations
4.4 Economic Condition
4.5 Political System
4.6 Political Stability
4.7 Safety
4.7.1 Crime
4.7.2 Terrorism
4.7.3 Political Violence
4.7.4 Transportation
4.8 Tax System
4.9 Language
5.0 Target Market
5.1 Segmentation
5.2 Target Clients
5.3 Quantification
5.4 Good Fit
6.0 Market Entry Strategy
6.1 Different Forms of Market Entry
6.2 Method Entry
7.0 Marketing Strategy
7.1 Product
7.2 Price
7.3 Shipping Requirements
7.4 Promotion
8.0 Operations
8.1 SAGE’s Certifications
8.2 Production Process
9.0 Financial
9.1 Initial Operating Cost
9.2 Freight & Payment Method
10.0 Risk Management
11.0 Summary
12.0 Bibliography
13.0 Appendices
1
1.0 Overview of the Middle East
This section will first briefly examine the Middle East overall and then provide a comparison
amongst countries to decide which region SAGE should venture into first.
1.1 The Middle East
In regards to natural gas in the Middle East (ME), the conglomeration of countries control 42.7% of
all total proved reserves of natural gas, which is the largest in the world. Production equated to
17.3% of all the natural gas in the world in 2014 and there was an increase of 3.5% in total natural
gas production in 2014 compared to 2013. The graph below shows the change in natural gas
production in the ME from 1995 to 2014 years.
As we can see from the graph, although natural gas production is lower than the previous year, its production is still positive and growing. This indicates that there is still a strong demand and market for LNG and natural gas worldwide. According to an MIT study in 2011, natural gas is expected to expand due to its availability, utility and comparatively low cost. In addition, as greenhouse gas emissions are becoming more constrained, natural gas will play a significant role as it is cleaner to produce compared to other fossil fuels such as oil and coal2.
The consumption of natural gas is continually increasing in every part of the world. Therefore, more
natural gas will need to be produced. The increase in consumption and production provides SAGE
with a good market to expand to as they will be able to assist with the increase of both factors.
2 The Future of Natural Gas, Retrieved on April 20, 2016 http://mitei.mit.edu/system/files/NaturalGas_ExecutiveSummary.pdf
2
In this report, the Middle East represents the following regions and countries: Oman, Qatar,
Kuwait, Saudi Arabia, United Arab Emirates, Iran and Iraq. These 7 countries account for 97.9% of
total proven gas reserves in 2014 and produce 88.7% of natural gas in the Middle Eastern region.
With respect to oil, these 7 countries controlled 98.7% of thousand million barrels of total proven
oil reserves at the end of 2014 and produced 95.3% of total thousand of barrels daily.
A comparison chart was created to determine which country SAGE should expand their
international presence. Five factors were identified and deemed important for an environment where
SAGE can conduct business successfully within the Middle East. The ease of entry into the
country’s marketplace, business climate surrounding the country, political stability within the
country, the tax system that is used, and the riskiness (financial, personal, etc.) of the country.
This report briefly examines and ranks the 7 countries in the Middle East to determine which
country is the most suitable for SAGE to pursue. A score out of five for each factor is determine
based on research and also based on collaborative amongst group members. Each factor was
provided equal weighting, as we believe all these factors are equally important for the success of
SAGE. Each individual factor is then multiplied 4 to make it out of 20. After, factors are added to
each other which makes it out of 100, where the higher the total score, the better.
Attributes Calculations
Country Ease of Entry (/5)
Business Environment (/5)
Political Stability (/5)
Tax System (/5)
Risk (/5)
Total Score (100)
Rank (1-7)
Iran 3 1 1 1 1 28 6
Iraq 1 1 1 1 1 20 7
Kuwait 2 3 3 5 4 68 3
Oman 2 3 4 3 4 64 4
Qatar 3 4 5 1 5 72 2
Saudi Arabia
2 2 2 1 4 44 5
United Arab Emirates
4 4 4 3 5 80 1
3
From the chart, we can see that the UAE scores the highest out of the seven countries in terms of
the overall score. Although the UAE may not be perfect in all circumstances, it stands above most
of the countries in areas such as ease of starting a business, the business climate, and the overall
riskiness of the country. For more information on how the chart was formulated, the explanation of
the factors and the thought process of the calculations, refer to Appendices 13.01 and 13.02.
4
1.1 United Arab Emirates
The United Arab Emirates (UAE) has been and is still one of the largest LNG and natural gas
producers in the Middle East. With 6.1 trillion cubic metres of total proved reserves of natural gas
and production of 58 billion cubic metres at the end of 2014, the UAE will continue the trend of
growth towards natural gas production3.
In terms of starting a business and ease of entry, the UAE promotes an environment with clear and
simple regulations; companies are fairly regulated and have a stronger protection of property rights.
The ease of doing a business index measures several qualities of the country, such as the
enforcement of contracts and trading across borders. As the UAE ranked 31 in 2015, we can see
that the government regulations are geared in favour towards businesses, making the UAE a
business-friendly environment for companies such as SAGE4.
The business climate in the UAE is considered to be one of the most secure and free in comparison
to other Middle Eastern countries5. Only Qatar compares to the UAE in regards to its similar
rankings in business climate. The UAE’s business climate is favourable due to multiple factors. The
currency used, the dirham, is secure and freely convertible. It is linked to the US dollar due to the
country’s strong ties with the oil and gas industry. There are also no restrictions on profit transfer or
capital repatriation. Import duties are at approximately five percent and there are “free zones”,
where import duties are non-existent6. Corporate taxes are only dependant on the amount of income
made and the UAE has a double taxation agreement with Canada. In addition, the government of
the UAE is amending company law to streamline procedures.
In the measure of political stability, the UAE is relatively high in comparison to other Middle
Eastern countries. Although the UAE is authoritarian, it is one of the most liberal countries along
with Qatar in the Middle East. Media plays an important role as 8.8 million individuals have access
to the internet, which is one of the highest internet penetration rates in the Arab world7. The media
is extensively censored and filtered to remove content that opposes the current politics and religion
in the UAE. It is forecasted that the UAE will remain politica lly stable in the years 2016-20208.
From then on, leadership and power transfers will occur since the current leader is in poor health
according to The Economist.
The UAE’s tax regime is favourable for companies looking to expand internationally. There is no
individual income tax and the corporate tax rate is based on a sliding scale dependant on the amount
3
BP Statisical Reivew of World Energy, Retrieved on April 19, 2016, http://www.bp.com/content/dam/bp/pdf/energy-economics/statistical-review-2015/bp-statistical-review-of-world-energy-2015-natural-gas-section.pdf
4 Economy Ranking, Retrieved on April 19, 2016 http://www.doingbusiness.org/rankings
5 UAE Business Climate, Accessed on April 19, 2016, http://www.uae-eu.com/why-dubai/uae-business-climate
6 UAE Business, Accessed on April 20, 2016, http://www.uaeinteract.com/english/business/
7 Internet Users in the Middle East, Accessed on April 20, 2016 http://www.internetworldstats.com/stats5.htm
8 UAE Political Information, Accessed on April 20, 2016, http://country.eiu.com/United%20Arab%20Emirates
5
of income generated in the UAE. Other taxes that are applicable include rental taxes for tenants and
service taxes in restaurants and hotels. Refer to section 4.8 for more specific information on taxes.
The overall risk, namely personal, financial, and security, are relatively low in comparison to other
Middle Eastern states. The UAE is further away geographically from the borders of Iraq and Syria,
which contain the terrorist group ISIS. Currently, there have been no reports of terrorist activities or
attacks in the UAE, although there is always the potential.
Corruption and bribery is very low in the UAE. The country ranks 23 out of 167 countries, meaning
that the government in the UAE takes corruption and bribery seriously and penalizes those who
participate in the negative behaviour. In regards to financial risk, the country’s economic condition
showed resilience even amidst the drop of oil prices in 2015, and is expected to continue this
resiliency throughout 2016. This is shown by the UAE’s ranking of A3 in its overall country and
business climate risk9, which means that there is some acceptable risk.
More information on each topic will be discussed throughout the report.
9 UAE Risk Assessment, Accessed on April 20, 2016, http://www.coface.com/Economic-Studies-and-Country-Risks/United-Arab-Emirates
6
2.0 Corporate Profile & Nature of the Business
SAGE Energy Corporation is a provincially incorporated company that was founded as Concept
Compressions 2002 and rebranded as SAGE Energy Corp (SAGE) in 2009. SAGE is an original
equipment manufacturer (OEM) and private corporation that was founded by 3 industry
professionals in Calgary, Alberta: Barry Rinehart, Trent Bruce, and Karen Narfason. Along with
these 3, SAGE has expanded to have a fourth owner, Blair Cuncannon10. SAGE’s line of business is
the designing, manufacturing, and customization of gas compressor packages.
SAGE entered the gas compressor industry as a manufacturer by packaging gas screw compressor
packages for the 90 - 200 horsepower (HP) market11. The product line-up expanded to include
models from the 60 - 400 HP range that could be used for many non-conventional gas applications
such as solution gas, vapour recovery and oil recovery projects involving gases such as hydrogen
sulphide and carbon dioxide.
Today, SAGE is currently known for their quality and service in customized gas compressors that
are fully functional and operate in extreme weather conditions, ranging from -50 degrees Celsius to
+50 degrees Celsius. Their key products are rotary screw compressor and reciprocating compressor
packages and natural gas generators, which have the following applications: acid gas, casing gas, coal
bed methane, flare gas recovery, fuel gas, gas gathering, landfill gas, pipeline compression, power
generation, propane refrigeration, reinjection, sales gas, solution gas, specialty gas, tanker offloa ding,
and vapour recovery.
SAGE sells their gas compressor packages to its domestic customers through direct sales, where
their customers are mainly engineering firms. Traditionally for international sales, SAGE has
preferred to use partnerships to sell and promote their gas compressor packages. For international
business and marketing purposes, SAGE uses the name SAGE International Corporation. Their
international network extends from Australia, Russia and US, as Sage has conducted business in
these countries.
10
Sage Energy History, accessed on February 20, 2016 http://sageenergy.ca/about-sage/history/ 11
ibid
7
2.1 Importance of Gas Compression
Gas compression is important to the natural gas transport system as the compression of natural gas
allows it to flow and travel through pipelines to its final destination for distribution to refineries and
other end users. Typical gas compressor packages include many parts, but the main ones are listed
below:
Part Explanation
Compressor Unit The unit that actually compresses the gas. Can have varying number of
compressor units depending on gas and the needs of the pipeline12.
Compressor unit is a large engine that works in multiple ways: reciprocating,
fan/blower, rotary and ejector.
Filters and
Scrubbers
Filters and scrubbers remove water, hydrocarbons, and other impurities from
the natural gas13
Gas Cooling
Systems
As natural gas is compressed, its temperature rises. The cooling system offsets
the hotter temperature to ensure it will not damage pipelines
Mufflers Reduces noise level at compressor stations
12
Gas Compressors and Gas Compressor Information, accessed on February 20, 2016 http://www.globalspec.com/learnmore/processing_equipment/gas_handling_equipment/gas_compressors 13
Compressor Stations: What They Do, How They Work, and Why they are Important, accessed on February 20, 2016 http://setxind.com/midstream/compressor-stations-what-how-why/
8
2.2 Milestones
As SAGE was founded in 2002, the company has gone through many milestones and events to
bring the company to what it is today. Positive milestones for SAGE involve its growth and
development as a company. Concept Compressions (SAGE’s former name) was founded in 2002 by
3 entrepreneurs. They operated out of 2 different buildings before moving their business into a
single building in 2005. In 2012, SAGE moved into their current and biggest building to date in
Rocky View. With the growth of their business, SAGE was able to expand the shop floor of their
current building to help reach the demand of their larger packages in 2015. In addition, prior to the
expansion, SAGE successfully acquired and purchased a smaller company which helped their
organization grow. A negative milestone experienced by SAGE was during their international
venture into Russia, where SAGE engaged with an agent who made promises that were not kept.
The end result was a monetary payout to the Russian oil company, TNK-BP (Tyumenskaya
neftyanaya Kompaniya), but the lessons learned such as complete engagement with end users and
development of contractual language provided the team at SAGE with invaluable business
knowledge.
9
2.3 International Expansion
SAGE is eager to pursue international opportunities in the Middle East as the region is currently
growing and is projected to produce more gas (+49%) by 2035 14. SAGE already has the expertise,
product, and experience to pursue the international opportunity, as they have successfully partnered
with companies in previous international expansions. SAGE’s management team is composed of
individuals that have over 15 years of experience in oil and gas and bring together other experiences
and knowledge such as engineering, sales, and international business. Along with the technical
expertise, SAGE has a product that is sought after and necessary for the successful extraction of
natural gas. In addition, their previous ventures into international markets have provided SAGE the
experience and knowledge to successfully enter into different markets, as SAGE’s gas compressor
packages are necessary and suitable for natural gas transportation.
14
Regional insights: Middle East, accessed on February 21, 2016 http://www.bp.com/en/global/corporate/energy-economics/energy-outlook-
2035/country-and-regional-insights/middle-east-insights.html
10
3.0 Management
3.1 Organizational Structure
SAGE employs 60 people, 16 in manufacturing, 7 in field services, and the rest in
office/administrative roles. A hierarchical organizational structure is present, but is flatter than most
organizations as the number of employees are fewer and roles are more specialized. Refer to the
Appendix 13.03 for a visual representation of SAGE’s organizational structure.
3.2 Key International Management Positions
Key management positions within SAGE that deal with international business are the President and
Vice President of Business Development.
Barry Rinehart, the President of SAGE has the final decision-making authority and along with
SAGE’s other owners, drives the direction of the organization. Barry has over 34 years of gas
compression experience and has been involved in oil and gas since 1978 15. Starting early as a welding
apprentice, Barry has worked his way up into a variety of roles such as a instrumenta tion and control
journeyman, working in sales management roles, and eventually, President of SAGE.
Andy Kavanagh, Vice President of Development, has over 34 years of gas compression experience.
Working alongside the President of SAGE, Andy is responsible for developing the international
presence of SAGE. Both have previously worked on projects that ventured into international
markets such as Australia and Russia.
3.3 Management Strengths
SAGE’s management is deep-rooted in experience. Combined, SAGE’s management has over 250
years of experience in the gas compression industry. The individuals who make up the management
team at SAGE come from various backgrounds such as engineering, sales, operations and
international business. Having individuals who excel in different areas is beneficial for an
organization, as the strengths of one person can cover for the weaknesses of another. Additionally,
individuals coming from multiple backgrounds allows for different perspectives and ideas in
business.
SAGE has also previously conducted business internationally in the past. SAGE has done business
in the United States, Australia, and Russia. This is an advantage from a business standpoint as SAGE
can apply their previous knowledge and experience into other regions. Although the specific details
such as target market, culture and etc. will be different, SAGE will be more comfortable conducting
business internationally as they know which areas they must look at, know how to conduct their
15 Management Team, accessed on April 20, 2016, http://sageenergy.ca/about-sage/management-team/
11
research, and understand the resources that are available. The lessons learned from previous
ventures also assist in guiding SAGE on what to avoid for the future.
Depending on the size of the venture and the knowledge of current staff in regards to the Middle East, SAGE may opt to hire additional staff member(s) in the short term to help them conduct business. A translator may be ideal as even though English is commonly spoken, the predominant and official language in the UAE is Arabic.
4.0 Environmental Scan
4.1 Geographical Issues
UAE is located in the Middle East, bordering the Gulf of Oman and the Persian Gulf, between
Oman and Saudi Arabia. UAE comprises of Abu Dhabi (seat of the federal government and the oil
capital), Dubai (the main port and commercial industrial hub), Ajman, Umm al Qaywayn, Ras al
Khaymah, Al Fujayrah and Sharjah16. UAE covers an area of 83,600 sq km. Abu Dhabi covers 87%
of the country’s land mass which has a consistent terrain of dessert. The average temperatures range
about 25-28 degrees Celsius with a high of 45 degrees Celsius. Rainfall averages can be seen below
showing most amount of rainfall is during the months from February to March16. These average
temperature and rainfall are useful information for SAGE as it shows that their equipment would be
able to handle the temperatures in UAE.
16
United Arab Emirate Facts, accessed on April 15, 2016 http://travel.nationalgeographic.com/travel/countries/united-arab-emirates-facts/
12
UAE consist of a total of 1178 producing wells as can be viewed in Appendix 13.04, showing Abu
Dhabi with the most amount of producing wells. The average depth for the wells range from 10,000
ft. to a depth below 12,500 ft.17.
Below compares the average yearly temperature and rainfall in the Middle East Region.
17
Abu Dhabi Oil Discoveries, accessed on April 15, 2016 http://www.geoexpro.com/articles/2011/03/the-abu-dhabi-oil-discoveries
13
4.2 Communication
Main sources of communication in UAE are under the control of the Telecommunications
Regulatory Authority. One of the main telecommunications company is Etisalat which is the
multinational UAE based communication service provider18. Main way for SAGE to communicate
would be through mobile devices, more information can be provided through Etisalat’s 24/7 live
chat and their contact as can be viewed in the Appendix 13.05. Below is an average price of setting
up mobile devices in UAE. SAGE would not need to set-up landlines in UAE as they would be
using an export agent to distribute their products.
Average Monthly Plans for Mobile Devices
18 Etisalat Mobile Devices, Retrieved on April 19th, 2016 at http://www.etisalat.ae/nrd/en/personal/mobile/mobile_landingpage.jsp
14
4.3 Business Customs, Religion and Culture in UAE
4.3.1 Dress
Business formal attire in the Middle East share some similarities with western culture. Formal attire
is the most appropriate option for business meetings and dinners for both men and women. As a
general rule in the Middle East, arms, shoulders, and legs should be covered. Minimizing the amount
of jewellery is also recommended for both men and women.
Women are typically expected to dress conservatively in general. Facial cosmetics should be kept to
a minimum and arms, legs and shoulders once again must be covered. In formal settings, it is
customary to keep your jacket on at all times regardless of the hot weather unless the host of the
meeting removes their own19.
4.3.2 Religion
Most of the Middle East including Qatar is Muslim and Islam permeates all aspects of society.
Muslims have formal prayers five times per day and are announced by the mosques in a ritual called
Azan. However, not all Muslims go to pray at a mosque. Prayers can be conducted in business
settings such as offices. Friday is held for congregational prayers which all Muslim men are obliged
to attend. For this reason, all meetings and appointments must be scheduled appropriately in
accordance to the times of prayer.
There are three major events where doing business should be avoided: The Holy Fasting month of
Ramadan followed by two major festivals named Eid al-Fitr and Eid al-Adha. These two holidays
last approximately 3 days and it is not uncommon for the government to extend their length. During
the month of Ramadan eating, drinking and smoking between sunrise and sunset is forbidden for
Muslims. Even if you’re not Muslim, you must not be seen eating in public. There are hotels that
accommodate non-Muslims during Ramadan.
19
How to dress for business success in the middle east, Retrieved on April 10, 2016 http://news.telelangue.com/en/2012/06/dress-middle-east
15
4.3.3 Meetings and Negotiation
Meetings in the future will have the tendency to be less peaceful. It is very typical for meetings to
adjourn at random times whether its abrupt phone calls in the middle of a discussion or people
constantly entering and leaving the room. It is also common for other associates to enter a meeting
unexpectedly and discuss their own concerns and agenda 20.
Meetings in the Middle East do not typically follow a rigid structured; it is very fluid and issues are
discussed as they are raised. As a result, the average meeting is longer by North American
standards21.
When arranging a meeting, be prepared to arrive on time with no one else present. Despite the fact
that punctuality is expected from foreigners, it is common for Arabs to be late. In Arab culture, the
term mow’id inglizee is used to distinguish meetings with the partners from the west. It is translated to
mean “English meeting” and is used when they must adhere to a strict meeting time. Tardiness
however is not severely scrutinized as a simple and polite excuse will generally be accepted22.
Negotiations in the Middle East are slow and bureaucratic. Pressure tactics are not successful and
are frowned upon23. Specifically in the UAE, business negotiations are conducted in English and
therefore the ignorance of Arabic is not an issue. When negotiating prices, it is common practice to
ask for the unit price when purchasing large quantities of a product 24.
20
Doing Business in the Middle East, accessed on April 10, 2016 http://www.kwintessential.co.uk/etiquette/doing-business-middle-east.html 21 ibid. 22
ibid.
23 ibid.
24 Business Culture, accessed on April 15, 2016, http://www.globalnegotiator.com/files/Business-Culture-Etiquette-Guide-United-Arab-
Emirates.pdf
16
4.4 Economic Condition
United Arab Emirates is one of the most developed countries in the Arab Gulf and has one of the
highest GDP per capita in the region. The country still has a commodity-based economy, with
shipments of oil and natural gas accounting for 40 percent of total exports and for 38 percent of
GDP25. As of December 2015, the GDP of UAE was calculated to be around 402 billion USD.
UAE relies heavily on petroleum production to support its economy, making it the sixth-largest
petroleum producer in the world26.
Despite the recent downturn in oil prices and world economy, UAE’s GDP is expected to grow by
2.5% in 2016 and 201727. The government is constantly making investments to diversify the
economy and reduce dependency on petroleum. Its long-term goals include the development of
offshore petroleum facilities and the diversification of the economy. In addition, the UAE is
becoming one of the world's most important financial centers and a major trading center in the
Middle East. The investments in non-energy sectors, such as infrastructure, real estate and
technology, continue to provide the UAE with insurance against oil price declines and global
economic stagnation28.
UAE holds the seventh-largest proved reserves of natural gas in the world, at slightly more than 215
trillion cubic feet (Tcf). The growing domestic demand for natural gas has resulted in increasing
natural gas activity in the UAE. With natural gas demand rising, the government plans to expand
domestic production using EOR techniques to meet the demand for domestic consumption.
Currently, UAE is one of the world's leaders in the use of natural gas in enhanced oil recovery
(EOR) techniques. It is a major exporter and importer of liquefied natural gas (LNG).
25
UAE GDP Growth Rate, accessed on April 19, 2016, http://www.tradingeconomics.com/united-arab-emirates/gdp-growth 26
Best Countries for Doing Business, accessed on April 19, 2106 http://www.forbes.com/places/united-arab-emirates/ 27
UAE Economic Forecast, accessed on April 19, 2016 http://www.tradingeconomics.com/united-arab-emirates/forecast 28
International Energy Data and Analysis, accessed on April 19, 2016
https://www.eia.gov/beta/international/analysis_includes/countries_long/United_Arab_Emirates/uae.pdf
17
The country’s seven different emirates are responsible for regulating the oil and gas activity within their own borders. Abu Dhabi and Dubai are the two biggest emirates in regards to oil and natural gas sectors. The Supreme Petroleum Council (SPC) sets Abu Dhabi's petroleum-related objectives and policies. Given Abu Dhabi's status as the central player in the UAE's oil industry, the SPC is the most important entity in the country when it comes to establishing oil policy. The state owned Abu Dhabi National Oil Company (ADNOC) is the key shareholder in nearly all upstream activity in Abu Dhabi29. ADNOC is one of the world's leading company by oil reserves and the UAE's largest company. It owns 15 subsidiary companies throughout the oil, natural gas, and petrochemical sector. Over the recent years, ADNOC has been developing both onshore and offshore gas fields. By increasing focus towards the expansion and development of gas fields, the company is able to meet increased demand from industry gas users. Natural gas is exported in the form of l iquefied natural gas (LNG) and supplied for local electricity and water utilities, petrochemical plants, and for meeting gas injection requirements in order to enhance the oil and condensate recovery from the producing field30.
ADNOC leads Abu Dhabi's natural gas sector through its subsidiaries, with the exploration and
production of natural gas resources carried out by Abu Dhabi Company for Onshore Petroleum
Operations Ltd (ADCO) and Abu Dhabi Marine Operating Company (ADMA-OPCO). The Abu
Dhabi Gas Industries Limited Company (GASCO) is engaged in the extraction of Natural Gas
Liquids (NGL) from associated and non-associated gas. It was created as a joint venture between
ADNOC, Shell, Total, and Partex that oversees processing of Abu Dhabi's onshore natural gas31. It
currently owns five gas processing plants and one fractionation plant (refer to Appendix 13.06 for a
map of these plants). Producing 280,000 barrels of condensate, 5400 tonnes of sulphur and 30,000
tonnes of NGL per day, GASCO is currently one of the largest gas processing companies in the
world.
Another important company in Abu Dhabi's natural gas sector is Abu Dhabi Gas Liquefaction
Limited (ADGAS), which controls the production and export of Abu Dhabi's liquefied natural gas
(LNG) and liquefied petroleum gas (LPG). The compliance with the best international practices in
its operations has resulted in an ISO 14001 accreditation for ADGAS 32.
The Dubai Supreme Council of Energy (DSCE) oversees Dubai's energy-policy development and
coordination. The DSCE includes representatives from several key entities, including the Emirates
National Oil Company (ENOC), the Dubai Petroleum Establishment (DPE), and the Dubai
Nuclear Energy Committee (DNEC). BP, Shell, Total, ExxonMobil, and Occidental Petroleum are
the major international oil and gas firms involved in the UAE petroleum sector.
29
About ADNOC. accessed on April 20, 2016 http://www.adco.ae/En/ADNOCGroup/Pages/AboutADNOC.aspx
30 ibid.
31 Gasco Our Business, accessed on April 15, 20`16 http://www.gasco.ae/en/Business/Pages/products.aspx
32 Adgas Overview, accessed on April 15, 2016 http://www.adgas.com/En/SitePages/About%20Us/Overview.aspx
18
4.5 Political System
The UAE is a federation made up of seven emirates that formed in 1971. An emirate is a political
territory that is ruled by a dynastic Islamic monarch, and therefore political parties are not permitted.
The seven emirates are: Abu Dhabi, Ajman, Dubai, Fukairah, Ras al-Khaimah, Sharjah, and Umm
al-Quwain. Individually, these emirates are governed by their own absolute monarchs with the head
of state called the “emir”. The emir is usually the head of state in an Islamic country and the title of
emir is typically hereditary. Collectively, the separate emirates joined together in 1971 under a
provisional constitution to form the UAE. The federal system in UAE includes: the Federal
Supreme Council, the Federation President and Vice President, the Cabinet of Ministers, the Federal
National Council, the Federal Judiciary, and each emirates’ local government 33. According to
convention written in 1971, the ruler of Abu Dhabi is the president of the UAE and the head of
state while the ruler of Dubai is the prime minister of the UAE and also the head of government34.
The graphic below provides a simple outline of how the UAE’s government is structured.
33 UAE Government, accessed on April 20, 2016 http://www.uaeinteract.com/government/ 34 The Federal National Council, accessed on April 20, 2016, https://www.abudhabi.ae/portal/public/en/departments/department_detail?docName=ADEGP_DF_138130_EN&_adf.ctrl-
state=15nhmystuv_4&_afrLoop=6419266845338203#!
19
The Federal Supreme Council is the highest legislative and executive authority and creates, discusses,
and approves general policies and federal legislations. The council consists of the Rulers of the seven
respective emirates with each having a single vote in the council for resolutions and deliberations.
The current president and prime minister of the UAE are Khalifa Bin Zayed Al Nahyan and
Mohammed Bin Rashid Al Maktoum respectively.
The Cabinet of Ministers handles the execution of internal and external affairs related to the UAE.
The Cabinet consists of the prime minister, two deputy prime ministers, and the ministers of the
UAE and a general secretariat35.
The Federal National Council of the UAE consists of forty advisory members, which are
proportioned between the seven emirates. Half of the Federal National Council is elected through
voting and the other half through appointments by the council. The role of the Federal National
Council is mainly about reviewing, discussing, and amending legislation36.
35
About the Cabinet, accessed on April 20, 2016, http://uaecabinet.ae/en/about-the-cabinet 36
The Federal National Council, accessed on April 20, 2016 http://www.uae-embassy.org/about-uae/about-government/federal-national-council
20
4.6 Political Stability
Political stability can be defined and determined by the amount of violence and terrorism expressed
in a nation and by its citizens associated with the state. Political stability impacts and includes issues
relating to business, such as stability in laws involving international business.
In a 2014 ranking of 191 countries by the Global Economy in regards to political stability, where a
higher score means that the country is more politically stable, the Middle Eastern countries varied
from -2.47 to 1.0037. To compare, the highest ranking country, Liechtenstein scored a 1.54 and the
lowest ranking country, Syria, was ranked at a -2.76. Canada sits in 15th place with an index of 1.18.
The UAE is ranked 44 with an index of 0.81 and has been relatively stable within the 0.8-0.9 range
since 1996. Export Development Canada has also rated the UAE in favourable terms in regards to
political violence, control of corruption, government effectiveness, regulatory quality, and rule of
law. See Appendix 13.07 for all charts and graphs pertaining to political stability in the UAE.
Bribery and corruption in the UAE is low in comparison to the other Middle Eastern countries. In
the Corruption Perception Index (CPI) created by Transparency International, the UAE ranks 23rd
out of 168 countries and territories with a score of 70 out of 100 in 2015 38. To compare, Denmark is
ranked number 1 with a score of 91, Somalia and North Korea are both ranked at 167 with a score
of 8, and Canada is rank 9 with a score of 83. Other Middle Eastern countries such as Qatar,
Kuwait, Oman, and Saudi Arabia are ranked at 22, 55, 60, and 48 respectively. Overall, UAE was
only behind Qatar as the cleanest and least corrupt country amongst the Arab countries and judged
by international anti-corruption indexes to be among the highest performing countries in the Middle
East.
A contributing factor to the low amount of bribery and corruption is the environment that
businesses operate in. The UAE provides businesses with an entrepreneurial environment with an
effective and efficient public administration. The UAE also enacted a penalization code that
criminalizes active and passive bribery, embezzlement and abuse of functions 39. Legislation on anti-
corruption and anti-fraud are in place and enforced to protect businesses as well as individuals.
Although good practices are in place to prevent corruption and bribery, the censorship in the UAE
is severe, which limits the extent of public and private corruption. Refer to the Appendix 13.08 for
the UAE’s CPI.
37 Country Risk Quarterly Report, Accessed on April 20, 2016, http://www.edc.ca/EN/Knowledge-Centre/Economic-Analysis-and-
Research/Documents/country-risk-quarterly-mea.pdf 38
T ransparency International, Accessed on April 20, 2016, https://www.transparency.org/country/#ARE 39
UAE Business Anti-Corruption Portal, Accessed on April 21, 2016, http://www.business-anti-corruption.com/country-profiles/middle-east-
north-africa/united-arab-emirates/snapshot.aspx
21
4.7 Safety
The UAE is considered to be one of the safest countries in the Middle East. According to the
Global Peace Index in 2015, where the higher the rank, the greater the peace, the UAE ranked 49
out of 163 countries40. It was also ranked third within the Middle East, only trailing behind Kuwait
and Qatar. Safety in this section will be categorized into four sections: crime, terrorism, political
violence, and transportation.
4.7.1 Crime
The level of crime in the UAE is considered to be very low with a rating of 16.56 out of 100 41. In
comparison, Iraq is moderate with a rating of 53.5042, which is also in the same category as Canada,
with a rating of 42.4143. A reason for the low crime rates in more developed Middle Eastern
countries is due to the Sharia law, which permits flogging and stoning as legal punishments in the
UAE. In Dubai and Abu Dhabi44, crime rates are rated as considerably low according to the United
States Department of State Overseas Advisory Council (OSAC)45. Many of the crimes are petty in
nature and violent acts are deemed to be rare. The OSAC still advise individuals to be cautious of
their belongings.
40
Global Peace Index, Accessed on April 21, 2016 http://www.visionofhumanity.org/#page/indexes/global-peace-index/2015/ARE/OVER 41
Level of Crime UAE, Accessed on April 21, 2016,
http://www.numbeo.com/crime/city_result.jsp?country=United+Arab+Emirates&city=Dubai 42
Level of Crime Iraq, Accessed April 21, 2016, http://www.numbeo.com/crime/country_result.jsp?country=Iraq 43
Level of Crime Canada, Accessed April 21, 2016,http://www.numbeo.com/crime/country_result.jsp?country=Canada 44
OSAC Dubai, Accessed April 21, 2016, https://www.osac.gov/Pages/ContentReportDetails.aspx?cid=19241 45
OSAC Abu Dhabi, Accessed on April 21, 2016, https://www.osac.gov/Pages/ContentReportDetails.aspx?cid=19058
22
4.7.2 Terrorism
Terrorism in the Middle East is an undeniable concern. Terrorist organizations such as the Taliban,
Hamas, or ISIL/ISIS are potential threats to security and safety for citizens and individuals residing
in the Middle East. Violent terrorism incidents in Qatar have been very rare. The terrorism index
aggregated by the Vision of Humanity indicates that there have been two incidents of terrorism with
one fatality. From the index, the UAE scored a total of 1.05 and Canada scored a total of 2.30 46. In
comparison, the country that ranked the highest in terrorism out of 162 countries was Iraq with a
score of 10.
Security threats are high in the Middle East due to the instability of the region. In response to this,
the UAE has taken a more visible role in combatting extremism. The OSAC and the United
Kingdom government recommends that foreign workers and expatriates remain aware and alert of
the possibility of the continuing terrorism in the region. Terrorist attacks can be indiscriminate,
occur with little or no warning, and be targeted against Western or Western-related ideologies,
personnel, and culture47.
4.7.3 Political Violence
Political violence as rated by the OSAC is low. There were no incidents were political violence was
experienced in 201548. For political demonstrations to occur in the UAE, citizens must have prior
approval from the government.
4.7.4 Transportation
In the UAE, traffic accidents are one of the leading causes of death. According to the World Health
Organization, the UAE has the highest rate of road fatalities in the Middle East 49. Individuals in the
UAE are 7 times more likely to die in a car accident in comparison to those in the UK. Speeding is a
common occurrence and reckless driving is the norm, especially on highways50. The OSAC and the
UK government recommends that individuals are careful even at controlled intersections, but take
extra precautions in uncontrolled zones. Pedestrians should always wait and see if roads are clean
and safe to cross.
In regards to road conditions, they are generally in good repair, but are becoming strained due to the
increasing number of vehicles and construction. During rush hour, expressways are unreliable due to
the sheer number of vehicles on the road51.
46
Terrorist Index Score, Accessed April 20, 2016, http://www.visionofhumanity.org/#page/indexes/terrorism-index/2014/ARE,CAN,IRQ/OVER 47 Foreign Travel Advice UAE, Accessed April 20, 2016, https://www.gov.uk/foreign-travel-advice/united-arab-emirates/terrorism 48 UAE Crime and Safety Report, Accessed April 20, 2016, https://www.osac.gov/Pages/ContentReportDetails.aspx?cid=19058 49 Traffic and Road Conditions in UAE, Accessed April 20, 2016, http://www.countryreports.org/travel/UnitedArabEmirates/traffic.htm 50 Driving Statistics, Accessed April 20, 2016, http://www.surayafoundation.com/statistics.html 51 Same as 47
23
For taxis, individuals should not engage in idle conversation with the driver52. In Middle Eastern
society, idle conversation and being too friendly can cause the driver to misread the person’s
intentions. It is recommended that individuals should tell the driver where they would like to go and
end the conversation there. Law requires that meters be used to calculate rate and distance. If none
are present, it is advised to not get into the taxi.
52 ibid.
24
4.8 Tax System
This section will be split into two categories: corporate tax and individual tax
Corporate Tax
The first thing to note is that the UAE has a double taxation treaty with Canada, meaning that
SAGE will not be double taxed on the profits they make on sales in the UAE. Before we begin the
tax section, two terms need to be defined:
● Chargeable person - corporate body or each and every branch conducting trade or
business of any type during an income tax year through a permanent establishment that is in
the Emirate, whether directly or through the agency of another corporate body.
● Taxable income - income that is totalled after the deduction of all cost and expenses
incurred by a chargeable person
In the UAE, there is no federal legislation for tax. Each emirate has its own tax laws that individuals
and corporations must abide by. Generally for each individual emirate, personal income tax, capital
gains tax, value-added tax, withholding tax, and corporate tax are non-existent, save for some certain
exceptions pertaining to oil and gas. This section will outline corporate, personal, and other taxes in
individual sections pertaining to specific emirates and to SAGE.
Corporations are taxed on a sliding scale based on the amount of income made unless otherwise
specified. The following chart is applicable to the regions of Abu Dhabi, Dubai, and Sharjah as an
income tax decree was established in the respective regions:
Income (United Arab Emirates dirham)
Approx. 1 CDN = 2.9 AED
Tax Rate
Less than 1,000,000 AED 0%
Equal to or more than 1,000,000 but less than
2,000,000 AED
10%
Equal to or more than 2,000,000 but less than
3,000,000 AED
20%
Equal to or more than 3,000,000 but less than
4,000,000 AED
30%
Equal to or more than 4,000,000 but less than
5,000,000 AED
40%
25
Abu Dhabi
The following taxes are applied in Abu Dhabi:
● Taxes on oil and gas companies at rates specified in relevant agreements, 55% for oil and gas
companies
● Flat rate tax on profits of branches of foreign banks
● Service tax on hotel services and entertainment
● Income tax on every chargeable person who engages in trade or business based on sliding
scale (chart above)
Dubai
The following taxes are applied in Dubai:
● Income tax on earnings based on sliding scale (chart above)
● Oil and gas companies pay up to 50% tax on UAE sourced taxable income
● Banks pay 20% tax on taxable income
● Oil and gas companies pay royalties on production
Sharjah
The following taxes are applied in Sharjah:
● Income tax on every chargeable person on a slide scale (chart above)
● Customs are levied on imported goods at a rate of 5% which is charged on the CIF (cost,
insurance, freight) value of the goods at the UAE port.
Individual Tax
In the UAE, no personal tax is levied in all of the emirates. A property tax between two and five
percent of the property value based on the Emirate and the employment status of the tenant is
utilized. Professionals living in Dubai and working in commercial and industrial sectors must pay
five percent of annual rent to the Dubai municipality as property tax. Professionals in the banking
sector must pay fifteen percent. In Sharjah, tenants pay 2% of annual rent to the local government.
Rental taxes are applied as residential tenants must pay 5% of annual rent and commercial tenants
pay 10% of annual rent. Taxes on services such as restaurants and hotels are imposed, but the rate
varies for each Emirate. The service tax rate is 10% in Dubai and 16% in Abu Dhabi.
No other personal taxes are levied in the UAE. A consumption tax called the value-added tax (VAT)
is to be implemented in January 2018 at a rate of 5%.
26
Impact on SAGE
The absence of a majority of corporate and individual taxes is good news for SAGE as the
organization will be able to profit a lot more from sales of their gas compressors. The tax treaty that
Canada currently has in place with the UAE alleviates and removes the fears of double taxation on
profits and eases the transactions overseas53. Since SAGE is considered as part of the oil and gas
industry, if SAGE manages to sell over $1,000,000 AED (approx. $344,000 CDN), then SAGE will
be taxed on the scaling corporate rate depending on their income. Overall, the UAE has a
favourable taxation regime that is beneficial for businesses such as SAGE. 54
53
Department of Finance Canada, Accessed April 19, 2016, https://www.fin.gc.ca/treaties-conventions/UAE_-eng.asp 54
Agreements on the Avoidance of Taxation. Accessed April 19,
2016http://www.mof.gov.ae/EN/PUBLICATION/Pages/doubletaxationavoidanceagreements.aspx?lien_externe_oui=Continue
27
4.9 Language
In the UAE, the official and national language is Arabic. There are many variants of Arabic in the
UAE due to the presence of individuals from other Arabian states55. Both Gulf and Standard
dialects of Arabic are spoken, but with a majority in the UAE speaking Standard Arabic. As Arabic
is the official language in the UAE, it is endorsed by law at all government departments and in all
branches of media, including radio, television, and newspapers.
English is widely spoken as the area was previously protected by the British until 1971. English is
also the lingua franca i.e. a connecting language between the majority of the citizens living and
working in the UAE. Although communication in English is common, it is useful to know and learn
some Arabic words, as doing so shows a person’s willingness to be open and learn about another
person’s heritage and culture. It will also leave a positive to Emirati natives as they appreciate
foreigners attempting to learn their language and culture. Other languages such as Tagalog and
Bengali are present in the UAE as a majority of the residents are expatriates. It is estimated that
approximately only 11.32% of the population are residential Emiratis.
Arabic is the official business language as well as the national language. With regards to conducting
business in the UAE, business cards should be printed in English as well as Arabic. Contracts,
business documents, and government forms are written in Arabic, and thus require frequent
translation from English to Arabic and from Arabic to English. Business documents should be
printed in both English and Arabic for clarity sake for both parties56. Although having documents in
both languages is time consuming and costlier, it mitigates the risk of either parties not
understanding the terms and conditions and also shows that your organization is serious about
conducting business. It is also common to have a translator present at business meetings as many
negotiations are conducted in this manner57.
55
Arabic Language, Accessed April 20, 2016,http://gulfnews.com/arabic-is-the-official-language-in-the-uae-1.639876 56
Ways of Doing Business, Accessed April 20, 2016 http://www.uaeinteract.com/business/bmethods.asp 57
Business Methods, Accessed April 20, 2016 http://www.uaeinteract.com/business/bmethods.asp
28
4.10 Legal and Regulatory System
The basis of the legal system in the UAE is Sharia or Islamic Law. In the constitutions, Islam is
identified as the state religion as well as the principal source of law. Although the core principles of
law in the UAE are drawn from Sharia, most legislation is comprised of a mix of Islamic and
European concepts of civil law. Although the principles of Sharia influence criminal and civil laws,
the direct influence of Sharia in the UAE is primarily confined to social laws, such as family law,
divorce or succession. The influx of regional and international commercial enterprises to Dubai and
the UAE over the last 30 years has resulted in an expanding and increasingly comprehensive body of
federal legislation being established in the form of federal codes of law 58. Most commercial matters
are now dealt with by either civil courts as UAE has enacted commercial codes in regards to
company law, labour law, and intellectual property.
The civil law provides guidelines for the establishment of contractual relations and obligations. The
civil code specifies basic elements of a contract such as consent, subject matter, purpose of
contracting, and cancellation. Under the civil law, a contract is treated as the law of the contracting
parties. Natural and legal persons are free to agree on whatever they desire, provided that their
agreement does not conflict with law, public order and morality. As the UAE has established itself
as a regional hub for international business, arbitration is gradually becoming a popular method of
dispute resolution59.
The country has a federal court structure with a final court of appeal in Abu Dhabi (the Abu Dhabi
Supreme Court), but both Dubai and Ras Al Khaimah are not part of the federal judicial system.
Dubai and Ras Al Khaimah have their own court systems, which are not subject to the federal
Supreme Court60. Dubai’s legal system is comprised of the following courts: the Court of First
Instance, the Court of Appeal and the Court of Cassation. The Court of First Instance includes the
Civil Court, the Criminal Court and the Sharia Court. The emirate also has a Labour Court, which
deals exclusively with disputes between employers and employees, and a Property Court which deals
exclusively with real property disputes.
International businesses wishing to do business in Dubai may incorporate or register a local ent ity
under the Companies Law or the Civil Code, register a branch or representative office of a foreign
company or enter into a commercial agency relationship with a UAE national. Each of these
business structures (other than setting up in a free zone) requires varying degrees of participation
from UAE nationals. For example incorporating an entity under the Companies Law requires that
51 per cent of the ownership of the entity must be held by UAE nationals. Furthermore, branch and
representative offices must appoint a UAE national to sponsor the office for its licence application.
58
Dubai’s Legal System, Accessed April 20, 2016, https://www.lw.com/thoughtleadership/dubai-legal-and-regulatory-system 59 UAE’s Court System, Accessed on April 20, 2016 http://dubai.usconsulate.gov/emergency_uae_court.html 60 ibid.
29
Each person or organization wishing to do business in Dubai (other than through a licensed agent)
requires a licence. Certain sectors of the UAE economy are subject to more stringent licensing
requirements than others, as the scope of the activities allowed under a license will vary 61.
61 Dubai Legal and Regulatory System, Accessed April 20, 2016 https://www.lw.com/thoughtleadership/dubai-legal-and-regulatory-system
30
5.0 Target Market
5.1 Segmentation
In UAE, SAGE’s potential target client base includes:
Praxair Gulf Industrial Gases LLC - leading industrial gases suppliers in UAE.
Al Hosn Gas - company that extracts sour gases, liquid hydrocarbons and sulphur from reservoirs
in Abu Dhabi.
Gasco - operating company engaged in the extraction of NGL from associated and non-associated
gas
Abu Dhabi National Oil Company - Operates in all areas of the oil and gas industry since
established in 1971
These companies would be great target markets as demand for oilfield services and equipment is
anticipated to grow at an annual rate of 10%62. Providers of new and innovative equipment and
services that is offered by SAGE will help with modernization and expansion of the oil and gas
industry in UAE. The oil and gas equipment and service sector would provide huge opportunities
for SAGE as it will allow them to export their products and services to these target market.
62 Alberta Canada Exports, Retrieved April 19th, 2016, http://www.albertacanada.com/business/export/united-arab-emirates.aspx
31
5.2 Target Clients
Praxair Gulf Industrial Gases LLC
SAGE can have the opportunity to supply their products and services to Praxair Gulf Industrial
Gases LLC. These company purchases products that help their customers become more profitable,
more efficient and more environmentally friendly. Praxair purchases goods such as compressors,
motors & pumps, heat exchangers and contracted services. Praxair supports a variety of business
enterprises that provides supply of goods and services that supports their business model in which
SAGE would be a good candidate.
Al Hosn Gas
SAGE also has an opportunity with Al Hosn Gas as they operate and maintain the Shah Gas Field
in UAE that recently began production in 2014. This would be a huge opportunity for SAGE as
they would be needing products and services that SAGE can offer to Al Hosn Gas for the Shah Gas
Field such as extraction of H2S and CO2 gases through their compressors. Al Hosn Gas is a
company that gathers gas, process gas in plants and does further exploration and productions. Al
Hosn Gas’s drilling operation in the field began in February 2011, the development wells are around
16,000 ft. in length and includes about 5.000 ft. drilled laterally in the Arab reservoir rock 63. With
SAGE’s compressors it will help with their drilling operations to pump gas out faster at a more
efficient rate.
Gasco
Gasco is an ADNOC Operating Company that is engaged in the extraction of Natural Gas Liquids
from associated and non-associated gas. Gasco provides on and off shore oil productions,
petrochemicals, refining, fertilizers, water and electricity agencies and infrastructure industries such
as steel, cement and aluminum smelting. Gasco contains 5 gas processing plants which helps
transfer Liquid Sulphur, Natural Gas Liquids and other gases through pipelines to the end users.
SAGE’s products such as the vapour recovery system that they offer can help compress vapour into
the pipelines to make the flow more efficient and smooth. SAGE’s vapour recovery units can also
help with the storage and handling process.
Abu Dhabi National Oil Company (ADNOC)
ADNOC was established in 1971 to operate in all areas of the oil and gas industry such as fields of
exploration and production, support services, oil refining and gas processing, chemicals and
petrochemicals, maritime transportation and refined products and distributions64. SAGE can provide
their compressors for gas processing such as their acid gas compressors, fuel gas compressors,
vapour recovery systems and other specialty compressor packages.
Contact details for the above can be provided in Appendix 13.9 Distribution Contacts .
63 Drilling Operations, Retrieved April 19th, 2016 at http://www.alhosngas.com/pages/DrillingOperations.aspx 64 About ADNOC, Retrieved April 19th, 2016 at http://www.adnoc.ae/content.aspx?mid=22&tree=
32
5.3 Quantification
UAE’s Oil and Gas industry
The UAE is among the world’s top 10 largest oil producers, ranking at number six. The nation is
also a member of OPEC (Organization of the Petroleum Exporting Countries) and GECF (Gas
Exporting Countries Forum). Due the growing market for hydrocarbon fuels, the UAE is emerging
as one of the world’s most important financial and trading hubs in the Middle East. Despite low
discoveries of major oil reserves, due the UAE’s enhanced oil recovery strategies, they are able to
increase extraction rates of the more mature oil fields.
As the first country in the Middle East to export LNG, the UAE has exported over 250 billion cubic
feet of LNG annually almost exclusively to Asian countries. As of 2014, up to nearly 10% of Japan’s
imports of LNG is from the UAE alone and is expected to keep growing65.
The growing demand for hydrocarbons has allowed the UAE to expand their output from 500, 000
barrels of oil equivalent per day (boepd) to 920,000 boepd. Expansion is also occurring outside of
the country with offshore production receiving increasing their boepd. The Abu Dhabi Marine
Operating Company is targeting 1 million boepd and are also expected to increase capacity to 3.5
boepd by the year 2017. Oil allocations and trading partner requests are both expected to increase by
the year 2020 despite a forecasted demand plateau for crude oil by that time 66.
65 UAE Internal Analysis, Accessed on April 20, 2016,
https://www.eia.gov/beta/international/analysis_includes/countries_long/United_Arab_Emirates/uae.pdf 66 Oil and Gas Years, accessed on April 20, 2016
http://www.theoilandgasyear.com/content/uploads/2015/01/Preview_TOGY_AbuDhabi_2015.pdf
33
5.4 Good Fit
Target clients in UAE are good businesses for SAGE to pursue because they require specialized and
customizable products by firms like SAGE and are in demand of their services and expertise. UAE
has the world’s seventh largest reserves of both oil and gas which would make SAGE a good
company to do international business with as SAGE has good people with smart solutions that puts
high commitment to its customers. In addition SAGE has experience working on similar
international markets such as Australia, West Africa, Russia and Indonesia that would be of use
when doing business in UAE. With high demand for products and services these target clients
would be an ideal match for SAGE to conduct business with.
34
6.0 Market Entry Strategy
6.1 Different forms of Market Entry
SAGE is able to use different types of market entry strategies when entering the UAE. The table
below provides a brief summary of possible market entry strategies.
Forms of Entry Advantages Disadvantages
Online Presence No physical presence required
Saves time and travel cost
Loss of control if something
happens to products
Export Agent Provides local knowledge
Company maintains control of
the transactions
May not represent company in
manner desire
May handle competing products
Licensing and Franchising Rights to sell and manufacture Time lengths and geographical
limitations of the license
In-Market Distributor Assumes risks
Carries costs of doing business
in target market
Switching costs are high
Once product is delivered, company
has no control over packaging and
image presented in target market
Limited Liability Company Capital costs are low
Establishment is faster
Cannot offer share for public
subscriptions
Strategic Alliance Access to new technologies and
expertise
Access to larger capital
resources
Sharing of high costs and risks
of business
Access to new markets without
creating complex structures that
can be hard to manage
Can become overly dependent on
the partner company
May lose its expertise to a future
competitor
May encounter loss of control
35
To conduct business in the UAE, a foreign investor must establish a formal legal presence directly
or through an agent within the UAE67 (See Appendix 13.10 for further details).
6.2 Method Entry For SAGE, the following options are viable methods to conduct business with the UAE:
1) Free Zone Entity 2) Commercial Agency Relationship
Free Zone Entity - Free Zones are federal structures reserved for industry-specific activities and are
in place for the encouragement of foreign direct investment into the UAE. For more information on
general laws surrounding free zones refer to Appendix 13.11 free zone laws .
Requirements:
A free zone entity can be wholly owned by a foreigner. Free Zone Entities in the UAE are
entitled to certain financial benefits such as a renewable tax exemption for a period of 15
years and the full repatriation of profits and capital. Free zone entities take one of three
forms: a representative office or branch, a free zone company or a free zone establishment.
There is no minimum capital requirement for a representative office or branch in most free
zone entities, however for free zone companies and establishments, typically the minimum
capital is approximately $175,000 CAD.
Limitations:
Free zone entities are restricted to conducting business within their relevant free zone. Also,
they can only perform activities specified within the license. Within an entity’s free zone, one
of the following licenses are issued by the relevant free zone authority: (I) trading license; (II)
Service license; and (III) manufacturing/industrial license. To engage in sales outside of the
relevant free zone, the entity must retain a commercial agent or distributor. Fortunately, this
is common for free zone entities with services in the UAE.
Commercial Agency Relationship
Requirements:
This is beneficial for companies that want to avoid maintaining a physical presence in the
UAE. This method requires commercial agents that are hired by foreign manufacturers and
traders who engage in the large-scale importation of goods into the UAE on a regular basis.
67 UAE Commercial Agency. Accessed April 15, 2016. https://www.lw.com/upload/pubcontent/_pdf/pub2783_1.pdf
36
Limitations:
Disclosed between a commercial agent should be terms of the sales commission, the
territory of distributorship (minimum of one Emirate), and the duration of the relationship.
A commercial agent that is registered with the Ministry of Economy in the UAE is protected
under the UAE Commercial Agencies Law (Federal Law No. 18 of 1981, as amended by
Federal Law No. 14 of 1988 and Federal Law No. 2 of 2010) .Under this law, the
protections include:
I. Exclusivity – Agents have the right to import the goods which are the subject matter
of the agency;
II. Commissions – Agents are entitled to receive commissions on sales they make in the
UAE by the principal or any other party; and
III. Termination - The principal may only terminate a registered commercial agency for
“material reasons.” The most common reasons include:
a) Failure by the agent to meet specified sales targets;
b) Where actions of the agent damage the reputation of the principal or its
products or services;
c) Where the agent partakes in activities that compete with the products or
services of the principal; and
d) Any breach of the agency law by the agent.68
The principal cannot refuse to renew a registered commercial agency agreement after the
expiry date without compensating the commercial agent for their service.
Both options are viable and have advantages depending on what SAGE decides for the long run. We recommend having a commercial agent representative first however as the set up costs are lower and start-up process is shorter. SAGE will also gain revenue faster. Once SAGE has built enough relationships and networks, having a free zone entity within the UAE would be the next best move. Having the right connections will allow SAGE to gain access to the more profitable free zones in the UAE.
68 UAE Agency Law, Accessed on April 19, 2016.
http://www.mondaq.com/x/141894/Commercial+Law/An+Overview+Of+UAE+Agency+Law
37
7.0 Marketing Strategy
7.1 Product
SAGE designs, manufactures, and creates gas compressor packages. The gas compressor packages
come in a variety of shapes, sizes and functionality. The main goal of a gas compressor package is to
adjust natural gas pressure to allow for the gas to travel through pipelines. SAGE is able to engineer
various types of gas compressor packages utilizing technologies such as reciprocating screws and
rotary screws. SAGE’s product line also includes vapour recovery systems, specialty compressor
packages and natural gas generators. Depending if the package has been pre-built and already
assembled, SAGE offers leasing and rental options on some of their packages in addition to
purchasing.
As weather and ground conditions differ in countries, SAGE’s gas compressor packages will need to
withstand the UAE’s environment. Gas compressor packages designed and engineered by SAGE are
guaranteed to function properly throughout a range of -50 degrees Celsius to +50 degrees Celsius69.
What makes SAGE different from competitors is the quality and service they provide in and for
their gas compressor units. SAGE’s products are designed and built for quality, use the latest gas
compression technology and are customized to the customer. All products built by SAGE are
designed for longevity. SAGE uses two efficient types of screws (rotary and reciprocating) for their
gas compressor packages depending on the type of project. SAGE also takes into consideration the
place and regulations of where their gas compressors are. For example, for their venture and
partnership with the Australian company Drivetrain Power and Propulsion, Australian regulations
required the colours of wires in the gas compressor packages to be different from Canadian
69 Freeze Proof Design. Accessed on March 29,2016. http://sageenergy.ca/products/freeze-proof-design/
38
regulations. Although SAGE is considered small in terms of employees, this turns out to become a
crucial advantage for SAGE. The smaller size of SAGE allows for more personalized interactions
between customers and SAGE, yet the size does not undermine the quality of the products they create.
7
7.2 Price
This section makes the assumption that a basic gas compressor package is being sold by SAGE and
that other competitors sell the same basic package with similar features. We understand that the
nature of the gas compression industry is variable depending on the customer’s requirements and
pricing is dependent on this factor.
When working with an Emirati partner, SAGE must first and foremost focus on building a
relationship with the partner. The relationship aspect weighs much more heavily than price for much
of the Arab world. Price is then a second factor in which SAGE can use one of three pricing
options: price competitively by similarly pricing their gas compressor packages to their competitors
(competitive pricing), undercutting their prices to first establish a presence in the UAE (penetration
pricing), or setting a premium price that creates a perceived quality.
Competitive pricing70 is an approach that is commonly used that sets the price of a product or
service based on what other competitors are charging. By pricing competitively, an organization is
able to match the prices which the competitors are setting and allows for prices to not be set too low
or too high.
Penetration pricing71 is where a company initially sets its prices below the competition in order to
garner the attention of customers and grow their market share. Setting the price at a lower price
initially draws customers away from competitors and in turn, increases market share. This method is
usually utilized when a company is attempting to enter a new market or marketplace.
70 Competitive Pricing. Accessed on April 19, 2016 .http://www.investopedia.com/terms/c/competitive-pricing.asp 71 Penetration Pricing. Accessed on April 19, 2016. http://www.investopedia.com/terms/p/penetration-pricing.asp
39
Premium pricing72 sets the price higher than the competitors. The advantage of this type of pricing
model includes maximization of profits in areas where customers are willing to pay more and where
there is no substitute product. Premium pricing can also improve brand image as many people
believe that if a product is priced higher, it has a higher quality.
For SAGE, we recommend that negotiations and talks be made to determine the appropriate price
for their gas compressor packages and services. Competitive pricing should be utilized when pricing
negotiations ensue. By pricing their gas compressor packages this way, SAGE will gain exposure and
entry into the Emirati market as well as market themselves as an organization that has better or
equivalent quality. SAGE must also take into consideration percentage cuts or rates that the Emirati
partner will require for their assistance in the sale. These percentages and fee vary depending on the
partner.
While in the UAE and setting up negotiations, it is important to note that Emiratis, as well as the
rest of the Arab world, value and appreciate creating personal relationships with their business
partner. SAGE should first focus on creating a building a personal connection to their Qatari
partner then negotiate terms, pricing, and conditions at a later time. For more information about
business dealings and business customs in Qatar, refer to the “Culture and Etiquette” section.
72 Premium Pricing. Accessed on April 19, 2016 http://smallbusiness.chron.com/premium-pricing-strategy-1107.html (accessed on April, 2016)
40
7.3 Shipping Requirements When shipping from North America to the Middle East, ocean freight is the preferred methodology primarily due to costs. The size of the shipments can also reduce choices for shipment to ocean or airfreight. When considering the routing of the shipments, time factors also play a role. SAGE would need to evaluate the options based on shipment size, timeline and budget. 73 Freight Insurance
CargoCover is a company that specializes in freight insurance that offers competitive rates, simple
registration, security and 24/7 customer support. 74
For SAGE, the following are viable insurance plans offered by CargoCover
Cargo Insurance
Commercial Crime
Cargo Insurance - CargoCover’s Insurance is standard protection for cargo that covers all risk of
loss or damage to goods from any external cause regardless of shipping method (land, sea or air).
Under this insurance, products are covered from “warehouse to warehouse.” CargoCover also has
the competitive advantage of offering insurance for “Acts of God,” terrorism, worker strikes, riots
and civil commotion risks. CargoCover takes responsibility for the loss of damage regardless of the
carrier. They also protect their clients company as well as third party members from claims made
against the client's liability insurance.
Commercial Crime insurance - Insurance relating to crime such as theft. It is divided into two
subcategories: inside crime and outside crime. It is designed to protect the client from the costs
relating to such incidents.
73 Ken Geitz, Sr. Expediting & Logistics Specialist , AltaGas, contacted March 20, 2016. https://www.business.qld.gov.au/business/running/marketing/promoting-business-show-exhibition/benefits-risks-shows-exhibition 74 CargoCover. Accessed on April 19, 2016. https://www.cargocover.com/Prelogon/Products.aspx
41
7.4 Promotion
Generally, oil and gas products are promoted through the use of trade shows and exhibitions. A trade show is a very effective method of advertising directly to the industry and creating brand awareness. Due their great sizes and pull, many companies capitalize on these types of exhibitions to network with other companies and see the new technology within the industry. The general risks include travelling and attendance costs, the costs of setting up a platform as well the many companies that SAGE will be competing with for attention. 75
ADIPEC - Abu Dhabi International Petroleum Exhibition & Conference ADIPEC is a global hub located in Abu Dhabi that invites businesses from around the world to an
extensive showcase of oil and gas technology. It is the world’s most influential international
exhibition and conference for the Oil & Gas Market. According to their website, “If your business
supplies the Oil and Gas Industry, then you need to be at ADIPEC.” Many large international
companies such as Shell, Statoil and ExxonMobil are participants at ADIPEC. ADIPEC is also
supported by 23 Nations including Germany, The U.S. and Canada. 76
MEOS 2017
Another major exhibition in the Middle East is the Middle East Oil and Gas (MEOS) Show and Conference. MEOS is a 14, 800 square meter showcase featuring some of the industry’s largest oil and gas corporations. MEOS is the most established exhibition in the Middle East and has consistently attracted over 8,000 high quality attendees. It is a great opportunity to explore business partnerships and new technology.77 The upcoming conference in 2017 is located in Bahrain and is organised by the Society of Petroleum Engineers as well as several regional and international oil and gas companies. At this exhibition, SAGE would be able to apply to build a platform to showcase the company to attendees. There a three space options with each application78:
i. Inside Space only offers the flexibility of building a stand that
covers 18 sq. metres at $600 USD ii. Space with Stand Service comprises of floor space, walls,
carpet, lighting and fascia name panel at $715 USD iii. Space with Walk-on Package includes all stand service facilities
(furniture, display items and electrical outlets) at $750 USD Contact information can be found in the Appendix.
75 Benefits and Risks of Trade Shows, Accessed on April 27, 2016. 76 ADIPEC. Accessed on April 19, 2016. https://www.adipec.com/exhibit/ 77
MEOS 2017, Accessed on April 27, 2016. http://meos17.com/about/about-meos-2017/ 78
Space Application MEOS 2017, Accessed on April 27, 2016. http://meos17.com/exhibition/space-application-form/
42
7.5 After Sales Service
After the conclusion of a sale of SAGE’s gas compressor unit, SAGE will need to deal with
maintenance and service repairs of their equipment if something breaks down. To mitigate the need
for after sales service as it can be a costly addition for SAGE, the Emirati partner, and the customer,
SAGE, we recommend the following: partner up with an Emirati partner in the gas compression
industry and provide training and knowledge to the partner and end user. Partnering up with a
company from UAE that understands how gas compressors work and that could be trained to fix
downed gas compressors could ease the after sales service. By teaching and providing information to
both the partner and end user on how to operate SAGE’s gas compressor units, all parties benefit
from not only monetary savings, but savings in time as well.
The cost of after sales service includes travel, flight, and accommodation expenses for the service
technician(s). By completing and undergoing after sales service, SAGE engages in continual
relationship building with UAE business prospects and strengthens their presence in UAE. After
sales service also includes providing information and training on how to safely operate SAGE’s gas
compressors, answers to questions, and technical communication with clients.
43
8.0 Operations
8.1 Certifications
SAGE contains a variety of certification that makes them attractive to the oil and gas industry. These
certification provide SAGE with a competitive advantage as companies can see that SAGE has the
skills and knowledge to stand out compared to their competitors. Below is a list of Certification that
SAGE currently has.
SAGE Energy Corporation Certifications:
COR - Certification of Recognition
ASME - American Society of Mechanical Engineers
ABSA - Alberta Boilers Safety Association
CSA - Canadian Standards Association
CWB - Canadian Welding Bureau
ISNetworld - Connects safe and reliable contractors with Hiring Clients around the
globe
PICS - Pharmaceutical Inspection Cooperation Scheme
Production Process
Before SAGE begins building a gas compressor they check with customers to find out what
conditions they want the design to be in order to match their criteria. Customers come in to
determine what type of compressor to build, stage of compression, customer specifications and site
conditions. After that engineers begin the design and come up with a technical and commercial
proposal that is valid for 30-90 days. After the proposal has been made the customer reviews the
design and discusses idea and plans for any changes. After the plans have been finalized the
engineers begin constructing the gas compressor package to the customer’s specifications.
Equipment Used
Some general equipment that is used to create gas compressors are cooler, driver (engine), couplings,
compressors, main skid, controls, spooling, piping, sensors and valves.
44
What SAGE Energy Corp. has done to distribute their gas compressors from previous experience
with Australia is; they completed their distribution through a partnership agreement with Drivetrain
Power and Propulsion. In order for SAGE to do business in UAE, they would also need to appoint
a representative agent, such as a commercial agent. A commercial agent would be beneficial for
SAGE as they would export their gas compressors to UAE. The commercial agent will act as the
distributor or sales representative. Another option would be direct sales where SAGE will sell their
gas compressors straight to the end user. Overall obtaining a commercial agent or using direct sales
would be the two best ways of distributing their products to their clients as these suggestions would
help their client save money and time. A list of commercial agents for UAE can be found in
Appendix 13.13.
We recommend that SAGE go through a commercial agent, as the agent should have valuable and
useful information pertaining to partnerships, sales, and how to conduct business in the UAE.
SAGE should review both these methods and utilize the one they believe best fits their values and
business needs.
Administration Process
When an order is made out that is when the process begins from the VP of business development,
as the VP is the one that interacts with the international business partners. After a deal has been
made the next group to take over would be the sales group where they provide the customers with
product and service details to begin the purchase order. Once the purchase order is set in place the
engineers begin the design phase. Once the design has been created, the engineer provides the plans
and specifications to the sales team where they deliver the plans and specs to the customer. The
customer here can add any special request to change the design to meet the client’s needs. After the
plans have been finalized and tested the engineers disassemble the gas compressor to prepare for
shipment. The customer will be in charge of shipping either by boat or air. Once the gas compressor
arrives in the target area, SAGE will send in specialist to set it up for the customer.
Services
SAGE has Waukesha and Caterpillar certified technicians as well as qualified refrigeration and
rotating equipment specialists with many years of industry experience. In case the gas compressors
need repair. SAGE provides parts and service solutions such as genuine OEM parts, compression
optimization, 24 hour parts and service support, commissioning and start-ups, field and shop engine
and compressor overhaul, preventative maintenance programs, screw and reciprocating compressor
overhaul, refrigeration compression maintenance, generator package maintenance, complete plant
maintenance for rotating equipment, operator support and training, exchange component program
and also process plant troubleshooting79.
79 SAGE Energy Services, Access on April 20, 2016 http://sageenergy.ca/services/
45
Suppliers
SAGE is a company that is seen as a packager/manufacturer where they build gas compressors.
They have various suppliers for different pieces of equipment such as the coolers, drivers, vessels,
control and rotating screws.
Estimated Cost of a Gas Compressor Package
Cost to build a gas compressor varies as it is dependent on the design from the specifications of the
customer. Typically the range is from $200,000 to more than $5,000,000.
9.0 Financial
Conducting business in UAE will involve several incremental expenses. These incremental costs will
involve setting up business operations, travel costs, utility charges, insurance, and shipping. The
transactions will be conducted in the local currency which is the United Arab Emirates Dirham.
SAGE will have to consider the currency exchange risk involved as well as the methods of payment.
The estimated costs for starting up a company in UAE is $2185 CAD. The cost was derived after
taking into account the various steps involved in setting up a company and the related costs of those
activities. See Appendix 13.12 for more detailed information about the procedures and the related
costs.
46
9.1 Initial Operating Costs
These costs are estimated for a one week visit to UAE where SAGE will meet with various
compressor and natural gas companies. These operating costs reflect accommodation, food,
internet, phone, and transportation costs.
Air travel costs 1,220.81 CAD80
Hotel costs 1120 CAD*
Internet & Phone Services 18 CAD
Meal Costs 217.10 CAD*
* Based on 7 nights stay at the Four Points by Sheraton Downtown Dubai (160 * 7 = 1120)
*Average meal cost in UAE at a restaurant is about 30.00x3 times in a day x 7 days a week =
630AED = 217.10 CAD a week.
Transportation for one-way ticket 5.00x2x7 days a week = 70 AED = $24.12 CAD
Total Expenditure Cost = 2600 CAD
80
UAE Flight Booking Cost, accessed on April 20, 2016, http://fly4.emirates.com/CAB/IBE/SearchResult.aspx
47
9.2 Freight & Payment Method
Other factors to consider for SAGE are the freight and payment methods. In regards to freight and
shipping costs, SAGE should have their clients handle shipping responsibilities and thus, have them
cover the associated costs as well. The payment methods available to SAGE are Open Account,
Documentary Collections, Letter of Credit, and Payment in Advance. Payment in Advance and
Letter of Credit are the two most viable options for SAGE as they offer the least risk and most
security in terms of payment.
Letter of Credit is a mechanism that allows importers/buyers to offer secure terms of payment to
exporters/sellers. It is a method involving four parties. The buyer, the remitting bank, the advising
bank and the seller. The bank also acts on behalf of the buyer (holder of letter of credit) by ensuring
that the supplier will not be paid until the bank receives a confirmation that the goods have been
shipped. The letter of credit guarantees that a buyer's payment to a seller will be received on time
and for the correct amount.
Cash-in-Advance method is best used in situations involving high risk trade relationships or export
markets. The exporter can avoid credit risk or the risk of nonpayment, since payment is received
prior to the transfer of ownership of the goods. Wire transfer is the most secure option to make
payment. Payment in Advance is the method that is best suited for SAGE in this scenario due to the
low risk associated with the method.
48
10.0 Risk Management
The Middle East is a region with plenty of investment opportunities within the field of oil and gas.
Foreign firms like SAGE need to adapt to the environment of the host country accordingly. Despite
the attractive investment opportunities in these countries, SAGE will have to consider the various
risks associated with investing in these markets. Cultural and language barriers are among the most
obvious of these considerations. Variations in religious beliefs, societal norms and business
negotiation styles all have an impact on how business needs to be conducted when dealing with
foreign counterparts. Language barriers may present an obstacle when trying to reach out to the
target market. Conducting business in the region will require extreme understanding of the cultural
norms in those countries. The Middle East attaches great importance to the traditional Arab and
Islamic values that consider the family to be a central pillar of society. SAGE will have to be aware
of the religious and cultural norms while conducting business negotiations.
The recent drops in energy prices pose an economic risk for SAGE’s plan. The falling global oil
prices has put a strain on UAE’s finances. The declining oil prices has eviscerated the export
revenue from petroleum sales and slowed down economic growth in the country. The short-term
growth outlook is positive, but lower oil prices will lead to a substantial deterioration of the fiscal
and external balances. Not only will they lose market share, production activity will also slow down
which will likely negatively affect natural gas projects and SAGE’S business operations in UAE.
However, weakness in the oil sector is partly offset by growth in non-oil sector as it is the most
diversified economies in the Middle East81. Construction, tourism and financial services will
continue to grow as Dubai continues to become an important regional business centre with the
world's seventh largest port. Abu Dhabi holds 90% of the UAE's substantial hydrocarbon reserves
and has a large amount of reserve funds82. Thus, petroleum exploration and production will continue
as usual despite the decline in commodity prices.
SAGE has to consider the various political and security risks associated with conducting business in
the Middle East. Increased violence and conflict between various religious groups can negatively
impact SAGE’s business plans and operations. Along with other Middle Eastern countries, UAE
faces the underlying threat from terrorist groups such as ISIS. The Islamic State group has
previously claimed responsibility for several attacks in Saudi Arabia and has also beefed up its
operations in neighbouring gulf countries83. Terrorists continue to issue statements threatening to
carry out attacks in the Gulf region. There is a strong possibility of attacks, especially in locations
frequented by expatriates and foreign travellers. These include references to attacks on Western
interests, including residential compounds, places of worship, military, oil, transport and aviation
interests.
81 Risk Assessment, accessed on April 20, 2016, http://www.coface.com/Economic-Studies-and-Country-Risks/United-Arab-Emirates 82 ibid. 83
International Business T imes, accessed on April 20, 2016, http://www.ibtimes.com/isis-threatens-saudi-arabia-islamic-state-says-it-will-
destroy-prisons-holding-2251341
49
The security risk in the region can be mitigated by educating personnel about the various security
risks present in the region. Furthermore, SAGE should ensure there is adequate security to protect
company personnel. In addition, SAGE should have personal liability for all its employees travelling
to the region. In a kidnapping and ransom case, the insurance policy will cover the associated costs
of the ransom and ensure the safety of the company representative, only if it is stated in the liability
policy of the insurer84.
Human resources risk is relatively low in UAE for SAGE because it will employing very few
employees if any at all. SAGE will have to take into account the cultural differences among the local
employees and adjust accordingly. If SAGE wants to send over personnel, then it would have to
deal with complex visa procedures. Despite the terrible working conditions for migrant workers,
SAGE should face no risk in regards to labour.
The expensive equipment of SAGE will be facing the risk of theft and damage. SAGE’s physical
assets including the gas compressors should be insured to protect from unforeseen damage or theft.
To minimize asset damage, SAGE can negotiate with buyers or partners to arrange a shipping
method where the importer takes full responsibility for shipping the gas compressors as well as
paying or insurance on the equipment. The contract should incorporate Incoterms FCA (Free
Carrier) and FOB (Free On Board). Ex Works can be used but complicates sales for both parties as
it incurs GST. Free Carrier is where the seller delivers the goods to the buyer’s carrier and using this
method allows the seller to have no obligations concerning import customs formalities 85. Free on
Board is the shipping term whereby the risk of loss of or damage to the goods passes when the
goods are transferred to the ship for transportation, and the buyer bears all costs from that moment
onwards85. If no buyer or partner is willing to cover the insurance for equipment, then SAGE can
use CargoCover’s insurance to protect against the risk of loss or damage to goods from any external
cause regardless of shipping method86.
SAGE will have to be aware of the political risks and corruption operating in a country with a
monarchy in place. UAE is a federation of seven monarchies in which the state is not immune from
private interests, and where the ruling family can bypass the rule of law 87. The government has full
authority over the operations in the country. The complete control by the monarch of state
institutions and policies leaves no space for reforms, or for independent assessment of the
performance of the state and the actions of the ruling family by civil society and the media. The
absolute control has resulted in a lack of transparency in regulation, along with the influence of
personal connections in government procurement88.
84 Kidnap and Ransom, accessed on April 20, 2016, http://www.travelerscanada.ca/business-insurance/liability/kidnap-ransom-insurance.aspx 85 Incoterms 2010 Definitions, accessed on April 20, 2016 http://www.affiliated.ca/content.aspx?lang=en-CA&content=4_3_1 86 Interoterms Rules, accessed on April 20, 2016, http://www.iccwbo.org/products-and-services/trade-facilitation/incoterms-2010/the-incoterms-
rules/ 87 United Arab Emirates, accessed on April 20, 2016, http://www.heritage.org/index/country/unitedarabemirates 88
Government Defence of UAE, accessed on April 20, 2016, http://government.defenceindex.org/countries/united-arab-emirates/
50
Corruption and a lack of transparency are problems in the financial and natural resource sector, due to the ruling families' involvement in the economy89. Due to being a monarchy, there is significant overlap between business and politics, and the latter is generally based on patronage systems. In general, there is a lack of public accountability of bureaucrats as there are few requirements for disclosure, the appropriate governing body is hesitant to inspect irregularities, and the media is tame when reporting on corruption. To protect itself from corruption and bribery, SAGE should have a specific written policy in its contracts with its partners and any buyers. The policy will ensure that each party engages in ethical business practices along with protecting SAGE from any accusations of corruption.
89
UAE Corporate Profile, accessed on April 20, 2016, http://www.business-anti-corruption.com/country-profiles/middle-east-north-africa/united-
arab-emirates/snapshot.aspx
51
11.0 Summary
The UAE is an excellent country with high potential opportunities for SAGE. The oil and gas sector
has significantly transformed the country over the years. In recent years, UAE has opened up its
economy to global commerce as it strives to be a leading financial and business hub. UAE has
improved their infrastructure and business climate. Through legal and legislative changes in recent
years, UAE has made progressive strides to make their market attractive to foreign investors in the
oil and gas sector.
The UAE has made many improvements within its infrastructure to attract foreign investors from
around the globe with the incorporation of Free Zones. As one of the primary leaders in the oil and
gas industry, the opportunity for SAGE is nigh limitless as the UAE continues to expand their
production of LNG with growing demands from Asia and the rest of the world. The Business Plan
continues to demonstrate the values and characteristics of the work ethic in the UAE and how it
aligns with SAGE’s mission of doing successful business and trading.
The Business Plan seeks to outline a strategy that will maximize the successful entry of SAGE into
UAE. The Market Entry Strategy method for SAGE when entering into UAE would be to work
with an export agent. This would be a simple method of entry into a new foreign country as it will
help save a lot on cost without having to establish a physical presence in UAE. According to
previous research, the potential for long-term profitability is high in UAE as Canada has a tax treaty
with UAE. SAGE’s products and service will provide good solutions to the high demand for the
target clients. The Business Plan will also outline the common business practices and customs in
UAE from meeting structure to negotiation tactics. The people of UAE are highly relationship
oriented which permeate their business culture. For this reason, it is important for SAGE to
establish a solid foundation among their business partners.
SAGE will have to be diligent when entering UAE, keeping in mind the various risks it will
potentially face. The biggest threat for SAGE would be the security situation in the UAE and the
surrounding region. Militant groups pose a big problem, but the impact of terrorism has been low
compared to other countries in the region. Furthermore, the low energy prices are slowing
economies around the globe especially oil and gas dependant ones like UAE. SAGE will have to
track the various political and legal risks associated with a patrimonial country that is governed by
Islamic Sharia law. Other potential risks for SAGE could be bribery and corruption, non-payment,
and asset damage.
The purpose of this report is to provide SAGE with relevant information and recommended actions
for entering the UAE market. By entering into UAE, it will allow Sage to provide its core
competencies to be part of the market to make a difference in this country. SAGE’s interest in the
Middle Eastern region will begin with the country and people of UAE.
52
53
12.0 Bibliography
Abu Dhabi Oil Discoveries, accessed on April 15, 2016 http://www.geoexpro.com/articles/2011/03/the-abu-dhabi-oil-discoveries About ADNOC, Accessed on April 20, 2016 http://www.adco.ae/En/ADNOCGroup/Pages/AboutADNOC.aspx About the Cabinet, accessed on April 20, 2016, http://uaecabinet.ae/en/about-the-cabinet Adgas Overview, Accessed on April 15, 2016, http://www.adgas.com/En/SitePages/About%20Us/Overview.aspx ADIPEC. Accessed on April 19, 2016. https://www.adipec.com/exhibit/ Alberta Canada Export Business, accessed on April 15, 2016, http://www.albertacanada.com/business/export/united-arab-emirates.aspx Arabic Language, Accessed April 20, 2016,http://gulfnews.com/arabic-is-the-official-language-in-the-uae-1.639876 Benefits and Risks of Trade Shows, Accessed on April 27, 2016. https://www.business.qld.gov.au/business/running/marketing/promoting-business-show-exhibition/benefits-risks-shows-exhibition BP Statisical Reivew of World Energy, Retrieved on April 19, 2016, http://www.bp.com/content/dam/bp/pdf/energy-economics/statistical-review-2015/bp-statistical-review-of-world-energy-2015-natural-gas-section.pdf Best Countries for Doing Business, Accessed on April 19, 2016 http://www.forbes.com/places/united-arab-emirates/ Business Culture, Accessed on April 15, 2016, http://www.globalnegotiator.com/files/Business-Culture-Etiquette-Guide-United-Arab-Emirates.pdf Business Methods, Accessed April 20, 2016 http://www.uaeinteract.com/business/bmethods.asp CargoCover. Accessed on April 19, 2016. https://www.cargocover.com/Prelogon/Products.aspx Climate Change Knowledge Portal, Accessed on April 15, 2016, http://sdwebx.worldbank.org/climateportal/index.cfm?page=country_historical_climate&ThisRegion=Middle%20East&ThisCCode=ARE Climate Change Middle East, Accessed on April 15, 2016, http://sdwebx.worldbank.org/climateportal/index.cfm?page=country_historical_climate&ThisRegi
54
on=Middle%20East&ThisRCode=ME Competitive Pricing. Accessed on April 19, 2016 http://www.investopedia.com/terms/c/competitive-pricing.asp Compressor Stations: What They Do, How They Work, and Why they are Important, accessed on February 20, 2016 http://setxind.com/midstream/compressor-stations-what-how-why/ Country Risk Quarterly Report, Accessed on April 20, 2016, http://www.edc.ca/EN/Knowledge-Centre/Economic-Analysis-and-Research/Documents/country-risk-quarterly-mea.pdf Department of Finance Canada, Accessed April 19, 2016, https://www.fin.gc.ca/treaties-conventions/UAE_-eng.asp Doing Business in the Middle East, Accessed on April 10, 2016, http://www.kwintessential.co.uk/etiquette/doing-business-middle-east.html Driving Statistics, Accessed April 20, 2016, http://www.surayafoundation.com/statistics.html Dubai’s Legal System, Accessed April 20, 2016, https://www.lw.com/thoughtleadership/dubai-legal-and-regulatory-system Economy Ranking, Accessed on April 19, 2016, http://www.doingbusiness.org/rankings Etisalat Mobile Devices, Retrieved on April 19th, 2016 at http://www.etisalat.ae/nrd/en/personal/mobile/mobile_landingpage.jsp Foreign Travel Advice UAE, Accessed April 20, 2016, https://www.gov.uk/foreign-travel-advice/united-arab-emirates/terrorism Freeze Proof Design. Accessed on March 29,2016. http://sageenergy.ca/products/freeze-proof-design/ Gasco Our Business, Accessed on April 16, 2016, http://www.gasco.ae/en/Business/Pages/products.aspx Gas Compressors and Gas Compressor Information, accessed on February 20, 2016 http://www.globalspec.com/learnmore/processing_equipment/gas_handling_equipment/gas_compressors Global Peace Index, Accessed on April 21, 2016 http://www.visionofhumanity.org/#page/indexes/global-peace-index/2015/ARE/OVER Government Defence of UAE, accessed on April 20, 2016, http://government.defenceindex.org/countries/united-arab-emirates/ How to dress for business success in the Middle East, Retrieved on April 10, 2016 http://news.telelangue.com/en/2012/06/dress-middle-east
55
International Energy Data and Analysis, Accessed on April 19, 2016 https://www.eia.gov/beta/international/analysis_includes/countries_long/United_Arab_Emirates/uae.pdf International Business Times, accessed on April 20, 2016, http://www.ibtimes.com/isis-threatens-saudi-arabia-islamic-state-says-it-will-destroy-prisons-holding-2251341 Interoterms Rules, accessed on April 20, 2016, http://www.iccwbo.org/products-and-services/trade-facilitation/incoterms-2010/the-incoterms-rules/ Kidnap and Ransom, accessed on April 20, 2016, http://www.travelerscanada.ca/business-insurance/liability/kidnap-ransom-insurance.aspx
Level of Crime Canada, Accessed April 21, 2016,
http://www.numbeo.com/crime/country_result.jsp?country=Canada
Level of Crime Iraq, Accessed April 21, 2016,
http://www.numbeo.com/crime/country_result.jsp?country=Iraq
Level of Crime UAE, Accessed on April 21, 2016, http://www.numbeo.com/crime/city_result.jsp?country=United+Arab+Emirates&city=Dubai Management Team, Accessed on April 20, 2016, http://sageenergy.ca/about-sage/management-team/ MEOS 2017, Accessed on April 27, 2016. http://meos17.com/about/about-meos-2017/ Oil and Gas Years, accessed on April 20, 2016 http://www.theoilandgasyear.com/content/uploads/2015/01/Preview_TOGY_AbuDhabi_2015.pdf Premium Pricing. Accessed on April 19, 2016 http://smallbusiness.chron.com/premium-pricing-strategy-1107.html Penetration Pricing. Accessed on April 19, 2016. http://www.investopedia.com/terms/p/penetration-pricing.asp Regional insights: Middle East, accessed on February 21, 2016 http://www.bp.com/en/global/corporate/energy-economics/energy-outlook-2035/country-and-regional-insights/middle-east-insights.html Risk Assessment, accessed on April 20, 2016, http://www.coface.com/Economic-Studies-and-Country-Risks/United-Arab-Emirates SAGE Energy History, Accessed on February 20, 2016 http://sageenergy.ca/about-sage/history/
56
SAGE Energy Services, Access on April 20, 2016 http://sageenergy.ca/services/ Space Application MEOS 2017, Accessed on April 27, 2016. http://meos17.com/exhibition/space-application-form/ Terrorist Index Score, Accessed April 20, 2016, http://www.visionofhumanity.org/#page/indexes/terrorism-index/2014/ARE,CAN,IRQ/OVER The Federal National Council, accessed on April 20, 2016, https://www.abudhabi.ae/portal/public/en/departments/department_detail?docName=ADEGP_DF_138130_EN&_adf.ctrl-state=15nhmystuv_4&_afrLoop=6419266845338203#! The Future of Natural Gas, Retrieved on April 20, 2016 http://mitei.mit.edu/system/files/NaturalGas_ExecutiveSummary.pdf Traffic and Road Conditions in UAE, Accessed April 20, 2016, http://www.countryreports.org/travel/UnitedArabEmirates/traffic.htm Transparency International, Accessed on April 20, 2016,https://www.transparency.org/country/#ARE United Arab Emirates, accessed on April 20, 2016, http://www.heritage.org/index/country/unitedarabemirates UAE Agency Law, Accessed on April 19, 2016, http://www.mondaq.com/x/141894/Commercial+Law/An+Overview+Of+UAE+Agency+Law UAE Business, Accessed on April 20, 2016, http://www.uaeinteract.com/english/business/ UAE Business Anti-Corruption Portal, Accessed on April 21, 2016, http://www.business-anti-corruption.com/country-profiles/middle-east-north-africa/united-arab-emirates/snapshot.aspx UAE Business Climate, Accessed on April 19, 2016, http://www.uae-eu.com/why-dubai/uae-business-climate UAE Commercial Agency. Accessed April 15, 2016, https://www.lw.com/upload/pubcontent/_pdf/pub2783_1.pdf UAE Corporate Profile, accessed on April 20, 2016, http://www.business-anti-corruption.com/country-profiles/middle-east-north-africa/united-arab-emirates/snapshot.aspx UAE’s Court System, Accessed on April 20, 2016 http://dubai.usconsulate.gov/emergency_uae_court.html UAE Crime and Safety Report, Accessed April 20, 2016, https://www.osac.gov/Pages/ContentReportDetails.aspx?cid=19058
57
UAE Flight Booking Cost, accessed on April 20, 2016, http://fly4.emirates.com/CAB/IBE/SearchResult.aspx UAE GDP Growth Rate, Accessed on April 19, 2016, http://www.tradingeconomics.com/united-arab-emirates/gdp-growth UAE Government, Accessed on April 20, 2016, http://www.uaeinteract.com/government/
UAE Economic Forecast, Accessed on April 19, 2016, http://www.tradingeconomics.com/united-arab-emirates/forecast UAE Internal Analysis, Accessed on April 20, 2016, https://www.eia.gov/beta/international/analysis_includes/countries_long/United_Arab_Emirates/uae.pdf United Arab Emirate Facts, accessed on April 15, 2016, http://travel.nationalgeographic.com/travel/countries/united-arab-emirates-facts/ UAE Political Information, Accessed on April 20, 2016, http://country.eiu.com/United%20Arab%20Emirates UAE Risk Assessment, Accessed on April 20, 2016, http://www.coface.com/Economic-Studies-and-Country-Risks/United-Arab-Emirates Ways of Doing Business, Accessed April 20, 2016 http://www.uaeinteract.com/business/bmethods.asp Images for UAE Images of Dubai Night Life Photography, Accessed April 20, 2016 http://www.theartimes.com/wonderfull-photography-of-dubai/ United Arab Emirates Holidays, accessed on April 15, 2016 at https://www.cassidytravel.ie/united%20arab%20emirates/holidays UAE Building, accessed on April 19, 2016 at http://biznavigator.biz/wp-content/uploads/2015/03/capital711426488495.JPG UAE Building 5, accessed on April 19, 2016 http://www.panhaonline.com/wp-content/uploads/2015/03/DubaiBuilding5.png UAE Free Zones, accessed on April 19, 2016 http://alluae.ae/wp-content/uploads/2015/01/UAE-Free-Zones.jpg Wonders of Dubai accessed on April 19, 2016 http://www.mytripolog.com/2009/05/dubai-from-desert-to-a-paradise-part/
58
UAE Property, accessed on April 15, 2016 at http://www.overseaspropertymall.com/2013/03/ UAE Banks Dips back into Real Estate, accessed on April 15, 2016 at http://www.wsj.com/articles/SB10001424052970203315804577208931789320036 UAE National Holiday, Accessed on April 20, 2016 http://www.momentaryawe.com/blog/uae-national-day-2/ http://i.telegraph.co.uk/multimedia/archive/02186/dubai_2186742b.jpg http://www.hbjzds.com/310209-united-arab-emirates.html https://images.trvl-media.com/media/content/shared/images/travelguides/destination/189/United-Arab-Emirates-75610.jpg http://obscuradigital.com/wp-content/uploads/2013/03/UAE-Feature.jpg http://www.sofitel.com/imagerie/destinations/country/united-arab-emirates-1400x788.jpg https://files.foreignaffairs.com/styles/large-crop-landscape/s3/taxonomy-images/region-united-arab-emirates.jpg?itok=Al4benFK https://lh3.googleusercontent.com/-rkt2FXTUjpQ/VugZAsykrBI/AAAAAAAABFQ/WUGjrD5Fb98/w426-h284/SAGE%2BEXTERIOR.jpg http://ww1.prweb.com/prfiles/2009/12/11/2534444/gI_Screenshot20091211at2.46.12PM.png.jpg http://sageenergy.ca/wp-content/uploads/specialty_compressor_packages_comp.jpg http://www.etisalat.ae/nrd/en/personal/mobile/mobile_landingpage.jsp http://istizada.com/wp-content/uploads/2015/11/doing-business-in-the-middle-east.jpg http://istizada.com/wp-content/uploads/2015/11/middle-east-dress-code.jpg http://uaecabinet.ae/source/SupremeCouncil.jpg http://alluae.ae/wp-content/uploads/2015/01/UAE-Free-Zones.jpg http://static.thousandwonders.net/United.Arab.Emirates.original.6240.jpg http://wikitravel.org/upload/shared//e/ee/UnitedArabEmirates_banner.jpg http://alltravel.ae/wp-content/uploads/2015/07/United-Arab-Emirates-500x369.jpg
59
http://america.pink/images/2/5/7/2/3/3/0/en/2-legal-system-the-united-arab-emirates.jpg http://www.uaeinteract.com/news/article_pics/uae-55252.jpg http://static.progressivemediagroup.com/uploads/imagelibrary/nri/offshore/upper-zakum.jpg http://i.telegraph.co.uk/multimedia/archive/02425/dubai_2425670b.jpg Comparison Chart links
https://www.gov.uk/government/publications/doing-business-with-iran/frequently-asked-questions-on-doing-business-with-iran http://www.transparency.org/cpi2015 http://en.intamedia.ir/pages/default.aspx?mode=show&lan=en&id=corporate_income_tax https://www2.deloitte.com/content/dam/Deloitte/xe/Documents/tax/me_tax_handbook_2015.pdf http://www.doingbusiness.org/data/exploretopics/starting-a-business http://data.worldbank.org/indicator/IC.BUS.EASE.XQ http://www.transparency.org/cpi2015 http://www.theglobaleconomy.com/rankings/wb_political_stability/ http://www.coface.com/Economic-Studies-and-Country-Risks/Comparative-table-of-country-assessments/%28geo%29/683
60
13.0 Appendix
13.1 Logistics and Transportation
Chart Comparison of Shipment Requirements
A chart comparing the documentation required for shipping to each of the four countries researched for this business plan. Many countries share similarities in terms of the quantity of shipping documents required for international trade via ocean freight.
90 Https://www.pal.gov.kw/portal/page/portal/pai/KUCAS (accessed on March 31, 2016)
KUWAIT Commercial
Invoice Packing
Lists Certificates
of Origin Certificates of
Conformity Shipment Labeling Bill of Lading
(Ocean or Air
Way Bill (Air)
*invoices and certificates of
origin must be legalized
where weight is more than
100 kilos or value exceeds
USD 1499.00
Legalization can be done
by consignee in Kuwait
with consignee paying
charges.
Required in
detail Required
– must
match
shipping
document
s
Required on
shipments in
excess of 100
kilos or
where value
is in excess of
US$2999.00
Not required as
commodity being
shipped does not
include electronics
Shipments must have
parts stamped with the
country of
manufacture or
irremovable stickers
90
Proper document
to accompany
shipment based
on mode of
transport.
Originals are
required
QATAR
For further details
www.moi.gov.qa Legalization can also be
done on arrival with
consignee paying all
charges. Otherwise
legalization can occur in
country of export via the
embassy.
Required in
detail Required
must
match
shipping
document
s
Required for
all shipments
via airfreight
in excess of
100 kilos. Required for
all shipments
moving by
ocean.
Not Required Shipments must have
parts stamped with the
country of
manufacture or
irremovable stickers.
Customs insists every
item to have wording
of “Made In ____”.
Proper document
to accompany
shipment based
on mode of
transport.
Originals are
required
61
91 www.saso.org.sa/English/Pages/Default.aspx (accessed on March 31, 2016)
UAE
Importer must have valid
import code
Required in
detail with
“Company
Stamp”
Bill of lading
number and
or Airway bill
number must
be clearly
identified on
the
commercial
invoice prior
to
certification
by the
Chamber of
Commerce.
Required
in detail Required Not Required Nothing specifically
required.
However all goods
should be marked with
country of
manufacture, in case
of transfer of
equipment from one
location to another
within the Middle East
to avoid any customs
issues with other
countries.
Proper document
to accompany
shipment based
on mode of
transport.
Originals are
required
KINGDOM OF SAUDI
ARABIA
Importer must be
registered (CR)
For the import of gas
compressors no special
permits are listed as a
requirement
Required in
detail Required
in detail Required if
value exceeds
USD 13,250
Certificate of
Conformity not
required, however
the importer is
required to
complete a
“declared Payment
Form in Arabic or
in English”. Once
completed the
importer must
provide it to the
shipper to attach
to all of the
documentation in
the event the value
of the goods
exceeds
USD$13,250. Letters of
Guarantee issued
by the Importer to
the KSA Customs
in lieu of the
declared payment
method must be in
Arabic
Shipments must have
parts stamped with the
country of
manufacture or
irremovable stickers91
Proper document
to accompany
shipment based
on mode of
transport.
Originals are
required
62
Preparing to Export A step-by-step procedure for exporting outside of Canada to the Middle East that outlines various the various documentation required for trade. Also included are various contacts that can help SAGE gain more information if needed. 1. Obtain a Business Number. Before exporting commercial goods from Canada, as a business or an individual, you will need to obtain a Business Number (BN) issued by the Canada Revenue Agency (CRA) for an import/export account. This import/export account is free of charge and can usually be obtained in a matter of minutes. To register for a BN or add an import/export RM account identifier to an existing BN:
● Call the CRA’s Business Window at 1-800-959-5525 ● Visit the CRA’s Business Registration Online (BRO)92
2. Identify the goods you want to export. You must have an accurate description of the goods you plan to export before proceeding. An accurate description will help you determine if your goods are regulated, controlled or prohibited by other government departments or if a permit or license is required. The Canada Border Services Agency (CBSA) assists other government departments and agencies93 (OGDs) by applying their legislation relating to the exportation of various commodities. 3. Determine if you will use the services of a licensed customs broker. You may feel comfortable in preparing your own export documentation and transacting business directly with the CBSA or you may authorize a Licensed Customs Broker94 to act as your agent to transact business on your behalf. It is important to remember that as the exporter, you are ultimately responsible for completing and presenting the exporting documentation and any subsequent corrections to the documentation even if you use the services of a broker. The CBSA licenses customs brokers to carry out customs-related responsibilities on your behalf. A broker’s service in relation to exporting typically includes:
● Obtaining, preparing and presenting or transmitting the necessary documents or data; ● Maintaining records; and ● Responding to any CBSA concerns.
Consult the CBSA’s licensed customs broker list95 should you wish to use the services of a broker. Note:
92 http://www.cra-arc.gc.ca/tx/bsnss/tpcs/bn-ne/bro-ide/menu-eng.html (accessed on March 31, 2016) 93 http://www.cbsa-asfc.gc.ca/export/reflist-listeref-eng.html (accessed on March 31, 2016) 94 http://www.cbsa-asfc.gc.ca/services/cb-cd/ (accessed on March 31,2016) 95 http://www.cbsa-asfc.gc.ca/services/cb-cd/cb-cd-eng.html (accessed on March 31,2016)
63
You will have to pay a fee for these services, which the brokerage firm will establish with you. Brokers do not work for the federal government; they are private agents licensed by the CBSA. 4. Determine the country of origin for the goods you are exporting. The origin of goods to be exported can affect permit requirements. For example:
● An Individual Export Permit is required for United States origin goods exported to Iran, Cuba, Syria and countries on the Area Control List. Presently, Belarus and the Democratic People’s Republic of North Korea are on the Area Control List.
● A General Export Permit is required to export United States origin goods with a value of $2,000 or more to all other destinations.
● A permit is not required to export United States origin goods back into the United States. Refer to Memoranda Series D11, General Tariff Information96 for more information on origin. 5. Ensure the goods are permitted to be exported from Canada. Certain goods cannot be exported from Canada. A few examples include:
● Drugs and narcotics controlled under the Controlled Drugs and Substances Act (refer to section 697).
● Black bear claws, gall bladder and paws. Learn more from the Convention on International Trade of Endangered Species and Wild Fauna and Flora (CITES)98.
● Counterfeit money. Please see the Criminal Code of Canada, section 46099, Advertising and
Trafficking in Counterfeit Money or Counterfeit Tokens of Value.
More information on export controls can be found on the Foreign Affairs, Trade and Development Canada Web site100. 6. Determine whether the goods you intend to export are subject to any permits, restrictions or regulations by the CBSA or other government departments. Some goods may be subject to the requirements of other government departments and may require permits, certificates, and inspection. The CBSA is responsible for administering export requirements on behalf of OGDs.
96 http://www.cbsa-asfc.gc.ca/publications/dm-md/d11-eng.html (accessed on March 31, 2016) 97 http://laws-lois.justice.gc.ca/eng/acts/C-38.8/page-4.html#docCont (accessed on March 31, 2016) 98 http://www.cites.org/ (accessed on March 31, 2016) 99 http://laws-lois.justice.gc.ca/eng/acts/c-46/page-211.html#h-128http://laws-lois.justice.gc.ca/eng/acts/C-46/page-208.html (accessed
March 31, 2016) 100 http://www.international.gc.ca/controls-controles/about-a_propos/expor/before-avant.aspx?lang=eng (accessed on March 31, 2016)
64
It should be noted that more than one government department may have a role to play in the requirements and regulations pertaining to the export of certain goods; it is therefore beneficial to contact any that may play a role. Please refer to the CBSA’s Other Government Department and Agencies: Reference List for Exporters101. Verify whether the goods you want to export are controlled, regulated or prohibited by any government department or agency. Obtain an export permit if required. A complete listing of OGD requirements can be found in Memoranda Series D19, Acts and Regulations of Other Government Departments102. 7. Ensure that the goods you are exporting are allowed entry into the receiving country. It is in your best interest to verify that your products meet the import requirements of the receiving country. For information about the requirements of other countries, refer to:
● The World Customs Organization103; and ● The embassy or consulate 104, in Canada, of the country to which you will be exporting.
You can also have your importer contact their local government to ensure the goods comply with their import regulations. Determining if an export declaration is required 8. Determine whether or not the goods need to be declared on an export declaration. Certain goods are not required to be reported on an export declaration. The exempted goods are listed in sections 6 and 7 of Memorandum D20-1-0, Reporting of Exported Goods Regulations and are further explained in Memorandum D20-1-1, Export Reporting105. If your export matches one of the exemptions on the list, advise your carrier and indicate “No Declaration Required106” (NDR) with the proper explanation or corresponding numerical code on the transport documentation (cargo control document, manifest, bill of lading, etc.). Please refer to the table on the next page for export documentation requirements.
101 http://www.cbsa-asfc.gc.ca/export/reflist-listeref-eng.html (accessed on March 31, 2016) 102 http://www.cbsa-asfc.gc.ca/publications/dm-md/d19-eng.html (accessed on March 31, 2016) 103 http://www.wcoomd.org/ (accessed on March 31, 2016) 104 http://www.international.gc.ca/protocol-protocole/reps.aspx?lang=eng (accessed on March 31, 2016) 105 http://www.cbsa-asfc.gc.ca/publications/dm-md/d20/d20-1-1-eng.html (accessed on March 31, 2016) 106 http://www.cbsa-asfc.gc.ca/export/ndr-adr-eng.html (accessed on March 31, 2016)
65
Exporting Goods From Canada Documentation Requirements for Exporters
Type of Goods United States Destinations (includes Puerto Rico and U.S. Virgin Islands)
All Other Destinations (includes goods moving through the United States to foreign destinations)
Restricted goods, i.e. controlled, regulated and prohibited goods (regardless of value).
● Permit, certificate, or licence;
● Documents required by other government departments (if applicable);
● Export declaration is not required.
● Permit, certificate, or licence;
● Documents required by other government departments (if applicable);
● Export declaration.
Non-restricted goods. ● Export declaration is not required.
● Export declaration (for commercial goods valued at CAN$2,000 or more).
If you use the Canadian Automated Export Declaration (CAED)107 electronic method of reporting and the goods you are exporting are controlled, prohibited, or regulated, you must also present a paper copy of an export declaration, together with the accompanying permit, certificate, or licence. Classifying your exports 9. If an export declaration is required, determine the appropriate export code. Once you have determined that the goods may be exported and that submitting an export declaration is required, you must classify the goods. Depending on your method of reporting, either the Statistics Canada eight-digit Canadian Export Classification number or the ten-digit Canadian Tariff Classification number is used. If you are using the CAED to submit your declaration, you must use the eight-digit Canadian Export Classification number. The Canadian Export Classification number is based on an international six-digit 'root' with an additional two digits for Canadian domestic purposes for a total of eight digits. To obtain the eight-digit Canadian Export Classification number:
● Call Statistics Canada at 1-800-257-2434; or ● Consult the Statistics Canada, Canadian Export Classification online108.
107 http://www.statcan.gc.ca/eng/exp/index ( accessed on March 31, 2016) 108 http://www.statcan.gc.ca/pub/65-209-x/65-209-x2014000-eng.htm (accessed on March 31, 2016)
66
To obtain the ten-digit Tariff Classification Number:
● Consult the Customs Tariff109 ● Contact the Border Information Service (BIS)110
For more information on the methodology for classifying goods according to the Customs Tariff, refer to Memorandum D10-13-1, Classification of Goods111. Shipping and reporting your goods 10. Determine the method of shipping and identify the reporting time frame for that method. If you are required to report your export to the CBSA you are required to do so prior to export and according to specific timeframes depending on the mode of transportation112 used. When more than one mode of transportation is used to export goods, the timeframes for reporting in each of these modes apply concurrently. Minimum timeframe for reporting:
● Air – two hours before goods are loaded; ● Highway – prior to export; ● Marine – forty-eight hours before goods are loaded; ● Mail – two hours before goods are brought to post office; and ● Rail – two hours before goods are loaded.
Goods are to be reported at a designated export office113 located inland or at the border. Any export permit, licence or certificate must be presented before the goods are exported; the location will be specified on the permit. If the permit, licence or certificate does not name a place of exit, the permit, licence or certificate and the export declaration (if required) must be presented to the export reporting office closest to the place of exit. Your shipment may be examined by government officials114 to monitor compliance with CBSA requirements or other government department regulations. This is done without charge; however, if there is a need to hire a transport company to move or handle your goods, you may receive an invoice from that company for their services. 11. Submit an export declaration if required. 109 http://www.cbsa-asfc.gc.ca/trade-commerce/tariff-tarif/menu-eng.html (accessed on March 31, 2016) 110 http://www.cbsa-asfc.gc.ca/contact/bis-sif-eng.html (accessed on March 31, 2016) 111 http://www.cbsa-asfc.gc.ca/publications/dm-md/d10/d10-13-1-eng.html (accessed on March 31, 2016) 112 http://www.cbsa-asfc.gc.ca/publications/dm-md/d20/d20-1-1-eng.html#il (accessed on March 31, 2016) 113 http://www.cbsa-asfc.gc.ca/do-rb/menu-eng.html (accessed on March 31, 2016) 114 http://www.cbsa-asfc.gc.ca/import/notice-avis-eng.html#cont (accessed on March 31, 2016)
67
If you are required to report your exports, you must submit an export declaration by using one of the following methods: Canadian Automated Export Declaration (CAED): An electronic method of reporting exports, which allows you or your agent to quickly prepare your export declarations and transmit the information directly to the Government of Canada before exportation. This service is available 24 hours a day, seven days a week. G7 Electronic Export Declaration Process115: This process allows exporters or their agents to file their export declaration using Electronic Data Interchange (EDI). Summary Reporting116: This method is reserved for approved exporters of low-risk goods who export on a regular basis and have met specific CBSA requirements. It enables you or your agent to summarize required export data, which can be submitted on a monthly basis in writing, after the goods have left Canada. Goods that are controlled, prohibited, or regulated do not qualify for this program. B13A, Export Declaration117: When electronic permit reporting options are not available; the requirement to present a paper copy of the electronic export declaration and OGD permit at the CBSA office closest to the point of exit remains unchanged using the B13A, Export Declaration. 12. Present proof of export if required. In some cases the CBSA requires exporters to produce proof of export118 that the goods have been exported or have been destroyed. For example, this would apply to goods that were initially imported into Canada under a temporary importation agreement such as a Temporary Admission Permit (form E29B)119 or the ATA Carnet120 program. After your goods are exported 13. Provide a Certificate of Origin to the receiver of the goods if requested. An importer in the foreign country that you are exporting goods to may be entitled to claim a preferential tariff treatment and pay a lower duty rate if they have a valid certificate of origin (i.e. NAFTA Certificate of Origin121). The certificate of origin is a signed declaration from the manufacturer of the goods that the goods are of Canadian origin and meet the requirements of a free trade agreement. The exporter forwards a copy of the certificate of origin to the importer and retains a copy for his records. 115 http://www.cbsa-asfc.gc.ca/eservices/g7/exporting-eng.html (accessed on March 31, 2016) 116 http://www.cbsa-asfc.gc.ca/publications/dm-md/d20/d20-1-1-eng.html#_a18 (accessed on March 31, 2016) 117 http://www.cbsa-asfc.gc.ca/publications/forms-formulaires/b13a-eng.html (accessed on March 31, 2016) 118 http://www.cbsa-asfc.gc.ca/publications/dm-md/d20/d20-1-4-eng.html (accessed on March 31, 2016) 119 http://www.cbsa-asfc.gc.ca/trade-commerce/tip-pec-eng.html#a2 (accessed on March 31, 2016) 120 http://www.cbsa-asfc.gc.ca/trade-commerce/tip-pec-eng.html#a3 (accessed on March 31, 2016) 121 http://www.cbsa-asfc.gc.ca/publications/forms-formulaires/b232-eng.html (accessed on March 31, 2016)
68
For more information on certificates of origin, refer to Memorandum D11-4-14, Certificate of Origin122. 14. Procedures to follow if you need to cancel or amend an export declaration. You may have to cancel a shipment or modify information about a shipment you already reported. If so, you must submit an amended declaration to an export reporting office clearly identifying the changes. There are different procedures depending on the original reporting method: CAED or G7 EDI Export Reporting123 – use the amend feature in the program to submit an amended declaration; Summary Reporting – notify Statistics Canada124; and Form B13A – submit an amended Export Declaration to the export reporting office where you presented your original export document. 15. Keep all records pertaining the export for six years. You must keep all records pertaining to your exportations for six years following the exportation of good(s) in either electronic or paper format. For more information on the keeping of books and records pertaining to exports please consult Memorandum D20-1-5, Maintenance of Records and Books in Canada by Exporters and Producers 125. 16. Be aware that the CBSA uses an Administrative Monetary Penalty System (AMPS). The CBSA uses the Administrative Monetary Penalty System126 (AMPS) to assess monetary penalties against businesses that do not comply with customs legislation. Additional information 17. Become familiar with trade incentive programs. The CBSA aims to improve the competitiveness of Canadian businesses by offering relief from the payment of most duties and taxes on imported goods that are ultimately exported, whether or not the goods are further manufactured in Canada. Further information on the CBSA’s Duty Deferral Program127 is available in Memoranda Series D7 Series, Drawbacks128. 18. Consult the following for additional information
122 http://www.cbsa-asfc.gc.ca/publications/dm-md/d11/d11-4-14-eng.html (accessed on March 31, 2016) 123 http://www.cbsa-asfc.gc.ca/eservices/g7/exporting-eng.html (accessed on March 31, 2016) 124 http://www5.statcan.gc.ca/subject-sujet/index?lang=eng (accessed on March 31, 2016) 125 http://www.cbsa-asfc.gc.ca/publications/dm-md/d20/d20-1-5-eng.html (accessed on March 31, 2016) 126 http://www.cbsa-asfc.gc.ca/trade-commerce/amps/menu-eng.html (accessed on March 31, 2016) 127 http://www.cbsa-asfc.gc.ca/import/ddr-red/menu-eng.html (accessed on March 31, 2016) 128 http://www.cbsa-asfc.gc.ca/publications/dm-md/d7-eng.html (accessed on March 31, 2016)
69
For information on other federal departments and agencies involved in the commercial exporting process, visit the CBSA’s Other Government Departments and Agencies: Reference List for Exporters or visit the Canada site129 or call 1-800-O-Canada (1-800-622-6232).
13.2 Country Information
This section is a brief outline of what information was collected using several indices and online research. The information was then used to determine the ranking in the comparison chart and for the comparison graph.
Country: Iran ● Starting a business rank: 87/189 ● Ease of doing business rank - 118/189 ● Political stability index - 159/191 ● Business Climate Assessment C ● Previously had sanctions due to nuclear programme, some still in place ● Country Risk Assessment D ● High risk of bribery and corruption - rank 130/167 in 2015 ● 25% flat tax rate for corporations ● No tax treaty
Country: Iraq
● Starting a business rank: 154/189 ● Corruption perception index - 161/167 ● Ease of doing business rank - 161/189 ● Political stability index - 187/191 ● Business Climate assessment score of D ● Country risk assessment score of D ● Flat rate of 15% applies, and a 35% rate applies to companies operating in the oil
and gas sector ● No tax treaty
Country: Kuwait
● Starting a business rank: 148/189 ● Corruption perception index - 55/167 ● Ease of doing business rank - 101/189 ● Political stability index - 87/191 ● Business Climate assessment score of A4 ● Country risk assessment score of A2 ● Tax treaty with Canada signed January 28, 2002 ● Tax rate is at 15%
Country: Oman
● Starting a business rank: 149/189 ● Corruption perception index - 60/167
129 http://www.cbsa-asfc.gc.ca/publications/menu-eng.html
70
● Ease of doing business rank - 70/189 ● Political stability index - 57/191 ● Business Climate assessment score of A4 ● Country risk assessment score of A4 ● Tax treaty with Canada signed on June 30, 2004 ● Flat tax rate of 12% for all businesses and a 55% rate for petroleum subjects
Country: Qatar ● Starting a business rank: 109/189 ● Corruption perception index - 22/167 ● Ease of doing business rank - 68/189 ● Political stability index - 31/191 ● Business Climate assessment score of A3 ● Country risk assessment score of A2 ● No Tax treaty with Canada ● General tax rate is a flat 10%, with a 35% applying to oil and gas operations
Country: Saudi Arabia
● Starting a business rank - 130/189 ● Corruption perception index - 48/167 ● Ease of doing business rank - 82/189 ● Political stability index - 121/191 ● Country risk assessment A4 but listed under negative watch ● Business Climate assessment score of B ● Tax rate for natural gas section is 30% and production of oil and hydrocarbons is
85% ● No tax treaty with Canada
Country: United Arab Emirates
● Starting a business rank: 60/189 ● Corruption perception index - 23/167 ● Ease of doing business rank - 31/189 ● Political stability index - 44/191 ● Business Climate assessment score of A3 ● Country risk assessment score of A3 ● Tax treaty with Canada signed on June 9, 2002 ● Corporate tax rate is flat 20% for business other than oil and gas. Oil and gas
exploration and production companies at a flat rate of 50%-55% in Dubai and Abu Dhabi
71
13.3 Methodology for Comparison Chart
Scores for each of the five aspects were determined in the following way:
● Ease of Entry - Based on two factors, starting a business rank and ease of doing business rank. The higher the score, the easier the entry. The ranking was based off 189 countries and our score was out of 5. We took the number of countries the ranking was based off of (189) and divided it by how much the score was out of (5). This provided us a range in which we allocate points. For example, taking 189 divided by 5 equates to 38. This creates a range from 1-38, 39-76, 77-113, 114-151, and 152-189. The points allocated were 5,4,3,2, and 1 respectively for each range as we believed that a higher ranking equated to a higher score. This process was also utilized in the political stability factor and half of the risk factor.
● Business Environment -Based on the business climate risk. The higher the score, the
better the business environment. Using the graphic below, we allocated points depending on which portion of the scale the country was deemed. Countries that were provided a mark of A1 & A2 were correlated to have a score of 5. A3 had a score of 4, A4 had a score of 3, B had a score of 2, and C & D had a score of 1. This process was also utilized for half of the score for the risk aspect.
● Political Stability - Based on the political stability index. The higher the score, the more politically stable.
● Tax System - Based on the percentage of tax on corporations and whether or not the country has a tax treaty in place with Canada. The higher the score, the more favourable the tax regime. The tax system score was dependant on the amount tax and if the country had a tax treaty or not. In general, if the country has a higher tax, a lower score was allocated. If the country did not have a tax treaty with Canada, a lower score was also attributed.
● Risk - Based on country risk and the corruption perception index. The higher the score, the less risky.
72
13.4 SAGE’s Organizational Structure
73
13.5 Table of Main Oil Producing Fields in UAE
74
13.6 Communication Information Etisalat
75
13.7 GASCO Plants for Natural Gas Processing
http://www.gasco.ae/en/Business/Pages/plants.aspx
76
13.7 Political Stability
http://www.theglobaleconomy.com/United-Arab-Emirates/wb_political_stability/
13.08 Corruption Perception Index
77
13.9 Distribution Contact Details
Praxair Gulf Industrial Gases 4th Floor, Office No. 3 Al Wahda Commercial Tower Hazza Bin Zayed Street Abu Dhabi United Arab Emirates Phone: +971 2 643 7210 Fax: +971 2 643 7202 Abu Dhabi Gas Development Company Ltd. (Al Hosn Gas) Al Ain Tower Building, Al Khaldeyah Area PO Box 44115 Abu Dhabi, United Arab Emirates Tel: +971 2 654 2222 Fax: +971 2 654 2044 www.alhosngas.com Abu Dhabi Gas Industries Ltd. P.O. Box 665 Abu Dhabi United Arab Emirates. GASCO Head Office is located on Khalifa Street near Sheraton Hotel on Corniche Road. Head Office Reception 971-2-6037337, 971-2-6037399 Main Switchboard: 971-2-6030000 General Fax Number: 971-2-6037414 Mail Room: 971-2-6037288 Abu Dhabi National Oil Company P.O. Box : 898. Abu Dhabi United Arab Emirates Tel : +971-2-6020000 Fax: +971-2-6023389
78
13.10 Legal Attributes for Entities
Source: https://www.lw.com/upload/pubcontent/_pdf/pub2783_1.pdf
79
13.11 General Free Trade Zone Laws
Legal information SAGE should be aware of when considering a Free Zone Entity.
1. Some of the free zones have their own judicial systems, as well as their own rules of civil procedure and evidence.
2. Various free zones have been set up in the UAE, most of which are in the Emirate of Dubai.
3. Free zones are authorised to enact their own laws and regulations in specific areas, which in
some cases override federal and Emirate law on the subject matter. For example, the Dubai International Financial Centre (the DIFC), which is a financial free zone within Dubai, has its own body of law, including corporate law, contracts law and employment law, as well as its own court system.
4. Free Zones have no duties charged on products imported into the UAE and are able to
import goods for the purpose of resale.
5. The various free zones also generally have rules on preventing money laundering. For example, the DIFC requires companies incorporated in the DIFC to appoint a senior manager as a money laundering reporting officer and to submit an annual report detailing steps that such company has taken to implement its anti-money laundering rules.
6. Most free zones have their own employment laws and employee grievance procedures. In
some free zones, for example the DIFC, the free zone’s laws w ill take precedence over the federal employment laws.
80
13.12 Business Start-Up
Continued on next page…
81
13.12 Business Start-Up Cont. http://www.doingbusiness.org/data/exploreeconomies/united-arab-emirates/starting-a-business/
82
13.13 Commercial Agent Contact Information
U.S. Commercial Service Abu Dhabi Embassy of the United States of America P.O. Box 4009, Abu Dhabi, U.A.E. Tel: +971-2-414-2304 Fax: +971-2-414-2228 E-mail: [email protected] Company: Ourun Wire Mesh Co.,Ltd Address: The East Development Zone Dubai United Arab Emirates Telephone: 97180692201 Fax: NA Website: http://www.orangewiremesh.com Company: Ssd Ab Activation Cleaning Solution Company Ltd Address: Sharm El Sheikh, Egypt, Kuwait City Kuwait Telephone: +201125033434 Fax: NA Website: NA Company: Dragon Freight System LLC Address: #102A, Fnc Bldg, Bur Dubai United Arab Emirates Telephone: 009714 3934686 Fax: NA Website: NA
13.14 Freight Insurance Contacts
Cargo Insurance
Josee Houle at [email protected] – (416) 349-4561 Vania Gava at [email protected] – (416) 349-4531 Valeria Muravska at [email protected] – (416) 349-6619
Commercial Crime Insurance Contact Information:
● Josee Houle at [email protected] – (416) 349-4561
● Vania Gava at [email protected] – (416) 349-4531 ● Valeria Muravska at [email protected] – (416) 349-6619
83
13.15 Trade Show Exhibition Contacts
Contact Information to Reserve a Stand at an ADIPEC exhibition: Sales Team [email protected] +971 2 444 4909 Sponsorship: Siham Ammoura [email protected] +971 56 174 1682 Marketing: Nour Soliman [email protected] +971 2 697 0515
84
Contact Information to Reserve Space at MEOS 2017:
85
ALEX WONG [email protected]
5th Year BComm Supply Chain Management Major
Financial Service Representative at TD/Black Belt Martial Arts Instructor
Aspiring to work in the Supply Chain Management field
RHYCE PRESCOD [email protected]
4th Year BComm Supply Chain Management Major
English Language Arts Tutor
Aspiring Writer
JEFFREY LY [email protected]
5th Year BComm Supply Chain Management Major
Travelling to South Korea, Taiwan & Japan in May 2016
Upon graduation, I aspire to work in Supply Chain Management
USMAN SHAUKAT [email protected]
5th Year BComm Supply Chain Management Major
Sales Representative & Expeditor at Avis Car Rental
Aspire to be a consultant within the field of Supply Chain Management
Acknowledgements of Authors