SMEs entering emerging markets, an example: Italian company sets up manufacturing facility in Sharjah, United Arab Emirates

This month I would like to focus my attention on the backbone of many economies: SMEs and I would like to share information about a real life example. SMEs often represent the large majority of a country GDP and in spite of the countless volumes written by governmental authorities with regards to their support to this sector, entrepreneurs often find themselves alone when facing new markets and tough choices.

Therefore this month I want to share with you the experience of a company that has been successful in setting up in the United Arab Emirates and has overcome all challenges brought about and it is now well on its way to be a leader in its industry.

As with some of my other postings I think that the experience that I am about to share is confirming the trends that I have been signaling all along in this blog:

1. Geopolitical balance of the world shifting east bound from Europe towards the Indo-Chinese part of the world;
2. Competitiveness loss of key European countries;
3. Subsequent delocalization of manufacturing from Europe towards emerging markets and know-how transfer along with it;
4. Rise of manufacturing quality standards from emerging markets, especially India & China to increase the competitive pressure in point (2).

Below is the experience of a company of Italian DNA that has made the strategic decision to manufacture its products in Sharjah, United Arab Emirates to take advantage of the favorable business environment its key location  enabling efficient flow of goods in and out of a high-growth geographical area.

Company Name: Floor System Company
Website: http://www.fsco.ae
Location: Hamriyah Free Zone - Sharjah (http://www.hfza.ae)

Floor System Company is a manufacturing enterprise of raised access floor intentionally wanted and placed in what today is considered the world?s hub and the focal point of International commerce.
The Company is new born but with roots that all the way back to the late 70?s when the concept was bravely introduced in Italy.
The whole concept allows all the commercial buildings to adapt to a fast turnover of tenancy and therefore seen as a flexible space layout where the raised floor is a plenum for all power distribution and underfloor air conditioning today seen as a very GREEN concept.

Following is an interview with Mr. Augusto Di Pietro, managing director and shareholder of Floor System Company that has been an integral part of the project of creating and commercializing his company in the Middle East.
This adventure presented him with new challenges and problems that he overcame with a lot of hard work and patience.

I am sharing Mr. Di Pietro's experience on this blog so that additional companies can benefit from it. In fact, regardless of industry, many of the problems faced by start-ups are common to all.

1. Mr. Di Pietro, when did you mature the idea of setting up a business in the Middle East? And what were the drivers of your decision?
The problem arose when NESITE (the mother Company) was loosing market share to it?s competitors who had already delocalized in China, therefore the need to make a strategic choice on behalf of the Holding. Why the choice of the UAE? Well , I was acquainted with the area and the Emarati community and furthermore today we sit in the middle between the two major manufacturers of  raised Access Floor (China & Europe), this gives us a great advantage of lead time with the upcoming projects in the whole of the middle east being able to supply a product on a Just On Time basis .

2. Did you find good support and knowledge of the emerging markets in your country of origin?
We have had no support or help whatsoever from Italian Governmental institutions: neither in Italy nor in the UAE.  I am ashamed of it because I love my country but it is not a surprise that we are the first manufacturing Italian company in the UAE.

3. What challenges did you face at the beginning?
The fear of not knowing the local legislations , the rules, the regulations and the way of doing business in this area.

4. Are there any challenges that came your way that you really didn't expect?
Most of them because it was a discovery everyday and having to adapt and align the to the system.

5. Now that the start up phase is over are you planning to expand your presence here? Are there plans that you can share with us?
Yes we do have expansion projects and very ambitious ones but we have to take it one step at a time. I would love to here that more businessmen in Italy would have the courage to delocalize production because the difficulties are now known and can easily be overcome.

6. What surprised you the most throughout your experience?
The friendship and the availability shown on behalf of the Hamriyah Authorities, the Sharjah Chamber of Commerce and various other Government Institutes who are proud to have us in their Emirate and have taken us under their umbrella.

7. Having made the move yourself and living now in a new country, what do you recommend to the companies that are considering entering the emerging market economies?
To hurry up or they will be latecomers.

8. If you had to redo this experience all over again, what would you change or do differently?
It was a hard experience but taught me many other aspects of life so I wouldn't change absolutely anything.

9. Given your on the ground experience and the macro economic changes in place: how do you see the future for this region?
I always want to think that what will give us the leading edge for the next ten years will be the fact that we were not here when the economy was booming but arrived in the midst of the crisis therefore we know how to deal with the survival mode. The way of doing business is changing and only the Companies that readapt will survive.

10. During my trips in Europe I often get the vision from European companies that the technology gap between the old Continent and the rest of the world remains far and wide, vice versa my on the ground experience tells me that Indian and Chinese companies are leapfrogging very fast. What is your experience in this matter?
I'm not back in Europe sitting and waiting for them to take over, I'm fighting back and succeeding because we can do better. This is the centre of the world and we have to be here.

I will be happy to provide additional information to any reader interested in knowing more about Mr. Augusto's experience or settling in the emerging markets.

Emerging markets - SME confidence higher than in developed economies

Emerging markets have been making headlines in all publications globally. The global recovery is led by emerging economies and this is a fundamental fact bound to stay long term.


I receive an average of 3-4 business delegations a month here in Ras Al Khaimah. Delegations come from all corner of the worlds since our free zone has investors from 120 different countries. While meeting businessmen part of a delegation may not be a statistically viable sample to determine the trends in a specific country, it is nonetheless a good viewpoint to develop a perspective about so many different economies. Over time, over many delegations, consistent trends tend to set in.


I was therefore very happy when on February 2nd, HSBC has published the results of the its most recent research on SME Confidence (20 markets were surveyed). The primary data was gathered last October and November 2009.
I have now the statistical confirmation of the trends I have been collecting over the past year: not only emerging markets are leading the economic recovery but SMEs are going to play a leading role in the recovery.

The report also confirmed a wide differential in confidence levels between the so called highly industrialized economies (G7++) and the emerging markets.
Emerging markets are significantly more confident than developed markets. With an index of 100 as neutral emerging markets have scored an aggregate of 121 and developed markets an aggregate of 106 (France registers below 100 at 96).


Nicholas Levitt, Regional Head of Business Banking at HSBC said: "Confidence levels appear to be back to pre-financial crisis level. The Middle East outlook correlates strongly to the global emerging market outlook, and as a major international trading hub, the region is well-placed for future growth."


From the survey we learn that the Middle East is the second most optimistic area after India.
I can related personally to this finding since every month I receive one or two business delegations from India. During my presentation on emerging markets with them I always ask: "How is business during these challenging times?", invariably I receive feedback about how the impact goes from mild to negligible.


In the Middle East the SME survey confirms:

• 47% plans to increase capital expenditures;
• 41% commits to current levels of capital expense;
• 11% are planning capital expense reductions;
• 36% is committed to increase staffing;
• 58% will keep the same staffing levels;

SMEs were also asked about their propensity to engage more in international business and the survey has confirmed the role of the Middle East as an international trading hub.

• 72% of the SMEs in Qatar planned to grow their business internationally within the next 2 years;
• 28% in Egypt;
• 19% in Saudi Arabia;

The top international locations for business for the Middle East are China, South East Asia and Europe.

While this research presents gaps[1] in its approach to define the geographical footprint, it highlights something that is at the core of the economic global shift currently underway. 

In order to validate the aspirations for internationalization of many SMEs both in the Middle East and other emerging markets it is necessary for local governments to support the development of a solid and more sophisticated banking system specifically tailored to support trade and investment.
As Dr. Butcha, vice president and managing director at A.T. Kearney Middle East, said in a recent article “A.T. Kearney has worked with governments across the world to improve the SME sector. SMEs are the backbone of any successful and sustainable economy, they are the blood cells behind successfully diversified economies and large corporations. Successful long term economic growth plans for the GCC can only succeed with strong support to SMEs...”. A.T. Kearney research in emerging markets shows that successful SMEs create jobs at a rate which is four times faster than the rate of larger corporations and create revenues and GDP at a rate which is six times faster than large corporations. This is largely due to the fact that successful SMEs tend to grow more exponentially than large blue chip and established business (more at: http://www.eyeofdubai.com/v1/news/newsdetail-38845.htm)

It is because of the essential role of SMEs in the global economy that we at Ras Al Khaimah Free Trade Zone have created a business environment specically designed to facilitate SME business. Especially the newly created "valued added services" for RAK FTZ clients are focused on reducing the "incubation" period of new companies and to put them in the condition to generate successful business in the region in the fastest and most cost effective way.

[1] the survey did not include the United Arab Emirates in the emerging markets, developed markets surveyed included only US, Canada, UK & France, results in confidence in the developed economies would have been slightly different if Spain, Greece, Italy would be included.