Monday, August 07, 2006

UAE businesses have positive outlook in DCCI survey


UAE. Businesses are positive about the trend in the UAE market, and particularly so in the retail sector, according to a report published this week. The report, prepared by the Dubai Chamber of Commerce and Industry (DCCI) titled 'Optimism peps up Dubai trade' and reprinted the Gulf Today, said traders in the export sector and the wholesale & distribution sector have a mixed view of the situation.

In the following we present extracts from the report. The DCCI findings shows that increasing cost of operations, or even for that matter rising cost of living, hasn't dampened the spirit of traders in Dubai. Their expectation for the year remains "positive" with an average expectation score of 6.9 on a scale of 1 to 10, according to the survey. Expectations of traders in household goods, machinery, vehicles and textiles were also shown to be higher than average.

On the other hand, traders in general trade, consumer goods (food and non-food), and industry inputs have lower-than-average expectations for the year. Expectation scores have not changed significantly across market type and by employment size, with scores being all higher than 6.0. Traders in the retail market are the most optimistic, followed by those in the exports and mixed market while those in the wholesale market have the lowest expectation. Compared to the scores in 2005, slightly growing optimism is seen among those in the export and wholesale markets, while a slight decline is noted among those in the mixed market.

Trading enterprises with employment of 20 or more are more optimistic than the smaller enterprises, with expectation score of 7.3. Although there is a slight improvement in the outlook of enterprises with employment of 10 to 19 workers, the group continues to express the lowest expectation, giving an average expectation score of 6.3. Small enterprises (with employment of less than 10 workers) gave an average score of 6.9.

The majority of traders (57%) maintain a positive expectation for the general demand for their products in 2006. They either believe demand to be either "very good" or "good." Meanwhile, only seven per cent has negative expectations, among which traders giving a rating "poor" far outnumber those giving a rating of "very poor." The highest percentage with positive expectations is observed among traders in vehicles (72%) and in industry inputs (71%), while lowest percentages are noted for those in household goods (46%), textiles and garments (54%) and consumer goods (56%).

Retailers appear to be the most optimistic group, with 69% having positive expectation, while those in the mixed market, the least with only 42% having positive expectations. In this sector only 1% had a negative expectation. Although the wholesalers followed with positive expectations indicated by 61%, 14% of this group expresseed negative sentiment. A majority of the exporters (53%) have positive expectations, while 44% have average expectation and only 3% have negative.

Only 42% of those in the mixed market have positive expectation while 48% have average expectation and 11% negative. The DCCI survey was based on a sample of 410 traders selected to represent the various subsectors of the trading sectors and of the size and type of market. In terms of employment, it is observed that the larger the enterprise the more positive expectations are.

Sales expectations highest for auto sector

Net expectations for sales in 2006 compared to sales in the previous year is likewise positive, with about half of the traders (49%) expecting sales to be higher than in 2005; 32% expect sales to be just as much; and 20% expect decline. Traders with the highest sales expectations are those in the auto sector. Other subsectors where the majority of traders are optimistic about sales include industry inputs, household goods and machinery, and textiles. On the other hand, subsectors where majority of traders believe sales would at best be just equal to sales in 2005 include consumer goods and general trade.

Variations in sales expectation for 2006 are rather consistent with the pattern noted for general market demand. Higher expectation is noted for large enterprises and lowest among the medium-sized enterprises. By type of market, more traders in the retail market are also expecting improvements in sales, with those in the export market having the next highest positive expectation. Traders in the wholesale and mixed markets are nearly similar in their expectations for sales.

Competitiveness

Small enterprises tend to be competitive primarily in price, but as employment increases, the number of factors where they expect to be competitive likewise increases. Though at lesser intensity, traders in consumer goods and industry inputs and general traders appear to have similar expectation patters with price being the top concern, followed by quality. Expectations for competitiveness in price and quality are highest among textiles traders.

On the other hand, vehicle traders are not particularly interested in competitiveness in product quality since vehicles are manufactured according to internationally known standard of quality. Machinery and household goods are generally considered as durables. Thus, in addition to being competitive in price, traders have to compete for buyers' demand for after sale service, such as maintenance and repair service. The other subsectors - consumer goods, industry inputs and general trade - appear to have similar expectation pattern such as price being the top concern, followed by quality.

Keener competition

Irrespective of their market demand expectations, traders expect keener competition in 2006; easier access to skilled labour; increased use of technology; and increasing trend for mergers and takeovers. Traders with "high" demand expectations tended to expect for increased number of customers; easier access to capital; more favourable infrastructure and government regulations; better prices of inputs; favourable effects of market integration and favourable Dubai business climate.

Traders with "low" demand expectations tend to expect lower number of customers; more difficult access to capital; less favourable infrastructure and business climate; higher prices of inputs and unfavourable effect of market integration. In terms of access to capital, most of the traders in the "high" group expect no change in access to capital, while only a few expect decreased access. On the other hand, very few of those in the "low" group expect increased access to capital, while those expecting decreased access constitute the second largest group. The difference in the pattern is significant. The distributions of the two groups do not differ significantly across the expectation for access to skilled labour. Both groups of traders generally expect no change in access to skilled labour.

Higher costs with belief in technology and infrastructure

Competition and high operating costs continued to be the most commonly cited limiting factors; followed by high transport costs and difficulty in debt collection. Greatest improvement was noted in the traders' perception of the limiting effect of government regulations, indicating traders' increasing confidence in government. In general, infrastructure is not perceived as a limiting factor to the operations of the business. All traders expect increasing use of technology, leading to no significance difference for the two groups.

Expectations for infrastructure significantly differentiate the two groups of traders. While traders in the "high" group tend to expect better infrastructure, those in the "low" tend to expect no change.This pattern is also observed for government regulations and policies, for which traders in the "high" group expect to be increasingly favourable while most traders in the "low" group expect no change.

Expansion plans

Full capacity has not been reached, as traders continued to look forward to expansion, both in product and market coverage; thereby, looking forward to greater promotional activities, additional personnel and increased use of technology. Although better inventory management and streamlining of operations remained the most common enhancement programmes for the year, after sale service is becoming an important dimension of trading. Merger or takeover of companies does not appear to be considered by trading enterprises. Only less than 5% of all employment size groups plan to pursue the programme to expand their operations in 2006.

Already preparing for slowdown

Though traders have generally bright prospects for the year, they are well aware of the susceptibility of Dubai's economy to aberrations in the international market. Thus, even if an economic slowdown is not on the horizon, they have definite contingency plans should it occur. It is encouraging to note that very few traders are considering actions affecting customers' continued access to goods: such as closure (whether partial or full), and reduction of working hours.

Instead, the most common planned reaction to an economic slowdown are to consider new markets and to cut on non-labour costs or increase operating efficiency. Actions leading to scaling down of operations are not as often planned. Among the small enterprises, the most common reactions are reduction of non-labour costs, cited by 67%; and consideration of new markets, by 50%. Reducing price is an option for less than a third; while the remaining options are reported by less than 20%.

Reducing employment, reported by 20%, is understandably not a popular action inasmuch as these enterprises have low employment and further reduction would not be possible. Among enterprises with 10 to 19 employees, reduction of non-labour costs and consideration of new markets are also the most common planned response to economic slowdown, as reported by 73% and 69%, respectively. Reduction of employment is cited by about a third (34%), while the other plans are relatively less mentioned.

Among large enterprises, consideration of new markets and reduction of non-labour costs are almost as often cited, 69% and 68%, respectively. Compared to enterprises in the lower employment size categories, it is understandable that relatively more (42%) of the large enterprises consider reduction of employment as an option. The type of market served appears not to significantly discriminate traders according to their planned action in case of economic slowdown.

In all groups, reduction of non-labour costs is the most common planned response, followed by consideration of new markets. Highest percentage (76%) planning to go into reduction of non-labour costs is noted for traders in the export market, followed by traders in the wholesale market (70%), in retail market (66%) and mixed (60%). In addition, the majority of traders in the export market (68%) and in retail market (57%) are considering new markets. Although this option is also considered by traders in the wholesale and mixed market, the levels are lower at 42% and 44%, respectively.

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