Financial Services - PEST Analysis

					Executive summary:
This report is written to the highly motivated and dynamic regional marketing manager
Mr.Prakesh as of his interest aim competitive marketing and Islamic banking system and
up to date information which is considered the state of art in banking process.


The following report we illustrated many areas, which will help Mr.Prakesh to know
more about the Islamic banking and foreign banks in UAE. Also updated information
about the market, competitors and customers. We searched for information about the
market value and volume in the UAE. Also we looked at the PETS analysis, which will
indicate the economic scale of the business in the country and acts as financial indices
that will decide the course of action on the project. To know our competitors we looked
at three banks in the UAE namely, Dubai Islamic Bank, Commercial Bank of Dubai and
National Bank of Abu Dhabi. We looked at their products and services, promotion,
advertising, distribution and pricing strategies. Moreover, we also talked about the
Islamic banking.




                                             1
                                                   Table Of Content

Executive summary: ...................................................................................................... 1
Introduction: .................................................................................................................... 3
UAE Market .................................................................................................................... 4
   The Volume Market in the UAE ................................................................................ 4
   The value market in the UAE ..................................................................................... 5
PEST Analysis ................................................................................................................ 5
   Political Factors ............................................................................................................ 5
   Economic Factors ......................................................................................................... 6
    Economy Outlook ........................................................................................................ 6
    Gross Domestic Profit (GDP): ................................................................................... 7
    Inflation ....................................................................................................................... 8
    Interest Rate: ............................................................................................................... 8
    Workers and Population: ............................................................................................ 9
 Sociocultural Factors.................................................................................................. 10
    Population and Nationalities: ................................................................................... 10
    Age and Gender: ....................................................................................................... 10
    Religion and Language: ............................................................................................ 10
 Technological Factors ................................................................................................ 10
    Internet in The UAE.................................................................................................. 10
    Mobile Phones and SMS service .............................................................................. 12
    ATMs Machines........................................................................................................ 12
What Does the PEST Analysis Tells us? ............................................................... 12
Competitors ................................................................................................................... 14
 Product & Services ....................................................................................................... 14
 Promotion...................................................................................................................... 16
    Online........................................................................................................................ 16
    Offline ....................................................................................................................... 16
 Advertising strategies.................................................................................................... 16
 Distribution strategies ................................................................................................... 17
 Pricing strategies ........................................................................................................... 17
 Islamic Banking ............................................................................................................ 17
Mudaraba .......................................................................................................................... 18
Musharaka ......................................................................................................................... 19
Conclusion: .................................................................................................................... 20
Resources: ...................................................................................................................... 21
 Websites: ..................................................................................................................... 21
 Newspaper Article: ..................................................................................................... 22
 Other Resources:......................................................................................................... 22




                                                                  2
Introduction:
The Middle East financial services between (MSF) the new regional manager Mr.
Prakash should be provided with general information about the UAE financial services
market mainly concentrating on the investment products.
Mr. Prakash will be able to determine whether or not Internet marketing of investment by
produced report of marketing analysis of the UAE.

The points below will shed light on the banking system, with full analysis of banking
process, and we will analyzed the following:

      PETS analysis:

       Political factors.
       Economic factors.
       Socio-cultural factors.
       Technological factors.

We will look at three banks namely, Dubai Islamic Bank, Commercial Bank of Dubai and
National Bank of Abu Dhabi:

      Products and services.
      Promotion.
      Advertising strategies.
      Distributions strategies.
      Pricing strategies.




                                           3
UAE Market

The Volume Market in the UAE



                                Local & Foreign Banks in UAE

                          350
                          300
                Numbers




                          250
                          200
                          150
                          100
                           50
                            0
                                Locally   Bnaches               Foreign   Bnaches
                                Banks     & Cash                Banks     & Cash
                                           Offices                         Offices

                                                     1999    2000



Banks in the U.A.E:

         Locally Incorporated and Foreign Banks.
         Restricted License Bank.
         Investment Banks.

The Central Bank of UAE has played an important role in organizing the financial
foundation especially banks. The number of local banks increased by than the previous
years. For the foreign banks, the number of the branches is in increase because of the
increase in the number of licensed representative, which increased to 45 by end 2000
against 39 the previous year. 1According to a Central Bank report, deposits with the UAE
banks surged by more than $3 billion as at the end of 2001, going up from Dh170 billion
at the end of 2000 to about Dh183 billion at the end of last year. There has also been
strong growth in personal loans, in particular, and retail operations in general.

1
    http://www.bankersdigestme.com/dec2002/bd-article6.htm



                                                     4
The value market in the UAE

The UAE business market is growing each year with huge amount of profit. In general,
the UAE banks increased their net profit by 2002 and you will notice that below.


      Abu Dhabi Islamic Bank‟ net profit fell to AED75.6 million in 2002 from AED
       80.5 million in 2001
      The National Bank of Ras Khaimah‟s net profit grow in 2002 to AED75.5
      National Bank of Sharjah‟s net profit dropped from AED76.30 million in 2001 to
       AED 56.08 million in 2002
      National Bank of Abu Dhabi‟ net profit grow 7.8% over those of 2001 to
       AED656 million in 2002
      Abu Dhabi Commercial Bank earned a net profit of AED 590.30 million for 2002
       lower by 4%
      National Bank of Dubai earned a net profit of AED568.76 million for 2002 and it‟
       more than the previous by 25%
We can notice from the above that the market value in UAE is increasing every year.


PEST Analysis
This kind of analysis studies the factors of Political, Economic, Sociocultural and
Technological and that why its short cut is PEST. Every company should know its
environment before beginning the business to avoid many difficulties, save money and
also time.

Political Factors


In the order to set up a good market economy and realistic economical balanced it is
important foe each country to develop it‟s own policy to support it‟s economy and to
govern it‟s economical rules and regulations.

The main drivers that can directly affect the economy of every country or organization:

            Country economic and legal issue that facing the UAE financial services
             industry:


                                             5
       The government policy will impact the economy of the UAE and this will result
       in either financial growth of the country economy and open the trade to the out
       side world and exchange of goods etc. or it will impact the economy if the policy
       is not considered as effective.

       There are two aspects that could affect industry ability of performing it is
       business:

   1- Legal controls on business activates:

   Rules and regulations are considered the business legal assurances and play an
important role of protecting the business and customer‟s rights. According to the situation
in the UAE, the political decision affects the country financial services industry. The
UAE political environment is considered stable in the region and it provides a save trade
of business and ensure the stability of economy. Moreover UAE is politically stable with
other countries and with not complex regulations. The commercial lows and regulations
of the UAE are encouraging traders and forgive to invest money in the country which
develop the economy of the UAE and it financial growth, Dubai is considered as leading
example of such regulations.

   2- Government system and procedure towards business activity:

   The country policy will play major rule for the income of foreigners, as this will have
great impact for them to establish local business in the local market sector.


Economic Factors


Economy Outlook

The UAE has the second largest economy in the GCC, the highest per capita income in
the GCC. In the UAE economy is stable because it there are no wars or any political
problems that might affect the economy. In the Gulf News, March 15,2002, expert in
economy said: The war in Iraq might affect the economy but it will be not so dangerous
for the country. Because the country is far from Iraq and its market deal with Iraq is little
comparing with the overseas non-oil trade.



                                              6
Government Policy of Diversification and Foreign Investment Motivation

The Government's policy of diversification aimed to reduce the dependence on the oil
and gas sector. The high prices of oil will help the UAE to generate more revenue to
reach their diversification goals and the free trade zones will help in developing in non-
oil revenues. Currently, UAE have three free zones and expecting to have more. These
free zones offer 100% foreign ownership and special incentives like extended tax
holidays, subsidized energy and full repatriation of capital and profits. There was an
increase in the percentage of non-oil and gas GDP from 37% to 66.5% in 1997. The
financial sector has experienced a very strong growth of 12.3% per annum over the last
10 years.

Gross Domestic Profit (GDP):



                           Gross Domestic Product Per Capita in UAE


                    2000

                                                              GDP Per Capita (AED)
            Years




                    1999                                      Poulation (Thoousands)
                                                              GDP (AED Billions)

                    1998


                           0    100,000   200,000   300,000
                                      AED


   From the graph above we can notice that GDP of UAE comparing with the previous
years is in increase. It was recorded by the UAE Ministry that the GDP grew by a ten
year high of 20.4% in 2000. In 1999, GDP increased from AED 200.9 billion to AED
241.9 billion in 2000. There are reasons for rises such as:

      The rise of the oil and gas prices and also the increase in the production.
      Oil and gas revenues are invested in the infrastructures of the region.



                                                7
         High individual income.
         Population growth it was recorded that the population rise from 2,776 thousands
          in 1998 to 77,828 thousand in 2000.




Inflation
2




The inflation average 1.5%-2% during 2000, its under control because the Dirham
currency is strong and supported by the emirates‟ vast overseas assets. Low inflation will
cause higher demand on products and more opportunities for people to invest money.

Interest Rate:

In the UAE, the interest rates applied by courts for commercial transactions should not
exceed 12%. Also for the non-commercial transactions, the interest rate should not be
above 8%.




2
    http://www.tradewatch.dfat.gov.au/TradeWatch/TradeWatch.nsf/vEconomicWeb/United+Arab+Emirates



                                                 8
Workers and Population:


                                                  Population & Workers in UAE

                                    4000
              Number in Thousands


                                    3500
                                    3000
                                    2500
                                                                                    Population
                                    2000
                                                                                    Workers
                                    1500
                                    1000
                                     500
                                       0
                                           1998        1999           2000   2001
                                                              Years



There is growth in population by 5.8% in 2000 than in the previous year. In 1999 the
population was 2,938 thousands and in 2000, it was 3,108 thousands. Moreover, the total
number of workers in the region rose in 2000 by 6o thousands compared in 1999, which
reached 1.6 million workers. That means that the economic environment is the region
attracts more nationals and foreign workers because the economy is stable and growing.
Many UAE national women are aiming for investment opportunities and setting up their
own businesses and controlling their own finances. The banks now are trying to meet the
demands of these women. To meet the demands of these women, banks are diversifying
their products Rita D'Souza, account relationship manager, Taib Bank. "This is a time
when women are increasingly involved in setting up their own or are running family
businesses, taking key decisions and also controlling their own finances," she said at a
                                                                                                 3
conference organized by the Abu Dhabi Chamber of Commerce and Industry.




3
    http://www.amanjordan.org/english/daily_news/wmview.php?ArtID=804



                                                                 9
Sociocultural Factors

Population and Nationalities:

The estimated population is 2,445,9894 and 19% is Emirati while other Arab and Iranian
23%, South Asian 50%, other expatriates (includes Westerners and East Asians) 8%
(1982) 2.

Age and Gender:

0-14 years: 27.7% (male 345,077; female 331,545)
15-64 years: 69.7% (male 1,069,443; female 635,275)
65 years and over: 2.6% (male 45,989; female 18,660) 2

Religion and Language:

Muslim 96% (Shi'a 16%), Christian, Hindu, and other 4%2. Any starting business should
put in mind that the products and services that they have are go on with Islam. For
example, charging interest is prohibits in Islam even if it was simple, so Muslims won‟t
deal with this type of business. Arabic is the official language of the country and English
are widely used as most of the business deal with customers by both languages. Also
Persian, English, Hindi, Urdu is also spoken.

Technological Factors

Internet in The UAE

UAE government is encouraging the use of the Internet in the entire society. The
government, businesses, educational facilities and private sectors used it. On 5 March
2000, ETISALAT launched Emirates Internet and Multimedia (EIM), which provides a
good Internet service, and facilitate access speeds. Nowadays, people can pay their



4
    http://www.odci.gov/cia/publications/factbook/geos/tc.html




                                                     10
 electricity, traffic and telephone bills through the Internet. Moreover, businesses now can
 finish the government applications via the Internet.

 Internet Users




                                                                           5



 As the graph above, its shows that the number Internet users in UAE accounted the
 highest percentage among the other GCC countries. The number of Internet users in the
 UAE is about 775,000. Private users accounted 40%, schools and other educational
 facilitates accounted 20%, businesses accounted 30% while government accounted 10%5.




          Age of UAE Internet Users                                   Internet Usage in UAE



         11%       7%                                              10%

                                                above 50                           30%
                            24%                              15%                               Abu Dhabi
                                                40-49
26%                                                                                            Dubai
                                                30-39
                                                                                               West Cost
                                                20-29
                                                                                               Al Ain
                                                under 20

                  32%                                                40%




 5
     http://www.american.edu/carmel/lr2962a/internet.html




                                                     11
Online Banking Transactions Services

According to a study by Pyramid Research, the IT-Telecoms Division of the Economic
Intelligence Unit (EIU), on-line "click-and-mortar" transaction initiation services are
currently available in eight Arab countries, including the UAE. 21% of the Internet users
in the UAE are now registered which is higher than the United States' 17 per cent. In five
banks in the UAE, the online transactions services are available with a total 227,600
people registered6.

Mobile Phones and SMS service

UAE is the first highest number of mobile users among the Arabian countries. In
the UAE alone, there are estimated to be around 2.3 million mobile phone users,
which constitute 65 per cent of the total population7. Some businesses started to
send SMS to their customers providing any promotions or new events they have.

ATMs Machines

In July 1992, the businesses has been growing remarkably after the Central Bank of UAE
allowed banks to go in for off-site ATMs (automatic teller machines). There are
restrictions in opening new branches so the foreign and local banks have the advantages
of that to provide additional service for customers by having ATMs in the shopping malls
and petrol stations. Moreover, the cost of the machines is being less comparing with the
previous years by $ 20,000. According to Issa Kesheb, Dubai-based executive accounts
manager (banking industry), for the American giant AT&T, there are at present 439
ATMs in the UAE8.


What Does the PEST Analysis Tells us?




6
    http://www.mafhoum.com/press2/61T42.htm
7
    http://www.beiruttimes.com/news/November20-a.phtml
8
    http://rkw.hct.ac.ae/ilc/ex/atm.htm



                                                 12
After we analysis the political, economic, social and technological factors, it tells us that
the UAE is a good place for investment and for businesses for many reasons as
mentioned below:

      One of the countries in the Middle East that offers attractive incentives and
       facilities for business.
      The stability of finance and political in the country.
      The Dirham currency is linked to the US dollar.
      There are many modern banking facilities and businesses are linked with mostly
       all the country in the world.
      The strategically location of the country where the Dubai‟s natural port plays the
       crossroads of seaborne trade routes between countries.
      There are services over 100 international shipping lines at Dubai port, which
       make it the 14th largest container terminal in the world.
      There are about 65 international airlines, which is linked with more than 105
       cities in the world.
      Millions dollars of government investment is being used to develop the non-oil
       and gas sectors.
      Modern and excellent telecommunications.
      Low cost energy supplies.
      No taxes on profits or incomes and a freedom of capital movement and there is
       100% foreign ownership in free zones.
      Modern and latest Technology in the region. There is Dubai Internet City (DIC)
       and Media City in Dubai and also there is E-government in Dubai.




                                             13
Competitors

Product & Services
There are many product and services in the bank and in the bank we search about. I
notice that these banks have all this kind of products:
        1. Retail Banking, it‟s for customers
        2. Cooperate banking, and it‟s for business.
        3. Investment except Commercial bank of Dubai
The similar products in the three banks:
                   Lockers or Safe Deposit Boxes, you can rent and you can save your
            important things such as jewellery
                   Current Account, it‟s an interest free loan under demand deposited by the
            customer.
                   Saving Account, The account holder deposit money at any time, whereas
            the withdrawal is limited to one per month.
                   Investment Account or Fixed deposit, it allows you to make fixed deposits
            through out the year at period of 3, 6, 9, or 12 months.

Dubai Islamic Bank

 Murabaha Cars (Car loan)
 Murabaha goods such as buying furniture, boats and computer.
 Electron Card and it‟s free and you can use it to with draw on ATM.
 Musharka, its partnership, which the Dubai Islamic Bank will share, the profit and the
        returns and it‟s for protecting you capital.
 Mudaraba, it‟s a partnership between the bank and the company
 Ijara/Lease
 Visa Credit Card
    -               Visa Gold Card
    -               Visa Classic Card
Commercial Bank of Dubai

           Loans


                                                  14
          Cards
    -              Credit Card (Visa Credit Card, Gold and Classic)
    -              E-Dirham card, customers can pay their fees electronically to the minister
        of Labour and the Minister Internal Affairs.
          Foreign Exchange
          Shahrazade Program
          24 hours Attjari Phone Banking, it‟s free and on this you can access your access
    your account any time anywhere.


National Bank of Abu Dhabi

          Call& Notice
          Offshore Deposit
          Lending Products
    -              Lifeline, it‟s for your short term borrowing needs.
    -              Sayyarati (Car loan)
    -              Farm Facilities such as preparation finance for new farm
        Cards
    - Platinum Card, it‟s for protect or insure many things such as Personal accidents,
        Travel Delay and insurance from theft and loss.
    - Nbad @ Server card, it‟s Internet payment card
    - ADDF Visa Card, it‟s cooperation between NBAD and Abu Dhabi Duty Free.
    - Credit Cards (Visa and Master Card)
    - Debit Cards, there is Cashplus Card by this you can used NBAD machines and also
        you can use any UAE SWITHCH machines at a nominal charge. And there is Cash
        Plus Global (Visa Electron Card) and that Card work of worldwide ATM machines.
          ATM Network
          Traffic fine payment, you can pay your traffic fine Online
          Different bills payment such as telephone bills.




                                                15
Promotion

Online

Using Arabic and English in the site
Good logo and slogan
Submitting the website in popular search, we mean by that when we search on the site on
the search engines we find quickly.
Offline

Newspapers
Broachers
Magazines
Offers such as in National Bank of Abu Dhabi you can have both Visa and Master Card
for price of one card.


Online Banks:
         National Bank of Dubai.
         National Bank of Abu Dhabi.
         Emirates Bank International.


Advertising strategies

         Radios
         TV
         Newspapers
         Banners




                                          16
  Distribution strategies

Dubai Islamic Bank                Commercial Bank of Dubai         National Bank of Abu Dhabi

13 Branches all over the UAE.     16 locally branches.             13 branches in the UAE
                                  No branches overseas.            13 branches overseas.




  Pricing strategies

Dubai Islamic Bank                Commercial Bank of Dubai         National Bank of Abu Dhabi

There are no pricing strategies   Depends with the market.         The competitive prices
                                                                   frequently depends on the
but every service includes low
                                                                   products such as:
fees.
                                                                          Personal loan 8%-13%
                                                                          Car loan 5%-7%



  Islamic Banking

  Under the Sharjah, Islam Banks are responsible for ensuring that money is invested in
  projects, with reliable borrowers. If the project succeeds the banker shares in the profit. If
  it fails he suffers the losses. Furthermore, The Islamic finance sector is continued to grow
  at almost 12 to 15 per cent annually. The first Islamic bank is the Dubai Islamic Bank,
  which was established in 1975.The different between Islamic banks and Conventional
  banks, the prohibition of interest or there is no interest. The increasing amount of funds
  being invested according to the Sharjah, it seems completely reasonable to suppose that
  the recent growth in Islamic banking will continue at an increase faster




                                               17
The meaning of some Islamic financial, that some Islamic banking use it:


Ijara (Leasing)

A contract under which a bank purchases and leases out equipment (machine, car, ship,
house) required by its client for a rental fee. The duration of the lease and rental fees are
agreed in advance.

Mudaraba

This is an agreement made between two parties: one which provides „100 percent of the
capital‟ for the project and another party known as a „Mudarib‟ who using his
entrepreneurial skills, manages the project. Profits arising from the project are distributed
according to a determined ratio. Any losses accruing are borne by the provider of capital.
The provider of capital has no control over the management of the project.

Basic rules in Mudharabah:

      Mudharib : Working Partner that brings effort
      Ra's al-Mal : Investment that brings capital
      Rab al-Mal : Investor
      Wakeel : Agent
      Ameen : Trustee
      Kafil : Guarantor
      Mudharib : Working Partner
      Hiba : Gift

Types of Mudharabah

      Al - Mudharabah A-Moqayyadah (Restricted Mudharabah) Rab al-mal may
       specify a particular business or a particular place for the Mudharib, in which case
       he shall invest the money in that particular business or place.

      Al - Mudaraba AluMutlaqah Rab al-mal gives full freedom to Mudharib to
       undertake whatever business he deems fit. However Mudharib cannot lend money
       to anyone without consent of Rab al-mal. Mudharib is authorized to do anything,
       which is normally done in the course of business. However if he wants to do


                                             18
        something not in the normal routine of the work, he cannot do so without express
        permission from the Rab al-mal.

Murabaha (Cost-Plus Financing)

Used if you wish to purchase equipment or goods. We will purchase these items, and then
sell them to you at cost - plus a reasonable profit from the bank. Some people have
questioned the legality of this financing technique because of its similarity to riba or
interest.


Musharaka

This Islamic financing technique refers to a partnership between two parties, who both
provide capital towards the financing of a project. Both parties share profits on a pre-
agreed ratio, but losses are shared according to each parties equity participation. The
reason is because in Islam, one cannot loose what they did not contribute. Management of
the project is carried out by both the parties.

Rules in Musyarakah:

    1. All partners invest
    2. All partners participate in the management of the business and can work for it.
    3. All partner share the loss to the extent of the ratio of their investment.




                                              19
Conclusion:
After we did the PEST analysis, we found that the UAE market is the most attractive and
suitable market for businesses. The economy and the finance are stable in the region.
Moreover, the government is aiming to meet the diversification goals to develop the non-
oil and gas sectors. We searched for information about the competitors and their different
strategies such as advertising, promotion, distribution, product and services and pricing.
 We found that the technology in the UAE have offer business new ways to meet their
customers‟ demands.




                                           20
Resources:

Websites:

“Economic Overview”
http://www.uaeoffsets.com/sectoroverview.htm

“UAE Overview”
http://www.dfat.gov.au/geo/middle_east/uae/overview.html

“Annual Report of Economic, Financial and Banking Trends in UAE”
http://www.uaecb.gov.ae/Annuals/Annual2000.pdf

“People in UAE”
http://www.odci.gov/cia/publications/factbook/geos/tc.html

“Inflation Chart”
http://www.dubaiinc.com

“Women account for 36pc of Internet subscribers”
http://www.mafhoum.com/press2/61T42.htm

Barbara Bibbo. “More women turning to business”
http://www.amanjordan.org/english/daily_news/wmview.php?ArtID=804 (January 22,
2003)

Cost-Effective ATMs Here To Stay
http://rkw.hct.ac.ae/ilc/ex/atm.htm (February 8, 1995)

Antoine Khammar, “Mobile Phones”
http://www.beiruttimes.com/news/November20-a.phtml (18 Mar 2003)

Sultan Bin Nasser Al Suwaidi . “Interest rates & fees applicable to Personal Loans, plus
fees & charges on services provided to personal customers”
http://www.cbuae.gov.ae/Releases/Circ12-93.htm (23/2/1993)

“Why do business with the U.A.E?”
http://www.dfat.gov.au/geo/uae/why_do_business.html


Stanley Carvalho. “Rise in number of local bank branches”
http://www.gulf-news.com/Articles/news.asp?ArticleID=26288 (September 11, 2001)

“UAE Banks”
http://www.bankersdigestme.com/dec2002/bd-article6.htm



                                           21
“Islamic Banking”
http://www.halal.com.my/halal1/info_banking.asp

“Glossary of Islamic financial terms”
http://www.islamic-banking.com/shariah/glossary.php

“Banks Websites”
http://www.theemiratesnetwork.com/dir/Business_and_Economy/Financial_Services/Ban
ks/

“Dubai Islamic Bank”
http://www.alislami.co.ae/

“National Bank of Abu Dhabi”
http://www.nbad.com/

“Commercial Bank Of Dubai”
http://www.cbd.co.ae/


Newspaper Article:

Gulf News, March 15,2003, Ra‟ad Bargawi “UAE‟s Economy and theWar”

Other Resources:

Information Center at Abu Dhabi Chamber Of Commerce provide us with the latest
statistics in UAE‟s Economy.




                                         22

				
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