DUBAL Risk Assessment

DUBAL Risk Assessment

Introduction

Dubai Aluminium Company Limited (DU BAL) is a state-owned company based in United Arab Emirates (UAE) (Dubai aluminium, 2011a). It is a major supplier of extrusion billets for construction markets, foundry alloys to the automotive industry and high purity primary aluminium for use in the electronics and aerospace industry, both in the local and in the international market. This company was established in 1975 Jebel Ali, Dubai, to aid the diversification of the economy of United Arab Emirates. According to Dubai aluminium, (2011a), it is currently ranked the seventh largest producer of aluminium in the world and the largest in the Gulf Co-operation Council region. The key objective of this company is to expand its operations internationally and eventually grab a bigger market share in its industry. As part of its expansion activities, this company currently intends to penetrate in Singapore market. The purpose of this paper is to provide a risk assessment that will enable DUBAL to expand its operations in Singapore. Generally, it analyzes macro and micro-environments under which DUBAL thrives. It provides an overview of the political, economic, and social environments under which this company thrives. It also assesses the impacts of these macro-environment factors on the performance of DUBAL, both locally and internationally. In addition, it analyses the company’s competitors as well as its customers in the local and international market.

Political Environment

DUBAL is entirely owned by the state and hence its goals and mission are always in line with those of the government. The government of UAE maintains a pro-western stance in regards to foreign policy, which contributes to stable economic arena, both politically and economically. UAE enjoys strong political stability which assures DUBAL of low political risks (IMF, 2011). The government of UAE charges competitive import duties at 4% and sometimes, importers are exempted from it. UAE is a contracting party of General Agreement on Tariffs and Trade in 1994 and World Trade Organization, among other trade agreements. The government of UAE imposes a 5 percent tariff on imports, which is significantly lower compared to 15 percent that is charged under most international trade regulations. According to IMF (2011), it rarely imposes non-tariff trade barriers or restrictions. Generally, the protectionist policies set by UAE government are not severe. The engagement in international trade agreements has facilitated this country to set up regulations that help to strengthen the country’s position as an open economy that welcomes international trade. These factors provide a wide range of opportunities for DUBAL to expand operations in Singapore.

Economic environment

DUBAL’s external economic environment contributes heavily to its performance. The home country for this company, UAE, has a high per capita GDP of approximately $164.4 billion which is largely attributable to oil and gas production in the country. It has well developed transport and communication infrastructure and reliable power. Inflation rate in UAE has always been low, with an average of 2.5 percent recorded in the last two decades. The recent global financial crisis did not have a substantial impact on the economy of UAE. Unemployment rate in the country has also been low and has averaged 3.0 percent in the last 15 years. According to Dubai aluminium (2011a), Emirati workers have completed, on average, two and half years of secondary education, a rate that is above the global average. This local economic environment, therefore, provides DUBAL with great incentive that will enable it to expand to Singapore.

Apart from the local market, DUBAL sells its products in the Middle East, the Asian region, Europe, Far East, and Mediterranean region, and North America. The economies of countries in most of these regions offer all the advantages of a highly developed economy. They have highly developed transport and communication infrastructures. In addition, most of them have well developed and efficient financial sectors (Dubai aluminium, 2012). DUBAL has gained enough experience from its operations in those regions that will facilitate entry into Singapore Market.

Social-cultural Environment

According to Dubai aluminium (2011b), DUBAL has established workers community involvement programs that support practices that enable it to enjoy vibrant social-culture, both in the local and in the international market. Its workers in United Arab Emirates volunteer their time, financial resources and energy to support various community-based organizations that help to improve the quality of life of disadvantaged and disempowered communities. Some of the international markets for DUBAL have a culture that is distant from its domestic culture. As a result, this company has established effective ways of breaking these cultural boundaries. According to Dubai aluminium (2011b), DUBAL has benchmarked all of its activities in the international market in line with the best social practices that suit each specific cultural group. It shares its ideas, problems and solutions with other organizations in the target market and uses the information gained to the best interest of different cultural groupings. This company places the health and safety of its employees and of the communities in the target markets above all other priorities (Dubai aluminium, 2011b). The organization has trained its employees to provide differentiated treatments to individuals of different social classes, religions or families, depending on their beliefs and social values that they support. Therefore, this organization focuses on enhancing a positive social-cultural environment by creating and maintaining quality of life for all. Generally, DUBAL has essential experience in handling social-cultural differences of different social and cultural groups that will enable it to penetrate easily in Singapore market.

Competition

DUBAL thrives in an industry that is extremely competitive and highly consolidated. The competitiveness is attributable to the existing entry barriers in this industry. United Company Rusal is currently the global leader in aluminium production. Its production accounts for approximately 11 percent of the world’s aluminium output and 13% of the world’s alumina output (Aluminium industry, 2012). Other companies ranking higher than DUBAL in aluminium production are Rio Tinto Alcan, Aluminum Company of America, Chalco, Hydro Aluminium and BHP Billiton. Most of these companies are penetrating rapidly in the international market through acquisitions and mergers. Some enjoy better protection from their local governments in their local markets compared to DUBAL. They also enjoy higher profits than DUBAL (Aluminium industry, 2012). However, DUBAL can enhance its profitability by expanding in the international market. It can achieve this through direct entry and establishment of its operations in more countries and regions or through mergers and acquisitions with other overseas companies. It should also maintain its production of high quality primary aluminium than most of these major competitors.

DUBAL’s has established plans to outwit its key competitors. It has recently signed a joint venture agreement with Mubadala to create a company called Emirates Aluminium Company Limited (Dubal’s corporate ambitions, 2012). This project is designed to be the largest single-site aluminium smelter complex in the world. The company is also upgrading its production technology, which will enable it to become the most competitive low-cost smelter in the industry. The additional capacity that will be generated by these developments will place DUBAL firmly on track in gaining a competitive edge in the aluminium production industry. By expanding to Singapore, DUBAL will have taken a step further in outwitting its competitors.

Customers

DUBAL sells its products to more than 300 customers in 50 countries predominantly in the Middle East, the ASEAN region, Europe, Far East, and Mediterranean region and North America. According to Dubai aluminium (2011c), an estimated 8 percent of DUBAL’s annual production is sold in the local market, while the rest is exported to global markets. This company sells its aluminium products in wholesale to other businesses where they are used as raw materials for other production processes. As noted earlier, this company sells extrusion billets for construction purposes, foundry alloys to the automotive industry and high purity primary aluminium to electronics and aerospace producing companies (Dubai aluminium, 2011c).

Consumer decision-making process in aluminium production industry involves recognition of the problem or need, search of information regarding the existing aluminium producing industries, evaluation and selection of alternatives, implementation of the decision through purchasing from the selected seller and finally, evaluation of suitability of the product purchased. Consumer cultural values, ideas, attitudes and beliefs regarding the products of an aluminium producing company or regarding the domestic culture of an aluminium producing company may have considerable influence on purchasing decisions. Also, social factors such as social class, level of education and occupation may influence purchasing decisions. Customer’s purchasing decisions in the aluminium industry may also be influenced by personal factors such as Sex, Race and Age. The Psychological factors include safety, self esteem, self actualization and the feeling of sense of belonging to a specific company. Understanding of these factors is crucial to DUBAL in its process of venturing into a new market in Singapore.

Conclusion

In conclusion, this analysis provides a brief but concise risk assessment that will enable DUBAL to venture into a new market in Singapore. The political, economic and social environments under which this company currently thrives are supportive to its internationalization ambitions. Though the company faces stiff competition from other aluminum producing companies in the world, it stands a chance to improve its profit figures through expansion into the untapped markets. As explained in the analysis, this company sells its products to other producers to be used as inputs. As DUBAL proceeds with its internationalization strategy, it needs to understand the various factors that influence consumer decision making, as examined in the analysis.

References

“Aluminium industry,” 2012, Retrieved 23, October from,

HYPERLINK “http://www.aluminiumleader.com/en/serious/industry/” http://www.aluminiumleader.com/en/serious/industry/

“Dubal’s Corporate ambitions” available from, HYPERLINK “http://www.dubal.ae/” http://www.dubal.ae/

Dubai aluminium, (2011a), our corporate profile, Retrieved 23, October from, HYPERLINK “http://www.dubal.ae/who-we-are/our-corporate-profile.aspx” http://www.dubal.ae/who-we-are/our-corporate-profile.aspx

Dubai aluminium, (2011b), how we care, Retrieved 23, October from

HYPERLINK “http://www.dubal.ae/howwe-care/quality-environmental-standards.aspx” http://www.dubal.ae/howwe-care/quality-environmental-standards.aspx

Dubai aluminium, (2011c), key markets, Retrieved 23, October from

http://www.dubal.ae/our-products/primary-aluminium/key-markets.aspx

Dubai aluminium, (2012), our innovations, Retrieved 23, October from,

HYPERLINK “http://www.dubal.ae/our-innovations/development-and-transfer.aspx” http://www.dubal.ae/our-innovations/development-and-transfer.aspx

IMF (2011), Article IV Consultation – United Arab Emirates, Staff Report, Washington D.C