A Business Report Assignment: Abu Dhabi Airport Free Zone (Term Paper Sample)

Abu Dhabi Airport Free Zone
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Institution
Table of Contents TOC \o "1-3" \h \z \u Case Synopsis PAGEREF _Toc442014992 \h 3Case Subjects and Issues PAGEREF _Toc442014993 \h 4Industry Analysis PAGEREF _Toc442014994 \h 4Situational Analysis PAGEREF _Toc442014995 \h 6SWOT PAGEREF _Toc442014996 \h 6External Environment PAGEREF _Toc442014997 \h 7Competitive Advantage PAGEREF _Toc442014998 \h 8Strategy Formulation PAGEREF _Toc442014999 \h 9Strategy Implementation PAGEREF _Toc442015000 \h 10Conclusion PAGEREF _Toc442015001 \h 10References PAGEREF _Toc442015002 \h 12
Abu Dhabi Airport Free Zone
Case Synopsis
Abu Dhabi currently has six free zones: Masdar City, ZonesCorp, Abu Dhabi Ports Company (ADPC), Khalifa Industrial Zone, twofour54 and Abu Dhabi Airport Free Zone (ADAFZ). This strategic analysis will focus on the ADAFZ, which was established in 2012. The ADAFZ location is strategic and prime, hence making it attractive for companies in the region; however, such an expected attraction has only been theoretical, with this free zone attracting only 170 companies, which is ten times less than other areas. Failure by the ADAFZ to perform as expected is an issue of concern, especially because other better performing zones provide similar services. After the first Director left ADAFZ, a new VP (B) joined for almost two and half years and managed to establish and attract the first 13 international companies in the 1st year followed by another 47 international companies in the 2nd year. During the 3rd year VP (B) left, another VP (C) joined, and the number of companies in 2014 reached 85, which means in 2014 only 35 companies established. VP (C) did not stay more than 6 months and he left the ADAFZ. One more time another Director (D) joined the company in the beginning of 2015 to lead a small team of 20 members. This leader was unique and said, “What I can see is that the previous leader did not establish any business strategic plan nor aligned ADAFZ’s strategy with the corporate strategy of Abu Dhabi Airport. He started with some initiatives, but did not continue in the organization and left last summer giving the leadership to a fifth leader to run this free zone. The level of services at ADAFZ are not as good as its peers and its brand equity is relatively low as compared to other free zones; additionally, until today, there is neither an ADAFZ business strategy neither is it aligned with the airport’s 5-year strategic plan. Looking at the fact shared by Dubai Statistic Center, Free Zone trade in the UAE amounted to AED 250 billion in 2009 compared to 2008 AED 322 billion. With this trend, it is worth to diagnose what are the issues preventing ADAFZ to grow like its peers in Abu Dhabi and in northern Emirates.[]
Case Subjects and Issues
* Industry Analysis
* Strategic Management
* Internal and External Environment Scanning
* Strategy Formulation
* Competitive Advantage
* Strategy Implementation
* Concise Strategy Formulation
* Core Competencies
* Competitive Strategies
Industry Analysis
The commonality in the operations of some companies in starting their businesses in free trade zones as compared to starting in cities is a growing aspect. One of the major factors that promote the business opening in the free zone as compared to the city is the differences in the laws. Some of the advantages and disadvantages of the business operations will be described in this paper. In order to understand the factors that foster the operations of the free trade zones, the meaning of the aspect of free trade should be evaluated.
Free trade may be defined as the movement of goods and services freely across international borders. In the assessment of the factors that contribute to free trade is the fact that there is no recognition of the boundaries, which indicates that the trade barriers and tariffs are eliminated. The benefits of a business being registered in the zones as compared to the cities include:
* Complete corporate tax exemptions
* Foreign company ownership
* Complete repatriation of company benefits
* Export and import tax exemptions
One of the challenges that the new companies face in starting the business, especially in the UAE is finding the financial back-up from the local people. The challenge in getting an individual to sponsor a business to an unknown person to sponsor the company for 51% ownership is difficult. An example can be indicated in the success of the Jabel Ali Free Zone Authority (JAFZA), which has registered 320 times the growth in the 25 years of operation, which is from 19 in 1985 to approximately 6400 in 2009. A commentary from the AME indicates that the UK Trade and Investment Agreement indicate that the development in the region is based on the increase of business in the region. There are success of various companies and the attraction of the investors in the DAFZ. Most of the legislation in the free zone has allowed the foreign company ownership in the solving of the ownership challenge.[] [/227067.html] [UK Trade and Investment delegation said on 17-March-2010]
The ease in the operational laws has led to the growth of the business in the economic activities in the countries, for example in the GCC and Euro member countries. The removal of tariffs from EU member states has allowed for the commonality in the laws. The tariffs imposed are similar regardless of the method of entry in the market. The transportation of the products and services without additional duties has made the EU market attractive in trade. The Customs Union of 1968 helped established the factor without the additional duties and tariffs. Gulf News in 2008 indicates that 10% of the EU exports were from GCC while 30% were from EU to GCC. The GCC trade deficit against the EU has a deficit of approximately 17.5 billion Euros against the EU, which is expected to further increase. In addition, the Dubai Statistics Center, the Free Zone trade is estimated at 250 billion AED in 2009, which is a decrease from the 2008 AED 322 billion.[/policyareas/trade.htm] [http://gulfnews.com/business/opinion/what-lies-beneath-eu-gcc-alliance-1.125539] []
Situational Analysis
SWOT
* Strengths
* The ADAFZ is located in a premium location- within an international airport
* Customer service is also offered online
* This free zone offers access to global logistics services and freight forwarders
* Integrated ICT solutions
* 24-hour access to the free zone
* Weaknesses
* Lacks a well-defined business strategy
* Frequent changes in leadership create an aspect of instability
* Poor service delivery
* Opportunities
* The positive relationship with public authorities and government organizations creates an opportunity increase investor confidence by providing essential services at the free zone
* Threats
* Competition from other well-performing free zones
External Environment
The sustainability of the ADAFZ and other free zones is dependent on the value such business units add to the economy. The resultant external environment based on such value thus has a strong influence on the operations of ADAFZ. Some of the economic benefits of free zones include:
* Increased Productivity
The creation of free trade areas establishes a need to increase manufacturing output as such regions raise the demand for industrial goods and services. Additionally, these areas help develop a culture of specialization, which can then be translated to improved efficiency and thus accentuated productivity.
* Lower Prices
Free zones intensify competition as industrial manufacturers attempt to gain dominant market share. Subsequently, such competition results in price reductions, which is beneficial to consumers in such regions.
* Foreign Direct Investment (FDI)
Free zone areas are integral elements of each emirate’s diversification, development and industrialization strategy. Consequently, these zones have increased FDI in the UAE. Current estimates indicate the presence of about 3,000 companies operating in the free zones; the investment worth of these firms is about Dh 15 billion.
* Production Efficiency
Companies operating in the free zones are in constant competition with each other, and thus have a need to differentiate their products and services. A vital differentiation strategy involves improving quality and the value of services and goods offered to the market; as a result, this increases production efficiency and improves the standard of exports coming from the UAE.
* Increased Exports
Restrictions on trade often result in hostilities between countries, which consequently impedes on the volume of exports. However, the existence of free zones in the UAE endears the country to international market and thus facilitating increased exportation.
Competitive Advantage
The ADAFZ draws its main competitive advantage from its location, the Abu Dhabi Airport. This location places the free zone right at a major entry point into this emirate; similarly, the airport is a strategic exit point in regards to exports. Another element contributing the ADAFZ’s competitive advantage is the goodwill it receives from the government and other public officers (Smith & Flanagan, 2006). Such a positive relationship has helped this free zone offer registration, leasing, licensing and other business services to investors.
Strategy Formulation
As highlighted by one of the former VPs of ADFAZ, one of its major weaknesses is the lack of a synchronous strategic plan to that of the airport. The free zone needs to stop operating as an autonomous business unit and rather focus on enhancing the symbiotic relationship between it and the airport. The proposed approach to improve the performance of the ADFAZ i...