entrepreneurial innovation and policy implications in the united arab emirates

of 25 /25
Entrepreneurial Innovation and Policy Implications in the United Arab Emirates Murat Sakir Erogul College of Business Zayed University, PO Box 19282, Dubai United Arab Emirates [email protected] Constance Van Horne College of Business Zayed University, PO Box 144534, Abu Dhabi United Arab Emirates [email protected] The paper provides an overview of entrepreneurial innovation and aspiration in the United Arab Emirates to help policy makers facilitate Emirati entrepreneurs establish small and medium size enterprises that develop and utilize new tech- nology and innovation through research and development. The findings indicate that firstly, business activity in the UAE among Emiratis is concentrated in consumer and service oriented ventures, such as retail, restaurants, health, edu- cation and social services. Secondly, UAE businesses in general are skilled at technology adoption, but not technology innovation. Thirdly, it has been found that new and young businesses in the UAE have minimal involvement in the high/ medium technology sectors. These findings indicate that the UAE government should focus on developing a highly innovative entrepreneurial sector and on supporting high value added new companies that have the potential to grow and to develop internationally. For this to take place and to create efficient support programs that add value, policy makers and business developers need to col- laborate with universities and research establishments to develop support systems that work towards supply oriented policies by focusing on innovation, infra- structure and ecological sustainability, rather than on the traditional tools of local demand. Keywords: United Arab Emirates; entrepreneurship; innovation; entrepreneurial aspiration; policy implications. Journal of Enterprising Culture Vol. 22, No. 2 (June 2014) 185208 DOI: 10.1142/S0218495814500083 185

Upload: adelphi

Post on 17-Jan-2023




0 download

Embed Size (px)


Entrepreneurial Innovation and Policy Implicationsin the United Arab Emirates

Murat Sakir ErogulCollege of Business

Zayed University, PO Box 19282, DubaiUnited Arab Emirates

[email protected]

Constance Van HorneCollege of Business

Zayed University, PO Box 144534, Abu DhabiUnited Arab Emirates

[email protected]

The paper provides an overview of entrepreneurial innovation and aspiration inthe United Arab Emirates to help policy makers facilitate Emirati entrepreneursestablish small and medium size enterprises that develop and utilize new tech-nology and innovation through research and development. The findings indicatethat firstly, business activity in the UAE among Emiratis is concentrated inconsumer and service oriented ventures, such as retail, restaurants, health, edu-cation and social services. Secondly, UAE businesses in general are skilled attechnology adoption, but not technology innovation. Thirdly, it has been foundthat new and young businesses in the UAE have minimal involvement in the high/medium technology sectors. These findings indicate that the UAE governmentshould focus on developing a highly innovative entrepreneurial sector and onsupporting high value added new companies that have the potential to grow andto develop internationally. For this to take place and to create efficient supportprograms that add value, policy makers and business developers need to col-laborate with universities and research establishments to develop support systemsthat work towards supply oriented policies by focusing on innovation, infra-structure and ecological sustainability, rather than on the traditional tools of localdemand.

Keywords: United Arab Emirates; entrepreneurship; innovation; entrepreneurial aspiration;policy implications.

Journal of Enterprising CultureVol. 22, No. 2 (June 2014) 185–208DOI: 10.1142/S0218495814500083



The United Arab Emirates (UAE) has risen from one of the poorestcountries in the world to an income level comparable to that of the in-dustrialized nations. However, the UAE did not pass through the devel-opment ‘phases’ that most developed countries seem to have experiencedbecause of its large oil revenues. Through oil revenues, the UAE has short-cut the challenge of wealth accumulation necessary for economic devel-opment. The UAE economy has been strongly pursuing a strategy of in-dustrialization to diversify the sources of its national income and reduce itsdependence on oil. The abundance of natural mineral resources, the readyavailability of financial capital, a well-established infrastructure, a flexiblelabour and employment policy, the availability of cheap energy, industrialzones and various incentives in legislation, plus political and social stabilityhave been the main facilitators for UAE development.

The paper aims to provide a description of innovation activity in theUAE by focusing on:

. innovation activity among Emirati nationals and the types of businessesstarted

. consumer attitudes towards innovation

. entrepreneurial aspiration in regards to high-growth entrepreneurship

In the concluding section, the paper makes a call to policy makers toprovide informational and operational support to businesses in regards todeveloping new products and services through promoting research anddevelopment.


Innovative entrepreneurs are one of the main links between entrepreneur-ship and economic growth as they are alert individuals who perceive andexploit profit opportunities. They do not only contribute toward marketefficiency, these entrepreneurs introduce innovations by offering new andunique products or services. In a knowledge economy, technology and thebirth of new firms from technology driven innovative ideas and services,need to be nurtured and encouraged. In a small market knowledge econ-omy, innovation and technology are key to increasing exports and the saleof intellectual property.

M. S. Erogul & C. Van Horne


To measure innovativeness and growth expectations, the Global Entre-preneurship Monitor (GEM) asks entrepreneurs and business owners howthey evaluate the newness of their product or service, the competition theyface, and the novelty of their technology. It is important to remember thatinnovativeness and growth expectations are context specific and that what isinnovative in one country may not necessarily be innovative in another(Minniti et al., 2005). Globalization erodes, to some extent, these differ-ences. Yet, most newer and entrepreneurial businesses target nationalmarkets and, as a result, benefit and suffer more than others from thecondition of their local economy.

Schumpeter (1934), who is considered to be among the first to analysethe process of innovation, described innovation as the creation and im-plementation of new combinations. He argued that ‘the function of entre-preneurs is to reform or to revolutionize the pattern of production byexploiting an invention or more generally, an untried technological possi-bility for producing a new commodity or producing an old one in a newway’ (Schumpeter, 1942, p. 29). These new combinations can be related tonew products, services, work processes and markets. Schumpeter oncedefined an entrepreneur as ‘the agent that combines others into a productiveorganism’ (Schumpeter, 1997, p. 254). Since then both the entrepreneurand innovation has been redefined many times. Authors generally empha-size the element of newness, including anything perceived to be new by thepeople doing it or as something different for the organization into which it isintroduced. In addition to an innovation apparently being ‘something new’,definitions have other aspects in common. King and Anderson (2002) de-fine innovation as something new to the social setting within which it isintroduced, although not necessarily new to the person(s) introducing it, itis based on an idea, aimed at producing some kind of benefit which isintentional rather than accidental and not a routine change.

As stated above, an innovation aims to produce some kind of benefit.Innovation requires a proactive process where resources are allocated toidentify market changes and seize upon new product opportunities beforethey occur. The importance of innovation for society is considerable, be-cause innovation has a positive impact on national competitiveness. TheUAE government has been facilitating the stimulation of entrepreneurshipin general, but more emphasis is needed on fast-growing innovative com-panies as an innovation-driven economy.

Economic theories indicate that technological development contributesto long term productivity growth. New technologies, especially informationand communication technology, have contributed considerably to the

Entrepreneurial Innovation and Policy Implications in the UAE


increased productivity of companies (De Jong, 2006). Companies aremoving from selling pure products or services to selling complex solutionsconsisting of hybrid bundles of interrelated services and goods.

In the managed economy, economic growth is achieved by economies ofscale and the diffusion of innovations for improvement by large companies. Inthe entrepreneurial economy the competitive advantage is achieved focusingon new knowledge or on knowledge based economic activities (Audretsch,2004). It may be argued that throughout the process of innovation individualentrepreneurs can follow through and be more hands on throughout the newproduct development process and develop services and solutions as well asnew business models and processes for innovation generation.


The data analysed in this section comes from the last two Adult PopulationSurveys conducted in the UAE as part of the Global GEM study of en-trepreneurship in the years 2009 and 2011. The surveys use prescribed,structured questionnaires provided by the GEM International ResearchConsortium to collect globally comparable data on nascent entrepreneur-ship within individual countries. The Global GEM Consortium has beenconducting studies for over 10 years in dozens of countries. The mainnational 2009 UAE GEM random study was conducted with a sample ofover 2,056 respondents which included 997 Asian expatriates, 625 Arabexpatriates, 315 Local Emiratis, 40 GCC Nationals and 79 Westernexpatriates (McCrohan et al., 2009; Tong et al., 2012). The 2011 samplewas conducted with 3,029 respondents of which 453 were Emirati, 1,019Arab expatriates, 1,272 Asian expatriates and 279 Western expatriates (VanHorne et al., 2012). The comparative findings and analysis of this study arenot covered in 2011 UAE GEM National Report.

The UAE government‘s drive to support local Emirati entrepreneurialactivity and encourage Emirati nationals to launch their own businessesinitiated the need to conduct an oversampling of solely local Emiratirespondents. However, the oversampling was not analysed and included ineither the 2009 or 2011 UAE GEM national report (McCrohan et al., 2009;Van Horne et al., 2012).

This paper looks not only at the innovativeness of entrepreneurs in theUAE but also disseminates the results of a substantive Emirati survey intothe entrepreneurial activities of the national Emirati population within theUAE. To do so the oversampling of 1,035 local Emiratis was analysed. The

M. S. Erogul & C. Van Horne


data came from a telephone survey which was carried out in either Arabicor English between April and June 2009, within the framework of the 2009Global GEM Consortium among 1,035 local Emirati respondents aged 18or older. The survey teams draw stratified random samples of the nationalpopulation from mobile and landline phone directories. Since the mobilephone penetration rate is much higher than the landline phone penetrationrate, contacting respondents on their mobile phone was the primary meansof sampling. The surveys are conducted by ‘adopting a systemic randomselection method — that is, every ‘nth’ number listed in the telephonedirectories is contacted. Moreover, when a respondent did not answer thecall or was not available, at least six call backs were made before the nextrandomly selected respondent was contacted (Preiss and McCrohan, 2006).


Small and medium enterprises (SMEs) make up a majority of firms in theUAE and have a significant role for driving innovation. However, due to thefinancial crisis and regulations, the development of SMEs and innovationbecomes negatively affected. Many of these restrictions are related to bu-reaucratic red tape and the complexity of procedures.

Usually, new technologies and processes are associated with a betterutilization of resources, higher quality of routine tasks, and higher pro-ductivity. Entrepreneurs or in other words, companies that use innovativetechnologies and processes can often offer qualitatively superior and/orcheaper products, and therefore enjoy higher growth potential. With this inmind, Figure 1 below displays that early-stage entrepreneurial activity,present intentions and future considerations of entrepreneurship appear tobe highest in Abu Dhabi, Al Fujairah and Ras Al Khaimah. Moreover,early-stage entrepreneurs in Abu Dhabi, Ras Al Khaimah and Umm AlQuwain have some mid-level technology.

As mentioned in the UAE GEM 2009 National Report there has beenvery little change in the level of Total Entrepreneurial Activity (TEA) inhigh/medium tech sectors in the UAE since 2006. This apparent disconnectbetween growth in TEA activity across the UAE since 2009 and growth inTEA activity involved in the technology sector is concerning and reveals anarea of weakness in the overall composition of entrepreneurship activity inthe UAE.

The GEM-questionnaire contains some questions, that provide insightinto the degree of innovativeness among early-stage or new entrepreneurs

Entrepreneurial Innovation and Policy Implications in the UAE


within a certain country. In particular, the new entrepreneurs are askedwhether they are making use of new technologies, to what extent otherbusinesses are offering the same products or services and how they perceivecustomers would assess the novelty of their products or services. In regards

Figure 2. Were the technologies or procedures available more than a year ago bynationality?

Figure 1. Technology level of the sector by Emirate (2009 and 2011).

M. S. Erogul & C. Van Horne


to new technology usage two observations appear. First, in Figure 2, bothearly-stage Emirati entrepreneurs and expatriate entrepreneurs in the UAEperceived to offer similar amounts of very latest technology usage.

The composition of TEA activity is important to the UAE, but so is theextent to which technology is used in what businesses are offering the UAEmarket. According to McCrohan et al. (2009) the UAE consumer is wellrenowned for being one of the most tech-savvy consumers in the world.Yet, a similar downward trend is noticeable among Emirati and Expatriateentrepreneurs of Established Businesses. On the other hand, in Figure 3,similar usage of new technology is observable for Emirati males andfemales in 2009, however there is a marked increase for females in 2011.Moreover, 2011 data indicates that there is an upsurge in innovative tech-nologies for both men and women managed SMEs.

Figure 4 looks at the ambitions of early-stage entrepreneurs regardinginnovation orientation; that is entrepreneurs targeting new markets withnew products. While the larger Emirates of Abu Dhabi, Dubai and Sharjahshow a reduced rate in looking to new markets with new products, some ofthe Northern Emirates demonstrate an increase in innovation orientation.An important step forward would be to extend government programs tostimulate innovation or training of employees to all SMEs. Through thistype of facilitation it may be possible to develop knowledge spillover whichis an important source of innovative activity.

Figure 3. Were the technologies or procedures available more than a year ago by gender?

Entrepreneurial Innovation and Policy Implications in the UAE


The GEM Adult Population survey incorporates a number of questionsthat help identify the extent of technology and uniqueness UAE businessesare incorporating into their product and service offerings in the UAE. Thisanalysis is of particular interest and importance as the UAE Federal Gov-ernment has stressed their determination to transform the UAE economyinto an advanced knowledge-based one and therefore the type of businessactivity and the level of technology being utilised by both start-up andyoung businesses in the UAE is critical in achieving this objective.

Figure 5 looks at job growth expectation from the years 2009 and 2011.There are marked decreases in all Emirates, most striking in Abu Dhabi,Dubai and Sharjah. This could suggest an overall decrease in confidence inthe market and in future growth.

Innovation Activity and Types of Business Started

To analyse the sectors in which people attempt to start businesses andcompare their distribution with those of established business, GEM codesactivity according to the International Standard Industry Codes (ISIC).These codes identify more than five hundred different types of activity,which GEM consolidates under four main headings for ease of analysis.

These sector groups are:

. Extraction: agriculture, forestry, fishing, and mining (i.e. extraction ofproducts from the natural environment)

Figure 4. Innovation orientation by Emirate (New market and new product).

M. S. Erogul & C. Van Horne


. Transformation: construction, manufacturing, transportation, and whole-sale distribution (physical transformation or relocation of goods andpeople)

. Business services: the primary customer is another business

. Consumer oriented: the primary customer is a physical person (e.g. retail,restaurants and bars, lodging, health, education, social services, recreation.

The largest share of TEA entrepreneurs as seen in Figure 6 are active inconsumer-oriented activities, while extractive activities exhibit the smallest
















Extrac�ve sector Transforming sector Business services Consumer oriented

2009 2011

Figure 6. Firm type in TEA.

Figure 5. Involved in TEA, any jobs now or in 5 years.

Entrepreneurial Innovation and Policy Implications in the UAE


share, there is little change shown between the years 2009 and 2011.Similarly, established business owners as seen in Figure 7 have a higherscore on consumer-oriented and transforming sectors like construction,manufacturing, transportation, and wholesale distribution. Apparently, thesector distribution of early-stage entrepreneurs and established businessowners is comparable. The higher ratio of business services can be relatedto the availability of highly educated and qualified people that are able toprovide business services. More innovative-driven economies tend to havemore companies that have the financial resources and the need to demandsuch services. According to Bosma and Levie (2009) progress in en-trepreneurial development facilitates entrepreneurial activity shiftaway from consumer oriented services, such as retail; and moves towardbusiness services such as consulting, maintenance of computer networks, oradvertising.

Consumer oriented activities contribute to the UAE’s achievement ofhigh growth rates. This may be attributed to the high growth rates ofconstruction activity. In addition, in the UAE the activity of financialinstitutions and insurance has witnessed big developments due to the lib-eration of financial services trade and insurance as well as the entry of largeforeign firms.

The performance of Emirati entrepreneurs in terms of their adoption ofthe latest technology and procedures into their business operations may atfirst, seem to be at odds of the findings from the previous section whichshowed the number of business start-ups and young firms in the UAE

Figure 7. Firm type in established Business.

M. S. Erogul & C. Van Horne


whose business operations are classified as low to high/medium technology.The clear implication from this analysis is that new and young firm’sprevalence in high/medium tech businesses is relatively weak and is noteffectively feeding off large foreign firms in the UAE operating in thesesectors. But across all new and young Emirati businesses in the UAE, theirwillingness and effectiveness in incorporating the latest technology intobusinesses that are not classified in the high/medium tech sector is relativelystrong. McCrohan et al. (2009) provided an example of this in relation tolaunch of the online supermarket delivery services across the UAE whosebusiness is not classified as high/medium tech but who may be using thelatest technology and product ordering system in their website platform totheir customers.

A rare example of an innovative SME, incorporating the results ofseveral “made in the UAE” patents is the floating villa based in Abu Dhabi.However, the lack of government research centres and universities withstrong technology transfer systems impedes the growth of the firm andexpansion into new markets (Al Hallami et al., 2013)

It has been stated that this technology adoption rather than technologyinnovation that is occurring in new and young businesses in the UAE maybe a function of the relative youth of the UAE economy and in particular theminimal linkages and partnerships that exist between universities in theUAE and private and public sector industries (McCrohan et al., 2009).This is understandable when the oldest university in the UAE is lessthan 40 years old. This clearly differentiates the UAE from the other in-novation-driven economies and is a significant barrier to increasing thenumber of new and young businesses that are involved in the high/mediumtech sector.

Yet, as seen in Figure 8, Emirati entrepreneurs can be labelled asmoderately innovative in an international perspective. From 2009 to 2011there is an increase to 20% of entrepreneurs saying that the technologiesthey use are the very latest and a slight decrease in the numbers indicatingtheir technology is five years or older.

The global economic crisis has had strong impact in using new tech-nology by Emirati entrepreneurs in regards to total early-stage entrepre-neurial activity. As Acs and Armington (2006) propose, it is theentrepreneurial mechanism that turns innovation into economic output. Alack of entrepreneurship can therefore be seen as a bottleneck for innova-tion-driven economies in achieving their growth ambitions. Apparently,the focus lies more on dynamics, and stimulating new combinations ofproducts and markets for the UAE.

Entrepreneurial Innovation and Policy Implications in the UAE



Figure 9 demonstrates an increase in the “me too” style of business thatmany SMEs use to minimise perceived risk. In 2011 nearly 8 in 10 SMEssuggest that they sell the same products and services as many of theircompetitors, an increase from 2009, which could indicate that entrepreneurshave an increased reluctance to try and implement new products and ser-vices to the market.

Cut-throat competition may hinder business existence and growth, so alower number of competitors is said to provide better chances of survivingfuture development (Acs and Szerb, 2009).

Figure 9. How many businesses offer the same products?

Figure 8. Were the technologies or procedures available more than a year ago.

M. S. Erogul & C. Van Horne


Innovation and entrepreneurship are closely connected. GEM assessesinnovation in entrepreneurial businesses by asking early-stage entrepre-neurs and established business owner-manager to rate the novelty (or un-familiarity) of their products or services relative to customers’ currentexperience. In doing so, each entrepreneur is asked to rate the degree ofcompetition in the market that is faced by the business: specifically,whether he or she perceives that “many” “few” or “no other businesses”offer similar products or services. This measures the percentage of early-stage entrepreneurs with novel product-market combinations. Theseentrepreneurs offer a product or service which they believe is new to someor all customers; they also believe that there are few or no businessesoffering the same product. According to McCrohan et al. (2009) the in-novation-driven country group, such as EU countries emerge as having —

on average — the highest relative prevalence of new product marketcombinations. Among other innovation-driven economies, Asian countrieshave low relative prevalence.

McCrohan et al. (2009) write that these indices work well if both theavailability of new products and services and the strength of competitionare evenly distributed throughout the world. This is a big assumption tomake. By comparing within country groups, there may be control to someextent for differences in product availability and ferocity of competition.But it may be that some countries score high on these indices merelybecause relatively few new products are available in them and competitionis weak. For example, within the European Union, Greece, Spain, and Italyhave relatively few new product-market oriented entrepreneurs in early-stage entrepreneurial activity, whereas Denmark, Slovenia, France, andIreland have high rates. Among other innovation-driven countries, it isstriking that Asian countries have low relative prevalence (Bosma andLevie, 2009).


Entrepreneurial aspirations reflect the qualitative nature of entrepreneurialactivity. Clearly the UAE as an opportunity-driven market introducing newproducts, developing new production processes, engaging in foreign mar-kets and finding growth through external capital stimulation have a sig-nificant impact on the economy. GEM has created measures that capturesuch aspirations. If these aspirations are realized they can have significanteconomic impact.

Entrepreneurial Innovation and Policy Implications in the UAE



Given the importance of Gazelles in generating new jobs over the comingfive years it is important to identify the breakdown of TEA Gazelles bynationality in the UAE as seen in Figure 10.

Figure 10 for some reveals a sharp decrease from 2009 to 2001 in thenumber of entrepreneurs expecting to hire more than 20 people in the nextfive years. However, the highest rates are amongst Arab Expatriates andUAE Nationals. This finding could indicate the importance of socio-culturaland linguistic factors in conducting business in the UAE. The proportion ofWestern and Asian expatriates who are TEA Gazelles is very low incomparison to their Arab counterparts.

According Bosma and Levie (2009) all entrepreneurial activity is im-portant but high-growth entrepreneurial activity is particularly so. Globallyexpectations of high-growth are rare among nascent and new entrepreneurs;however, focusing on innovation-driven countries, the UAE along withIceland, Canada, Singapore and the USA have highest levels of high-growth expectation early-stage entrepreneurs. Entrepreneurial processes areundoubtedly linked with macroeconomic conditions, but detailed relation-ships may vary as a function of economic development.

Earlier breakdowns of Technology level, of the sector by Emirate, in-novation orientation by Emirate and Involved in tea, any jobs now or in 5years across each of the seven Emirates was provided. Figure 11 presentsthe location of TEA Gazelles in the UAE. Please note that some cautionneeds to be used when interpreting these percentages as the sample size forsome of the smaller Emirates is approaching levels where statistical analysismay be spurious.

Figure 10. The Gazelles of the UAE by Nationality.

M. S. Erogul & C. Van Horne


Accordingly, the Emirates of Abu Dhabi, Dubai, Ajman, Fujeirah andSharjah all saw sharp decreases from 2009 to 2011 in the proportion ofTEA entrepreneurs who have become Gazelles. Only the Emirate Umm alQuwain saw an increase in their TEA Gazelle proportions. This may bepartially explained through employment protection policies.

The GEM method enables the categorization of early-stage start-upattempts according to their growth expectation. GEM asks all identifiedearly-stage entrepreneurs how many employees they expect to have (otherthan the owners) within five years’ time. Not all entrepreneurial activitysimilarly contributed to economic growth. Specifically, the importance ofhigh-growth entrepreneurial activity for job creation is increasingly em-phasized (Delmar and Shane, 2003). Figure 12 compares high-growth ex-pectancy rate of between women and men. There is a sharp decline in bothgroups to 2011, with less than 1 in 10 female entrepreneurs expecting tohire more than 19 people in the next 5 years. High-growth entrepreneurshipis predominant among male entrepreneurs compared to the female entre-preneurs who display similarity to the international results. Much of thismay be explained through the challenges that female entrepreneurs face.

Figure 13 illustrates which age brackets high-growth expectation entre-preneurship is coming from. Again, there is a sharp decrease from 2009to 2011 indicating that the economic crisis in 2008 to 2011, in additionto the uncertainty in the region as a result of the Arab Spring whichbegan in early 2011, had a large impact on entrepreneurs. However, latemid-age entrepreneurs had the lowest decrease in terms of percentage of

Figure 11. TEA Gazelles in the UAE by Emirate.

Entrepreneurial Innovation and Policy Implications in the UAE


entrepreneurs expecting high job growth, which could indicate that expe-rience reduces the uncertainty of periods of socio-economic crisis in theregion.

Figure 14 demonstrates the loss of jobs in early stage SMEs in the UAEfrom 2009 to 2011, from nearly 1 in 3 firms employing more than 20employees in 2009 to less than 1 in 6 in 2001. The largest increase is infirms employing between 1 and 5 people, indicating that many jobs werelost in the SME sector.

Figure 13. Expects more than 19 jobs in 5 years.

Figure 12. Expects more than 19 jobs in 5 years.

M. S. Erogul & C. Van Horne


It is stated that high-growth entrepreneurs receive high attention frompolicy makers because their firms contribute a disproportionate share of allnew jobs created by new firms (Autio, 2007; Acs and Amorós, 2008).


The third measure of entrepreneurial aspirations describes the internationalorientation of early-stage entrepreneurs. Internationalization is believed tobe a major determinant of growth (De Clercq et al., 2005). This measure isbased on the extent to which customers are from other countries. Thus, itrefers to exports as well as to international customers who buy productsonline, or visit the country as tourists or for work purposes. Figure 15shows more than 7 in 10 SMEs across the UAE have at least some inter-national customers. In contrast to earlier indicators, there is less of a declinefrom 2009 to 2011 in rates of international focus, perhaps indicating anavenue for future growth.

As exhibited in Figure 16, the UAE expat community of entrepreneurshave significantly higher rates of customers from abroad, this is not sur-prising expatriate entrepreneurs would have in general more contacts withothers from abroad, especially from their home countries. Figures forWestern expatriates and GCC Nationals were not included as the ratesindicated close to no export activity from SMEs run by these nationalities.

Figure 14. Current number of Jobs.

Entrepreneurial Innovation and Policy Implications in the UAE


The UAE among other innovation-driven countries rates fairly high inregards to having more than 25.0% of its customers from abroad and in2011 the UAE was ranked the highest in all innovation driven economiessurveyed (Van Horne et al., 2012)


The UAE government has been very active since 2009 implementing awide range of regulatory reforms aimed at making it easier to do business

Figure 15. Proportion of customers from abroad.

Figure 16. Proportion of customers from abroad.

M. S. Erogul & C. Van Horne


in the UAE including:

(1) Abolishing the minimum capital requirements needed for starting anew limited liability firm

(2) Shortening the time for delivering building permits by improving itsonline system

(3) Easing business start-up requirements by simplifying the documentsneeded for registration

(4) Removing the requirement that proof of deposit of capital to beshown for registration

(5) Increasing trade finance products which have improved trade pro-cesses (Dubai Chamber, 2009)

Although the issues of contract enforcement and closing a businessare still key barriers to doing business in the UAE, the 2011 World BankDoing Business Report ranked the UAE as the 35th in relation to ease ofdoing business compared to 47th in 2009 among 183 countries. Also, theUAE is in the top tier of 23 innovation-driven economies. This high rankingin innovation is due to the Government’s heavy investment in the devel-opment of infrastructure. Currently, the UAE Government is seeking in-creased collaboration between the private and public sector as well asindustry and academic partnerships in research and development, recog-nition of top quality innovative and entrepreneurial talent, and leveragingtechnology and education as UAE aspires to becoming a more innovativeeconomy.

Although at the present time there are no direct policies that addressinnovation (General Secretariat, 2011), there are certain initiatives thatfoster the development of entrepreneurial innovation and activity. For in-stance, the Masdar Institute Science and Technology, announced that theInstitute plans to launch the Center for Innovation Systems and Entre-preneurship (CISE). The CISE is a new initiative to further develop andspread entrepreneurial spirit among youth in the UAE.

In the Emirate of Abu Dhabi a major report on working towardsestablishing an innovation policy was published in 2011 by the GeneralSecretariat of the Executive Council (Abu Dhabi) from the InternationalOrganization for Knowledge Economy and Enterprise Development(IKED) entitled “Towards Innovation Policy in Abu Dhabi: Indicators,Benchmarking and Natural Resource Rich Economies”. The report inves-tigated the “sources” of innovation in organizations operating in theEmirate and found that smallest and largest firms were the most innovative.

Entrepreneurial Innovation and Policy Implications in the UAE


They also found that the oil and gas, manufacturing and services sector hadhigh degrees of innovation. These four sectors are at the heart of the currentand future planned economy of the country and are viewed as possible“clients” for innovation for other parts of the economy.

However many limitations to developing policy were noted including alack of data in the investment in R&D in the Emirate and the country as awhole, and survey data indicating very low rates of investment in bothpublic and private firms in R&D, seen as the base of innovation in aknowledge economy (General Secretariat, 2011)

The UAE Government and its policy makers are aware of the economicdevelopment benefits that are derived from fostering entrepreneurialendeavours. The sharp decreases in the number of entrepreneurs and theirincreased aversion to risk as demonstrated by many indicators, in the twoyears from 2009 to 2011 indicate there is much room for improvement ofthe entrepreneurial ecosystem. The goal of the UAE is to maintain com-petitiveness and sustain innovation rates among Emirati entrepreneurs. Toenable this facilitating an environment that may be developed throughstronger linkages with higher education institutes is necessary. Higher ed-ucation institutes are a significant partner in the development and growthprocess of entrepreneurship. All of the universities in the UAE need toutilize their efforts to strengthen the business sectors in the country, andprovide it with qualified human resources that are capable of starting uphigh growth companies and creating positive changes on the educationallevel. For this to happen, the teaching of maths, science, engineering andtechnology (SMET) at all levels of education in the UAE must be en-couraged. The key to being an innovative economy lies in the humancapacity of its workforce.

The goal of the UAE to become an innovative economy is to maintaincompetitiveness and sustain innovation rates among Emirati entrepreneurs.To enable this development, the strength and ease of technology transfers,advanced entrepreneurship education and networking opportunities, andsignificant amounts of early-stage funding are crucial. Significant changesin demographics should also be seriously addressed. A closer examinationof regional entrepreneurial differences is needed. The paper encouragespolicy makers to identify policies that may enhance the level of entrepre-neurial activity among Emirati citizens, and more specifically policymeasures which are supportive to open market competition.

This may start by providing extra funding to universities to develop theirprograms in maths, sciences, engineering and technology. Facilitating en-trepreneurial thinking and action taking in an educational environment

M. S. Erogul & C. Van Horne


requires engaging students in product development and innovation. Ad-vocating Emirati students to go into sciences, engineering, medicine andhealth sciences is necessary for this to take place. Provision of competitivegovernment scholarships providing students with free tertiary degrees inSMET as well as innovation/entrepreneurship studies may help.

Universities need to take on a stronger role in enhancing knowledge ofentrepreneurship and entrepreneurial attributes in the UAE, promoting thecollection of information to support policy development and, specifically,those policies that foster entrepreneurship. Taking these initiatives on boardmay enhance collaborative research between UAE government agenciesand educational institutions. There is a need to attract more Emirati studentsto the business sector by enhancing knowledge of entrepreneurship andentrepreneurial attributes in the UAE.

Also, there is a need to facilitate financial support for high-tech and highpotential new businesses. One of the major policy concerns is the fosteringof newly started businesses and how to attain sustainable growth in suchbusinesses. Attempts have been made to increase financing offerings toentrepreneurs which is a common type of entrepreneurship policy. Theavailability of early-stage financing is a crucial issue approximately 34.0%of Emirati entrepreneurs discontinued a business due to problems raisingfinance (McCrohan et al., 2009). Possibly adding instruments like mutualor partial credit guarantees may reduce the riskiness of loans by reducingthe “risk premium” charged by banks on loans. Although not a commonfinancial tool for particular sectors, this may be a facilitator for high-tech,high-potential new businesses that tend to be more capital-intensive andriskier than less-innovative ones.

Overall, the focus should be on developing a highly innovative entrepre-neurial sector and on supporting high value added new companies that havethe potential to grow and to develop internationally. Interestingly, althoughfinancing is witnessed to be an important challenge for most entrepreneurs,high-potential or not, so is the lack of ability among entrepreneurs in generalto convince investors to become involved in their businesses. For this reason,rather than directly supporting newly businesses with money it is necessaryfor public support offices to provide support in certain critical aspects such asnetwork, credibility and business development.

This support needs to be provided beginning at the earliest-stage of theentrepreneurial activity. It may start when the aspiring entrepreneurcomes with simply a business idea and a rough plan of how to develop it.For this to take place and to be able to create efficient support programsthat really add value for early-stage entrepreneurial activity, both policy

Entrepreneurial Innovation and Policy Implications in the UAE


makers and business developers need knowledge about how their supportsystems work. As so, much lies in the hands of establishments such as theKhalifa Fund for Enterprise Development and Mohammed Bin RashidEstablishment for Young Entrepreneurs who need to re-examine betweensupply and demand/actual needs with regard to the support given and itscontent. New growth theories suggest that policies need to be moresupply oriented, focusing on innovation, infrastructure and ecologicalsustainability, rather than on the traditional simplistic tools of local de-mand. In other words the shift from demand side of economy to supplyside of the economy has major implications on entrepreneurs and to-bebusiness aspirers.

As Jorgenson (2001) mentioned modern economic development is to animportant extent determined and driven by the emergence of the knowledgeeconomy. The developments that are taking place in technical and orga-nizational knowledge are identified as key drivers of economic growth.Through government encouragement and facilitation the emphasis onknowledge and technological change may provide entrepreneurs opera-tional ways to think about the sources of opportunity and how the oppor-tunity set may be expanded and exploited all together.

The points above further substantiate the need to continue focusedefforts in:

. Creating awareness about entrepreneurship, the benefits of being anentrepreneur or business owner, and inspiring youth to consider sucha career pathway through marketing initiatives and highlighting suc-cessful stories and role models, with a focus on women and socialinclusion.

. Equipping potential entrepreneurs with the appropriate training, tools andresources, as well as advice to pursue such a career.

. Idea Sourcing to develop further at all levels (i.e. use of opportunityawareness forums)

While the economic growth of the UAE has been spectacular in re-cent times, with the start of the global economic crisis, the UAE faces avariety of economic and business challenges. There is need for furtherresearch to help harmonise policies with activities in practice as well asstabilise practice with policies that achieve the needs of individualentrepreneurs. In conclusion, improving entrepreneurial innovation mayalso require engaging entrepreneurs to become active participants ininforming policy.

M. S. Erogul & C. Van Horne



Abu Dhabi Economic Vision 2030. (2008). Government of Abu Dhabi, United ArabEmirates.

Acs, Z. J. and Amorós, E. (2008). Entrepreneurship and Competitiveness Dynamics inLatin America, Small Business Economics 31(3):305–322.

Acs, Z. J. and Armington, C. (2006). Entrepreneurship, Geography, and American Eco-nomic Growth, NY: Cambridge University Press.

Acs, Z. J. and Szerb, L. (2009). The Global Entrepreneurship Index (GEINDEX), Foun-dations and Trends in Entrepreneurship 5(5):341–435.

Al Hallami, M., Van Horne, C. and Huang, V. Z. (2013). Technological innovation in theUnited Arab Emirates: process and challenges, Transnational Corporations Review5(2):46–59.

Audretsch, D. B. (2004). Sustaining Innovation and Growth: Public Policy Support forEntrepreneurship, Industry and Innovation 11(3):167–191.

Autio, E. (2007). Global Entrepreneurship Monitor 2007 Global Report on High GrowthEntrepreneurship, London, UK: London Business School and Babson Park, MA:Babson College.

Bosma, N. and Levie, J. (2009). Global Entrepreneurship Monitor 2009 Executive Report,Babson Park/London: Babson College/London Business School.

De Clercq, D., Sapienza, H. J. and Crijns, H. (2005). The internationalization of small andmedium firms, Small Business Economics 24(4):409–419.

Delmar, F. and Shane, S. (2003). Does the Order of Organizing Activities Matter for NewVenture Performance? in: P. D. Reynolds et al., Frontiers of Entrepreneurship 2003,Wellesley/MA: Babson College.

De Jong, P. J. (2006). The Decision to Innovate, Literature and Propositions, Zoetermeer:EIM.

General Secretariat Executive Council Emirate of Abu Dhabi. (2011). Towards InnovationPolicy in Abu Dhabi: Indicators, Benchmarking and Natural Resource Rich Econo-mies, Abu Dhabi.

Jorgenson, D. W. (2001). Information technology and the U.S. economy. AmericanEconomic Review 91: 1–32.

King, N. and Anderson, N. (2002). Managing Innovation and Change: A Critical Guidefor Organizations, London: Thomson.

McCrohan, D., Erogul, M. S., Vellinga, N. and Tong, Q. (2009). Global EntrepreneurshipMonitor Report on Entrepreneurship in the United Arab Emirates 3, 1, Dubai: ZayedUniversity.

Minniti, M., Bygrave, W. D. and Autio, E. (2005). Global Entrepreneurship Monitor:2005 Executive Report, Babson Park/London: Babson College/London BusinessSchool.

Preiss, K. and McCrohan, D. (2006). Global Entrepreneurship Monitor, National Report,United Arab Emirates 2006. College of Business Sciences, Zayed University, 1(1),Abu Dhabi: Zayed University.

Schumpeter, J. A. (1934). Theory of Economic Development, Cambridge: HarvardUniversity Press.

Entrepreneurial Innovation and Policy Implications in the UAE


Schumpeter, J. A. (1942). Capitalism, Socialism and Democracy, New York, NY: Harperand Row.

Schumpeter, J. A. (1997). First published 1949, ‘Economic Theory and EntrepreneurialHistory’, in Essays on Entrepreneurs, Innovations, Business Cycles and the Evolutionof Capitalism, Transaction Publishers, London.

Tong, Q., McCrohan, D. and Erogul, M. S. (2012). An Analysis of EntrepreneurshipAcross Five Major Nationality Groups in the United Arab Emirates. Journal ofDevelopmental Entrepreneurship 17(2):4–21.

Van Horne, C., Huang, V. and Al Awad, M. 2012. “UAE GEM Report 2011”, ZayedUniversity, UAE.

M. S. Erogul & C. Van Horne


Copyright of Journal of Enterprising Culture is the property of World Scientific PublishingCompany and its content may not be copied or emailed to multiple sites or posted to a listservwithout the copyright holder's express written permission. However, users may print,download, or email articles for individual use.