Kuwait: Economic Overview, Government Policies And Strategic Approaches

Economic Overview of Kuwait

Discuss about the Business Level Strategy and Generic Strategies for GDP.

Kuwait is the fourth richest country based on per capita in the world as the GDP per capita of Kuwait touched to $69,700 in 2017 (Kennedy 2016). The inflation rate in Kuwait is 2.5% and the unemployment rate in Kuwait was 2.1% in the year 2017. Most of the industries in Kuwait are associated with petrochemicals, petroleum, shipbuilding, cement and food processing and desalination and construction materials. Kuwait scores 62.2 in Economic Freedom and it is the 81^st freest economy in 2018 (Edris 2017). The competitive advantage of a country mainly rests on the cheap labour and it is the ability of the nation to grow easily.

Kuwait government continued to encourage foreign direct investment with the implementation of the laws of   FDI. In Kuwait; the oil revenue has been declined and the government is trying to diversify the economy; therefore, the government is trying to increase the foreign direct investment by taking numbers of steps. Therefore, the local companies may face the issue of competitive challenges from the foreign companies. The government has taken the decision to allow the 100% FDI in foreign ownership in some of the industries; power, water, water treatment and communications, IT, hospitals and insurance (Moore 2017). However, Kuwait government has taken the decision of limitation of foreign control in some of the sections and Right to Private Ownership and Establishment has been imposed. The foreign companies cannot impose investment in the sectors of extraction of crude oil, natural gas, manufacture of coke, manufacture of the fertilizers, real estate, public administration and defence and investigation. In Kuwait, the government has provided the help through limiting the foreign investment in some of the sectors which have simplified the process of registering the new local companies in reduced wait-time associated with the starting of the new business. The Companies Law No.1 2016 maintained the requirement that Kuwaiti national must own 51% of the local companies unless the foreign investors apply via KDIPA (Lizondo 2016). Restriction of FDI in the country like Kuwait will provide benefit to the local companies which will contribute to the good flow of exchange of money. FDI mainly is the reason behind the exchange crisis and with inflation, it has contributed to the dwindling the exports. Low FDI in the industry can also help country’s politics not to corrupt as FDI can also influence the political set up also.

Government Policies in Kuwait

Through open door policy; one country can have the protection of equal privilege from the trading countries. The principle of open-door policy is to have equal access to maximum ports open in the trade (Wei 2017). Great economic power must maintain the free access to the ports and the country can collect the taxes. Therefore, the open-door policy will allow Kuwait to have the free trade between the nations. Kuwait can take the open door policy as it will make the nation trade with many of countries, drawing major economic growth. Therefore, Kuwait will have the benefits of attracting the foreign investors who will invest money in Kuwait to grow the local companies. Local companies will use the best mechanics to produce or manufacture the products so that their qualities will be better. The best products can be sold to the foreign markets easily. In addition, open door policy will help the local companies to fight against the competitors; however the country many loss the part of their tradition and culture.

International Monetary Fund was founded in the year 1944 and it included the Bretton-Woods system to manage the exchange rates. The primary objective of IMF is to assist stabilise the exchange rates and provide loans to the countries in need. Most importantly, Kuwait is one of the richest countries in the world and Kuwait does not need any loan or monetary help from IMF. However, in order to improve the condition of the local business is to make the function of the international monetary cooperation. IMF makes an adjustment to help with the balance of payments. In case of the local business financial crisis; IMF can provide international coordination with advice and loans (Crystal 2016). The local businesses in Kuwait can have the benefits of economic monitoring and surveillance along with conditional loans from IMF.

Import tariff can raise the price of the products in Kuwait market and local businesses have to import the raw materials or the supply items with a higher price due to the import tariff. Import tariff makes the products more expensive and it can make the volume of the products reduced (Manning 2002). Import tariff can provide a source of revenue for the countries levying upon them. Kuwait approves the single customs tariff and it sets the official tariff rate is just 5% on most of the goods. However, Kuwait exempts custom duty on the certain set of products like foodstuff and medicines. Kuwait must lower the import tariff so that the goods must cost less in Kuwait and taxes are calculated on the complete shipping value. Kuwait does not charge GST and any other charges on the products and it helps the products to sell less in price.

Strategic Approaches for Local Businesses in Kuwait

Kuwait country has diverse labour source and in Kuwait almost 84% labours are the expatriate (2.68 million). However, Kuwaiti citizens mostly occupy the top management in both public and private sector (Muhammad 2017). The entrant in expatriate is unlikely to enter the private sector. The unemployment rate in Kuwait is increasing as the rising of young Kuwaitis are trying to enter the labour force. Underemployment is another problem in Kuwait and the workers from the OECD countries hold the top position in the Kuwaiti local companies. Local companies must hire the local young generation in the management as it would be low paid labourers than the expatriate. In addition, local companies can also recruit the majority of expatriate in low-paid wages from the South Asia and Middle East sections. Kuwait government needs to eradicate the sponsorship system so that visa trafficking can be solved. Government of Kuwait has started the labour tracking to allow the companies work under the permit of pre-verified positions by the government.

Recent article stated that business condition for local business in Kuwait is positive and almost 94% of the business leaders stated Kuwait’s current tax condition is competitive on the global scale (Justlanded.com 2018). The firms in Kuwait can take a few strategies so that they can be successful in the global market.

The local organisations in Kuwait can take the strategy of subcontracting as the companies can outsource the work to other businesses so that local organisations may be able to assist the organisations to achieve the production objectives. As stated by Oshri et al. (2015), outsourcing work for the other organisations can allow valuable space when the companies allow for the limit. The local companies in Kuwait can do the practice of assigning the part of tasks under contract to another party known as a subcontractor. In addition, subcontracting is prevalent in Kuwait based companies where the organisations work on complex projects, construction and technology. Subcontracting helps the organisation in helping with large projects and it is cost-efficient and adverse to the risks. In Kuwait based local organisations; maximum organisations in petrochemicals, constructions and real estate sector; the subcontracting can increase the productivity. The external providers check the progress of the work so that the organisations can make sure to complete the work with the best quality so that the companies can compete in global market.

In Kuwait, local market of the product is larger and the products have demand at home. Therefore, the local firms put emphasis on the development of the foreign companies. Therefore, the local companies will increase the global competitiveness. Kuwait based local companies need to improve the demand in the local market as a high demanding industry in home country can be observed as the driver of growth, quality improvements and innovation. The local companies in home market produce something which has market values and the price reductions can improve the demand as well (Rouibah et al. 2015).

Local companies in Kuwait must have the supporting industries so that the suppliers can deliver products in competitive pricing. Home country firms can get cost efficient supplies and the local companies get the more innovative parts (Dunning 2013). Therefore, the companies in Kuwait can lead to greater competitiveness. Therefore, the government needs to make the supporting industries of the local firms so that the highly competitive pool of related businesses can strengthen the competitiveness.

The local firms in Kuwait need to maintain structure and management system which would help the companies affecting the competitiveness. The structure of Kuwait based firms can be hierarchical so that the communication can flow from top to bottom. The local firms can take the strategy low-cost leadership or the differentiation of the products so that the firms can have the competitive advantage from the rivalries in the market. Differentiation of the products helps the local companies to beat the barriers to entering the global market. Kuwait based companies can take the strategy of innovation.

Reference List

Crystal, J., 2016. Kuwait: The transformation of an oil state. Abingdon: Routledge.

Dunning, J.H., 2013. Internationalizing Porter’s diamond. MIR: Management International Review, pp.7-15.

Edris, T.A., 2017. Services considered important to business customers and determinants of bank selection in Kuwait: a segmentation analysis. International Journal of Bank Marketing, 15(4), pp.126-133.

Kennedy, P.D., 2016. Doing business with Kuwait. Kogan Page.

Landed, J. and Landed, J. 2018. Starting a Business. [online] Just Landed. Available at: https://www.justlanded.com/english/Kuwait/Kuwait-Guide/Business/Starting-a-Business [Accessed 3 Jul. 2018].

Lizondo, J.S., 2016. Foreign direct investment. Readings in International Business: A Decision Approach, pp.85-114.

Manning, A.D., 2002. Making sense of strategy. AMACOM/American Management Association.

Moore, P.W., 2017. Doing business in the Middle East: Politics and economic crisis in Jordan and Kuwait (Vol. 20). Cambridge University Press.

Muhammad, A.H., 2017. Antecedents of organizational politics perceptions in Kuwait business organizations. Competitiveness Review: An International Business Journal, 17(4), pp.234-247.

Oshri, I., Kotlarsky, J. and Willcocks, L.P., 2015. The book of Global Outsourcing and Offshoring 3rd Edition. Berlin: Springer.

Rouibah, K., Lowry, P.B. and Almutairi, L., 2015. Dimensions of business-to-consumer (B2C) systems success in Kuwait: Testing a modified DeLone and McLean IS success model in an e-commerce context. Journal of Global Information Management (JGIM), 23(3), pp.41-71.

Wei, S.J., 2017. The open door policy and China’s rapid growth: evidence from city-level data. In Growth Theories in Light of the East Asian Experience, NBER-EASE Volume 4(pp. 73-104). University of Chicago Press.