As a scholar, Vijay Mahajan has worked to explain global opportunities to the business world, and his latest work, The Arab World Unbound, examines the potential of the Middle East’s markets. Mahajan holds the John P. Harbin Centennial Chair in Business at McCombs School of Business, University of Texas at Austin. He is a former dean of the Indian School of Business in Hyderabad.
Mahajan spoke at length about his travels and experiences in the Middle East that went into the book. In the first of two parts of his interview with Arabic Knowledge at Wharton, he advises any company coming to the region to steer clear of Middle Eastern stereotypes perpetuated by popular media.
This is the second of two parts of his intervew. In this segment, he notes that the Middle East is much like India or China in one particular way. Dubai, he says, is an outlier compared to much of the rest of the region. "You won’t find modern trade everywhere other than the Gulf countries. Just like you would work with the mom and pop stores in China and India and many of these developing countries, so expect to work with that kind of trade also in this region."
An edited transcript of the conversation follows.
Arabic Knowledge at Wharton: Could you speak a little bit about the strategies that local Arab brands are using to challenge multinational corporations in the region?
Vijay Mahajan: Like any developing country, the perception is always there that the outsiders make the things better, especially if they’re Europeans. So that perception I found true of the region. Interestingly enough, if something is made in Saudi Arabia it makes a very positive impression. And if something is made in United Arab Emirates (UAE), that also has a very positive impact.
But many of these multinationals, a majority of their products are actually made in the region. The local companies have understood that people really appreciate the product that we have, so there are three different strategies they’re following.
One is really taking advantage of the region itself and how certain things made in the region would appeal to certain market segment. Second is to follow the travelers. And third is to really create global brands.
Arabic Knowledge at Wharton: How significant is the role of women entrepreneurs in driving change in the region?
Mahajan: I had no idea what I was going to find about women. There’s a table in the book that gives you the data on the percentage of the men and women who go to university, and how many of them graduate. In many of the countries there are more women who go to colleges, universities, than men. And there are more women who actually graduate from the universities and colleges. So they’re very educated.
It’s very important to realize though that they have a commitment to their children. Their family structure is very important. And as a matter of fact, according to Islam, the mother is somebody that you revere and somebody you listen to.
Arabic Knowledge at Wharton: Can we turn to the role of the Arab diaspora in driving growth in the region’s consumer markets?
Mahajan: They’re very active. And as a matter of fact, if you look at the top ten immigrant groups in this country, the people who are U.S. citizens or U.S. immigrants but they’re not born here, they are among the top. Many of them came 60, 70, even 80 years ago, when there was a greater Syria, Lebanon and also Palestine, Jordan. They’re still very active, they still have connections back home.
Many of them are actually helping to start up the incubators in Egypt and Lebanon and other places to encourage entrepreneurship. Some of them have started actually the business plan competitions. So this diaspora actually is very much like a diaspora that you would meet from China or India. This diaspora, they’re educated.
What you also find there is that many of these people are really helping to establish some major institutions in the region. So overall I would say that they’re just like that you would see the Chinese and Indians. You know, they’re getting involved with the region and they’re really making some very significant contributions.
Arabic Knowledge at Wharton: Turning now to the role of global companies in the region, how do you think they can tap into the technology and media markets in the Arab world?
Mahajan: That’s really a booming industry there. Historically there has been a movie industry in Egypt, but now it’s also coming to other parts of the Arab world like Dubai and Tunisia. In television, it’s really amazing. There are close to 500 channels now available because of satellites. The biggest one is the pan Arabic channel MBC, the Middle East Broadcast Corporation.
It was amazing for me to see the level of the talent that you see there. And now historically MBC and others, they had borrowed a lot of content from other countries, for example telenovelas coming out of Brazil or Indian movies that they would actually dub that into Arabic. But now they have started developing their own content.
And then of course you have the Internet. Young entrepreneurs know that if you come up with a great idea, you have some very good exit strategies. Some of the multinationals media companies may buy you out, like Yahoo buying Maktoob. Or, you can also go for an IPO. Some entrepreneurs who actually started Maktoob now are actually helping other entrepreneurs start technology companies.
What you see here is that this young generation is very technology savvy. And if you look at penetration rates for broadband Internet, it’s amazing to see in some of the countries that they are even much higher than what you will see in China and India.
I think a good example of that is what we saw on the television during the Arab Spring and how social media was really helping these youth to connect.
Lebanon has a huge music industry. When you go to Dubai you can see a media city. Some of these publishing houses now are also paying attention to the region when they historically did not have their offices there.
Despite the fact that their average GDP per capita is US$6,000, there are certain poor countries or countries with many poor, such as Yemen, Egypt, Mauritania and Jordan and a few others. You won’t find modern trade everywhere other than the Gulf countries. You have to really work, just like you would work with the mom and pop stores in China and India and many of these developing countries, so expect to work with that kind of trade also in this region. You have to really understand actually how to reach out to these people. If you’re just looking at Dubai and you think the whole region is like that, this is not really true.
Arabic Knowledge at Wharton: Although political relations between the Arab world and Israel are tense, you point out in your book that consumer markets between them are getting integrated. Could you speak to us about how this is happening and what are the implications for the economic future of the region?
Mahajan: Well, I think that the most interesting example that I have in the book really is what I saw in the West Bank, where some of the Israeli brands actually have very high market share. One reason could be because of historical linkages, and the availability of the Israeli brands. But on the other hand, when I visited some of the distributors there, people do have a choice. They have a choice of buying the products from other multinational companies.
Somebody told me, "There is a good brand which is good for the children of Israel, why wouldn’t that be good for the children in the West Bank?" I think they were referring to the Israeli milk brand. So what you find there is that it’s a very global environment, consumers are very discerning. For example I found a non-alcoholic beer, and although they were Western brands, they are manufactured in the Gulf countries, and those brands were actually available in some areas in Israel.
When consumers see a good product, they like it and if the companies are doing a good job to develop the brand loyalty, these companies do get the payoffs. So at the end of the day I think what I saw there is that people really want to give the best to their children, be that food, uniforms, medicines. And if there is not a legal way to find that, some entrepreneur is going to figure out how to make that available to you, like the example of Listerine that I saw in Syria.
I had not expected to see that, but I was very pleasantly surprised and happy to see that. These consumers are not any different from the consumers that you will see in many of the developing countries because they’re emerging. In developing countries they want to let the rest of the world know they have arrived, so therefore pay attention to them. And these Middle East consumers are doing exactly the same. They say, "Show me what you’ve got. And if you have something really good, I’d like to buy from you." So I think I was happy to see that.