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Book Excerpt: "The Arab World Unbound" by Vijay Mahajan

After the success of his book “Africa Rising,” marketing professor Vijay Mahajan tackles another growing market with "The Arab World Unbound: Tapping into the Power of 350 Million Consumers." Based on his firsthand research and hundreds of interviews, the book reveals the reality of doing business with a segment of the population that collectively makes up the ninth-largest economy in the world.

Here's an excerpt from Chapter 1:

ARAB CONSUMERS CONTROL MORE SPENDING POWER THAN YOU THINK

The diversity and wealth of the Arab World provide an incredible array of opportunities for consumer companies that take the time to understand the people and their culture. If the Arab League were a single country, its gross domestic product in 2010 would’ve been roughly $1.99 trillion, exceeding the GDP of all but eight countries. It would be larger than India and the Russian Federation—two of the four so-called BRIC markets so coveted today by multinational businesses. The Arab World is not one economy, of course. I’ll discuss more about the rich variation throughout the region in Chapter 2, but what’s clear from the data here is that the Arab markets—both the six wealthy countries of the Gulf Cooperation Council (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE) and the less-developed economies such as Yemen and Mauritania—can offer profitable opportunities for consumer companies.

The region’s wealth doesn’t sit solely in the hands of sheikhs and oil barons, either. A rising middle class in the Arab World is using its own wealth as it works to improve its own standard of living (see Chapter 5). If the 22 Arab League countries were a single economy, their collective GDP would amount to $5,563 per person—more than both China and India. Of course, the relatively small populations and the large oil-and-gas revenues in countries such as Qatar, Kuwait and the United Arab Emirates boost the GDP per capita totals. In fact, that combination of fossil fuels helps give Qatar one of the world’s highest per capita GDPs. But it’s too simplistic to assume all those figures are skewed by oil wealth. Many of the Arab countries without vast petroleum reserves—Jordan and Lebanon, for example—still have a higher per capita GDP than India. In fact, only five Arab countries have a lower per-capita GDP than India’s, while nine have a higher per-capita GDP than China’s.

THE SHADOW ECONOMY

The informal flow of money and products throughout the region adds even more heft to the Arab consumer markets. According to research by noted Austrian economist Friedrich Schneider, Egypt’s $218 billion economy would grow by more than a third if the shadow economy were included in the official calculations. The percentages drop in wealthier countries—the shadow economy is only 14 percent of GDP in Qatar, for example—but all the Arab countries have a larger shadow economy than China. (India’s 22.2 percent would put it around the middle of the Arab pack.)

The Arab countries mitigated some of the shadow economy in 1997, opening up smoother official trade pathways with the Greater Arab Free Trade Area (GAFTA) agreement. The agreement, which includes 18 of the most prosperous Arab countries, prompted many consumer-products companies to increase their commitment to local manufacturing, a decision that eliminated many of the import-export hassles while fostering a higher level of brand loyalty among local consumers. It hasn’t worked perfectly: Unilever, for example, produces several of its products in Morocco, but it ships those items to Algeria via France because of the tepid relationship between the two Arab nations.

Despite moves to smooth trade pathways, a robust parallel market has emerged outside of official company channels, proving again that wherever entrepreneurial companies find demand for a product, they will figure out a way to get it there. I found the clearest example of this at a modern hypermarket in Aleppo, Syria. Earlier in the day, I’d met with the senior manager of a Syrian distribution company, who said foreign companies that want to bring products into the country have to prove those goods have no significant connections to Israel. Most multinational companies would source their Syria-bound products from other Arab countries, taking advantage of GAFTA, but the government still had banned many brands because of real or supposed ties to Israel. Neutrogena, Band-Aid, Tylenol or Listerine all were banned—at least officially. But just hours after my meeting with the distributor, I found a neatly arranged selection of Listerine at this major hypermarket in Aleppo. I could’ve purchased enough mouthwash to keep my teeth and gums germ-free for months.

Finding Opportunity In The Shadow Economy

These gray markets present a, well, gray area for governments and consumer-products companies. Most Arab countries have cracked down on counterfeit and black-market goods. The Oman Ministry of Commerce and Industry, for example, created a consumer protection division that actively searches for pirated software, fake Lipton tea bags, knock-off mobile phones from China and numerous other counterfeit items. But the gray market—official goods reaching consumers through unofficial channels—did not get the same level of scrutiny. In Jordan, Syria and Lebanon, sales of gray-market products amounted to roughly $4 million a year on Unilever products alone, company officials told me when I visited in 2009. 

Still, successful companies in the Arab World have figured out ways to turn this gray market to their advantage. When Unilever launched its new Clear shampoo in 2009, it unleashed a television ad blitz on the pan-Arab satellite networks. The ads supported the official Clear launch in the GCC countries, but it also started building brand awareness in markets where it hadn’t launched yet, including Jordan. Soon enough, Unilever’s staff in Jordan was seeing Clear show up in their territory. While they didn’t like the idea of losing control over those sales, they realized they take advantage of some fringe benefits. So brand managers started researching the gray market sales, tracking how and where Clear sold and who was buying it. When Clear officially launched in Jordan the next year, the company had used its gray market research to help craft a successful local marketing strategy.

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