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Middle East friction felt by marketers

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With a war in Iraq looming, anti-American sentiment growing and uncertainty about the future of the Middle East at historic levels, many U.S. b-to-b marketers are hesitant to do business in the region.

"It’s real quiet right now," said Kevin Taecker, an independent consultant specializing in the financial and commercial markets of Saudi Arabia and the nearby Arab region. "Everyone is just waiting for the other shoe to drop."

This stagnation, combined with heightened restrictions facing Arab citizens trying to enter the U.S. and intensifying anti-American sentiment, have created unprecedented strains on the business relationships between U.S. and Middle Eastern companies.

Nevertheless, economic activity hasn’t ceased in the region. Despite continuing fallout from the Sept. 11, 2001, terrorist attacks and the likelihood of military action in Iraq, multinationals such as Atlanta-based United Parcel Service of America Inc. say that, for them, it’s business as usual in the Middle East. In fact, UPS said its business in Turkey grew more than 15% in 2002 over 2001.

UPS goes to market in Turkey by contracting with a local partner, Istanbul-based Unsped Paket Servisi AS. Most Unsped employees are Turkish, which UPS says gives it several advantages.

"They are the local experts," explained Andy Connelly, UPS district manager-Eastern and Central Europe, the Middle East, and Africa.

As in the U.S., the trucks are brown and unmistakably UPS. The company, however, isn’t overly concerned about anti-Americanism. One reason? Native Turks dominate its work force. Another is that over the past decade, UPS has committed to becoming international in scope. "More and more, UPS is seen as a global company," Connelly said.

Oil still pumping

It’s no surprise that the oil business, the centerpiece of the region’s economy, also continues to operate unabated. Houston-based Baker Hughes Inc., a supplier of oil industry services, is pursuing business as usual as much as possible, said Ron Bitto, the company’s director of communications.

"We’ve withdrawn most of our people from Kuwait [which borders Iraq], but in other places it’s kind of a wait-and-see thing," Bitto said. "Nobody wants a war. For our business, it’s a terrible complication."

Nonetheless, Baker Hughes continues to advertise. It regularly runs ads on the back cover of Oil & Gas Journal, a Tulsa, Okla.-based PennWell Corp. trade publication that is distributed worldwide.

PennWell itself has continued its commitment to the Middle East. In October it announced an agreement that would expand its Power-Gen Middle East Conference and Exhibition in a joint venture with Abu Dhabi-based General Exhibitions Corp. "We will continue to do business in the Middle East, and it will grow," said Jayne Gilsinger, PennWell’s senior VP-planning and development.

Michael Cooke, CEO of London-based DMG World Media, which produces trade shows in the Middle East and elsewhere, said it’s no surprise U.S. petroleum companies have remained engaged in the region. "If you’re in oil," he said, "you’ve got no choice."

Americans skip trade shows

But Cooke said U.S. companies from other industries were noticeably absent from two recent trade shows his company staged in Dubai, United Arab Emirates—Index, an interior design industry show, and Big 5, a construction industry show.

"What we did notice is that the U.S. companies have all stopped traveling to the Middle East," Cooke said, adding that both shows nevertheless set attendance records.

But Cooke is troubled by the apparent reluctance of some U.S. companies to commit fully to the region. "U.S. companies seem to think that the Middle East is a country," he said. "But there are different countries and different people, and they require different relationships. You have to be there to understand it."

In 2002, U.S. exports to the 17 countries making up the Middle East totaled about $25.6 billion, down 4% from the previous year, according to U.S. Census Bureau figures. A large share of the goods could be classified as b-to-b. The figures showed Saudi Arabia, for example, imported $2.8 billion in U.S. machinery and transportation equipment in 2002, which amounted to 58% of its overall U.S. imports.

U.S. exports to the entire Middle East in 2002 were $25 billion. This compares with $33.3 billion worth of goods the U.S. exported to the United Kingdom in the same period.

Anti-Americanism a factor

It must be said that anti-American sentiment is very real in the region—real enough to become an economic force, some observers say.

For instance, a grassroots boycott of American goods contributed to a nearly 55% decline of U.S. exports into Saudi Arabia between 1998 and 2002, according to the Middle East and North African Business Report, known as the MENA Report.

Other observers dispute the degree of the boycott’s impact. They say much of the drop-off in U.S. exports was due to a decrease in large orders of passenger aircraft and telecommunications infrastructure products that skewed the results.

Ahmad Miski, executive director of the Arab American Chamber of Commerce, also scoffed at the boycott, particularly its effect on b-to-b relationships. "I heard that, and I laughed inside myself," Miski said. "This did not make sense to me. What are Arab imports from the U.S.? The Arab countries buy heavy machinery, airplanes and other equipment. Not Coca-Cola."

Ironically, large b-to-b purchases, made in the context of long-term relationships between U.S. sellers and Middle Eastern buyers, are themselves sometimes the source of deep suspicion.

Mostapha Saout, general manager of Allied Media, an Alexandria, Va.-based company that sells commercial time on al Jazeera and other Arab electronic media outlets, said that U.S companies didn’t have to advertise in the Middle East because they tend to sell face-to-face through relationships with what he called corrupt regimes. U.S. companies, Saout said, essentially dealt with "dictators under the table, wheeling and dealing" to get "billion-dollar contracts."

As anti-Americanism grows, Arab governments are under increasing pressure to change the status quo, he added. "In the long term," he said of these Arab governments, "they are going to suffer if the situation stays the same."

Other observers are less pessimistic. "These are long-established relationships. These people have known one another for years," said Don DeMarino, chairman of the National U.S.-Arab Chamber of Commerce, speaking about the decades-old business relationships between U.S. and, in particular, Saudi businesses. DeMarino said these relationships remain strong.

Strained relations

But other observers say just the opposite, and contend the U.S.-Saudi relationship, in particular, is being strained.

One U.S. telecommunications industry executive who is also a member of the U.S.-Saudi Business Council, speaking on condition of anonymity, said Saudis are fed up with new restrictions on entering the U.S. and the fact that fewer student visas are being granted. These hindrances will sour the U.S.-Saudi business relationship in the long term, he said.

This source said he was aware of a construction project in Yenbu, Saudi Arabia, which could be as big as $2 billion and that wasn’t accepting bids from U.S. companies because of the difficulty Saudis had getting into the U.S. to conduct business. "‘It’s going the wrong direction’ is what the Saudis told me," the source said.

Optimists about the business prospects do exist, and DMG World Media’s Cooke is one of them. "Most economists believe that if there is to be a war, a really short war, actually it will create a boom," he said.

The Arab American Chamber of Commerce’s Miski is likewise optimistic.

"I feel that when the U.S. will take over in Iraq and they put Saddam out, that means the Iraqis will import more of these [b-to-b] products from the United States," he said. "You will have more sales to the area than ever before."

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