Doing Business in Mideast Is Hard, Rewarding

Times Staff Writer

Despite the decline in oil prices, the Middle East is still a potentially lucrative market for American businessmen even though, as James Penny says, "A lot of Westerners get discouraged by the competency level, which really is horrible."

Penny, an American and the general manager of ComputerLand here, quickly added in a recent interview that "for those who have done their homework on the region, for those who have patience and capital, the rewards can be enormous."

More than 250 American firms are represented in Cairo, and General Motors Corp. is building a $40-million production plant here. One of the world's largest Chevrolet dealerships is located in Kuwait, where families own an average of 4.5 cars. American banks, hotels and construction projects reach from Tunisia to Saudi Arabia.

Stabilized Work Force Penny, like many who have invested here for the long haul, has yet to reap great rewards. His company, with 27 employees and a monthly turnover of $50,000, is still small. The personal computers he sells and services are just beginning to find a place in the Arab market. When the phone doesn't work, the electricity goes dead, the bureaucracy is particularly inflexible, he just shrugs and plows ahead. Local problems, he says, need local solutions.

For instance, Penny's company has lost a total of 500 employees in seven years, with male employees heading off for higher-paying jobs in the Persian Gulf states and Saudi Arabia as soon as they acquired a skill. The solution: Now Penny hires only female engineers--nurses and teachers are the only women who migrate--and pays them top wages. His work force has stabilized.

He has seen graduate engineers who did not know which end of a screwdriver to use--the result of inferior education, not stupidity, he hastens to add--and he has seen secretaries who did not know how to sharpen a pencil. The solution: He is setting up training centers in Egypt's major cities and hopes to teach 2,000 Egyptians a year how to use and service computers.

A commercial attache at the U.S. Embassy said: "The first thing I tell businessmen who are exploring this market is to come and spend some time and get to know the country. Too often Americans tend to be in a rush.

"They're stopping in Cairo or Bahrain or wherever before heading off to Nairobi and Jidda. Maybe they have the names of three local representatives. They call two, and their phones are out. The third speaks perfect English, drives a Mercedes and has a sister going to college in the States. He strikes a deal on that basis and then doesn't understand why he gets no answer to his telexes when he gets back home in Los Angeles."

Advises Businessmen He also tells Western businessmen that during their meetings here they will be expected to drink huge amounts of minted or thick Turkish coffee, the traditional offering of Arab hospitality, that appointments are seldom kept on schedule, that even the most private and important office meeting is subject to constant interruption.

An American banker sat dumbfounded recently as a stream of visitors and phone calls poured into the office of a company managing director with whom he was negotiating a multimillion-dollar deal. There was a cousin with a family problem, a man selling fish for lunch, a friend whose wife was ill, a clerk who wanted a raise. Between phone calls, the executive received them all courteously.

The lesson: In the Arab world, authority is not delegated, and every man, no matter how lowly his station in life, has access to the top man. In countries such as Egypt, where telephones are unreliable, people show up unannounced at an office rather than call ahead for an appointment.

"Because of the oil recession, the days of $100-million contracts in Saudi Arabia and Libya are over," a West German entrepreneur said. "So now they're coming to countries like Egypt for $10-million contracts. It's odd in a way. If you look at the economy here, Egypt is bankrupt. If you talk to businessmen, they're pessimistic. But Egypt is where the action is.

Business Is Booming "Where else in the world can sewerage companies get huge contracts? The same with companies installing phone systems. They're even building an underground metro in Cairo. Look at the fertilizer industry. It's dead in Europe, here it's booming. The shipbuilding industry is dead in Europe, too. In Egypt, they're buying ships. There's nowhere else to go."

In the wealthy Persian Gulf states, the United States has lost its domination of the auto and air conditioning markets to Japan. Japan also has replaced the United States as the largest supplier of pumps, cooling systems and cables for the oil industry. Sweden has probably taken over as the leading seller of communications-switching equipment. South Korea is gaining in the construction field. Only in high technology is the United States unchallenged.

"The big selling point in American cars was the superior air-conditioning system," an American economist in the Persian Gulf region said. "Now, Japan has perfected air-conditioning so its cars no longer stall at red lights. Today, everyone wants a Mercedes, a BMW or Japan's Toyota Crown. The Cadillac that used to be the prestige symbol is now the car the wife drives.

"During the oil boom the people here were almost childlike in the way they spent money. Now the three things people consider when making a major purchase are price, price, price. I think the really free-spending days are over, but the strong dollar makes U.S. products at least 20% more expensive than those of our competitors in the West, not to even mention the East."

Have Dual Mission It is a sign of the times that commercial officers attached to U.S. embassies in the Middle East now have a dual mission: first to "sell" American products abroad and second to promote Arab investment in the United States.

The result is that the cultural exchange works both ways. Today, just as American businessmen here try to adapt to the peculiarities of the Arab world, Arab investors traveling to New York or Los Angeles must fathom the three-martini lunch, the importance of punctuality, the hold-my-calls mentality and all the other strange customs of the U.S. business world.

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