The purpose of this research is to examine the potential business opportunities in Oman, especially in exporting telecommunication equipment into this country. Therefore, Oman's macro-environmental factors such as Cultural Environment, Political and Legal Environment and Economic Environment will be discussed in term of international trade. Moreover, the research will summary the country's current international trade 2009 in comparison to that of after 1970 when the nation's name was changed to the sultanate of Oman. On the other hand, theories and concepts of International Trade will be used to determine attitude of the government to international trade strategy. Then, some recommendation will be given in conclusion part to improve the current position international trade of Oman.
1. Business Environment in Oman
1.1 Cultural Environment in Oman Language: Arabic is the official language of Oman, and English and Asian languages such as Hindi, Urdu, and Baluchi are also widely spoken. Swahili is spoken by some, a legacy of OmanÂ´s former East African presence. English is widely used in business. Ethnic groups: Arab, Baluchi, South Asian (Indian, Pakistani, Sri Lankan, Bangladeshi), African Religions: Ibadhi Muslim 75%, other (includes Sunni Muslim, Shi'a Muslim, Hindu) 25%
Omani Culture - Key Concepts and Values In-depth understanding of Oman's unique business culture and etiquette can be key factor to become success in doing business in Oman. Omani believes in key concept and values as below: The culture of Oman firmly relates to the principles of Islamic religion. Omani society highly appreciates status that is represented by age, wealth and family or tribal relations. The hierarchy present in Omani society can be seen in the use of titles and formal greetings. "Relationships and mutual trust are paramount for any successful business interaction and can only be developed through face-to-face meetings. It is important to therefore spend time with your Omani business counterparts and have frequent meetings to ensure that the relationship continues to develop" (Communiciad, 2007).
1.2 Political Environment in Oman Political power in Oman is dominated by Sultan Qaboos ibn Said Al Said who is responsible for all major decision-making and government appointments. Since coming to power in 1970 in a coup d'etat, Sultan Qaboos has committed himself to promoting the country's modernization, economic diversification as well as continued political stability (EDC Economics). Oman ranked 31st out of 180 countries in Transparency International's 2009 Corruption Perception Index, receiving a score of 5.5/10, with higher scores indicating less corruption.
Table 1.2: Corruption Perceptions Index (CPI) 2009
CPI 2009 Score
Confidence Range 1 New Zealand 9.4 6 9.1 - 9.5 2 Denmark 9.3 6 9.1 - 9.5 3 Singapore 9.2 9 9.0 - 9.4 3 Sweden 9.2 6 9.0 - 9.3 5 Switzerland 9.0 6 8.9 - 9.1 39 Brunei Darussalam 5.5 4 4.7 - 6.4
4.4 - 6.5 The Corruption Perceptions Index (CPI) table shows a country's ranking and score, the number of surveys used to determine the score, and the confidence range of the scoring. The rank shows how one country compares to others included in the index. The CPI score indicates the perceived level of public-sector corruption in a country/territory. The CPI is based on 13 independent surveys. However, not all surveys include all countries. The surveys used column indicates how many surveys were relied upon to determine the score for that country. The confidence range indicates the reliability of the CPI scores and tells us that allowing for a margin of error; we can be 90% confident that the true score for this country lies within this range. Source: Transparency International
1.3 Economic Structure and Growth in Oman Oman is a rural, agricultural country, and fishing and the government's economic development policy emphasizes the expansion of such non-oil sectors as agriculture, fishing, industry, and mining in its bid to diversify the economy and diminish its dependence on oil exports. Table 1.3 will illustrate economic indicators and the contribution of key sectors in the economic growth of Oman in the period of 2005-2009
Table 1.3: Oman's Economic Indicators
GDP (purchasing power parity)in billion USD$ 40.39 44.53 60.89 67.65 69.48
GDP - per capita (PPP) 15,734 16,973 18,999 20,400 20,300
GDP- real growth rate (%) 5.6% 6.6% 5.6% 6.4% 2.7%
Contributions to GDP (%)
Â 1. Petroleum Activities 49.44 47.62 44.30 50.48 40.95 1.1 Crude Petroleum 45.72 43.50 40.57 46.82 37.02 1.2 Natural Gas 3.71 4.11 3.72 3.66 3.94 2. Non- Petroleum Activities 52.80 54.10 57.22 50.60 61.30 2.1 Agrl. &Fishing 1.54 1.35 1.30 1.00 1.38 2.2 Industry 14.25 16.17 17.12 16.63 18.57 2.3 Services Activities 37.02 36.57 38.79 32.95 41.35 Source: CIA World Factbook; Central Bank of Oman
2. International Trade in Oman
2.1 The Nature of Oman's International Trade Overseas trading is important to Oman. The discovery of oil drastically improved Oman's economy. Sustained high oil prices in recent years have helped build Oman's budget, trade surpluses and foreign reserves. Crude oil, refined petroleum, and natural gas account for most exports while imports consist mainly of machinery and transport equipment, basic manufactured goods, and foodstuffs. Some manufactured products are also exported. In spite of the fact that over the past 30 years, Oman has come to rely more and more on imports, Oman has enjoyed trade surplus through advantage of exporting the production of crude oil. Among the country's major trading partners are China, Japan, South Korea, and the United Arab Emirates. (See Appendix 1) Source: UN Comtrade
Table 2.1: Oman Trade
2009 Export (US$bn) 1.044 2.386 4.705 5.508 5.962 11.32 18.69 21.59 24.69 37.72 27.65 Import (US$bn) 0.765 1.732 3.153 2.681 4.248 4.59 8.03 9.88 14.34 20.71 18.46 Trade balance (US$bn) 0.279 0.654 1.552 2.827 1.714 6.73 10.66 11.71 10.35 17.01 9.19 Source: UN Comtrade
2.2 Attitude to International Trade of Oman Oman has diplomatic relations with over 140 countries and is a member of over 105 regional and international organizations. On 7th October 1971, Oman gained membership in the UN and its specialized organs (IMF, World Bank); the nation belongs to ESCWA and all the non-regional specialized agencies except IAEA. Oman also participates in G-77, GCC, and the Arab League, as well as the Islamic Conference. Oman accessed to the World Trade Organization (WTO) on November 9, 2000, which facilitated Oman's integration into the global marketplace. In addition, Oman has sign several co-operation agreements with 20 countries. It concluded a free-trade agreement (FTA) with the United States, signed on 19 January 2006, covering trade in goods, IPRs, and services (WTO). Through these formal economic co-operations with other nations, Oman has become more dependable trading partner and more attractive destination for majority foreign-owned investment. Thus, the potential for exporting telecommunication equipment into Oman is closer. The government's trade policy space, as measured by the wedge between bound and applied tariffs (the overhang), has been relatively constant in the recent years and in 2008 it was 8.3 percent for Oman. Oman has a very liberal services trade regime, and as such is ranked 13th out of 148 countries according to the GATS Commitment Index. Moreover, the Oman's government is engaged in an aggressive effort to woo foreign investors and enhance international trade links as part of the ambitious Vision 2020 program of economic diversification aimed at reducing the country's dependence on shrinking reserves of oil.
3. Viewing Oman's International Trade Through Theories Related
3.1 The Nature of Advantage Daniels and Radebaugh (1998) have summarised advantage in the context of International Trade Theory into five categories as below: Natural advantage refers to climate, soil and nature resources; Acquired advantage refers to technology and skill development; Comparative advantage against another nation's endowment of assets; Country size as a proxy for the range of natural factors such as climate, soil, minerals and etc, size of population that provides opportunities to process materials and create markets; Factor proportions that suggest their optimum utilisation in production. Daniels, Radebaugh and Sullivan (2004) Framework, the evolution of International Trade Theory is depicted as below: Besides Porter's Competitive Advantage of Nations theory, this research will use Product Life Cycle theory and Absolute Advantage theory to explore the status of international trade in Oman.
Adam Smith's Absolute Advantage Theory According to Adam Smith (1776), a country's would be either natural or acquired. Relating to Oman, this country's economy is heavily reliant on oil exports for revenue, though diversification into natural gas production has mitigated this to a degree. About two-thirds of Oman's total energy consumption comes from natural gas and the remainder comes from oil, reflecting the country's relative abundance of oil and natural gas reserves.
Product Life Cycle theory "Raymond Vernon's (1966) International product life cycle (PLC) theory of trade states that the certain kinds of products shifts as they go through a continuum, or cycle, that consists of four stages - Introduction, Growth, Maturity, and Decline- and that the location of production will shift internationally depending on the stage of the cycle" (Daniels & Radebaugh, 1998 pp. 206).
Table 3.1: Telecommunication Equipment Imported Source: Oman Economic Studies, 2007, p233-334- Icon Group International, Inc. Telecommunication equipments are the major products that Oman imported to speed up telecommunication industry growth. In 2007, Oman imported of USD$217 billion for these products. Therefore, the market for telecommunication equipments in Oman would relate to figure (C) less developed countries, because Oman has been lack of resource and ability in term of innovative technology to produce itself these products that require higher technology. In contrast, some countries in EU have advantage of technology and knowledge will focus on exporting telecommunication equipments into Oman to gain more profit.
3.2 Justification of Telecommunication Equipment Industry Potential in Oman The Oman's government has embarked on an ambitious campaign to develop the information technology (IT) sector. Agreements between Oman Telecommunications Company (Omantel) and foreign firms hold the potential to significantly expand telecommunications services and lay the ground for the establishment of a state-of-the-art IT infrastructure. In May 2006, Telecommunication Minister Mohammed bin Abdullah bin Isa Al-Harthi announced that the government is preparing to "fully liberalize" the telecommunications sector, with private companies permitted to offer fixed-line and Internet services (U.S Commercial Service 2009). In July 2005, the government, which was required per WTO commitments to liberalize its telecom sector, floated 30 percent of its shares in state telecoms giant Omantel (formerly known as the General Telecommunications Organization, or GTO). Importantly, Oman offer exemption from customs duty on import of plant and equipment (Website OCIPED).
3.3 Summary of Oman current trade position using the extended form of Porter's Diamond of National Competitiveness Source: (Dunning 1993) According to Porter (1994), there are four principal attributes of a nation's international success in a particular industry such as: Factor conditions; Demand conditions; Related and supporting industries and; Company strategy, structure and rivalry. In addition, Porter defines the role of chance as well as the role of government as the secondary determinants. However, a further research by Dunning (1993) proposed that multi-national business activities bring additional factors that may encourage advances in support industries, etc. In term of exporting telecommunication equipment into Oman, the four board attributes of the nation are: Factor conditions would be capital, quality of infrastructure: The modern telecommunications facilities were majorly invested in 1982. Demand conditions would be determined that "Overall telecommunications infrastructure and service in Oman remains less developed than in its Gulf neighbors. Fixed line and Internet penetration rates are low, yet the young and growing population is generating increased demand for modern telecommunications and broadcasting systems" (U.S. Commercial Service 2008) . Related and supporting industries would be crude oil and gas industries. As above analysis, these industries contribute 67% into total revenue of Oman and bring trade surplus for this country. As a result, it can support the government fund telecommunication infrastructure improvement plans. Firm strategy, structure, rivalry would be observed that small- and medium-sized enterprises (SMEs) as well as large enterprises in Oman tend to invest in equipment to deal with increased competition and take advantage of regional opportunities (BMI report 2009). Relating to exporting telecommunication equipments into Oman, the three secondary determinants are: Chance for Oman is observed that in term of oil and gas reserves this country is ranked the 24 and 29 respectively in the world (CIA nd). Besides that, Oman has a strategic geographic location for marine trade. The role of government would relate to: "In July 2005, the government, which was required per WTO commitments to liberalize its telecom sector, floated 30 percent of its shares in state telecoms giant Omantel. The company is now looking for a strategic investor in advance of government efforts to open the fixed-line communications sector through the issuance of additional licenses." (U.S. Commercial Service 2008). Multi-national Business Activities in telecommunication industry in Oman have played important role in supplying technology and equipments or software solutions for development of Oman's telecommunication market. Omantel has contracted with Ericsson, Siemens and Motorola to expand GSM service in some areas of Oman (U.S. Commercial Service 2008).
4. Recommendations for Oman's International Trade Strategy After determine macro-environment and the current position of international trade in Oman, this paper will come into some recommendations with SWOT analysis as below:
Â Â·Â Â Â Â Â Â Â Â Oman has advantages of natuaral resources, such as Oil, natural gas, copper, marble, limestone, gypsum, chromium (CIA nd). Â·Â Â Â Â Â Â Â Â Â Small population and small domestic markets are amplified by the absence of a modern, high-value consumer market beyond the capital area (U.S. Commecial Service 2008). Â·Â Â Â Â Â To reduce the oil sector's contribution to GDP to 9% by 2020, Oman has engaged a development plan that focuses on diversification, industrialization, and privatization (CIA nd). Â·Â Â Â Â Â Â Â Proven oil reserves have a limited time horizon (approximately 21 years) before depletion (Coface 2009). Â·Â Â Â Â Â Â Â Â In 2007, the World Economic Freedoms Index ranked Oman the 47th most freedom of trade in the world. Â·Â Â Â Â Â Â Vulnerability to downturns in oil prices (Coface 2009). Â·Â Â Â Â Â Â Â Â Stable political system (Coface 2009) Â·Â Â Â Â Â Â Dependence on human resources from abroad (Coface 2009).
Â Â·Â Â Â Â Â Â Â The GCC Common Market has created the free movement of labour and capital among the six member states as well as removing the barriers to inter-GCC trade. (Oman Daily - 8th Aug 2010). Â·Â Â Â Â Â Â Â Â Collapse in oil and gas prices (Political Risk Services- PRS, Ltd) Â·Â Â Â Â Â Â Â Â Under Free Trade Agreement with USA, Oman would have more opportunities to access to the U.S. consumer market of 290 million people. Â·Â Â Â Â Â Â Â Â The country has been threatened by the region's many conflicts (PRS -2009).
Â In conclusion, through SWOT analysis, it can be observed that Oman should continue to implement plans of diverse economy structure. The current strategy can help Oman avoid risks of heavily depending on oil and gas resources, and also it would facilitate competitive advantage for Oman.
Appendix 1: Oman Trade in Brief
Annual percentage change
Â 2000-2008 2007 2008 Merchandiseexports, f.o.b. (million US$) 37,719 16 14 53 Merchandiseimports, c.i.f. (million US$) 23,137 21 45 44
Â 2008 2008
Share in world total exports 0.23
Share in world total imports 0.14
Breakdown in economy's total exports
Breakdown in economy's total imports
By main commodity group (ITS)
By main commodity group (ITS)
Â Agricultural products 2.6 Agricultural products 11.4 Fuels and mining products 78.7 Fuels and mining products 7.1 Manufactures 8.2 Manufactures 79.2
By main destination
By main origin
Â 1. China 29.3 1. United Arab Emirates 27.2 2. United Arab Emirates 10.9 2. European Union (27) 17.1 3. Japan 10.6 3. Japan 15.6 4. Korea, Republic of 9.6 4. United States 5.7 5. Thailand 6.8 5. China 4.6 Unspecified destinations 14.7
Â Unspecified origins
COMMERCIAL SERVICES TRADE
Annual percentage change
Â 2007 2008 Commercial servicesexports(million US$) 1,974
... 25 21 Commercial servicesimports(million US$) 6,122 17 25 26
Â 2008 2008
Share in world total exports 0.05
Share in world total imports 0.17
Breakdown in economy's total exports
Breakdown in economy's total imports
By principal services item
By principal services item
Â Transportation 23.7 Transportation 41.5 Travel 40.7 Travel 14 Other commercial services 35.6
Â Other commercial services
Â 44.5 Source: WTO and national statistics
Appendix 2: Oman's Telecom Sector Indicators