Strong relations with selected partners are especially vital for the region's SMEs
Businesses need to invest serious time in trust and relationship formation
The importance of trust and relationships in Arabian Gulf business culture is difficult to overstate. Many decision- makers in the region prefer to pay a premium with someone they trust, rather than committing to do business with a partner they don’t know enough about.
Such a phenomenon is not unique to the Middle East. A landmark French study from the 1990s, Corporate Culture and Economic Performance, correlated trust and a company’s results. When employees within an organisation trust their management, colleagues and clients, performance is better. When trust between the economic players (private companies, banks, authorities, etc) is high, it results in bigger investments, faster deliveries and more projects.
Once they trust their counterparts, business executives will share information more openly and look for each other’s support in reaching their objectives. There exist many positive examples in the Gulf countries of significant ventures created thanks to the high level of trust between players. Most family groups in the region have emerged on that basis.
Hundreds of SMEs around the world come to the Gulf every year to offer their products and services. But few understand that they need to first build trust with selected partners. In fact, they can only enjoy success in the region if they invest time in this area. The relationships they will build will transform into trust and opportunities. But this barrier to entry can be high, and many feel discouraged from further investing in the Gulf.
According to another study from Kellogg School of Management, the level of trust between citizens of different countries plays a large role in how much these countries trade with each other and invest in one another. Within the European Union, the study found that countries that trust each other were doing more bilateral trade.
Most of us tend to approach negotiations either convinced that the other party will act tough and hold information, or that both will share data, build a relationship and act with fairness. Gaining the other person’s trust is a key asset in a negotiation. It may be done by showing references, being introduced by common partners or demonstrating understanding of the possible concerns of the counterpart.
Trust does not mean that two parties believe each other blindly, but that each one knows the other will honestly share the existing risks or challenges of projects it is willing to develop. By knowing confidently that your partner is acting in good faith towards you, you’re willing to associate and share risks. Ambitious companies trust their employees and their business partners.
The example of Apple and Samsung is significant. While competition between the two companies’ smartphones is fierce, Samsung is also a key supplier of electronic components for the Apple’s iPhones. Knowing the multiple issues Samsung has faced with its previous Note phone, Apple still trusts Samsung will be able to provide the components it needs for its latest smartphones. The trust between these partners and competitors is only possible thanks to the audits and controls that protect both parties. Because of limited trust from banks towards SME entrepreneurs in the Gulf, successful small businesses remain limited in number. They rarely reach the critical size required to apply for public tenders or launch major projects. That converts into thousands of unrealised jobs. I observed this gap during a collaboration with an organisation supporting young entrepreneurs from the region. Entrepreneurs worried about sharing their ideas. Advisers also worried about investing in a company that may fail.
But trust isn’t an absolute requirement to negotiate or to do business. More fundamentally, one should remember that trust or commitment are different around the world. While in the Arab culture, verbal commitment was historically considered as strong as a contract, it is significantly different in countries where only written commitments are valued. In China, contracts serve only as references. They are referred to only at the time of challenges, as a ground basis to discussions. So be ready to renegotiate as soon as you sign your contract.
In a recent regional business issue, I faced a blocking point. A business partner simply avoided me, and avoided to deliver his part of an agreement he took. When the opportunity appeared and when reminded of his commitment, the issue was solved in few days. It was important for him to save face.
By understanding the core values of your counterpart, you can establish key elements to protect you, even more than a written agreement. Beyond trust, these elements can help you ensure you obtain what was agreed. Meeting face to face is the best way to conclude a deal in the Gulf, and to reduce risks that it isn’t respected. Having this meeting in the presence of a third party valued by everyone is also a way to reduce risks.
You need to encourage trust and include in agreements some mechanisms that ensure your counterpart will gain more by acting honestly than by trying to cheat you. Influence and power are among the many tools you can use there.
In the same way, you can put in place mechanisms that penalise any action that contradicts the agreement. If you see them refusing such a clause or asking for the penalties to be minimised, be careful. They should realise that loss of trust will translate into loss of money and reputation. In a region that values trust very high, they will understand the long-term damage it can represent.
You may also be incremental in your approach, and commit little to gain little, until the mutual trust is established through facts and experience. Once again, that also illustrates a lack of trust has a cost, even though you shouldn’t just do business with those you know.
Radoine Nachdi manages the Abu Dhabi activities of Chalhoub Group and is a guest lecturer on business negotiation at Paris-Sorbonne University Abu Dhabi