Due diligence means doing thorough research and investigation before entering major business deals or partnerships. This includes things like background checks, financial reviews, risk assessments and more. Due diligence helps uncover any red flags or issues that could hurt the success of a deal.
In a complex business city like Dubai with unique laws and culture, proper due diligence is very important for any company wanting to operate or invest there. Skipping this step opens up companies to major financial, legal and other risks.
Understanding What Makes Dubai a Distinct Place to Do Business
To see why due diligence matters so much in Dubai, it helps to first understand what makes Dubai different than other cities:
- Dubai is a major global hub with access to markets in the Middle East, Africa and Asia
- World-class infrastructure, transportation, and financial services
- Special free trade zones and minimal tax requirements
- Stricter censorship laws and data policies compared to Western countries
- State-owned companies control key parts of Dubai’s economy
- Local cultural norms shape how business partnerships form in the region
Without proper due diligence, Dubai’s complex business landscape can quickly catch foreign companies off guard once they start operations. They may suddenly struggle with unfamiliar laws, have trouble shifting strategy or be forced to abandon partnerships.
Proper due diligence serves as a safeguard, giving companies the insights they need to balance risks and successfully adapt.
Key Areas Covered by Due Diligence in Dubai
When conducting due diligence in Dubai, there are a few key areas businesses should focus on checking out:
- Background Checks – Verify credentials, watch for red flags in records and confirm licenses of potential Dubai business partners
- Financial Health – Assess financial statements of companies or partners to evaluate profitability, debt levels and overall health
- Local Laws & Regulations – Research all laws that could impact proposed business activities in Dubai like foreign ownership rules, data policies, permitted licenses, etc.
- Business Viability – Evaluate management competence, resources, operational capacity and overall viability of a local partner’s business model
- Site Visits & In-Person Meetings – Travel to Dubai for on-the-ground assessments through site visits and face-to-face leadership meetings
Gaining clarity across all of these areas equips companies to develop partnerships designed for success in Dubai from the very start.
Why Proper Due Diligence is Crucial in Dubai
Many real examples show why thorough due diligence is totally essential for foreign companies hoping to operate in Dubai:
- In 2017, the Abraaj Group private equity firm working in Dubai collapsed after inflating the value of their holdings by almost $200 million. Their healthcare fund attracted major international investors, but failed due diligence did not uncover problems in the company’s financial records.
- Multiple international fashion retailers have pulled out of Dubai after realizing too late that their inventory, branding and store designs needed significant local adaptation to follow regulations and cultural preferences. These costly mistakes could have easily been avoided by doing detailed due diligence around UAE censorship laws and consumer preferences.
- Even Dubai’s property market has seen deals fall apart when investors quickly signed agreements without verifying important details on construction timelines, developer finances and ownership rights under complex local property laws.
In each case, lack of due diligence led to disastrous ends for partnerships and business activities that likely could have worked out with appropriate upfront research and planning.
Tips for Streamlining Due Diligence
Conducting comprehensive due diligence across Dubai’s intricate business landscape is challenging. Here are useful tips to help streamline the process:
- Hire reputable Dubai-based legal, financial and business consulting firms who can quickly assess documents and records while using local connections.
- Don’t just rely on emails or calls. Plan visits to Dubai for critical in-person meetings, site assessments and relationship building.
- Thoroughly verify all credentials, licenses, financials, timelines and other key details – don’t take anything at face value without checking.
- Start due diligence during initial deal/partnership talks, not as an afterthought once terms have been sketched out.
Following these best practices helps uncover any pitfalls early so companies can develop partnerships positioned for success.
Conclusion
Dubai offers tremendous opportunities but realizing success requires laying the right foundation through comprehensive due diligence adapted to the local landscape. Companies should engage specialized local firms to validate details and avoid disastrous assumptions or oversights. By investing sufficient time and resources into due diligence from the very start, foreign companies can develop strategic Dubai partnerships positioned for long-term growth.
FAQS
Due diligence costs vary widely based on scope but generally range from $10,000 to $100,000+ for Dubai. Hiring local firms is best rather than just relying on internal teams.
Thorough due diligence often requires 2-6 months for Dubai given the complex landscape. Quick assessments are unreliable there. Sufficient time is key.
No – conducting proper due diligence is mandatory. Even companies that look reputable initially could have issues like financial instability or legal violations that only come up through rigorous verification.
Skipping due diligence frequently leads to massive partnership failures, financial losses and collapses of entire Dubai expansions. The risks of skipping are substantial.
