This case engages students on a number of issues common to doing business in other countries, specifically in the Middle East. It is intended to be a basis for class discussion rather than to illustrate either effective or ineffective handling of the situation. The case seeks to integrate issues of international management and cross-cultural conflict and negotiation. Students are challenged to diagnose a cross-culturally sensitive situation and develop solutions in a team environment under limiting time restraints. This case is also designed to help students understand the cultural aspects of a situation and how different solutions could have major consequences on the bottom line of a company

Desplaces, David

McIntyre, Nancy K.

English

Sacred Heart University: DigitalCommons@SHU

New England Journal ofEntrepreneurshipVolume 12 | Number 1 Article 72009Revisiting Doing Business in the Middle EastDavid DesplacesCollege of Charleston, desplacesd@cofc.eduNancy K. McIntyreWest Virginia University, nancy.mcintyre@mail.wvu.eduFollow this and additional works at: https://digitalcommons.sacredheart.edu/nejePart of the Business and Corporate Communications Commons, Entrepreneurial and SmallBusiness Operations Commons, and the International Business CommonsThis Case Study is brought to you for free and open access by the Jack Welch College of Business at DigitalCommons@SHU. It has been accepted forinclusion in New England Journal of Entrepreneurship by an authorized editor of DigitalCommons@SHU. For more information, please contactferribyp@sacredheart.edu, lysobeyb@sacredheart.edu.Recommended CitationDesplaces, David and McIntyre, Nancy K. (2009) "Revisiting Doing Business in the Middle East," New England Journal ofEntrepreneurship: Vol. 12 : No. 1 , Article 7.Available at: https://digitalcommons.sacredheart.edu/neje/vol12/iss1/7Revisiting Doing Business in the Middle EastCover Page FootnoteEntrepreneurship Education section of NEJE. Associate Editor, Sean M. Hackett.This case study is available in New England Journal of Entrepreneurship: https://digitalcommons.sacredheart.edu/neje/vol12/iss1/7T his case engages students on a number of issuescommon to doing business in other countries,specifically in the Middle East. It is intended to be abasis for class discussion rather than to illustrate eithereffective or ineffective handling of the situation. The caseseeks to integrate issues of international management andcross-cultural conflict and negotiation. Students are chal-lenged to diagnose a cross-culturally sensitive situationand develop solutions in a team environment under limit-ing time restraints. This case is also designed to help stu-dents understand the cultural aspects of a situation andhow different solutions could have major consequences onthe bottom line of a company.Aboard an Offshore Services Contractor’s (OSC) flagshipsomewhere in the Arabian (Persian) Gulf, the captain andcrew, as well as two other support vessels owned by OSC,were busy offloading fuel. It was the middle of the night.While the fuel was actually intended for an offshore drillingrig owned by the government of one of the most fundamen-talist Islamic and radical countries in the region, offloadingthe fuel and selling it to smugglers had been a profitable busi-ness venture for OSC for quite a while.In fact, over the years, the company had successfullyoffloaded more than 745,000 gallons of fuel worth close to$500,000.The captains of all three ships, along with all of thecrew members had received money for either actively takingpart in the embezzling scheme or for looking the other waywhen the offloading took place. Although they felt that therisk was worth the payoff, the crew knew that they riskedbeing charged with contraband.They also understood that ifthey were caught, according to Islamic law, custom’s regula-tions and international law, it would mean that they wouldrisk losing all of the assets of OSC,and might also receive stiffprison terms under horrific conditions.As the captain scanned the water watching for CoastGuard vessels that regularly patrolled the Arabian Gulfwaters, he thought about all of the stories he had heard ofboats that had been boarded and searched by the variousCoast Guards of countries in the Middle East—stories thatincluded the loss of the cargo, the seizure of the ships, andeven imprisonment for the captain and crew. He knew thatgetting fired by OSC was the least of his worries.What con-cerned him even more was that if he and his crew memberswere caught stealing the fuel, they risked being punishedunder the regulations of Sharia, often referred to as Islamiclaw. This punishment could include fines, imprisonment,mutilation (i.e., the cutting off of their hands), and evendeath.A few hours later, the lights of the Coast Guard vesselsscanned the deck of the OSC vessels, and began the processof seizing both the vessels and the cargo.The captain realizedthat he and his crew might have just made the biggest mis-take of their lives.Although he could not get a signal on hiscell phone and thus could not contact the CEO of OSC, hehoped that his boss would hear the news soon and come tothe rescue of the crew of the three vessels that were nowbeing seized.Offshore Service CompanyOffshore Service Company (name disguised) was formed toprovide ships to service offshore drilling platforms. OSC wasthe brainchild of DJ (name disguised), a 59-year-old Britishnational who had been living and working as a civil engineerin the Middle East for 25 years. DJ worked hard to build bothhis business and his reputation in the petroleum serviceindustry.He was now living in Dubai, the economic capital ofthe United Arab Emirates (UAE) in the Arabian Gulf.Recognizing the growing need of large petroleum companiesfor expert offshore and marine support services, DJ formedthe company in 1977.With the help of a local partner, DJ cre-ated OSC as an integrated service provider of a range of prod-ucts and services for oil, gas, and petrochemical companies(mostly providing support and resupplying drilling rigs onthe seas).Although DJ was now the managing partner of a large,suc-cessful company, his company had humble beginnings. DJand his partner had started their operation by subleasingthree tugboats and three barges to local petroleum compa-nies that wanted short-term commitments to such equip-ment.Over the years,he watched his business grow to a fleetof many ships, including five tugboats, seven supply/utilityships, two platforms, two barges, and various support ships,Revisiting Doing Business in the Middle EastDavid E. Desplaces Nancy K. McIntyreREVISITING DOING BUSINESS IN THE MIDDLE EAST 551Desplaces and McIntyre: Revisiting Doing Business in the Middle EastPublished by DigitalCommons@SHU, 2009all of which were partially owned by subsidiaries of the com-pany. All of the ships were owned on a lease-to-purchaseagreement, and required full insurance coverage to protectthe value of the investment.At the time of the smuggling inci-dent, OSC employed more than 340 staff and crew membersfrom 19 different countries.As the company grew,DJ expand-ed OSC’s customer service territory past the traditional geo-graphic boundaries of the UAE.The UAE is a federation of seven emirates or states. Themain religion in the region is Islam and Muslims make up 96percent (Shi’a, 16%) with Christians, Hindus, and represent-ing the remaining 4 percent.Although the emirates are pre-dominately Muslim, they uphold Sharia (Islamic law) to dif-fering degrees in their courts. For instance, in Dubai, the legalsystem is based on Sharia, but it incorporates elements ofWestern legal systems in such areas as commercial law.One expansion outside of the UAE occurred when DJdecided to do business with the government-owned oil com-pany (referred to as GOOC) in one of the Islamic and radicalcountries of the region.Although he realized that a commer-cial undertaking in this country might be risky (not a well-established business environment, strong involvement of thegovernment in the economy, and radical views), he carefullyweighed the risks and decided to initiate service offeringswith GOOC. At the time of the smuggling incident, OSC'scontracts with this oil company were valued at more than$17 million and included the use of five vessels over the spanof five years.Three of those vessels were now in the hands ofthe government of the country that was home to GOOC.A Brief Overview of ShariaSharia denotes an Islamic way of life that, according toMuslims, has been derived from Islam. To Muslims, it repre-sents the religious code for living in the same way that theBible offers a moral system of conduct for Christians. Shariahas been adopted by many Muslims as a matter of personalconscience and in many Middle Eastern countries is enforcedby the courts.While the courts in some countries have adopt-ed all of the elements that make up Sharia,others enforce lim-ited elements such as inheritance, banking, and contract law.Calling Sharia “law” can be misleading, as Sharia extendsbeyond law. Sharia is the totality of religious, political, social,domestic, and private life. Sharia is primarily meant for allMuslims, but in some countries, it is applied to non-Muslimsliving in a Muslim society.The regulations of the Sharia can bedivided into two groups: (1) regulations on worship and ritu-al duties, and (2) regulations of juridical and political nature.With respect to the juridical and political impact of Sharia,individuals accused of a crime are not presumed to be inno-cent as they are in the United States. Consequently, it is cus-tomary that when people are considered suspects in a crimeor litigation they are jailed regardless of the evidence, andthen questioned about their involvement. Governments inmany Muslim countries have been accused by the Westernmedia of convicting people to reinforce governmental powerand control public opinion, regardless of the truth or fairnessto all parties. Furthermore, the leadership in some Muslimcountries has been accused of supporting and harboringinternational terrorism, making normal economic exchangesand cooperation difficult.Therefore, economic relationshipswith the West have been limited by trade restrictions on eco-nomic, cultural, and political levels.In this case,Sharia has a strong impact on how the govern-ment treats the men and on the punishment that might bemeted out. In this particular country, the legal system wasbased on Sharia.The principles of government are stated tobe justice, equality, and consultation, in accordance withSharia. Punishments for serious crimes (stealing, drug, adul-tery, rape, and murder) include amputation and death bybeheading, hanging, or, in rare cases, stoning (Encarta.com2003).The government might also have a claim on the 10 per-cent performance bond taken out by OSC. GOOC, and thusthe government, might claim negligence on the part of OSC,and therefore be entitled to the money secured under theperformance bond. The government might also make theargument that they are entitled to the vessels seized. DJ ispondering how this might affect his negotiation with thecompany and the customs officials upon his arrival.Existing Relationship Between OSC andGOOCThe oil industry plays a vital role in the economic well-beingof many countries in the Middle East. Oil is a source of energyand revenue, but the infrastructure to extract it requires con-stant investment, updating, and maintenance. Given the choic-es made by the country that DJ is doing business with, theyhave not had the benefit of international economic and tech-nical cooperation that other countries in the Middle East haveenjoyed.Due to this country’s poor relationship with the West(United States and Europe), opportunities to find and enlistexpert services to maintain the current industry infrastructureare limited or nonexistent because most large multinationalcorporations are often pressured by Western states not to con-duct business with this country. Due to GOOC’s involvementwith the government, it is next to impossible to contract withWestern companies.However,an Arab-based company with oilservice expertise, such as OCS, would be the perfect fit.In June 1999, DJ signed a five-year service contract withGOOC.The contract stipulated that OCS would provide theexpertise and equipment necessary to maintain and updatenine oil fields,which included five ships necessary to providethe services. Of the five ships, three were responsible formonitoring the offshore oil fields, supplying the platforms56 NEW ENGLAND JOURNAL OF ENTREPRENEURSHIP2New England Journal of Entrepreneurship, Vol. 12 [2009], No. 1, Art. 7https://digitalcommons.sacredheart.edu/neje/vol12/iss1/7with food and fuel, and transporting personnel and equip-ment as needed.The supplying of fuel necessary to operateGOOC’s platforms and offshore bases was done according toa set schedule. OCS was currently three and a half years intothe contract with one and a half years to go.At the time ofthe smuggling incident, OSC had received $6.5 million forservices rendered, and was owed another $1.5 million in out-standing invoices. Under contract stipulations, and as wascustomary in the oil production business, OCS was requiredto obtain performance bonds totaling 10 percent of the totalcontract value (more than $1 million in this case). Thatmoney could be used by GOOC in the event OCS was negli-gent in its duties.Also, as customary in the industry, all shipswere insured for replacement value.In addition, at the time of the incident DJ and a partneringcompany were negotiating with GOOC the possibility ofadditional contracts to include various projects worth $60million for the next six years alone.DJ’s DilemmaWhen DJ landed in the capital city, he was met by his localrepresentative, Amed, who is a native of the country. A carwas waiting to take DJ to meet with the OCS lawyers work-ing the case. In an hour they would head to GOOC’s corpo-rate headquarters where they were to meet with the GOOC’soperations director who was furious over the situation.Theoperations director had already indicated to Amed that notonly did he want to keep the seized ships, he was consider-ing refusing to pay the outstanding invoices and might callupon customs’ officials to jail DJ and Amed, too.DJ understood that this matter would not boil down tojust replacing the fuel and paying a fine. He knew that underinternational law, illegal activity involving contraband auto-matically grants the government the right to seize all theassets involved, regardless of ownership. Due to the contra-band activity, the ships had automatically become the prop-erty of the government. As DJ began to realize the financialimpact—estimated replacement value for the ships was $8.5million according to insurance policies and $1.5 million inoutstanding invoices—his blood pressure rose.Amed confirmed to DJ that the crews had been treatedwell and had been provided legal representation throughOSC’s lawyers. However, what appeared to complicate thematter was that a third party was involved in the scheme.Theparty that convinced the crews to participate in the opera-tion in the first place was the project maintenance managerfor GOOC’s operations. In short,one of GOOC’s own employ-ees was the ringleader and responsible for initiating the pil-fering of the fuel. GOOC’s operations director appeared tohave been caught off guard as customs officials informed himof the allegations after the ships were seized, and he wasbeing pressured to put the blame on OCS to avoid embarrass-ing GOOC and the government.What Should DJ Do?DJ was unsure of how to proceed. He was concerned for hiscrew and his equipment,worried about the future of the con-tract, and wondered if he would be able to leave the countryat all. He realized that he needed to defuse the situation andthat his company was at stake.DJ had a number of things to consider. First and foremost,he needed to figure out how to protect his crew and get themout of jail as soon as possible. He wanted to ensure their safe-ty and he wanted to regain ownership of his vessels. He alsowanted to be sure that he could continue to do business withGOOC. For planned negotiations, like contract negotiations,DJ always spent a great deal of time preparing for the negoti-ation meetings. In this case, DJ had very little time to prepare.Note: The instructor’s manual is available upon request from the author at desplacesd@cofc.edu.About the AuthorsDAVID E. DESPLACES (desplacesd@cofc.edu) is the director of the international business major and an assistantprofessor of entrepreneurship at the School of Business and Economics.He joined the College of Charleston insummer 2007 from the University of Hartford where he founded the Institute for Entrepreneurship andEconomic Development and directed student community-based consulting projects in cooperation with theConnecticut Economic Gardening Group. His research has been published in the Journal of Business Ethics,Organization Management Journal, Journal of Academic Ethics, Michigan Journal of Community ServiceLearning, and International Journal of Case Method Research and Application.NANCY K. MCINTYRE (Nancy.McIntyre@mail.wvu.edu) currently teaches management and organizational behavior courses forthe Department of Management and Marketing at West Virginia University. Her publications have appeared in textbooks andnumerous professional journals and conference proceedings including Human Relations, Journal of Organizational Behavior,Journal of Applied Social Psychology, International Journal of Learning and Intellectual Capital, Journal of ManagementStudies, and Organizational Dynamics.Dr. McIntyre’s current research interests include self concept-based motivation, perfectionism, and ADHD in the workplaceREVISITING DOING BUSINESS IN THE MIDDLE EAST 573Desplaces and McIntyre: Revisiting Doing Business in the Middle EastPublished by DigitalCommons@SHU, 2009

Revisiting Doing Business in the Middle East

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Revisiting Doing Business in the Middle East

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