Financing from Overseas

Theme 2: Financing from Overseas

The majority of the respondents have noted to source their finances from overseas. Overseas financing included merging with subsidiaries in other countries, friends and associates in different countries, and investors. Interviewee C1 noted, “I did try to talk to, and I did talk to quite a lot of western investors in Europe and America.” This is an indication that collaborating with international companies would be a significant source of financial resources in implementing their venture.” Similar findings were evident in the information provided by the respondents. The various sources of financing their operations exploited by the organizations are informed by the need to have a sufficient amount of cash flow or working capital as an essential element of a sustainable business.

Table 2

Summary of Interviewee Opinions and Strategies of Acquiring and Managing Working Capital to Grow Business

Theme 3: Collaborative Relationship with Suppliers and Customers

An entrepreneur engages a wide array of stakeholders in managing working capital. With this in mind, the interviewees were asked how they establish a working relationship with both their suppliers and customers. A common recurring theme from the respondents is that they normally get involved in revenue sharing with suppliers and customers.

Nevertheless, an analysis of the different findings demonstrated the existence of mixed views.  The majority of the respondents (C1, C2, C4, C5, C6, C7, and C8) indicated that they made prioritization of their suppliers and customers for the working capital management.  This means that the respondents agreed to the view that an entrepreneur must possess the capability of interacting actively with their suppliers and customers for sourcing resources.  Interviewee C1, for instance, contended with the view by noting that “having more mature people in the businesses you appear to be much bigger than anyone that this is a much bigger company because these guys are there, we know their chemistry like many industries you get to know people.”  To support this view, respondent C3 observed that for the customers “from us managing the personal relationship, so you have to have an account before you do it” while for the suppliers, the respondent noted that “the biggest help I got was from the suppliers because I am not buying products I am buying solutions, so suppliers were willing to provide their solutions to customize, provide the service, and then I pay them after I get paid.” Nevertheless, C4 noted on the existence of a win-win situation where the contractors have to pay back for the services offered by the suppliers with C5 noting the need to have a detailed association with the small and big names to ensure that they are successful in their engagements.

To develop and maintain a collaborative relationship with the suppliers and customers, it is evident from the respondents that companies must segment them, implement interaction models, and set rules of engagement. In the IT sector, success is dependent on the level of collaborative partnerships established between customers and suppliers. This is not always the case as often, issues emerge with customers and suppliers, leading to problems in operations to drive significant gain in resource productivity and, eventually, growth. It is this view that influenced Interviewee C6 to observe the dynamic characteristic of their suppliers and customers complicating their capability of maintaining a progressive win-win relationship hindering the attainment of successful working capital management. In particular, the respondent observed, “So what they did was they affiliated themselves with Boston University, and they brought the curriculum from Boston University to West Africa. And hence it was called the American University of Africa, particularly Equatorial Guinea being an oil and gas producing nation; they had more of an alignment with America.”  This means that stakeholders from one region would not be in a position of serving a client or a stakeholder in a different region due to diversity in their understanding and knowledge they possessed.

A recurring theme, in this case, is the criticality and the desired level of availability of stakeholders irrespective of their roles of the capability of guiding an organization in attaining their short and long-term goals. Interviewee C7 who noted a plausible example, “I leverage other people, so I leverage people at meager contribution rates so that I can get to where I want to go.” This was equally supported by interviewee C8 who observed that “we are working with the people who are interested in funding us in terms of letting them decide the marketing channels in terms of how they want to do that and so that is.”The people in this context represent the suppliers and customers who are consistently engaged with sufficient resources being availed for, ensuring that they are successful in their role. The reviewed literature has supported these views by the respondents about the strategies implemented to establish a working relationship with both suppliers and customers for acquisition and working capital management. Tehseen and Ramayah (2015) study, for instance, observed that entrepreneurs should be competent for managing relationships with their customers and suppliers to gain a competitive advantage. Chen et al. (2015) equally maintained that it is essential to allocate resources that guide an entrepreneurial venture to interact with the suppliers and customers for successful integration of the relationship between entrepreneurial competencies and business success, which can be improved successfully.

Table 3

Strategies Implemented in establishing a working relationship with suppliers and customers to acquire and manage working capital to grow business in MENA.

Theme 4: Revamping the Legal and Banking Structure

Different aspects characterize the successful implementation of strategies aimed at acquiring and managing working capital in MENA. The aspects emanate from the consistently evolving market conditions, information asymmetry, and types of capital, relationships, and the role played by the overall entrepreneurial ecosystem. In this case, a set of questions was used in investigating the respondents on the key barriers. From the analysis, it is evident that the recurring themes included the need to revamp the legal structure and the banking structure. Interviewee C1 pointed out that “there are no bankruptcy laws, so do you find that, for example, to be a barrier or do you find that to be even from the angel investor perspective were okay I want to give you more.”  The views were echoed by interviewee C2 who noted that “Dubai government either that or get out and so I was like guys come on, and they don’t want the small and medium-sized companies they say they do, but they don’t.” Also, interviewee C3 and C7 observed that the legal issues often contribute to bureaucracy and fear for financial security for an established business using borrowed finances at the point of break-even. Interviewee C8 who noted, “It’s not so much that we can’t find people to fund this, but they are motivated by greed, so they want 70% of the business or 65% of the business” pointed an interesting situation about the financial barriers. It is these barriers that could be influencing business lending platforms such as Kiva and PayPal Inc., as demonstrated by Ahmed et al., (2016), to eliminate the barriers linked with traditional financing for SMEs. This view was equally echoed by interviewee C1 who provided an example of a friend lending cryptocurrencies and noted that despite the finances being readily available, the documentation is enormous hence acting as a significant hindrance to setting up the company with a delay of up to five years.

The respondents who pointed out the existence of legal barriers as the most prevalent issue (C6 and C7) noted on challenges of being licensed to operate in a specific region and high taxation by individual governments. Interview C6 within this context postulated that “So DMCC yeah we had a DMCC license the main objective of the free zone was for fiscal reasons tax-free right I mean why we would start a business in Spain where we have to pay tax. So, what we did was all the invoicing was done through Dubai.” While also noting that the legal issues characterized by the license of operation and taxation had the most significant implication on cash management. Interviewee C7 observed that in Canada for every finance raised as working capital, almost a similar amount is taxed.

Additionally, the respondent also pointed out the existence of numerous governance issues impacting the extent to which the business is set up. The underlying reason is that in the MENA region, the governments tend to appreciate more the roles played by large corporations and investors to their economy as opposed to SMEs, which are equally instrumental to the success of such economies. The lack of sustainable policies and legal structure for supporting new entrepreneurs in terms of their venture, business environment, unfair competition from large corporations, as well as business institutions, which are heavily financed and ensure this rationale. These findings are supported by Moss et al., (2015), observing that enterprises that are a signal for competitiveness, risk-taking, and independence would leverage from a higher likelihood of receiving funding. This is as opposed to the small businesses that signal courage, empathy, warmth, as well as being more conscientious would less likely receive any funding.

MENA region can be grouped as highly volatile. In this case, managing an entrepreneurial business in an environment characterized by high volatility necessitates the need for having sufficient cash flows and funding. Nevertheless, from the analysis, it is a fact that the funding is not always available, particularly to the new entrepreneurs engaged in establishing new business platforms. Apart from the banking and legal barriers, specific issues highlighted by the respondents lead to limited financing to the entrepreneurs include lack of willingness from potential investors, high costs of business development and marketing, inappropriate revenue sharing with stakeholders and abiding by the traditional business models despite a business being anchored on technology. While giving an example, Respondent C4 noted that “If a bank comes and tells you your dad took 2,000 dirham facilities from us you need to pay it now I am like sue me it’s cheaper for me.” To avoid such pitfalls, respondents C6 postulated on the need of abiding by strong business ethics, having a sustainable relationship with the investors to attract them to invest in their organization and transitioning from the traditional models to the contemporary models of operations.

Table 4

Key Barriers to Implementing Strategies for Acquiring and Managing Working Capital in MENA

Theme 5: Using Public Relations as a Tool

In light of the identified challenges in the previous question, the respondents were further interviewed on the strategies they tend to put in place for overcoming challenges faced in the acquisition of working capital for their business. The challenges place the entrepreneurs in an inferior position, which could lead to increased interest expenses as well as bankruptcy and credit risk. From the analysis, the emerging themes regarding the best strategy of overcoming the challenges included using public relations as a tool which is identified by the respondents as starting big and acting big as well as having a well-known brand to support their business.

For the respondents who noted on the need to use public relations through starting big and acting big, it is evident that their strategy has guided them in attaining a competitive advantage over their large enterprise’s competitors. In one of the examples, interviewee C2 noted that to mitigate the challenges, “You show up with the best product at the best price in the right quantity at the right time and place, and they’ll buy from you.” As part of acting big through public relations, respondent C3 noted that “relationships are significant like you said the bank manager and understanding the region and understanding how to negotiate with.”  In particular, the respondent observed that through such a practice, such an entrepreneur can receive funding within a short duration of request irrespective of the prevailing financial barriers and legal constraints. To demonstrate the extent to which the respondents were ready to put any effort to act big, interviewee C5 noted that “Because of being small I cannot handle … I can only handle a certain number of projects. I don’t extend myself too much.”The findings were equally supported by C4 and C8, who, despite being controversial, recommended using another person’s identity to receive funding from prominent lending companies. The findings from the respondents are in line with Afrifa and Padachi (2016) study that had noted that the conservative strategy and the aggressive strategy are always in contrary outlooks about the impacts of working capital and the levels on company profitability. According to Aktaset al. (2015), such strategies can equally be grouped as working management strategies that enhance business efficiency and success in the long run.

Theme 6: International Angel Investors

Additionally, the use of angel investors was identified by the entrepreneurs as having a positive implication in mitigating the barriers. The effectiveness of the angel investors is informed by the fact that they are international and, as such, are merely affected by the local legal issues and banking restrictions as they can outsource from their countries. Also, the angel investors have a potential of investing online through equity crowdfunding or organizing themselves into networks for pooling their investment capital.  This is evident from interviewee C1 who observed, “I was fortunate enough to find some angel investors, and since that time we haven’t got any external funding.”  In supporting the capability of the angel investors to pool together their resources through a network, respondent C7 underscored that “I mean there are people within my network that would fund me, but you know it’s unrealistic the amount of equity that they would want you to know its silly money.” The view was also supported by respondent C3, C4, and C5, who observed the need to have multiple relationships with international investors who would aid them in sourcing essential credit for their operations.

Table 5

Strategies of Overcoming Challenges when Acquiring Working Capital for the Business in MENA

Theme 7: Effective Working Capital Strategies

The last segment of the interview involved an evaluation of the most effective working capital strategies that are fundamental for technology business owners interested in growing their business in MENA. Based on the responses, the main themes identified included using knowledge and expertise in business development, breaking the network barrier, networking the American way, and using customers to sell services. Interviewee C3 and C4 comprehensively highlighted the aspect of using knowledge and expertise in business development. According to the experience of C2, the relevance of the knowledge and expertise is “today what is some of the fundamental strategies that you have to take as a business owner whether it’s again building relationships working with your supplier through the exercise of knowledge and experience.”

Interviewee C4 added that “as far as a strategy of managing the cash flow, that is one of the strategies and I don’t employ all the resources on the project that’s one thing but the projects where I have to manage knowledge and expertise development for successful development.”Additionally, interviewee C6 underscored that “you know what one of the key skills for an entrepreneur is listening to the ability to sit and listen to your client’s problems.”  This means that there must be sufficient knowledge to be able to succeed as an entrepreneur. The findings are supported by Lilien (2016), who demonstrated that consumers have their personal lives. As such understanding, the products and services will be essential for them by exploiting the expertise of B2B.

Regarding breaking the network barrier, interviewee C8 generated one of the most comprehensive responses. The recommendations from the respondent included establishing a strategic plan, relationship building, and demonstrating that an individual is not a greedy person. This was further supported by respondent C4, C5, and C6. Respondent C6, for instance, observed that “the best way for us to start is to pick the territories where we have relationships because you know any business that is starting from scratch, you need that relationship to the kind of kickstart.” Interviewee C4, on the other hand, introduced a concept of the relationships being an intangible asset. In this case, the respondent noted that “As an asset intangible asset, relationships and your connections with the industry, your connections with other businesses are vital.” In an event such a relationship is established, the respondents noted that an organization ends up using their customers reliably in selling their services. This must, however, be integrated with networking the American way. The respondents indicated that networking the American way is instrumental as they are always successful in cost management. This is supported by Reijonen et al. (2015) review on the B2B companies and B2C companies working in emerging countries.

Summary of Results

This chapter sought to analyze qualitative data about the strategies that technology business owners use to acquire and manage working capital to grow their business in MENA. The analysis reveals several critical findings. First, it indicates that different strategies work best in the acquisition and management of working capital to grow business. In this case, the organizations tend to use hybrid entrepreneurship where they use other projects in funding their cash flow issues.  The findings revealed that through interaction with other stakeholders, it has been possible to gather resources that are critical for organizational success. Second, the study finds that in terms of the strategies implemented to establish a working relationship with suppliers and customers, revenue sharing, and creating a network of relationship has been identified as the most effective strategy. Third, for the challenges in capital management, the majority highlighted the legal and banking structures. This means that the banking system and set legal structures are unfavorable to entrepreneurs.

Nevertheless, the challenges can be mitigated by leveraging public relations and using a foreign entity mainly for angel investing. Lastly, on the capital strategies, it has been identified that networks of relationships must be implemented to create a harmonious interaction, leveraging on customer needs and their involvement in the process, and successful knowledge development. The conclusions from these findings are discussed in-depth in the chapter that follows.

Table 6

Summary of Themes