Exploring Certification Systems and Market Trends Amidst the Emerging Middle East Boom
"Exploring Certification Systems and Market Trends Amidst the Emerging Middle East Boom"
Guest Essay on IT Chosun, Authored by Jin-Ho Song, the Branch Manager of KTC Middle East Asia
Anticipation is building for the second wave of growth in the Middle East, spanning from state visits and economic delegations to Saudi Arabia (hereinafter Saudi) and the United Arab Emirates (hereinafter UAE) to the signing of the Comprehensive Economic Partnership Agreement (CEPA) with the UAE. Despite global economic challenges, the Middle East continues to experience rapid growth, fueled by oil revenues, hosting major events like the 2020 Dubai Expo and the Qatar World Cup, and gaining popularity for Korean culture, including K-POP and global OTT content.
These factors are expected to result in an increased presence of Korean companies in the Middle East. In the past year, Korea's exports to the Middle East reached $17.524 billion, indicating a steady increase with an average annual growth of 19% compared to 2020.
While the Middle East region has diverse boundaries depending on classification, this article focuses on certification systems and market conditions in the Gulf Cooperation Council (GCC) region, primarily centered around Saudi Arabia and the UAE. It is noteworthy that GCC member countries share a mutual understanding as Islamic nations and align their policies and positions across various fields, including the economy and industry.
One notable aspect is that all GCC member countries are preparing for the post-oil era and actively participating in carbon-neutral initiatives. As a testament to their commitment, the 28th United Nations Climate Change Conference of the Parties (COP28) is scheduled to take place in the UAE for two weeks starting at the end of November this year.
| Gulf Standardization Organization (GSO) and GCC Certification
The Gulf Standardization Organization (GSO) serves as a standardization body regulating product market entry and distribution in GCC countries. GSO introduced the G-Mark in 2009 as a conformity mark to reduce trade barriers among member countries. It is mandatory to affix the mark for items falling under technical regulations.
It is essential to note that due to their economic reliance on the oil and gas industry, GCC member countries, including Saudi Arabia and the UAE, have not significantly developed manufacturing. Consequently, they heavily depend on imports for most major products. This has led to a structure that prioritizes certification industries proving compliance with specific requirements for the safety and quality of imported products, rather than the testing industry that assesses the characteristics, performance, and safety of manufacturing products.
In the Middle East, companies seeking to export do not necessarily need to send samples to the region. Instead, they can obtain international certificates through third-party testing and certification organizations. For instance, a Korean company wishing to export to the Middle East can undergo testing, issuance of international certificates, and GCC certification through the Korea Testing Certification institute (KTC), designated as the first GCC certification body in Korea.
| GCC Member Countries' Overlapping Regulations
Despite efforts to establish standardized organizations for integrated policies, the Middle East remains a challenging market for companies. While working towards unified regulations and conformity assessment similar to Europe, overlapping regulations beyond GCC certification exist due to reasons such as protecting national interests among member countries.
Examples of mandatory certifications for quality and safety purposes include Saudi Arabia's SASO and UAE's ECAS certifications. Additionally, obtaining quality certifications based on buyer requirements, such as SQM and EQM, can incur significant costs and time.
| Stringent Requirements for Local Agents
In addition to certification, another challenge for entering the Middle East market is the requirement for local agents. To enter the Middle East market, a local agent contract is necessary for legal protection, product distribution, and sales. However, insufficient review of potential disputes arising from contracts has led to increasing problems.
To circumvent local agent requirements, companies can consider establishing local entities, but this may involve significant capital burdens. Therefore, companies seeking to enter the Middle East market need thorough reviews of local agent contracts, considering the following factors. Disputes arising from these contracts could affect local project orders and product distribution in the future.
| For a Successful Market Entry of Korean Companies
While the Middle East is an attractive market for Korean companies, technological barriers can pose challenges to market entry. Therefore, companies must minimize risks arising from technological regulations through thorough preparation from the initial stages.
Methods for this include ▲reviewing market conditions for exporting Middle Eastern countries and environmental differences in product specifications (different standards for each country) ▲understanding mandatory certifications and regulations in the respective countries ▲requesting product testing and obtaining international certificates (or confirming if the company already possesses them) ▲submitting documents to certification authorities and obtaining certificates through document submissions and revisions.
Especially for the third and fourth steps, the role of testing and certification organizations designated as GCC certification bodies is crucial. To save time and costs and ease communication challenges with overseas organizations, companies can proceed with certification through GCC certification bodies like KTC.
Moreover, in addition to obtaining certifications, continuous monitoring of post-certification management and urgent regulatory enforcement during distribution is crucial in the Middle East. Therefore, choosing a certification organization that has entered the local market, such as KTC, is advantageous for companies.
Fortunately, in recent years, Middle Eastern countries, starting with Dubai in the UAE, have been relaxing regulations related to local agents to encourage the entry of foreign companies and activate free trade. Companies considering market entry should monitor these changes continuously.
Middle Eastern countries are actively diversifying their industries to reduce dependence on oil in the economy. One notable example is Saudi Arabia's Neom City project. This policy trend offers new opportunities for Korean companies with competitiveness in industries such as manufacturing, batteries, hydrogen, and ICT to establish themselves as key partners in Middle Eastern countries. Furthermore, leveraging the Middle East as a stepping stone could open up more opportunities and markets, extending to the African market.
