Influences of culture on the style of business behavior between Western and Arab managers

TABLE OF CONTENTS

LIST OF FIGUES AND TABLES

1. INTRODUCTION
1.1. Definition of the two worlds
1.2. Problem and Objectives
1.3. Structure

2. INTRODUCTION TO THE ARAB WORLD
2.1. Classification of the Arab countries
2.2. Decisive moments of history
2.2.1. MuÇammad and the birth of the Islamic state
2.2.2. Expansion of the Islamic state
2.2.3. Stage of Stagnation
2.2.4. Stage of resurgence
2.3. Economic Profile
2.3.1. Exploitation of Petroleum
2.3.2. Islamic banking system

3. ISLAM
3.1. The tenets of Islam
3.2. The Qur’ān
3.3. The five pillars of Islam
3.3.1. Confession of Faith
3.3.2. Prayer
3.3.3. Zakāt
3.3.4. Fasting during RamaÉān
3.3.5. Pilgrimage
3.4. Traditions of Islam

4. CULTURE
4.1. Concepts and meaning of culture
4.2. Intercultural communication
4.2.1. Culture and communication
4.2.2. Language in intercultural communication
4.2.3. Nonverbal communication
4.2.3.1. Kinetics
4.2.3.2. Touch behavior
4.2.3.3. Eye contact
4.2.3.4. Distance behavior
4.2.3.5. Time and Scheduling
4.3. Challenges in intercultural communication
4.3.1. Stereotyping
4.3.2. Ethnocentrism
4.4. Intercultural communication trainings

5. CULTURAL MODELS
5.1. The four dimensions of Hofstede
5.1.1. Power distance
5.1.2. Uncertainty Avoidance
5.1.3. Individualism vs. Collectivism
5.1.4. Masculinity vs. Femininity
5.2. The role of context
5.2.1. High-context culture
5.2.2. Low-context culture
5.2.3. Communication varieties

6. THE ARAB SOCIETY
6.1. Arab values
6.2. Types of Arab individuals
6.2.1. Traditionalist
6.2.2. Idealistic
6.2.3. Spectator
6.2.4. Illusionist
6.2.5. Transitionalist
6.2.6. Manipulative
6.2.7. Revivalist
6.2.8. Existentialist
6.3. Women in the Arab society

7. ARAB EXECUTIVES
7.1. Islam and Economy
7.2. The Arab businessman
7.3. Negotiating style
7.4. Nonverbal business behavior
7.4.1. Eye contact
7.4.2. Distance behavior
7.4.3. Touch behavior
7.4.4. Gestures
7.4.5. Time and scheduling
7.4.6. Dress code
7.4.7. Gifts
7.5. Cultural and religious issues in business ethics

8. BUSINESS ATTITUDES
8.1. Risks
8.1.1. Strangeness of the culture and environment
8.1.2. Lack of information and communication
8.1.3. Complexity of social relations
8.1.4. Loss of intercultural competence
8.1.5. Corruption and bribery
8.2. Differences in business behavior
8.2.1. Relationship-focused vs. Deal-focused
8.2.2. Monochronic vs. Polychronic
8.2.3. Expressive vs. Reserved
8.2.4. Rigid-Time vs. Fluid Time
8.3. Skills of a global manager

9. CONCLUSION

BIBLIOGRAPHY

LIST OF FIGUES AND TABLES

Figure 1: The Arab world

Table 1: Classification within the group of Arabs

Table 2: Arrangement of four economic groups

Table 3: Worldwide population of Muslims

Table 4: Relationship-focused vs. Deal-focused cultures

Table 5: Polychronic vs. Monochronic cultures

Table 6: Expressive vs. reserved cultures

Men’s natures are alike;

it is their habits that carry them far apart.

Confucius, 551-479 BC

1. INTRODUCTION

International business activities are expanding significantly and so awareness of both cultural similarities and differences is becoming increasingly important. Internationalization is no longer a foreign word and more and more business people now undertake the task of doing business outside of their home country. To succeed in international business requires an understanding of various cultures and the sensitivity to cope with differences. While doing business with people from many nations, a sense of dealing with conflicting approaches is inevitable. Managers with global views and skills in international communication are more sought after than ever. At the same time, managers are seeking ways to participate in cross-cultural management and to avoid any misinterpretation.

1.1. Definition of the two worlds

As the title already informs, this research paper focuses on the cultures of the Western and the Arab world and so a definition of these terms is important. While doing research it was clear that both terms can have multiple meanings depending on the context and therefore to give an encompassing definition is quite challenging.

The term ‘Western world’ or ‘The West’ was originally defined as Western Europe; most modern uses of the term refer to the societies of Western and Central Europe and their close genealogical, linguistic, and philosophical colonial descendants. Typically included are those countries whose ethnic identity and dominant culture are derived from European culture (http://en.wikipedia.org/wiki/Western_world, 22.11.2005).

To explain certain patterns of ‘The Arab world’ or ‘The Islamic world’ one has to examine several definitions and some of these can lead to misunderstanding. One possible definition would be that the Arab world refers to the 22 member states of the Arab League. “The League of Arab States was founded in 1945 in Cairo. It is a voluntary association of sovereign Arab States designed to strengthen the close ties linking them and to coordinate their policies and activities and direct them towards the common goods of all the Arab countries” (Gedeon, 1963, p. 997). Considering the fact that the Arab League can be used to refer to of the Arab world in general, it has to be mentioned that this definition is not totally appropriate. On the one hand, the Arab League does not include Arab minorities in countries such as Turkey or Iran, and on the other hand it includes some countries that are not typical Arab countries such as Somalia or Djibouti.

If someone refers to the term ‘Islamic world’ then this definition would include all those countries where Islam is the majority religion, and so this further would take in about one-and-a-half billion Muslims worldwide. Furthermore, the definition ‘Islamic world’ may also refer to the 57 members of the OIC (Organization of Islamic Conference). Another difficulty when referring to the term ‘Arabs’ is caused by the fact that there are Arabs who are Christians and not Muslims. These discrepancies again point out that there are many ways to refer to the Arab world, and still there is no all-encompassing definition.

Another approach refers to the Arabian Peninsula and states that the peninsula is to be linked in the north and northeast to the rest of the Asian continent, while it is separated from Africa by the Red Sea. To think that Arabia is part of Asia is of course misleading from the standpoint of geological history as from its origin more than 500 million years ago; Arabia was an integral part of northeast Africa. Thompson explained that: “the Arabian Shield and Nubian Shield were formed as one entity by the same forces at the same time, and did not separate until less than 50 million years ago, while the wide Tethys Sea had lain between Asia and Arabia since the time of Gondwanaland. As the Afro-Arabian plate drifted northeast towards Asia the Tethys gradually narrowed to a gulf when the shelves of the two continents first began to make contact about 50 million years ago, and closed completely as they ground more closer together.” Arabia and Africa were still two parts of the same tectonic plate, despite the sea that now lay between (2000, p. 43). Thus it was not surprising to find out that there are various ways to refer to the Arabs: “An Arab, in the modern sense of the word, is one who is a national of an Arab state, has command of the Arabic language, and possesses a fundamental knowledge of Arabian tradition, that is, of manners, customs, and political and social systems of the culture.” (Touma, 1996, p. 18).

To classify a person within the group of Arabs, some basic principles must first be fulfilled: A possible classification might result from several different perspectives:

Politically, an Arab is a person who lives in a country which belongs to the ‘Arab League’. This view would comprise around 300 millions of people.

Linguistically, an Arab is a person who speaks an Arabic dialect. This definition concerns approximately 200 millions of people.

Genealogically, an Arab has forefathers who derive from a nation out of the Arab peninsula (Ğāzīrat al-cArab).

Ethnically, an Arab is a person who belongs to a Semitic Nation of Nomads, located in the North and Central Area of the Arab Steppe-Region.

Religiously, an Arab is a person who believes in Islam.

Table 1: Classification within the group of Arabs

Source: http://en.wikipedia.org/wiki/Arab, 27.10.2005

By comparing and contrasting those diverse statements, it can be seen that there is no all-encompassing definition.

1.2. Problem and Objectives

The main focus in this paper is concentrated on the question of:

Why are history and culture so important in the context of business behavior?

The aim of this thesis is to discover certain core beliefs that inform how business has developed. In addition, this research will explain why Westerners doing business with Arabs have to adapt their behavior in order to close deals and maintain successful business relations. In this context, a number of specific cultural differences between the Western and Arab approach to successful business transactions will be given. This thesis should give the reader an understanding of the Arab executive and his environment. It might further provide valuable information on how to reduce culture shock and so increase the speed of adaptation. The thesis should also serve as a general guideline with basic hints for people who are interested in international transactions between Western and Arab countries.

The key issue of this thesis is to demonstrate through various examples that there is a pervasive influence of culture and environment on business conditions, social behavior and on the attitudes of managers.

1.3. Structure

The following paragraph explains the use of the transcript system used in this research paper to reflect the Arabic typeface with Latin signs. The transcript system is strongly linked to the proposed DMG system (Deutsche Morgenländische Gesellschaft) and to the recommended system of the International Oriental Congress in 1935 (http://www.dmg-web.de, 27.10.2005).

At the beginning an introduction to the Arab world will give the reader an insight by presenting the main historical events. The political development and the economic profile will further provide a deeper insight into the Arab world. The meaning of the Qur’ān and the traditions and influence of religion on the life of a Muslim will be introduced and explained in the Chapter about Islam.

A general definition of culture should bring the reader to an understanding of the importance of culture in business life. The need for understanding different cultures to be effective in international business will be presented by referring to well known authors such as Triandis, Ghaussy and Hall. Additionally, a brief analysis of the four dimensions of Hofstede will be used to increase understanding of people in the Arab world as they do react different in certain situations. This research could further be used to discuss its consequences among the Arab executives.

How culture influenced Arab society will be another chapter in this thesis. The statement that culture is a major force that influences economic relations will further be examined in the chapter concerning Arab executives. In presenting business attitudes toward the Western and the Arab world the reader will be informed that Arab culture shows a distinct contrast to its Western counterparts in many different situations but there are also numerous similarities given. The conclusion will summarize this research paper and future thoughts will summarize and conclude this thesis.

2. INTRODUCTION TO THE ARAB WORLD

The combined population of the 22 Arab countries of the Arab league was 280 million people in 2000. This would count for 5% of the total world population.

Abbildung in dieser Leseprobe nicht enthalten

Figure 1: The Arab world. Source: Kaynak, 1986, p. 20.

2.1. Classification of the Arab countries

As already stated in the introduction part, the term ‘Arab world’ often shows up with various explanations that depend on the particular approach or view of the writer. For my thesis an arrangement among Arab countries would be appropriate to classify certain economic groups. These economic groups will also show up in this thesis to explain how Western managers might react to different market conditions.

According to Waterbury and Mallakah there are 4 economic groups, which were later also used by Elbashier and Nicholls for further research.

1. Group: Saudi Arabia, Kuwait, the United Arab Emirates and Qatar

- strong link to the West
- predominance of oil
- surplus of capital
- high per capita income
- limited agriculture
- relatively small population
- shortage of indigenous skilled labor

2. Group: Algeria, Iraq and Libya

- not only oil but also agricultural potential
- tendency towards strict control of the economy and national resources
- lower per capita income
- shortage of technical skills

3. Group: Egypt, Morocco, Sudan, Syria and Tunisia

- developed agriculture and industry
- tourism as main source of income
- populous
- shortage of capital

4. Group: Lebanon and Jordan

- service sector as most important economic sector
- developed manufacturing sector
- less agriculture

Table 2: Arrangement of four economic groups

Source: Waterbury and Mallakh, 1978, quoted in Elbashier and Nicholls, 1982, p. 7-8

These four arrangements show that for this study, the Arab world mainly refers to the Middle East, which is also called the Arabian Peninsula. This Peninsula is a vital region of the larger Middle East, and plays a critically important geopolitical role due to its huge oil and natural gas reserves. Politically, this Peninsula is separated from Asia by the northern borders of Saudi Arabia and Kuwait. The following countries belong to this peninsula: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates and Yemen (Elbashier and Nicholls, 1982, p. 7-8).

Countries outside the Arabian Peninsula which are listed in groups 2 to 4, also have a great importance in my paper in terms of economic classification. These countries together can provide a good insight into what Arab management looks like and how culture influences business conduct.

2.2. Decisive moments of history

In explaining the modern Arab world, the nature and past of the Arab states has to be analyzed. To full explain the historical roots of the Arab world would fill many books and still not everything would be clear. To refer to history means of course to go back to the past. But it largely depends on the perspective of the writer exactly how far one should go back to explain the present situation. This historical overview is an introduction to certain key points of the Islamic state to present the situation as it was in the distant past. Nevertheless, it has to be mentioned that Arabia has held a place in history for thousands of years. Civilization already existed in 4000 B.C. in the Arabian Gulf. Active trade was practiced between the ancient Sumerians of Mesopotamia and the peoples of the Arabian Gulf (Gedeon, 1963, p. 989). Before Islam society was tribally divided and the relationship between tribes was not always peaceful with conflicts between the tribes being a common phenomenon. Under Islam which started in 610 AD, all Arabians were united. The emergence of Islam in Arabia began in 610 AD when MuÇammad was born. In history, this is known as the birth of the Islamic-Arabian state.

2.2.1. MuÇammad and the birth of the Islamic state

MuÇammad b. CAbd Allāh b. CAbd al-Muţţalib b. Hāšim was born in Mecca in 570 A.D. in the year of the Elephant, so named because it was the year when Mecca was being threatened by the Abyssinian army accompanied by an elephant. MuÇammad came of a good family, that of the HāÍimites. MuÇammad was the son of CAbd Allāh ibn CAbd al-Muţţalib of Mecca and Amīna, a daughter of the tribe of Qurayš and the clan of the Hāšim. His father had died while on a caravan trip to Syria before he was born, and his mother Amīna and his grandfather CAbd al-MuÏÏalib supervised his early upbringing. When he was six his mother died and by the age of eight, his grandfather died too and from that time on his uncle AbÄ Ţālib looked after him. Sūra 93 states that he became an orphan at an early age and passed his childhood and youth in penury. These details are all we know with any certainty and the blackout which here begins was not lifted until his marriage to Èadīğa. At that time, decadence and unrest were widespread in the Western world and Arabia was in a state of near anarchy. Tribal feuds, wars and religious persecutions, such as that of the Christians by the Jews in the southwestern part of the country were common scenarios in the Arab Empire (Gedeon, 1963, p. 992). MuÇammad did not live, as sometimes used to be assumed, among primitive nomads in a desert, but in long established cities with international commercial relations. It was natural therefore that he decided to make a career for himself in commerce. He married his first wife Èadīğa at the age of twenty-five and his daughter Fāţima, whose descendants were to prove so important in later Islamic history, was born out of this marriage. So, Èadīğa was a wealthy widow of this tribe and brought him material security and moral support in times of difficulty. The society of Arabians was still polytheistic and tribal based and were led by clans. Most of the wealth in the case of Mecca was derived from trade and other business enterprises (Davidson, 2003, p. 4). It was approximately 610, when MuÇammad was around forty years old when, according to tradition, MuÇammad was visited by the angel Gabriel, who told him he had been called upon by Allah to convert the Arabs to monotheism. From that time on he began to receive the revelation of the Qur’ān and to preach to the Meccans. Kennedy reported that the dating of the Revelation of the Qur’ān is problematic, but it is universally accepted that the earliest sūras are the end of the received text of the Qur’ān. In the year which followed the Revelation, the prophet started his public preaching and called on people to acknowledge the glory of Allah and pray to him (2004, p. 31). In 619 his beloved wife Èadīğa and his uncle AbÄ Ţālib both died and the years until 622 can be seen as a crisis of MuÇammad’s ministry and the biggest test he faced since he had begun to preach his message. A major point in the history of the Islamic movement was the Çiğra in 622. Significance of which is that the political evolution of Islam started and the prophet became the ruler of a State. “He ruled from 622 to 632, the year of his death. In those ten years, MuÇammad industrialized Islam not only as a set of religious rituals and beliefs, but also as a set of societal norms of behavior and outlook with the force of law” (Davidson, 2003, p. 5). The birth of a new faith was an amazing occurrence that took place in the Arabian Peninsula and then swept over most of the civilized world. The Qur’ān refers to episodes in the life of MuÇammad and so becomes unwittingly the most authentic source that mirroring the strong as well as the weak points in his character.

2.2.2. Expansion of the Islamic state

After the birth of the Islamic state, there was an expansion in economic development. Using the language of El-Ashker, early Muslims were faced with situations that did not exist at the time of the Prophet, and so different circumstances resulted from this more complex situation. Thus, the new changes arose from the huge expansion in agricultural activities. Therefore general rules were outlined in the Qur’ān and in the Traditions. Early successors such as the Caliphs, contributed significantly to the evolution of economic thought. Islamic jurists together with the Caliphs laid down the basic principles of large scale state administration (1987, p. 18).

The death of the Prophet on June 8, 632 meant that the Muslim community was faced with a number of problems which had not existed during his lifetime. One problem was that he had left no generally acknowledged successor. So the Muslims were confronted with the task of finding an appropriate heir (Kennedy, 2004, p. 50). AbÄ Bakr aÌ-Şiddīq (632-634), the devoted companion of MuÇammad, became the first caliph. Within two years he established strict control over the civil service and a distribution of all surplus revenue among the community of Moslems on the basis of strict equality. Another result was the separation between the personal finances of the Caliph, who earned an extremely modest salary, and the public treasury, into which all state revenues poured (Mansour, 1992, p. 53). AbÄ Bakr died on 23 August 634 and his reign had been all too brief but his achievements were enormous. He had maintained the traditions of the Prophet and had set the Muslim community on the road to expansion. CUmar ibn al-Èaţţāb (634-644), another of the Prophet’s fathers-in-law, became the second Caliph. He continued the conquests and one country after another either fell or surrendered. Moreover, he instigated the system of settlement and in particular the Dīwān system with its arrangements for paying pensions to the conquerors rather than distributing the lands among them, a system which was to have far reaching results for the political future of the Islamic world. CUmar was assassinated by a Persian slave in Medina after ten years as caliph. The third Caliph was CUÐmān ibn CAffān (644-656), from the Umayyad clan of the tribe of Qurayš in Mecca. He relaxed the strict controls such as the financial dealings of the civil service, which his predecessors had established. The cousin and son-in-law of MuÇammad was CAlī ibn Abī Ţālib (656-661), who became the fourth Caliph. CAlī was opposed by the followers of Mucawwiya, and he lost many of this own supporters, who turned against him because he has agreed to arbitration. Ever since that time Islam has been divided between the Sunnis and Šīcites. Šīcites believe that the Caliphate should have gone to the heirs of MuÇammads daughter Fāţima and her husband CAlī (Gedeon, 1963, p. 991-993).

The Šīcites lost their power struggle with the heirs of CUÐman, who established the Ummayad dynasty that lasted 89 years, from 661 to 750 AD. This dynasty ruled an expanding Muslim domain until it was replaced by the dynasty of the CAbbāsids. In total these two dynasties ruled from 750 to 1258, a period in which Islam spread widely. “What had begun as the religiously inspired conquest of Arabia grew into a culturally eclectic empire of world import and power. Muslim control extended from Spain and Morocco in the west and to India in the east.” By the time of the CAbbāsid Empire, the Arabs coming out of Arabia came into close contact with different cultures and peoples, and so they began to lose their exclusive Arabian identity and merge with the native population. As a consequence, the creation of a new hybrid culture, brought with its greater emphasis on the study of various sciences such as medicine, astronomy and architecture. Moreover poetry, history, literature and religious studies flourished (Davidson, 2003, p. 8). Rapid Islamic expansion exceeded the ability of the local rulers to maintain control. The CAbbāsid Empire was thus fractionalized and so this allowed infiltration by such forces as the Latin Crusaders, the Salğūq Turks, and the Mongol Hordes. But these alien forces were in turn absorbed by the dominant Islamic culture of the lands they had entered. There followed a number of Islamic states governed by non-Arab Muslim dynasties. The most enduring was the Ottoman Empire (1299-1922) which started as a small state in northwestern Anatolia, ruled by a family of Muslim Turks. Then it expanded throughout the Balkans, the Middle East, and North Africa. Although the empire was huge, the Muslim religion expanded at this time even further into China and Southeast Asia. The Ottoman Empire had no peer culturally, politically, or militarily. But that soon change in the seventeenth century when the Christian states of Europe gain in power and scientific skills. Culturally and technologically, the Christian states of Europe made rapid progress. Soon they developed a more materialistic culture eventually made even more mighty by the industrial revolution of the eighteenth and nineteenth centuries. This emerging European force faced up to an Islamic civilization that had always believed it was superior to the Christian West in every way for centuries. The confrontation soon proved to be the most traumatic challenge for the Islamic world. And it is one that continues to be an obstacle to Islamic hegemony and expansion to this day (Davidson, 2003, p. 9).

2.2.3. Stage of Stagnation

The evolution of Islamic thought began to suffer from stagnation by the 14th century. El-Ashker listed a few reasons for this stagnation (1987, p. 23-27):

- The decay of the Islamic state
- The exogenous invasion of the Islamic world
- The closure of the `gate of jurisprudence´
- Concessions given to non-Muslims and the growing influence of Jews and Christians in the Islamic world.
- Western influence
- The poor financial administration of the state in the Ottoman Empire
- The establishment of European banks in the Islamic state

The decay of the Islamic state set in by the end of the 11th century, when the Islamic empire was divided into various component parts governed by different forces. Syria for example was governed by the Salğūq who became Muslims but did not have a culture of their own. The Šīca Fāţimids took over Egypt and North Africa and the Umayyad ruled in Spain. Another reason for this stage of stagnation was the invasion of the Mongols in 1258. The Mongols captured Baġdād and killed the last of the CAbbāsid Caliphs. One year later, they captured Damascus and Aleppo and so reached the shores of the Mediterranean. In 1260, the Mamlūk leader Hūlāgū was defeated by the Mamlūks of Egypt. Another invasion came from the West and they were called the Crusades and lasted from 1096 to 1270 (El-Ashker, 1987, p. 23).

Invasions of peoples such as the Salğūq Turks and Mongols resulted in major displacements of populations, loss of life, and destruction of important centers of Muslim civilization. This situation negatively affected the intellectual flexibility and adaptability of Islamic thought and culture. As a result, Islamic civilization became more suspicious and hostile to innovation, and as a consequence, the ability to adapt to change was significantly reduced (Davidson, 2003, p. 9-10). El-Ashker argued that as a result of decay in the Islamic state, impious and incompetent intruders found an opportunity to claim competence in jurisprudence. To overcome such an alarming situation Muslim jurists declared that `the gate of interpretation has been closed´. The effect of this closure made Muslims unable to derive new rules from the Šarica to accommodate new environmental changes (1987, p. 23).

Another factor that made the evolution of Islamic thought stagnate was the concessions given to non-Muslims. The special privileges given to Jews and Christians of Constantinople after its capture by the Ottoman Empire in 1453 increased the influence of Jews and Christians in the Islamic world (El-Askher, 1987, p. 24). Because of the successful European expansion in commerce, Western influence began to rise not only economically but also politically. After the industrial revolution in the late 18th century, international trade grew rapidly and rivalry over overseas markets began among major European powers. This situation led to the establishment of a direct and an indirect control of the overseas market. By the mid 19th century almost all Islamic countries were under the political control of the West. In 1875 the Ottoman Empire had drastic financial problems resulting from the diversion of trade after the discovery of the Cape of Good Hope. Moreover, the Spaniards, who had reconquered Spain from the Umayyads by the end of the 15th century, were concentrated in the export of gold, for which there was a great demand in Europe and the East. Consequently, there was a shortfall in the supply of goods within the Empire (El-Ashker, 1987, p. 24-25).

The Arab world has been a part of the world capitalist system, but always when the integrated country enjoyed a position of considerable technological, economic, political and in many respects cultural inferiority compared to the invading system. In this way, it was possible for the capitalist world to mould much of what was going on in those countries in such way that satisfied the economic and geopolitical requirements of the system. World War One had a varied effect on the Arab liberation movements. Until the finished war, these movements faced up to different forces. While a large part of the Arab world (the whole of northern Africa, including Egypt and Sudan, and some sheikhdoms bordering on the Persian Gulf, the Arabian Sea and the Gulf of Aden) was under the authority of European imperial powers, another part (Syria, Palestine, Iraq and the Çiğāz) was still under the control of the Ottoman Empire, so it was merged into the world capitalist system only because of the integration of the Ottoman Empire itself in that system. With the removal of Ottoman control from parts of the Arab world, all Arab national liberation movements now had to confront European imperialism which had divided up that world for them, but they were fighting in isolation from each another. Then a new phase began which started with the collapse of the old colonial empires at the initial stages of World War Two. World War Two, like World War One, gave the local elites in dependent countries big new opportunities for further expansion which were, however, more than matched by the growth of the working classes and other social forces. Twenty years after the end of World War Two, as a result of the interplay between these conflicting forces, most Arab countries had won almost complete political independence, in the sense that no imperial armies or foreign military forces existed on their land to be the deciding factor of political power (Mansour, 1992, p. 34-35).

2.2.4. Stage of resurgence

The resurgence is not a product of the last decade, as political and religious movements were already found in previous times such as the movement of the Wahhābīya in Arabia, the Sunūsīya in Libya, and the Mahdīya in Sudan. Their major rallying call was for the pure application of Islamic teaching to all aspects of life (El-Askher, p. 28). Active movements in the Islamic world in the 1980’s were called Islamic resurgence by Muslims, and might be understood as an increase in Islamic activism.

The Islamic resurgence could be said to have been manifested in the following (El-Askher, p. 28):

- The call for institutions of Islamic law instead of the imported Western legal system.
- The change of the language and the tone of politicians so as to reflect religious content.
- The spread of social symbols in the behavior and appearance of Muslims.
- The emergence of socio-political opposition groups in the name of Islam.
- The establishment of international Islamic organizations to promote closer ties between Islamic countries.

Al-Askher argued that “economically, the stage of resurgence has three main landmarks: the revival of Islamic economic literature, the Islamisation of the economic system of Pakistan, and the establishment of Islamic financial institutions in various parts of Islamic and European countries.” (1987, p. 29).

For Western people the Arab world became of much more importance with the growth of the oil business in the 1970s, which is also known as ‘oil boom’ or ‘oil crisis’. The discovery of oil in the Middle East was the beginning of an amazing economic transformation. More and more businesses now became attracted to this market and the interest in direct dealing with Arab businessmen was a significant step forward. The steady rise in exploring this new market eventually led to a greater awareness of the cultural behaviors in commercial activity as well as in everyday life.

2.3. Economic Profile

Less developed countries (LDCs) build the contrast to the fully developed countries around the world. According to Hodgetts, an LDC is typically characterized by two or more of the following: low GDP, slow (or negative) GDP growth per capita, high unemployment, high international debt, a large population, and a workforce that is either largely unskilled or semiskilled. In the case of the Middle East, where the Arab countries are considered by the World Bank to be LDCs, there is also considerable government intervention in economic affairs (1997, p. 28).

“The GDP of all Arab countries combined ($531.2 billion) is less than that of Spain ($595.5 billion). As the report notes, a very large investment in fixed capital formation of over 3000 billion dollars, over the past 20 years, has had poor returns in per capita income, which experienced the lowest growth rate in the world apart from Sub-Saharan Africa.” (Arab Human Development Report 2002, available at: http://www.rbas.undp.org/ahdr/press_kits2002/PR2.pdf, 24.02.2006).

One socioeconomic feature of the Middle East refers to its rapidly growing. The GNP of a country measures the progress toward the achievement of development goals; however it is not sufficient enough to understand differences between the development rates of countries. Many of the fast growing developing countries have found that their high growth rate of gross national product (GNP) did not help to minimize the socio-economic problems in their countries. Therefore greater attention should be paid to the link between economic growth and human development. Today, common problems in the Arab states like high population rate and unemployment can be compared to basic challenges to Human Development.

The United Nations Development Programme UNDP has been calculating the Human Development Index HDI for nearly 175 countries in the world since 1990. In 2002, the first regional Human Development Report for the Arab states was released.

Both the Arab Human Development Report 2002 (AHDR) and Human Development Reports (HDR) since 1990 show that there is some progress in the Arab region toward the achievement of development goals (Arab Human Development Report 2002, available at: http://www.rbas.undp.org/ahdr/press_kits2002/PR2.pdf, 24.02.2006).

2.3.1. Exploitation of Petroleum

The discovery of oil was a major turning point in Arab history. Already as early as the 1920’s oil was discovered in Iraq, and during the 1930’s and 1940’s in the Arab peninsula. From the beginning of the 1970’s, the Arab world had a great economic impact for Western businessmen. The booming oil business encouraged foreign concerns to enter the Arab market and to establish oil companies in diverse Arab countries. Arab oil-producing countries are certainly a big part of the world oil industry and a rising world demand has set a premium on oil as a source of energy. The Arab world’s abundant oil reserves will supply the world with oil for many years to come. In 1968, the Organization of Arab Petroleum Exporting Countries (OAPEC) was formed in Beirut. Its objectives are complementary to those of the Organization of Petrol Exporting Countries (OPEC), which was established in Vienna. In 1997, OAPEC produced 25.9% of total world petroleum production. Natural gas, which has been discovered in places such as the Arab oil countries, is another important contributor to energy. At present, several new development techniques for liquefied natural gas supplies are important for worldwide gas transportation. One example of the export of natural gas is the pipeline which goes from Algeria to Italy via Tunisia. Another alternative for distribution is seen in the local markets. In Kuwait, for example, petrochemical facilities and refineries require more than 200 million cu. ft. daily of natural gas. In Saudi Arabia and Iraq, efforts are being made to initiate petrochemical production and other industrial activities, which would utilize natural gas (Gedeon, 1963, p. 1015-1016). Observers of the world oil industry pointed out that the balance of power among oil-producing and exporting countries and oil-consuming and importing countries was shifting decisively in favor of the producing countries. Levy argued already in 1971 that: “The winds of change for the oil industry that have been stirring throughout the decades since 1950 have now risen to hurricane proportions. The aim of major oil-producing countries in this vortex is clearly to maximize their governments’ “take” out of the value of their oil productions and obtain increasing control over oil operations. To achieve this, these countries – already formally joined in the Organization of Petroleum Exporting Countries since 1960 – have now effectively combined to wield the economic and political power of an oil monopoly.” The oil revolution not only changed relations between petroleum-exporting and petroleum-importing countries, but also changed the map of the Middle East. As a result of newly amassed wealth, the potential in the Middle East for economic cooperation to contribute positively to general regional stability seems greater than in any other region of the Third World (Waterbury, 1978, p. 3-11). Muna argued that the oil wealth had substantial influence on the non-oil-producing countries in the Arab world. As a consequence, the increasing demand for labor was met, and the rising consumer and governmental demands for food products, manufactured goods, and services were partly met by the non-oil countries. Moreover, it is worth considering that the oil producers have provided their Arab neighbors with large amounts of financial aid and long-term loans which has stimulated economic development (1980, p. 18).

The reopening of the Suez Canal in 1975 increased the possibilities of the Middle East to reintroduce trade not only between East and West but also between North and South. The closure of the canal for almost eight years brought with it economic dislocations, particularly in the movement of petroleum (Waterbury, 1978, p. 167). In the 1980s, the Middle East was still the leading supplier of petroleum to the OECD countries, and so it enjoyed a large oil-generated income. Indeed, the 1973 Middle East war and its aftermath had a positive effect on regional development. The increase in oil prices boosted revenues for the major petroleum states. These increased petroleum revenues in turn exceeded the capacities of the producers’ economies to absorb all the new wealth, which led to a capital surplus. Thus the oil states had to consider where to invest surplus capital externally. However, domestic spending was complicated and therefore delayed by a lack of skilled labor, management, and social and economic infrastructure. The 1973 war had not only positive effects but also caused widespread economic and physical damage to Egypt and Syria, resulting in a reconstruction effort financed by newly developed programs of the oil-rich nations. The three most powerful countries during the 1980s’ were Iran, Saudi Arabia, and Egypt. Large population, sufficient labor force, agricultural and mineral sources, and the longest coastline on the Gulf were key issues that allowed Iran to expand industry. Saudi Arabia, at that time, had the world’s largest petroleum reserves (one quarter of all reserves in noncommunist countries) and the largest surplus monetary holding (estimated at $45 billion). Egypt, on the other side, has a large population and is situated in a strategic eastern Mediterranean location for trade and oil transit. So the power during the 1980s’ came from those countries or regions that are characterized by substantial oil revenues, a large population, and the potential for economic diversification and development (pp. 171-174). The Arab nation used to heavily rely on oil production. “The price of oil, which reached almost $40 per barrel by the late 1970s, fell below $15 a barrel in the mid-1980s as the Organization of Petroleum Exporting Countries (OPEC) had trouble holding together its cartel. During the Persian Gulf war, the price of oil again rose to almost $40 a barrel, but by 1995, it had fallen to a little less than one-half this amount.” Hodgetts argued that Arab countries should be of special importance to international management, as most industrial nations; rely, at least to some degree, on imported oil. (1997, p. 28).

2.3.2. Islamic banking system

The Arab banks have become increasingly active in the international capital markets. Arab banking has developed in four distinct stages. In the 1960’s, small local banks were established with the task of doing domestic business. Indigenous Banks such as the National Commercial Bank of Saudi Arabia, the Rafidain Bank of Iraq, and the Arab Bank of Jordan were established in this period. During the time of the second stage, between the 1960s and the early 1970s, there was a huge need for banking development, as the Arab countries were major participants in the world trade of finance. Therefore national commercial banks like the National Bank of Kuwait, the National Commercial Bank of Libya, the Qatar National Bank, the Bank of Oman, and the National Bank of Dubai were set up during this period (Gedeon, 1963, p. 1024). In 1963, the Mit Ghamr Savings Bank was established in Egypt and its operations were based on the Islamic principles of avoiding payments to depositors or from the borrowers. For a certain period of time, the borrower had to have a deposit in the bank, so the amount of deposits increased and after a while a network of local savings banks was established (El-Askher, 1987, p. 33).

During the third stage of Arab banking between 1973 and 1979, new national money and capital markets were established. International banking markets started in Bahrain and the United Arab Emirates and joint ventures with Western banks emerged. Examples of the new joint venture banks are the Union de Banques Arabes et Françaises and the Banque Arabe et Internationale d’Investissement, and the European Arab Bank in Brussels, to mention just some of them. During 1979-80 within the fourth stage of development, there was a change in attitude on the part of the Arab oil producers toward both the placement of their surplus funds and the development of Arab banking institutions. From that time on the banking industry was seen as a profitable business for investing capital, which resulted in increased investment in banks. Nowadays, Arabs Banks like the Arab Banking Corporation, the Gulf International Bank, or the Saudi International Bank are key players in the Eurocurrency lending market (Gedeon, 1963, p. 1025).

With the consolidation of Western banks in the Islamic world by the 19th century, all financial banking operations were based on interest-bearing loans. Due to this increase of Western banks, the restrictive practice of Islamic finance was curtailed. The idea of the Islamic government, at that time, was that the primacy of European capitalism resulted from the Western style of management including their financial practices. Under the concept of modernization, Islamic government was ready to move towards the new style, but, as a result, a feeling of anxiety in the Islamic community increased. Still, apart from Saudi Arabia, most governments, until at least the 1950’s, were willing to ignore any reservations people had, because this was now the only way to progress in a rapidly modernizing world (El-Askher, 1987, p. 27).

Even though we speak about the Muslim world as a whole, there are drastic disparities among Middle Eastern States. Some countries are socialist, some monarchies, while others are republics. Some take their legal heritage from the Napoleonic Code, some from the Ottoman Empire, and others from British common law. Nevertheless, in terms of religion and cultural features, the definition of Arab Middle East stands for unity within this region (Kaynak, 1986, p. 3). According to the political system, the Arab countries can be classified into monarchial and republican states. The Arab monarchies are ruled by Kings or by Emirs such as in Qatar and Kuwait, and by a Sultan, as in the Oman. The only exception is the United Arab Emirates which consists of seven united Emirates which are ruled by a president. The monarchies in the Arab world are classified into constitutional, consultative, and absolute monarchies. Examples of constitutional monarchies are Bahrain, Jordan, Kuwait, and Morocco, whereas Jordan and Morocco are governed by the Hašimites in Jordan and the Alawites in Morocco. A Consultative Monarchy can be found in Oman, and absolute monarchies include those in Saudi Arabia, Qatar and the United Arab Emirates. The Judicial System in most Arab republics is based on European, primarily French, legal concepts and on Islamic law. In Egypt, Sudan and Yemen, English common law is an additional source of the legal system, and in Libya the Italian civil law system and Islamic law are both valid.

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