Are you thinking about starting a business in the United Arab Emirates (UAE)? You may consider dropshipping as a legitimate option.
UAE’s central location in the Middle East makes the country an ideal place for exporting to other countries in the continental region. Supplemented with its modern infrastructure and free trade zones, the UAE is perfect for overcoming the major challenges associated with selling online using a dropshipping model.
Before you start dropshipping in the UAE, there are a few things to be aware of. Continue reading to learn more about dropshipping and its influencing aspects.
How Dropshipping Works
Dropshipping is an ecommerce business model whereby an online store owner purchases products directly from a wholesaler or manufacturer as orders are placed and from a seperate location to the actual goods themselves. In this model, the dropshipping company sells its products without having to store an inventory of stock. The seller is essentially a distributer for the manufacturer and relies on their ability to drive traffic and conversions to sell items.
A dropshipping business is attractive due to its low barrier for entry, as it cuts out logistics and traditional supply chain steps. The order and shipment details are sent directly to the manufacturer and shipped from there to the customer. For you, the online merchant, this eliminates the need for storing stock, managing inventory, handling shipping and quality control.
Of course, this benefit comes at a cost. Because the manufacturer handles all of the logistics, you can expect to pay higher wholesale prices than usual, meaning that the margins on your products will be significantly reduced.
A dropshipping model is most lucrative when you can depend on your ability to drive a lot of traffic using either organic or paid channels and to convert that traffic into orders.
The Different Types of Dropshipping business
While considering a dropshipping business model in UAE, you’ll want to think about what type of model you would like to use. Here are the most common dropshipping arrangements popular in 2022.
Product reselling is one of the most common forms of dropshipping. Sellers find products from various sources and make them available for purchase on their website or market platform. This type of dropshipping is good for those that are great at marketing a product or are experts in their field or demographic. However, this may require more funds to get started, as you’ll have to pay for products upfront.
Business extensions provide dropshipping services for retailers that don’t have an online presence. This model works as a middleman that promotes the retailer’s products. When the dropshipper makes a sale, they ask the retailer to ship the product to the customer.
This form of dropshipping may require more effort than product reselling because you must develop an intimate relationship with a specific retailer. You’ll have to know their products and services well. However, this model can prove lucrative due to the lack of competition.
This form of dropshipping takes a variety of products and bundles them into a single product for purchase. The seller then ships each of the bundled products to the customer upon purchase.
Product creation requires the seller to think critically about their new product. However, this allows for a unique market opportunity with little competition.
It is important to consider that because product creation involves shipping multiple products, creating a bundled product from a single manufacturer or wholesaler may result in items shipping at the same time.
For those that prefer to work with items with text or images printed on them, such as t-shirts or mugs, a print-on-demand dropshipping model may suit your interests.
This type of dropshipping works with creators that upload their text or image to the drop shipper. When the product sells, the drop shipper prints the file on the product and ships it on behalf of the creator.
Because so many of these items are sold, it is a benefit to have stellar marketing skills.
The Advantages of Dropshipping in the UAE
Knowing the variety of ways to drop ship products should help formulate an idea for a business model. Below are the advantages of setting up your business in UAE.
Dropshipping Costs are Low
The barrier to entry for dropshipping in the UAE is relatively low. Because you do not have to manage product development, storage solutions, and shipping costs, entrepreneurs can establish a dropshipping business with little capital.
Entrepreneurs Can Offer a Wide Range of Products
Dropshipping companies can sell several types of products for two reasons; they are not branded to a specific niche, and they don’t require warehousing.
Not having a brand allows entrepreneurs to work with a variety of product sources in different niches. As long as the marketing is available for each product a drop shipping company can sell whatever they like.
This is supplemented with their freedom from warehousing limits. Because drop shippers don’t have to store their products before shipping, they have limitless potential for the types of products they choose to sell.
No Shipping and Logistics
A convenient benefit of dropshipping in the UAE is that the wholesaler or manufacturer handles shipping. You won’t have to work out distribution, quality management, storage, or shipping in your supply chain. This offers an added potential benefit of quicker shipping to your customer.
UAE Has a Thriving Economy
UAE is a particularly great country to start your dropshipping business for its quickly growing e-commerce sales. The value of online sales rose more than 50% in 2020 to over 3.9 billion US dollars. Studies suggest this value will top $9 billion by 2025.
The Arab country’s demographics supplement its e-commerce sales. The population in UAE has adopted technology on a wide scale, with 99% of people actively using the internet. With the population unanimously browsing online, e-commerce sales will continue to rise.
Companies in UAE benefit from several country-specific advantages. For those willing to go through the registration process, business owners deal with no income tax, property tax, or corporate tax. Keep these in mind when calculating your profits.
The disadvantages of Dropshipping in the UAE
While the low cost of entry and simplified supply chains sound appealing to budding entrepreneurs, there are certain trade-offs involved. Consider these disadvantages when deciding how to build your dropshipping business in UAE.
Slim Profit Margins
Where traditional e-commerce margins typically range from 30-40%, your profit margins will range between 15-20%. You’ll discover that this dip in profits comes from not buying products in bulk. While you don’t have to worry about the cost of storage and shipping, you’re also not earning as much.
When considering a dropshipping business, you’ll need high traffic to cover the costs of platform fees, advertising, SEO, and managing sales orders.
A low cost of entry means more competition. You’ll find that the biggest markets are swollen with drop shippers fighting for the best deals.
In many cases, companies with bigger budgets can offer lower prices. This makes it difficult for new dropshipping companies to enter the market.
For those considering a dropshipping model in UAE, keep this disadvantage in mind. Be sure to thoroughly examine the market and choose a niche that is not oversaturated.
No Control Over the Supply Chain
While not having to deal with storage and shipping allows you to keep your costs low, you’ll rarely get to handle the products you sell. This gives you less control over when and how your products arrive.
When a customer purchases a product from your platform, you provide the wholesaler or manufacturer with the shipping details. It’s now upon them to take your individual item and send it to the customer. They have to handle a single product instead of using their standard bulk procedure, and that could take a longer time than expected.
The wholesaler or manufacturer may also send a product of lower quality. Because the product does not go through quality control before going to the customer, the product may arrive less than acceptable. Your reputation is at stake, but in regards to product quality, it’s out of your control.
Difficult to build a brand
As far as scaling your business goes, dropshipping in the UAE is challenging to build a brand around. While you can develop a good relationship with wholesalers or retailers, customers rarely connect with the shipping process. If your customer finds a price that undercuts yours, they’ll have no issues buying from someone else.
If Your Supplier Goes Out of Business, so Do You
Of course, if your supplier doesn’t sell enough product to keep in business you’ll have nothing to sell either. This is important to consider when choosing a product to sell. While selling a popular product may result in fierce competition, niching into a market that’s too narrow may result in no business at all.
Steps to Setting Up a Dropshipping Business in UAE
Keeping in mind the advantages and disadvantages in mind, setting up a dropshipping business in UAE is a manageable task. Here are some of the key steps to getting your company off the ground.
- Apply for a business license in Dubai: This is a multi-step process that involves working with The Department of Economic Development in Dubai to register your business. For those foreign to UAE, this may prove highly difficult without working with a business liaison.
- Choose your niche: The next step is to decide on what you want to sell. Use your industry expertise alongside market research to determine the best market to enter. Considering the information above, markets that are oversaturated will have a lot of competition, and markets that are too narrow may not provide enough business to stay afloat.
- Choose your supplier: You’ll want to find the supplier that best suits your needs. You can find suppliers using online directories and online marketplaces. A good supplier will provide quality products at a reasonable price. Remember, you’ll want to work with wholesalers or manufacturers that produce quality products, or your customers will stop buying from you.
- Create your store: You can either build your website or choose to use a dropshipping platform. If you can build your own website and can handle your own marketing, you’ll cut the cost of platform fees. However many platforms offer free services at the beginning of their memberships, and some offer discounted rates for new businesses.
Tips to Make Your UAE Dropshipping Business Successful
Now that you know how to start dropshipping in the UAE, you’ll want to position yourself in the best possible way for maximum profit. Below is useful advice for you to consider the strengthen your business.
Ask Your Supplier These Important Questions
When choosing a supplier for your dropshipping business, there are several aspects to think about. When reviewing a supplier, consider asking them about:
- How they handle returns or damaged products
- how long does it take them to fulfill orders
- How their customer support is, and
- If they insure orders or offer fraud protection
Take note of any reviews they have online. Customer reviews reveal many truths about how a company works with people.
Dropship High-maintenance Products
In several cases, products require extra expenses to store and ship. Companies can gain extra profits by drop shipping these items instead of paying for warehousing. These items include:
- large products that cost more to store than their sales cover.
- heavy products that have excessively high transportation costs.
- fragile products that are more likely to break in an extensive supply chain.
- valuable items that require more security than some warehouses can provide.
- Items with special conditions such as cold storage or light sensitivity.
While dropshipping makes up the value in saving the cost of storage and shipping, remember to work with products within your expertise for the highest success.
Work With a Business Consultant
While you may find it tempting to handle every step of starting your business to save costs, in reality, it may prove highly beneficial to hire a business consultant. Establishing a company in UAE requires several steps, including working with Dubai officials. Work with an experienced business consultant to handle the technical, administrative, and financial aspects while you focus on marketing.
Choosing the Right Business Consultant
When you’re ready to start dropshipping in the UAE, working with the right business consultant can influence the success of your business. With many free zones to choose from, a knowledgeable consultant can guide you in making a proper decision.
Virtuzone offers expert advice on setting up in both the UAE free zones and mainland areas. Continue reading to find out which one is right for your dropshipping business.