Skyline of Riyadh, Saudi Arabia Introduction to Business Teaching Module on Saudi Arabia Created by Kathleen P. Hess, PhD Assistant Professor, Management

Skyline of Riyadh, Saudi Arabia

Introduction to Business Teaching Module on Saudi Arabia

Created by Kathleen P. Hess, PhD

Assistant Professor, Management Dept.Salem State College Bertolon School of Business

USA

With much guidance and assistance bySalem M. Al-Ghamdi

Assistant Dean Of CIM Graduate Programs & Associate Professor Of ManagementCollege Of Industrial Management

King Fahd University Of Petroleum & MineralsSaudi Arabia

Draft Presentation2/21/2008Draft 2/21/2008 1


Purpose of these slides• These slides are being developed as a teaching module

to be used in Salem State College’s introduction to Business class.– They are still under development– They are meant to be rather high-level to introduce

relevant ideas– The main objectives are to introduce topics that must be

considered when doing business with different cultures, and to create interest in learning more about Saudi Arabia

– An upper-level module is being developed for the International Business course

• Many thanks go to Dr. Salem M. Al-Ghamdi for his guidance and assistance on this project

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Introduction to Business Culture and Economy

The Kingdom of Saudi Arabia

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Outline

• The Kingdom of Saudi Arabia: Facts• Cultural Influences• Economic Influences

– Conditions for Growth

• Key Industry Sectors

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The Kingdom of Saudi Arabia: Facts• Founded in 1932• Ruled by the Al Saud

family• Population: 27M• Strategically located

between Africa and mainland Asia

• Capital and largest city is Riyadh

• Religion: Islam – very influential

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Facts (con’t)• The Saudi work week is Saturday through Wednesday• The summer season (May to September) is hot• Business activity slows during the month of Ramadan; businesses shut down for

the five daily prayer times• Islamic law greatly influences business and social life in the Kingdom

– Personal Conduct– Dress– Language– Behavior

• Most leading Saudi business persons are Western-educated and have travelled extensively.

– Comfortable dealing with visiting businesspeople. – Hospitable– place a great deal of emphasis on an outward expression of politeness and quiet demeanor.

• Avoid aggressive and demonstrative behavior – It will not be well received – Results in the Saudi business person “losing face”– Breaks down the line of communication– It can rapidly diminish any chance of meaningful business engagement.

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Facts (con’t)• Characteristics of the Saudi Arabian Market

– It is the largest market in the Middle East, with considerable spending power from its 25% holding of global oil reserves.

– 4th largest market in gas reserves.– It has a sound economy, with a fast-growing and young population. – It has a well-managed banking system. – It has good infrastructure-hotels, air travel and telecommunications. – It has generally low import duties and barriers, although strict

attention must be paid to documentation and labeling. – Its business community is familiar with Western practices. – It is intensively competitive. – There is a wide selection of potential agents and distributors, requiring

time and care to screen and appoint. – Decision cycles can be lengthy and protracted.– There are eight sea ports and 26 airports.

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Cultural Influences• Age

– Great respect must be shown to elders at all times– E.g., when first entering a room, shake hands with the

most senior person first, then go counterclockwise • High Uncertainty Avoidance

– The society does not readily accept change and is very risk adverse

– Highly role-oriented with laws, rules and regulations• A Collective Society (not individualistic like US)

– Close long-term commitment to the member “group”– family influence and personal connections often take

precedence over other governing factors

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Cultural Influences

• High Power Distance– There exists a distinct, and respectful, dichotomy

between subordinates and managers– Those in authority are expected to issue complete

and specific directives to others• High Context Communication

– The message people are trying to convey often relies heavily on other communicative cues such as body language and eye-contact rather than direct words

– Preference for face-to-face meetingsDraft 2/21/2008 9


High and low context culturesHigh context

(Saudi Arabia, Japan)• Information resides in

context – e.g., body language, eye-

contact, tone of voice, use of silence, facial cues

• Emphasis on background, basic values

• Less emphasis on legal paperwork

• Focus on personal negotiation

Low context (USA, Germany, Switzerland)

• Messages are explicit and specific

• Words carry all information• Reliance on legal paperwork• Focus on non-personal

documentation of credibility

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Economic History

• The economic history of Saudi Arabia is built on oil. – The first wells flowed in 1938 and full-scale

production began after World War II. – The hydrocarbons sector is dominant

• oil-related activities account for 35–45% of GDP

• The Kingdom has sought to diversify the economy

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Table: Conditions for growth Factor Component Saudi Arabian setting Necessary conditions for growth Low Medium High Macroeconomic stability - Government deficits

- Inflation - Exchange rate stability - Solvency of financial system

X

X

X X

Openness to international trade - Low import tariffs

- Low hidden import barriers X

X

Quality of government - Public expenditure not wasteful

- Subsidies improve productivity - Admin. regulations burdensome

X

X

Adapted from the Arab World Competitiveness Report 2005

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Table: Conditions for growth (Con’t) Factor Component Saudi Arabian setting Necessary conditions for growth Low Medium High Infrastructure - Road quality

- Efficient electrical generation

X X

Education - Years of schooling in population

- Perceived quality of public education - Companies invest in training

X X

X

Rule of law - Independent judiciary

- Ability to successfully litigate against government

X X

New economy - Internet hosts

- Computers per capita - Development of laws in support of new economy

X X

X

Adapted from the Arab World Competitiveness Report 2005Draft 2/21/2008 13


Key Industry Sectors

• Oil and gas • Finance • Engineering services • Health care• Infrastructure• Transport• Water• Information technology

• Building and construction

• Agriculture• Food• The retail sector• Automotive• Education and training• Mining

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Saudi economy indicators (2006)• GNP for 2006 is $ 373.00 billion dollars (ranking # 20

world wide).• Hard currency reserves up to 2006 is 269 billion dollars• Saudi economy ranks # 12 in the volume of exports and

# 20 in the volume of import world wide according to SAMA statistics (2005).

• 80 % of Saudi income comes from sales of crude oil• The Growth rate of Saudi economy is in the range of

3.5 to 4 %• Emerging lucrative market in stocks & real state:

– Over 500 billion dollars in Saudi stock market– Over 250 billion dollars in Saudi real state market

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Key indications on Saudi labor movement

• 60 % of Saudi population are below 50 years old• 24 % of the Saudis labor force work in the industry

sector• 31 % of the Saudi labor force work in the commerce

sector• 350,000 Saudis enter the labor market every year• The unemployment rate is considerably high among

Saudis.• Approximately one million Saudis work in government

agencies, out of which 400,000 are women.• About 1.8 million Saudis work in private sector, out of

which 20 % are women.

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Why invest in Saudi Arabia• Saudi Arabia is a full member of WTO since 2005• Political stability• Free economy system• Excellent infrastructure• Availability of reasonably cheap labor (Mainly from Egypt, India, Pakistan,

and Philippine).• Genuine government support they target to have Saudi Arabia among the

top 10 countries to attract F.D.I. by 2010• Saudi Arabia ranks # 38 out of 177 countries in the most favored nations

for investment opportunities according to world bank 2006• Low inflation rate (1% in 2006 & expect to be 2.2% by end of 2007)• Government spending in the next few years for already approved & under

execution projects are as follows:– 69 billion dollars in oil & gas section– 45 billion dollars in petrochemicals– 43 billion dollars in infrastructure

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Documents

Skyline of Riyadh, Saudi Arabia Introduction to Business Teaching Module on Saudi Arabia Created by Kathleen P. Hess, PhD Assistant Professor, Management