REPORT ON SAUDI ARABIA

INTRODUCTION:

Saudi Arabia is a monarchist country. It was an absolute

monarchy until 1992, at which time the Saud royal

family introduced the country's first constitution. The

legal system is based on the sharia (Islamic law) as per

the teachings of Islam and Sunnah.

LANGAUGE IN SAUDI-ARABIA

Arabic is the official language of Saudi Arabia, but

English is widely spoken. Among the non-Saudi

population, many people speak Urdu, the official

language of Pakistan, Farsi and Turkish.

ETIQUETTE AND CUSTOMS IN SAUDI MEETING

ETIQUETTE

. Men shake hands. Good friends may greet each other

with a handshake and a kiss on each cheek.

. Women generally hug and kiss close friends.

. Men and women would not greet each other in public I from outside the family.

. When Saudis greet each other they take their time and converse about general things. Men shake

hands. Good friends may greet each other with a handshake and a kiss on each cheek.

. Women generally hug and kiss close friends.

. Men and women would not greet each other in public I from outside the family.

. When Saudis greet each other they take their time and converse about general things.

FACTORS THAT TRANSFORMED THE ECONOMY

For thousands of years, the economy of the Arabian Peninsula was determined by

autonomous clusters of people living near wells and oases. Most of the population was engaged

in agriculture. Such systems took the form of protection services for merchant caravans and

pilgrims, control over small oases, and, to a lesser extent, direct cultivation.

The most profound agent of change for the economy of Saudi Arabia was the discovery

of huge reserves of oil by a United States company in 1938. Initially, the newly established oil

industry had only an indirect impact on this primitive economy. The discovery of oil in the

Eastern Province in 1938 came just six years after another major development: the establishment

of the Kingdom of Saudi Arabia, which unified a number of diverse areas of the peninsula under

one ruler. Moreover, the rebuilding of Europe after World War II and its need for cheap, reliable

sources of oil greatly enhanced the position of the newly established Saudi Arabian oil industry.

The combination of these three events formed the basis of the current structure of the Saudi

economy.

BUSINESS ETIQUESTTES AND CULTURE

It is essential for Westerners doing business in the Kingdom to understand Saudi etiquette

and the personal manner in which they conduct their business. Preparation, and some basic

knowledge of Saudi business culture, can make the difference between a successful business deal

and a failed negotiation. It is important to note, however, that a majority of Saudi business

executives and government officials have studied and/or worked abroad, many of them in the

United States. They are therefore familiar with Western culture and are comfortable with its

differing approach to business, provided respect is shown for Saudi customs.

Some Saudi business executives and officials may be reluctant to schedule an

appointment until after their visitors have arrived in the Kingdom. Business visitors should

inform their Saudi hosts of their travel plans and agenda, but may have better success scheduling

a specific meeting once they have arrived in Saudi Arabia. The religious holidays of Ramadan

and Hajj and the daily prayer breaks should also be taken into consideration when scheduling

business meetings.

Saudi businesses are unlikely to finalize any serious negotiation without such a face-to-

face meeting. Proper attire at business meetings is essential, as it is a sign of respect for the

person with whom you are meeting. Conservative business suits are recommended. Business

cards exchanged are usually printed in English on one side and Arabic on the other. Meetings are

conducted at a leisurely pace, with the parties’ involved enjoying cordial discussion over coffee

and tea. Saudi business executives like to feel comfortable with their business partners before

agreements or contracts are signed. This can mean a number of initial meetings where no

substantive business is discussed. However, these meetings can be as important as serious

business negotiations. Substantial time should be allotted for such business appointments, as they

are often long in duration. A lack of privacy is not uncommon in personal appointments.

Saudi custom regarding greetings is rather ritualized. When entering a meeting full of

people, a Saudi will greet each person individually with a handshake while standing. The same is

expected of visitors. Learning some appropriate Arabic phrases for such occasions is appreciated.

The Arab people are very hospitable and will go to great lengths to make guests feel

welcome and comfortable. Foreign business executives can expect to be served first and will be

ushered first through doorways. If an invitation is extended to a Saudi colleague for a meal or

coffee, it is customary for the person who issued the invitation to pick up the bill. Some Saudis

will decline an offer at least one time out of politeness.

When engaged in conversation, Saudis tend to stand much closer to one another than

Americans, North Europeans, and East Asians do. Arabs will also employ some body contact to

emphasize a point or confirm that they have your attention. It is important not to draw back,

however.

Various social customs are well known in the Kingdom. Arabs traditionally use the right

hand for all public functions including shaking hands, eating, drinking, and passing objects to

another person. Talking with one’s hands, or gesticulating wildly, may be considered impolite. It

is also impolite to point the sole of the foot at the person to whom you are speaking. It may be

discourteous to ask about a man’s wife and daughters. If one is doing business in the Kingdom

during Ramadan, it is best to refrain from drinking and eating when in the company of someone

observing the fast.

BUSINESS WOMEN IN SAUDIA ARABIA

Doing business in Saudi Arabia is somewhat more challenging for women. There is

gender separation in the Kingdom. Many public places, like hotels and restaurants, will have

family rooms where women are served with their husbands. Women are expected to dress

conservatively, with long skirts most appropriate, sleeves at elbow length or longer, and

necklines that are unrevealing. It is generally uncommon for a Muslim man to shake hands with a

woman or engage in the conversational body contact that is common when speaking to another

man, although Saudis who have experience with Western culture may be inclined to do so.

FORCES DRIVING GLOBALIZATION

• Due to liberalization of cross border trade and resource movements one can easily find

supermarkets selling vegetables flown in from the Netherlands or shopping malls

displaying Paris fashions.

• Growing consumer pressures have even hit the Restaurants industries that are opening

foreign brands such as Star bucks in Saudi Arabia.

• Amusement centers with separate hours for male and female patrons dotted the urban

landscape.

• Suburban neighborhoods with single-family houses and swimming pools hidden behind

high walls ringed commercial districts

• Due to growing consumer pressures each and every company is striving to gain more

market share by making lives of the people easy by providing them with services that are

cheap such as satellite communications made a telephone call from Riyadh to New York

as fast and as clear as a call to New York from Connecticut.

THE POLITICAL ENVIRONMENT

It is all too easy to focus on politics and ignore the quality of governance. The fact

remains, however, that the way states actually spend their money is at least as critical a measure

of their “legitimacy” as their politics. Saudi national budget and five year plans have consistently

reflected the fact that Saudi leaders do not simply talk about reform and progress, they have made

massive expenditures on every critical aspect of social welfare.

Any examination of Saudi budgets, five-year plans, and the reports of the Saudi Arabian

Monetary Agency since the mid-1970s, shows that Saudi Arabia has not suffered from the

“petroleum disease.” Money has gone where it is needed and where it helps preserve stability.

The government has invested massive amounts of money in job creation and pushed hard to

reduce its dependence on foreign labor. Its elite may be incredibly rich, but the vast majority of

Saudi revenues have gone to national security and the broader population, including both the poor

and a steadily expanding middle class.

KEY POINTS FOR INVESTORS:

Although it seems unlikely that Saudi Arabia will face major popular unrest at this point in time.

Every shift at the top of the Saudi monarchy does raise questions. Human rights and the rule of

law need modernization. Saudi Shi’ites face discrimination that needs to be eliminated --

although things have slowly improved and few see a far more repressive regime in Iran as much

of a model.

The key reasons for concern, however, are structural, and economics and demographics may

ultimately prove to be far more of an issue than politics. Saudi Arabia has to deal with the same

demographic pressures, and “youth bulge,” that has threatened or toppled regimes elsewhere in

the Middle East. Saudi society is still dealing with all of the radical social changes caused by

moving from a small, poor population of some 3.8 million uneducated Bedouins in 1950 to a

largely settled, urbanized, and far better educated nation that exists today.

Economic Conditions:

Saudi Arabia has experienced an exceptional economic boom during the last four years, mainly

generated by record high oil prices. Experts are projecting these prices to remain high and

inflation rates low, and are predicting the strongest non-oil growth of the Kingdom since the

1970s.1 Saudi Arabia is growing to become an attractive location for investment and business in

general, which is driving competition to global standards. In just three years, Saudi Arabia rose

from 67 to the 23 in the World Bank’s Index on Ease of Doing Business, and is first in the

Middle East.2 Because of the economic boom and efforts by the Saudi government, the KSA has

evolved to become globally competitive.

The economic boom is coupled with an unprecedented youth bulge. More than 40 percent of

Saudis are under the age of 14, and almost 60 percent are under the age of 25 .

The total working age force represents slightly more than 50 percent of the total population;

however, less than 18 percent are actively employed. According to SAGIA, this represents the

greatest potential asset of the Kingdom and explains the huge government investment in

education aimed at training a highly skilled workforce. If this imbalance is not addressed,

however, it represents the greatest potential risk for the kingdom.

GREET HOFSTEDE: SAUDIAN CULTURE

Power distance:

SaudiArabia scores high on this dimension (score of 95) which means that people accept a

hierarchical order in which everybody has a place and which needs no further justification.

Hierarchy in an organization is seen as reflecting inherent inequalities, centralization is popular,

subordinates expect to be told what to do and the ideal boss is a benevolent autocrat.

Individualism:

Saudi Arabia, with a score of 25 is considered a collectivistic society. This is manifest in a close

long-term commitment to the member 'group', be that a family, extended family, or extended

relationships. Loyalty in a collectivist culture is paramount, and over-rides most other societal

rules and regulations. The society fosters strong relationships where everyone takes responsibility

for fellow members of their group. In collectivist societies offence leads to shame and loss of

face, employer/employee relationships are perceived in moral terms (like a family link), hiring

and promotion decisions take account of the employee’s in-group, management is the

management of groups.

Masculinity / Femininity:

Saudi Arabia scores 60 on this dimension and is thus a masculine society. In masculine countries

people “live in order to work”, managers are expected to be decisive and assertive, the emphasis

is on equity, competition and performance and conflicts are resolved by fighting them out.

Uncertainty avoidance:

Saudi Arabia scores 80 on this dimension and thus has a preference for avoiding uncertainty.

Countries exhibiting high uncertainty avoidance maintain rigid codes of belief and behavior and

are intolerant of unorthodox behaviour and ideas. In these cultures there is an emotional need for

rules (even if the rules never seem to work) time is money, people have an inner urge to be busy

and work hard, precision and punctuality are the norm, innovation may be resisted, security is an

important element in individual motivation.

BUILDING A NATION OF SUSTAINABLE PROSPERITY

KSA is a nation that is looking to and preparing for, a different kind of future, a future

that’s more inclusive, expansive, sustainable and integrated on both economic and social levels; a

future that revolves around investment. New communications infrastructures, new transport

routes, state of the art industrial complexes, dynamic training opportunities and a commitment to

greater business efficiencies.

The Kingdom is investing massively to enhance its value proposition to foreign businesses, both

with infrastructure and with reform. His Majesty King Abdullah bin AbdulAziz Al Saud,

Custodian of the Two Holy Mosques, has directed the Saudi government to become one of the

world’s Top 10 most competitive economies by 2010—the 10x10 mission. In pursuit of this goal,

the organs of government have initiated a multi-faceted reform strategy that has made the

Kingdom one of the easiest places in the world to do business.

Meanwhile, Saudi Arabia is investing tens of billions of dollars into the launch of four Economic

Cities: public-private partnerships that will create tomorrow’s most attractive investment

platforms for foreign companies. These unprecedented developments combine world-class

infrastructure, cutting-edge design principles, and special incentives and streamlined processes to

create foreign investment-led hubs in knowledge-based industries and other crucial sectors.

FOREIGN DIRECT INVESTMENT IN SAUDI ARABIA

The total population of the Kingdom in 2007 was 24.2 million, and the population structure

indicates that the Kingdom has a distinctive demographic trend. The annual report of the Saudi

Arabia Monetary Agency (SAMA) for the year 2008 shows that the population aged below 15 years-

old represents 34.5 per cent of total population, compared with 28.3 per cent for the world as a whole.

Further, the population of 65 years of age and over represents just 2.8 per cent compared with 7.3 per

cent for the world. So, generally speaking, the Kingdom has a relatively young population, like many

developing countries.

The major partners in the non-oil trade for the Kingdom of Saudi Arabia are the Gulf Corporation

Council (GCC) countries. These include the United Arab Emirates, the Kingdom of Bahrain, Oman,

Qatar and Kuwait, as well as Saudi Arabia. According to SAMA (2008), trade with other GCC

countries represented 32.7 per cent of the Kingdom's total non-oil exports in 2008. Trade with other

Arab trading partner countries in the non-oil goods and services is only about 18 per cent.

Real GDP Growth Rate, 1971-2005

GDP By Sector

1968

2007

% %

Oil 46 55

Private 33 28

Public 21 17

Total 100 100

(Five Year Averages) Period Real GDP Growth Rate

1971-1975 20.62

1976-1980 7.06

1981-1985 -4.48

1986-1990 3.42

1991-1995 2.98

1996-2000 2.54

2001-2005 3.94

LEGAL FRAMEWORK FOR FOREIGN DIRECT INVESTMENT

The dependence on the private sector as a driving force for the Kingdom's economy has

been a central part of a strategy to attain sustainable and rapid economic growth. To improve the

private sector's participation in the economy, an enhancement to the 'business climate' was

essential, and a crucial part of this was legislation to encourage foreign direct investment that

was at the forefront of the development plan for 1975-79. Up to that time FDI was governed by

the 1979 Foreign Investment Act, which had sought to boost foreign investment into Saudi

Arabia, and hence enhance the private sector‟s contribution to the Saudi economy. However, a

review of the 1979 Foreign Investment Act at the end of 1990s showed that it deterred FDI

flows.

This was because the 1979 Foreign Investment Act gave priority to Saudi firms and to joint

ventures with Saudi participation, as well as prohibiting foreign investment in some sectors

(Khyeda, 2007). Further, it prevented foreign investors from obtaining a license unless it is

accompanied by foreign technical expertise. This led to a re-evaluation of the existing law and

the subsequent introduction of a new law in the year 2000. The Saudi Arabia‟s Council of

Ministers approved the 2000 Foreign Direct Investment Act under a Royal Decree and it

established a new Saudi Arabian General Investment Authority (SAGIA). Overall, the law

introduced a number of changes that relaxed the restrictive rules against foreign investment,

seeking to make Saudi Arabia more open and to liberalize trade.

Total FDI Flows Prior to and After the New Law, 1960-2005

Period FDI Flows

(SR m)

Share of

Projects (%)

No. of Projects

1960-1999 175,159 31.8 1,589

2000-2005 176,297 68.2 3,409

Total 351,456 100.0 4,998

ETHICS AND CORPORATE BRIBERY IN SAUDI ARABIA

Information on business-related corruption in Saudi Arabia is scarce, making an accurate

estimate of the extent of corruption very difficult. Despite recent developments, public

procurement is continuously mentioned as an area of great concern for foreign investors. Even

though Saudi Arabia has drastically improved regulatory processes in recent years, several

sources report that the regulatory framework for private companies is often inconsistently

applied in practice.

MONEY LAUNDERING AND TERROR FINANCING

The Bureau of Investigation and Prosecution organized the event in collaboration with the

Middle East & North Africa Financial Action Task Force (MENAFATF). Participants said

money laundering activities have steadily increased in recent years, with estimates indicating that

the volume of money laundered worldwide is about 5% of the global gross domestic product.

Samba Bank financial crimes advisor, Mohammed al-Obaidi, told Al-Shorfa that Saudi Arabia

realized early on the threat posed by economic crimes, particularly money laundering, which put

it at the forefront of countries adhering to and enforcing international rules and conventions.

"The kingdom dealt [with the issue] in full force, strengthening and updating rules and

regulations pertaining to combating terrorism and related crimes, and modernising and upgrading

its security services and all other concerned agencies," he said.

Saudi Arabia also "intensified its qualifying and training programmes for police and security

personnel, and opened communication channels between the Interior Ministry and the Saudi

Arabian Monetary Agency (SAMA) to facilitate co-operation in fighting terror financing", he

said.

LABOR CONDITIONS IN SAUDI ARABIA

The Saudi Arabian labor force is comprised of approximately 7.12 million workers.

These workers enjoy few rights. The formation of unions is strictly prohibited, strikes are

forbidden, and there is no collective bargaining. In the absence of a minimum wage, employers

are free to pay their workers as they see fit.

While forced labor is against the law, abuses do occur, especially in remote areas and in the

domestic service industry, where there have been reports of maids being forced to work up to 16

hours a day, 7 days a week. Employees have little freedom of movement, and cannot leave the

country or even travel out of the region without their employer's permission.

According to labor regulations, the work week is 48 hours. Employers can require 12 additional

hours of overtime at time-and-a-half pay. The law requires workers to be given a rest period of

24 hours, which is generally granted on Fridays, the Muslim sabbath. Labor laws, however, do

not apply to domestic servants, who have little redress for any poor treatment they might receive.

Those who run away are generally returned to their employers.

The International Labor Organization has cited Saudi Arabia for failing to adhere to conventions

on equal pay, for continuing gender segregation in the work place, and for limiting vocational

programs for women. Additionally, in 1995 Saudi Arabia was suspended from the U.S. Overseas

Private Investment Corporation (OPIC) insurance programs for its failure to guarantee the rights

of its workers as recognized by international norms.

SAUDI ARABIA’S TRADE PROFILE.

A capital-rich importer of goods and services for many years, Saudi Arabia has, at least

formally, been a relatively open economy for a long time. Capital flows are free and its currency

is fully convertible.

There have been a number of formal restrictions on international trade, with protective tariffs for

certain industries – up to 100 per cent in some cases, but usually not above 20 per cent (US

Foreign Commercial Service, 2004). Certain imports require official licenses, and like in other

GCC states, distribution of international goods traditionally has to go through local “agents”.

Until recently, foreign investment in commerce and a number of other important services such as

banking and insurance was strongly limited. Altogether, however, in comparison with Middle

Eastern states with longer histories of import-substitution, formal restrictions on trade and

services have been modest.

THE LEGAL FRAMEWORK OF TRADE RELATIONSHIPS:

Saudi Arabia is notably Member of the following international and regional organizations:

The United Nations Organization (UN) ;

The International Monetary Fund (IMF) ;

The World Bank Group;

The Organization of the Islamic Conference (OIC) ;

The Gulf Cooperation Council (G.C.C) ;

The Arab League.

Saudi Arabia has also signed economic and commercial cooperation agreements with most of

Islamic Countries as well as with its trading partners of Africa, Asia, America and Europe.

TRADE STRUCTURE:

2.1. Main exported products:

Crude oil

Refined oil products

Petrochemicals and plastic goods

2.2. Main imported products:

Capital goods

Manufactured products

Chemicals

Raw materials

Miscellaneous food products

FOREIGN TRADE CONTROL:

In the field of foreign trade, Saudi Arabia adopted a relatively liberal policy both at imports and

exports levels.

Imports regulations:

For the last few years, imports regulations have been marked by a considerable relaxation. The

main provisions in this area may be summed up as follows:

The list of products prohibited for imports is limited to goods : alcoholic drinks, drugs, pork

meat. The imports of some products such as arms and ammunition, and pharmaceutical products

are submitted to the authorization of the competent Ministry. Finally, cinematographic

productions and publications must be submitted to the prior censure of the Ministry of

Information.

Exports regulations:

Exports customs formalities and procedures are relatively very simplified, especially in view of

the nature of exported products.

Other formalities and documents:

* Any goods forwarded to Saudi Arabia must be coupled with a sales invoice, written in Arabic

or English and as well as with a certificate attesting goods origin ;

* In fields of agri-food industries and environment protection, goods must be conforming to the

standards established by the Saudi Arabian Standards Organization (SASO).

* As concerns food products, sanitary and analysis certificates are often compulsory.

Trade (expressed in billions of US$): Saudi Arabia

Exports

Imports

1975 29.682 4.213

1980 109.083 30.166

1985 27.481 23.622

1990 44.417 24.069

1995 50.040 28.091

1998 N/A N/A

STOCK EXCHANGE OF SAUDIA ARABIA

Stock exchange of Saudi Arabia is tadawul. The Electronic Securities Information

System (ESIS) was Saudi Arabia's stock exchange but now it is replaced by Tadawul in 2001.

Tadawul listed 156 public trading companies of saudia Arabia. The Tadawul All-Share Index

(TASI) reached its highest point at 20,634.86 on 25 February 2006. Tadawul All Share Index

(TASI) is a major stock market index which tracks the performance of all companies listed on

the Saudi Stock Exchange. Current TASI is 6778 points.

SAUDI ARABIA FOREIGN EXCHANGE RESERVES

Foreign Exchange Reserves are the foreign assets held or controlled by the country

central bank. The reserves are made of gold or a specific currency. They can also be special

drawing rights and marketable securities denominated in foreign currencies like treasury bills,

government bonds, corporate bonds and equities and foreign currency loans.

Foreign Exchange Reserves in Saudi Arabia increased to 2384864 SAR Million in October of

2012 from 2330591 SAR Million in September of 2012. Foreign Exchange Reserves in Saudi

Arabia is reported by the Saudi Arabian Monetary Agency.

SAUDI ARABIA CURRENCY:

Currency of Saudi Arabia is riyal. The intervention currency was the U.S. Dollar. SAMA along

with two other institutes determines the Saudi Arabian Riyal rate against the U.S. Dollar. The

SAMA's middle rate quoted by the SAMA, was determined on the basis of the IMF's daily

calculation of the U.S. Dollar - SDR rate. The middle rate for the Saudi Arabian Riyal is

SRls3.745 = US$1.

In 1960, The Riyal was devaluated 16.7% in terms of gold, thus changing the Official Rate from

SRls3.75 to SRls4.50 per U.S. Dollar. As increment in pilgrim and gold coins. After that it was

fluctuating with dollar prices. and finally in 1986 they decide to unchanged the price of riyal to

dollar even if dollar price fluctuate. Since 1986 to 2012 the price of riyal to dollar is 3.75 riyal =

1 US dollar.

Banks were not allowed to charge nay extra amount but in 1993 The banks were allowed to

charge up to 0.125% above and below the Monetary Agency's buying and selling rates. (IMF

1993, p.440).

Income tax:

Saudi Arabia residents are not subject to income tax. Only nonresidents pay personal income tax

in Saudi Arabia, which is the same as companies pay (Currently 20%). The corporate tax is 20%.

Saudi individuals or nationals of GCC states who conduct business in the Kingdom of Saudi

Arabia in commercial goods are subject to an Islamic Tax called 'Zakat'.(2.5%).

Employees in Saudi Arabia pay a contribution of 9% for insurance relating to old

age, disability and death. This tax excludes servants, farmers, seamen, domestic servants.

FOREIGN INVESTMENT POLICY:

The government's established policy is not to impose any restrictions on the movement of capital

into and out of the country . In addition, foreign investment that fulfills the requirements of the

Foreign Capital Investment Code enjoys all privileges of national capital and is entitled to the

same treatment, protection, and incentives accorded to national capital.

An income tax holiday of up to 10 years from the commencement of commercial

production.

Ownership of land according to the regulations governing land ownership by non-Saudis.

For industrial projects, the same privileges as those enjoyed by Saudi capital under the

National Industries Protection and Encouragement Regulations. These include:

a. Exemption from customs duties on machinery, equipment, tools and spare parts imported

for industrial products.

b. Exemption from customs duties on primary raw materials, semi-finished goods,

containers, etc., necessary for industrial projects (provided that similar items are not

sufficiently available locally).

c. Provision by the government of plots of land at a nominal rate for factories and

residential quarters for workers.

d. Low electricity and water rates.

e. No restriction on repatriation of profits.

f. Preferential treatment for local products in government procurement in addition to

preferential treatment accorded to national products by Arab League and Saudi Arabian

bilateral trade agreements.

Foreign Investment Law allows foreigners 100-percent ownership of the projects, as well

as the property required for the project itself or for housing company personnel.

According to the law on foreign direct investment, revised in 2000, foreigners are now

allowed to invest in all sectors of the economy, except for specific activities. This list

continues to shrink as Saudi Arabia moving towards progress.

Foreign investors are no longer required to take local partners in a number of sectors and

may own real estate for company activities. They are allowed to transfer their company

money outside the country and can sponsor foreign employees.

STRONG POINTS OF SAUDI ARABIA:

Member of WTO, which increases the climte of foreign investment.

Oil reserves

Strong infra structure.

Economic stability.

Well designed banking systems

Religious places, Makkah and Madina.

WEEK POINTS OF SAUDIA ARABIA:

Gender discrimination.

Difficult to renforce contarcts.

lack of transparency in applying the intellectual property legislation

the delayed payment of some government contracts,

Quota system for saudi’s employees.

IMPORT AND EXPORT

Saudi Arabia's main export partners are the United States, China and Japan, followed by

Germany and U.A.E., as well as the Southeast Asian countries. The country exports mainly

crude oil (the black gold represents 90% of its exports), plastics, organic products and chemicals.

Its main import partners are the United States, Japan, China and Korea, followed by other Asian

countries (India, Taiwan, Singapore). Saudi Arabia mainly imports vehicles, machinery,electrical

equipment,iron,steel and food products. In order to promote international trade, attract foreign

investment and diversify the non-oil sectors, the government has announced plans to establish

"economic cities" in different regions of the country.

STARTING A BUSINESS IN SAUDI ARABIA:

The below table will explain how to open a business in Saudi Arabia.

No

Procedure Time to

Complete Associated Costs

1

Reserve a company name 1 day no charge

2

Pay registration fee

at a Bank window,

located in the same

building as the

Unified Center

Submit required

documentation at the

Unified Center (UC)

1 day

SAR 1,200

registration fee +

SAR 650 publication

of summary AOA

4

Meet with the

Notary public who

reviews

documentation and

notarizes the

Articles of

Association (AoA)

1 day no charge

5 Open bank account 1 week no charge

6

Submit the

approved

documentation,

certificate of

deposit and AoA at

the Unified Center,

as well as 2

applications and

one undertaking

4 days no charge

7

Pay Chamber of

Commerce

membership fee at

Unified Center

2 days SAR 2,100 Chamber

of Commerce fee

8 Register with GOSI 1 day no charge

9 Register with the

Department of

Zakat

3 days,

simultaneous

with previous

procedure

no charge

STRATEGIC ALLIANCES:

Royal Philips Electronics And Al Faisaliah Medical Systems (FMS) :

A subsidiary of Al Faisaliah Group – have signed an agreement to set up a 50-50 joint venture to

sell Philips’ healthcare solutions and services in Saudi Arabia. Details expected to close in the

first half of 2013. By this alliance Saudi would be able to train employees more into health field

as Saudi lacks skilled labor into this field and royal Philips can expand their business.

Almari:

Recognizing that the best way forward involves working with acknowledged experts in this field,

they formed the International Pediatric Nutrition Company (IPNC).Almari formed the

International Pediatric Nutrition Company (IPNC), a 50-50 joint venture with Mead Johnson

Nutrition. Its infant nutrition products will be co-branded under Almarai and Mead Johnson’s

flagship range, Enfa.

Aujan And Coca Cola, Almari And Pepsi:

Aujan, based in Saudi Arabia, has about $850 million in annual sales with drinks such as the

juice brand Rani and the flavored malt beverage Barbican. U.S.-based Coca-Cola is seeking to

make a bigger splash in the growing Middle Eastern consumer-goods market. Under the deal,

Coca-Cola bought 50% of the entity that owns Aujan's brands. PepsiCo is continued its push in

these markets. In 2009, the company launched a joint venture with Saudi Arabia's Almari, a

leading dairy company in the Middle East.

ENFORCING CONTRACTS:

Saudi Arabia ranked 140th out of 183 economies in enforcing contracts. Contract law in Saudi

Arabia is governed by the conservative Hanbali school of Sharia law, which adopts a

fundamentalist and literal interpretation of the Quran.[2] Any contract that is not specifically

prohibited under Sharia law is legally binding, with no discrimination against foreigners or non-

Muslims. In 2007, King Abdullah initiated legal reforms to modernise the courts and codify

Sharia law in Saudi Arabia. The ulama, the religious body, approved a codification of Sharia law

in 2010. legal reforms will take a considerable period of time to be fully implemented due to lack

of well-trained judges and lawyers and the ulama's resistance to modernization and change.

DIRECT INVESTMENT AND COLLABORATIVE STRATEGIES

Licensing:

Foreign companies may register a wholly foreign-owned Saudi branch office, provided that they

obtain the requisite license. The branch office may engage in any government contract or private

sector work within the scope of its license. Branch offices are subject to the requirements of the

Government Tenders Regulations, where applicable. Branch office registration follows the same

general procedure as for the registration of an LLC.

All industrial projects, whether Saudi or foreign, and joint ventures whose fixed capital exceeds

SR 1million (US $267,000), excluding the value of land and buildings, must be licensed.

Franchising:

Franchising is becoming an increasingly popular form of doing business in Saudi Arabia. It

offers greater flexibility than commercial agency agreements but does not require the resources

of a branch office or joint venture. Because the franchise law is relatively new, a foreign

company should proceed cautiously before establishing, changing or terminating a franchisee.

To establish a franchise, the foreign franchisor must select a franchisee and register the franchise.

The franchisor must be the original franchisor and may not be a third-country sub-franchise. The

parties may negotiate their own franchise agreement. The government provides a model

franchise agreement, but the parties are not required to follow the government’s model. After the

parties have signed the agreement, the Ministry of Commerce must approve it. Saudi commercial

agency law applies to the franchise agreement.

Turnkey Operations:

Zamil Operations & Maintenance Company Limited (ZOMCO), established in 1997, is now the

largest company of Saudi Arabia, offering turnkey operations and maintenance services for the

private and public sectors.

Every year, millions of Muslims from around the world travel to Mecca, the holiest site in Islam,

for the annual “Hajj” pilgrimage. The Hajj has always been a massive event. But in recent years

it has grown quickly. The final stage of the pilgrimage

was, for centuries, conducted on foot. But with crowds

growing in size, and increasing numbers of elderly and

disabled people making the trek, Saudi authorities

decided that the time had come to modernize a portion of

the route. And the modernization of the route is done by

Siemens Co.

Joint Ventures:

Joint ventures involve larger commitments for foreign companies, but over the long-term, they

may qualify for favorable tax treatment or other economic incentives from the Saudi

Government.

Joint ventures may take two forms. Under a contractual joint venture, the foreign firm simply

signs a contract with a Saudi company. To enter into a contractual joint venture, a foreign

company must obtain an operating license from the Saudi Government.

Alternatively, the foreign company may create a new limited liability company in Saudi Arabia.

Most foreign firms prefer to use this form of joint venture to establish a presence in Saudi

Arabia. Unlike a branch office, a joint venture can engage in business activities.

To form a limited liability company, it is essential to involve Saudi citizens. While Saudi

participation is not a legal requirement, the government strongly favors a company in which

Saudi investors participate. In addition, if Saudis own a certain percentage of the company’s

capital, the company may qualify for certain tax breaks and other investment incentives

Problems with Collaborative Arrangements:

Since the Saudi sponsor holds the employee's passport and controls the issuance of exit

permits, U.S. citizens cannot simply leave Saudi Arabia in the event of a labor or

business dispute. A U.S. citizen who breaks an employment or business contract may

have to pay substantial penalties before being allowed to leave Saudi Arabia.

Islam is the official religion of the country and pervades all aspects of life in Saudi

Arabia. Public display of non-Islamic religious articles such as crosses and Bibles is not

permitted. Non-Muslims are forbidden to travel to Makkah (Mecca) and Madinah, the

cities where the two holiest mosques of Islam are located.

Business visas do not grant the applicant the right to work or to reside in the Kingdom of

Saudi Arabia.

If a dispute arises, a company may sue — or be sued — in Saudi courts. As a result, it is

important for a company to understand, before entering into a transaction, how a dispute

will be resolved. This involves three important considerations: whether to use Saudi

courts or courts of other countries, the type of Saudi tribunal in which the dispute will be

resolved, and the possibility of arbitration.

As a result of this high Uncertainty Avoidance characteristic, the society does not readily

accept change and is very risk adverse.

MARKETING GLOBALLY

Marketing Strategies:

Market Orientation

Saudi Arabia is a country that mainly focuses on the production of goods that would satisfy the

needs of the customer. Personal respect is very important. This is one of the most important

things for foreign business people to work on when visiting Saudi Arabia. The discipline of

psychology have heavily influenced the marketing strategies, in the Saudi Arabia types of

advertising messages that are considered to be appropriate for Muslims through a framework that

does relate basic Islam values to advertising.

Saudi Arabia being an oil rich country has attracted a large number of investors. The western

countries being the main investors have made several attempts through the media to advertise

their product in a culture that is most fitting to the nation’s citizens. S.A being a country that is

governed by the Islamic law has not given the western advertising companies an easy time to

pass on their message.

Target Market

Saudi Arabia is the UK's largest trading and investment partner in the Middle East with UK

being the second largest investor after the US. It is a 'target market' for Trade Partners UK, the

British government organisation helping KSA Company’s trade and invest overseas. Trade in

goods and services between Saudi Arabia and the UK is running at around $7.5bn. Saudi Arabia

will continue to offer significant opportunities for British companies and those with the patience

and foresight to anticipate trends and developments will stand to gain a great deal.

Promotion Strategies

Saudi Arabian companies reveal some differences and similarities from and with their

counterparts in industrialized countries. The Saudi culture is a blend of Islamic and Arab

traditions, which recognizes status hierarchy. Saudi culture is a ‘‘high power distance’’ culture. It

means, typically, that Saudi managers make decisions autocratically and paternalistically.

The western advertising companies have had no option than to adopt their adverts to fit the laws

and rules governing Saudi Arabia. Western advertising is commonly seen to try and make use of

sex appeal and prestige. This does not go along with the culture of Saudi Arabia where the

majority are Muslims since there exists not only the cultural barriers but even the legal ones. It is

thus not possible for the western form of advertising to be used in Saudi Arabia. In the west,

Close-Up advert has been advertised on the basis of sex appeal. In S.A media, the advert had to

be modified to fit the culture of an Islamic country.

Branding Strategies

The Saudi Arabian Standards Organization (SASO) is responsible for establishing labelling

guidelines and these are strictly enforced, especially with halal products. Labelling on foods

must indicate, in both English and Arabic:

name of product

contents

net weight (in metric)

production and expiry dates (in Arabic only)

name of company and country of manufacture

Names are often confusing. It’s best to get the names (in English) of those you will meet, speak

to, or correspond with beforehand. Find out both their full names and how they are to be

addressed in person.

Distribution Strategies

There are three major marketing regions in Saudi Arabia: The Western Region, with the

commercial centre of Jeddah; the Central Region, where the capital city Riyadh is located; and

the Eastern Province, where the oil and gas industry is most heavily concentrated. Each has a

distinct business community and cultural flavour and there are few truly "national" companies

dominant in more than one region.

Internal Handling

Saudi Arabia has the largest reserves of petroleum in the world, ranks as the largest exporter of

petroleum and plays a leading role in OPEC. The petroleum sector accounts for roughly 75% of

budget revenues, 40% of GDP, and 90% of export earnings.

Qualifying Distributors

Riyadh, Makkah and Eastern Province, which account for 70% of the KSA’s population and

economy, has the major cities of Riyadh, Jeddah, Al-Khobar and Dammam. These cities account

for more than 80% of the total population in these regions and economic activity except for the

Eastern Region wherein the industrial city of Jubayl has a considerable share of both population

and economic activity.

Hidden Costs and Gains in Distribution

Income Tax:

Saudi Arabia residents are not subject to

income tax. Only nonresidents pay personal

income tax in Saudi Arabia, which is the

same as companies (Currently 20%).

Saudi individuals or nationals of GCC states

who conduct business in the Kingdom of

Saudi Arabia in commercial goods are

subject to an Islamic Tax called 'Zakat'.

There is no tax on employment income.

Business and professional income is taxed in

the same way and under the same rules as

corporate profits. Individuals not carrying on a business or professional activity are not taxed on

interest and dividend income.

Corporate Tax Rate:

Saudi Arabia corporate income tax rate for 2009: 20%. The tax rate of a resident capital

company is 20% of its tax base, with the exception of tax rates for the gas and oil industries.

The income tax rates applicable to companies engaged in natural gas investment activities is

30%. (Such companies are subject to a higher tax rate from 30% to 85% based upon the

cumulative rate of return.) The income tax rate applicable to companies engaged in the

production of oil and other hydrocarbons is 85%.

Taxation of dividends: Dividends received are taxed as income.

Capital gains tax: a 20% capital gains tax is imposed on the disposal of shares in a resident

company.

Branch Remittance Tax: A 5% branch remittance tax is imposed on the remittance of profits

abroad.

Losses: Operational losses of a business may be carried forward indefinitely. However, the

annual deduction is limited to 25% of the profits as shown in the annual return.

Foreign sourced income: Resident companies are taxed on their worldwide income, i.e.

including income from transactions carried on, or branches situated, abroad.

Social Security: For Saudi employees, the employer must contribute 9% of the employee's

salary to the General Organisation for Social Insurance (GOSI); the employee also contributes

9%. The employer also pays accident insurance equal to 2% of the salary for both Saudi and non

saudie-employees.

E-Commerce and the Internet

Saudi businessmen, in coordination with MoC, created an Ecommerce consultation team to

connect different Saudi businesses together, and to provide proposals and consultations in the E-

Commerce field. In KSA, IT and communication growth are substantial. Technology

effectiveness is essential in E-Commerce success. However, human, economic, and other

organizational issues must be taken into account as well. E-Commerce is very important for

Saudi corporations, but is less important for middle size and small companies.

E-Commerce modern technologies are not widely adopted, even though they are highly relevant

to Saudi businesses.

Managing the Marketing Mix

Modernity: The extent to which the culture is receptive to new things. In some countries,

such as Britain and Saudi Arabia, tradition is greatly valued—thus, new products often

don’t fare too well. The United States, in contrast, tends to value progress.

Homophily: The more similar to each other that members of a culture are, the more likely

an innovation is to spread—people are more likely to imitate similar than different

models. The two most rapidly adopting countries in the World are the U.S. and Japan.

While the U.S. interestingly scores very low, Japan scores high.

Physical distance: The greater the distance between people, the less likely innovation is

to spread.

Opinion leadership: The more opinion leaders are valued and respected,

the more likely an innovation is to spread. The style of opinion leadersmoderates this

influence, however. In less innovative countries, opinion leaders tend to be more

conservative, i.e., to reflect the local norms of resistance.

REFERENCES:

http://www.farnhamcastle.com/article/the-potential-of-saudi-arabia-for-international-business

www.zamil.com

http://geert-hofstede.com/saudi-arabia.html

http://www.kwintessential.co.uk/resources/global-etiquette/saudi-arabia-country-profile.html

http://www.the-saudi.net/business-center/business-etiquette.htm