The Kingdom of Saudi Arabia has not had a quiet year: the accession of King Salman, two new crown princes, a new young defence minister, military operations in Yemen, waning oil prices and contentious visits to the French Riviera are but a few of the topics that have drawn the usually low-profile country into the headlines.
Yet for foreign companies, faced with contracting or stagnating domestic markets, Saudi remains a land of opportunity; not surprising given that over a quarter of all Middle East and North Africa GDP comes from this one country. The statistics speak for themselves:
- Saudi Arabia has the largest population in the Gulf.
- Education sector spending accounts for 25 per cent of all government expenditure.
- Medical budgets increased 50 per cent in 2015.
- $80 billion was spent on government defence and security in 2015.
- Multiple mega-projects are underway such as the $22-billion Riyadh Metro train network.
So why is Saudi so often left out of carefully considered Middle East strategies? For many years Saudi has been viewed as “just too difficult”, with companies preferring to enter the Middle East through the United Arab Emirates, Qatar or Bahrain.
Things are changing, however, and more foreign companies are seeing success in Saudi, either directly or through local partners. The evidence can be seen across all the major cities, with newly built business parks already fully occupied and Western companies proudly displaying their logos for all to see.
In Riyadh, the recently opened Business Gate site boasts tenants such as Boeing, Microsoft, Clifford Chance and Alcatel Lucent. Smaller foreign companies are also entering the kingdom like never before, taking advantage of opportunities that dwarf neighbouring markets.
In essence, the differentiator between success and failure is commitment – commit to the market and reap the rewards
Of course, challenges remain and success is often hard won, but there are common themes and characteristics to the approaches adopted by foreign companies who have seen success in Saudi. These include:
Plan: Planning can seem like an endless cycle, but the reality is that setting out clear goals, strategy, budgets and timescales is vital.
Patience: There is a wealth of opportunity, but it is important to be realistic and build a pipeline of qualified, validated opportunities; setting the right expectations for company leadership avoids corporate fatigue.
Presence: Importantly, there is no substitute for being on the ground. Managing the market remotely is almost impossible and many Saudi clients are unsympathetic towards those who try to win business from bases elsewhere in the Gulf. Being in Saudi does not necessarily mean setting up an entity or forging an exclusive local partnership; there are various operating models for foreign companies which are low risk and low cost.
Partner: The perceived need for a local partner often animates legal, compliance and tax departments. There are many examples of foreign companies supplying goods or services without a local partner. Equally, there are examples of highly successful partnerships forged over time and, critically, on the right terms.
Payment: Payment risk is often a major concern of foreign companies. Mitigation is best achieved by close relationships with customers and partners.
In essence, the differentiator between success and failure is commitment – commit to the market and reap the rewards.
Of course, a foreign company must source professional, independent advice and this must come from consulting practices that are on the ground in the kingdom; they can provide practical advice rather than just regurgitate regulations from the internet.
For UK companies a good start is to contact the UK Trade & Investment team in Riyadh or the two highly active UK groups, the Middle East Association and Saudi British Joint Business Council.
With the right advice, you will turn your Saudi plans into Saudi projects.