Introduction to Business Teaching Module on Saudi Arabia

1
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 by
• Salem M. Al-Ghamdi
• Assistant Dean Of CIM Graduate Programs
  Associate Professor Of Management
• College Of Industrial Management
• King Fahd University Of Petroleum Minerals
• Saudi Arabia
• Draft Presentation
• 2/21/2008

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Purpose of these slides

• These slides are being developed as a teaching
  module to be used in Salem State Colleges
  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

4
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 (cont)

• 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 (cont)

• 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 meetings

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High and low context cultures

• High context
• (Saudi Arabia, Japan)

• Low context
• (USA, Germany, Switzerland)

• 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

• Messages are explicit and specific
• Words carry all information
• Reliance on legal paperwork
• Focus on non-personal documentation of credibility

11
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 3545 of GDP
• The Kingdom has sought to diversify the economy

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Table Conditions for growth
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Table Conditions for growth (Cont)
Adapted from the Arab World Competitiveness
Report 2005
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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