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Doing Business in Saudi Arabia: Challenges, Risks, & Culture

Key Takeaways

1. Doing business in Saudi Arabia (KSA) is attractive for many foreign investors. Plentiful business opportunities and political stability increase the chances of business success in the KSA.

2. There are several unique challenges to doing business in Saudi Arabia; however, none of them are impossible to address. The key is knowing these challenges before doing business in Saudi Arabia and planning for them with trusted local partners.

3. Relationships are extremely important to doing business in Saudi Arabia. Developing business relationships can take a considerable time investment, and hospitality is coveted in the culture.

4. If you are thinking of doing business in Saudi Arabia, consider hiring local staff to get business operations started. Horizons can facilitate employment without the need for you to open a local entity.

With its vast land and appeal to travelers, the Kingdom of Saudi Arabia (KSA) presents many opportunities for foreign businesses. The world’s largest exporter of petroleum, Saudi Arabia has used its wealth to establish several bustling cities. Despite its promise, doing business in Saudi Arabia has its unique challenges. Understanding these challenges and addressing them head-on can help you increase the odds of establishing a successful business in Saudi Arabia. 

Lack of Cultural Awareness

Before attempting to expand your business to Saudi Arabia or hiring staff in Saudi Arabia, it is important that you have a strong understanding of the local culture.

Saudi Arabia has a rich Muslim heritage and its religion plays a central part in its culture. Islamic law is the governing law of the nation. Additionally, the vast majority of the population follow Wahhabi.

This religion shapes the values of the people, how they form relationships and how they interact with family, business and the community. It is important to have a good understanding of this religion and its tenets so that you do not make a social faux pas based on inaccurate stereotypes.

Taking a cultural awareness class can provide you with the basics about the culture and prevent you from making missteps.

Having this in-depth cultural awareness can help a company develop a competitive advantage in today’s global marketplace. It can also allow businesses to have a better understanding of cultural challenges and the ability to create benefits while considering these differences.

Understanding the Role of the Hierarchy

Dignity and respect are at the forefront of the Saudi Arabian culture. While some Western cultures may be more informal and casual, younger people in Saudi Arabia are expected to display respect to their elders, use appropriate titles and demonstrate the appropriate level of deference.

This hierarchical structure also translates to the business world. Only top executives typically have decision-making authority.

Saudi Arabia business etiquette also dictates that a business professional approach and address the most senior person first.

Different Expected Business Etiquette in Saudi Arabia

Companies hoping to do business in Saudi Arabia must also be aware of differences in business etiquette in Saudi Arabia.

Communication by Saudis relies heavily on body language and non-verbal language including tone of voice and moments of silence. Silence indicates contemplation, so it is important not to try to fill this silence and oversell.

Additionally, business meetings are often less formal in nature than those involved in other countries. These meetings should not interfere with prayer times.

Video: Doing Business in Saudi Arabia (expert testimony)

Different Work Week

While many companies are accustomed to a Monday to Friday work week, this is not the norm in Saudi Arabia.

The work week in Saudi Arabia begins on Saturday and usually ends on Wednesday. Thursday and Friday are the traditional days of rest.

This can make scheduling business meetings more difficult when integrating workers in Saudi Arabia and other parts of the world.

Developing Relationships in Saudi Arabia

People from the Middle East often have stronger relationships with others than people in other areas of the world. Their personal and business relationships may blend with Saudis often using one relationship to further their interests in the other type of relationship.

Business partners and friends often take a serious interest in each other and may invest substantial time in becoming acquainted with others and before developing trust in a business relationship.

People of other cultures may want to speed through this process, but time must be taken to establish solid relationships with people in Saudi Arabia before you can reasonably expect to develop a business relationship.

Refusing a request from another is often considered poor business etiquette in Saudi Arabia. Hospitality is largely coveted in the culture, so using it strategically can help you develop stronger personal and professional relationships.

Need for Different Branding

Western companies cannot rely on their existing branding to resonate with an audience in Saudi Arabia, so they must often complete new branding and content that takes into consideration the religion, values and customs of the Saudi people. Taking this extra step can help avoid accidentally offending the intended target.

Preference for Local Businesses and Employees

Saudi Arabia protects its own people and enterprises over foreigners. There are certain programs that encourage the purchase of goods and services from local suppliers.

The country also has objectives to meet certain metrics within a specified timeframe. For example, Aramco’s percentage of locally-manufactured goods related to the energy field and services is expected to be 70% by the year 2021.

Additionally, the country is modifying its procurement processes and policies to meet localized production goals. The Vision 2030 program is setting a metric of 50% locally produced and procured defense materials by 2030. It also emphasizes increasing the number of local employees that are hired in this capacity.

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Tough Immigration Standards

Localization standards also affect immigration. The government has established strict quotas for hiring nationals in Saudi Arabia.

However, foreign companies may find it challenging to find an adequate number of qualified nationals who can fulfill their needs. Some companies report that it is difficult for them to obtain visas for expatriate professionals.

Different Technical Standards

Saudi Arabia often tries to adhere to a single stand, which is often based on the International Electrotechnical Commission or International Organization for Standardization. This causes them to often reject other standards, including those that may be commonly relied upon by western companies.

This rejection of otherwise accepted standards may make it difficult for businesses to procure industrial and consumer products exported from other countries.

Lack of Intellectual Property Rights

Saudi Arabia’s lack of enforcement of intellectual property rights has made it appear recently on the “Watch List” after many intellectual property owners and stakeholders made complaints about the situation in the country.

Complaints involved multiple industries, including:

  • Software
  • Digital goods
  • Pharmaceuticals

Additionally, counterfeiting is a problem in the country. Counterfeit auto parts and consumer products are a particular issue in the country.

While the country has seen improvements in intellectual property rights protections and enforcement against counterfeited goods, these issues still continue to be a challenge to many foreign businesses.

While there have been extra devoted resources to enforce intellectual property rights and strict penalties imposed on copyright and trademark violations, not all companies have reported positive results.

Some companies have reported a decrease in seizures for counterfeit goods. Other companies have complained that there is not an adequate number of inspectors.

Delayed Payments from the Government

Companies that have government contracts report that they have carried these receivables for years.

Even if your business does not have any contracts of this nature, a company with whom you do business may have cash flow issues due to their government contracts.

Inflation

Businesses must always be cognizant of inflation to account for the real value of money. Saudi Arabia’s inflation rate is roughly 2.6%.

Costs for certain products have increased faster in certain sectors, including food and non-alcoholic beverages, furnishings, health products and transportation. Meanwhile, the cost of other goods has declined in value.

Resolving Business Disputes

Saudi Arabia has created the Saudi Center for Commercial Arbitration to help businesses in Saudi Arabia resolve disputes.

Local and foreign businesses can take advantage of this system when a dispute arises. Some businesses in Saudi Arabia have incorporated this program into its contracts. Local courts can enforce arbitration awards made with this program if they comply with Sharia law.

However, companies in Saudi Arabia are not allowed to agree to international arbitration unless they have received the Council of Ministers’ approval.

Help from Horizons

If you are interested in doing business in Saudi Arabia, Horizons can help you identify and address these challenges.

We have helped businesses successfully expand to Saudi Arabia and other markets. Contact us today to learn more about our services.

Frequently Asked Questions (FAQ):

The World Bank ranks Saudi Arabia as 63/190 for ease of doing business.

It's important to remember however that doing business anywhere is much easier with the right local partner and most importantly, dependable local employees.

The risks of doing business in Saudi Arabia include: 

  • Lax IP laws
  • Delayed government payments (for government contractors)
  • Inflation risks
  • Commercial disputes

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