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The Saudi market represents both a challenge and opportunity for foreign
businesses. By itself, the Kingdom is not an overly large market, with a population of
more than 20 million. It does, however, lie at the heart of a far larger regional market
that includes the GCC, the wider Arab world, and the Indian subcontinent, totaling some
1.6 billion people. The Saudi market is also characterized by consumers with high
disposable income. The large percentage of the population aged under 20 will likely
substantially increase the demand for a wide range of consumer goods and products in the
coming years.
Distribution Channels
There are three primary marketing regions in the Kingdom: the Western Region, with the
city of Jeddah as the main commercial center; the Central Region with the capital, Riyadh;
and the Eastern Province, where the oil and gas industry is concentrated.
Many companies import goods for their own use or for direct sales to end-users, making
the location and number of retail outlets an important factor. U.S. exporters might find
it beneficial to appoint different agents or distributors for different regions. Multiple
agencies or distributors might also be assigned to handle diverse product lines or
services. Although there is no requirement for exclusive distributorships, Saudi Ministry
of Commerce policy is that all such arrangements be exclusive with respect to either
geographic region or product line.
Many Saudi companies are active in numerous product lines. A Saudi agent will typically
expect the foreign supplier to assume many of the market development costs, such as the
hiring of a dedicated sales staff. Foreign suppliers often assign a sales person to the
Saudi distributor to provide training, marketing, and technical support. Without such an
arrangement, firms should travel to Saudi Arabia regularly to support their Saudi
distributor.
Marketing and Advertising
Direct marketing is not a widely used technique in Saudi Arabia. Personal relations
between vendors and customers are extremely important in the Kingdom. Many types of direct
marketing practiced in other countries are not practiced in Saudi Arabia due to Islamic
precepts concerning gender segregation and privacy in the home. The limitations of the
Saudi postal system are also a factor. Businesses and private citizens use post office
boxes because home delivery and postal insurance are not available. Limited direct
marketing is being conducted through commercials on satellite television providing
consumers with a local telephone number to arrange purchase and delivery.
The enduring and profitable economic partnership between the U.S. and Saudi Arabia can
be an advantage to U.S. businesses in the Kingdom, as most Saudi importers are very
receptive to U.S. products, and consider them to be state-of-the-art in technology and
durable despite their higher prices. Foreign firms will find it beneficial to introduce
complete product lines, rather than individual products, into the Saudi market, as it will
allow them to benefit from greater demand stimulation and cost reductions. A product,
however, must be competitively priced and readily available to make a sale. Subsequent or
sudden price changes should be avoided, including pricing for after-sales service.
Advertising is a rapidly expanding business in the Kingdom, and is crucial in gaining
retail sales and market share. According to the Al-Iqtisadiah economic daily, Saudi Arabia
spent $145 million on advertising in the first five months of 1998. Of that amount, 64
percent was spent on newspapers, 19.5 percent for magazines, 8.6 percent for billboards,
and 7 percent for television advertising. Most companies now choose to advertise in a wide
range of media, including TV, newspapers, trade magazines, billboards, and trade promotion
events. Lately, many companies have been advertising through national festivals, events,
and sweepstakes drawings that occur usually in malls and shopping centers. TV commercials
are broadcast on the two Saudi channels during limited periods of the day. One channel is
in English, the other Arabic, which both broadcast over the entire Kingdom. Contents of
the commercial must conform with religious and moral values. An alternative approach to
presenting products in the Kingdom is advertising through international TV channels such
as CNN, the Middle East Broadcasting Corporation (MBC), and Arab Radio & TV (ART).
MBC, which is based in London and is Saudi-owned, is similar to CNN with a variety of
interesting programs. ART, based in Italy, covers more entertainment and sports. Other
Arabic satellite channels have been launched and are attracting numerous advertisers.
Orbit, a Saudi-owned satellite service based in Cyprus, has a number of different channels
that present American movies and various programming.
Print advertising is also important. In recent years, many new magazines have appeared
on the Saudi market. Among the popular magazines in the Kingdom are Al-Majallah,
Al-Yamamah, and Sayidati. Newspaper advertising is carried out in local English and Arabic
papers. Advertising rates vary greatly, but the rates are considerably lower than in the
U.S., largely because of a much smaller readership.
The three local dailies published in English have circulations of between 20,000 and
50,000 copies: Arab News (Jeddah); Saudi Gazette (Jeddah); and the Riyadh Daily (Riyadh).
The leading Arabic newspapers have nationwide distribution and circulation of between
70,000 and 100,000: Al-Sharq Al-Awsat, Okaz, Al-Hayat, Al Jazira, and Al Riyadh. Um Al
Qura is the official government newspaper. Other relevant newspapers have lower
circulation and at times only regional distribution: Al Bilad, Al Madina, Al Nadwa, and Al
Youm. Another publication, the Al Iqtisadiah economic daily, focuses on business issues.
Product Pricing
The exchange rate of the dollar has been fixed at 3.75 riyals to the dollar since 1986,
a strong dollar value compared to the yen and European currencies. Reasonable interest
rates have greatly facilitated market penetration. Consequently, Saudi importers expect
U.S. producers to have a more stable pricing policy than their foreign competitors.
Products are usually imported on a CIF basis, and mark-ups depend largely on what the
vendor feels that the market will bear. No standard formula exists for determining mark-up
rates. For the U.S. supplier, some give-and-take is expected in preliminary negotiations.
The asking price is often reduced, to entice the client and because of the Saudi interest
in bargaining and personal exchange.
Financing has become a leading consideration in purchasing, especially for investment
goods and repeat orders. As leveraged transactions are becoming the norm, Saudis have come
to understand that an attractive financial package can be more desirable than a low
up-front price.
Customer Support/Service
Saudi Arabia has an open and competitive market. As a result, above average sales
service and customer support are important factors in winning and maintaining new clients.
A foreign firms physical presence in the Kingdom is viewed as a symbol of their
long-term commitment to doing business in the area. Prompt delivery of goods and the
presence of qualified support technicians are becoming more important, and they influence
business much more now than was the case five or ten years ago. Government agencies
normally require equipment suppliers to commit to providing maintenance and spare parts
for an average period of three years.
MARKETING AND SALES STRATEGY
There are very good prospects for companies who want to export their products to the
Saudi Arabian market. However, there are certain marketing procedures and sales techniques
which have to be observed in order to develop and sustain business relationships over a
long period of time.
- The Saudi market should be constantly reviewed for product adaptation and change.
- Exporters should ensure regular supplies as per specifications, at the specified time
and place already agreed upon and at the stipulated prices.
- Any subsequent and sudden price changes, even pertaining to after-sales services, should
be avoided.
- Exporters' contacts with importers in Saudi Arabia should be direct and regular.
- Complete product lines, rather than single products, should be introduced into the Saudi
market whenever possible in order to benefit from greater demand stimulation and cost
reductions.
- Exporters are required to check with Saudi importers or directly with the Saudi Arabian
Standards Organization, (see appendix I for address) on the precise implementation of
Saudi Arabian Standards pertaining to their exported products to the Kingdom. Saudi
Standards can be purchased from SASO or the American National Standards Institute, ANSI
(11 West 42nd Street, New York City, NY 10036, telephone number (212)642-4900 or fax
number (212)302-1286).
- Exporters to Saudi Arabia should display their products regularly in the major
commercial urban centers of the Kingdom. Necessary permission is obtained by writing or
contacting directly the Director, Exhibitions Department, Ministry of Commerce (see
appendix I for address).
- Efforts should be made to improve the appearance of exported commodities by means of
attractive packaging.
- Products to be exported should be properly branded and labeled both in English and
Arabic.
- In the case of machinery and equipment; after-sales service, including warranties,
maintenance and the provision of spare parts, should be prompt and efficient.
BUSINESS OPPORTUNITIES IN THE KINGDOM
In pursuit of the policy of free market enterprise, economic diversification,
structural shift from building the infrastructure to the production of goods and services
and the subsequent increasing reliance on the private sector as the major economic force,
the Kingdom of Saudi Arabia invites American companies to participate in the following
areas which are essential to its current and future economic growth:
In most of the industrial joint ventures, the foreign partner supplies the management,
technical expertise, and part of equity resources, if they are desired, depending on the
collaboration arrangements. The Saudi partner provides local supervision, local skilled
and unskilled labor, and handles local business contacts, apart from participating in the
equity resources. For further details on establishing joint ventures in the Kingdom, see
Chapter 5, Industrial Licensing Regulations and Procedures.
With a foothold in the Saudi Arabian market, there will be numerous business
opportunities for:
- Companies providing labor-saving equipment and services.
- Training services either directly delivered or as part of a product package.
- Managerial services either directly delivered or as part of a product package.
- Nearly all areas of health, personnel, and services.
In addition to the section on growth targets during the sixth development plan that we
discussed in Chapter Two of this guide, the following list of principal growth areas of
the Saudi Arabian economy provides tips on prospective commercial opportunities in the
Kingdom:
| Industry: Most industrial activities in the Kingdom are carried out by the energetic
Saudi private sector. The structure of the Saudi Arabian industrial sector is composed of
three distinct sub-sectors: petrochemicals, oil refining, and other manufacturing. The
main objectives of the Kingdoms industrialization are: |
a) To reduce the Kingdoms dependence on the export of crude oil as the major
source of income
b) To increase Saudi Arabian private sector participation in the economic development of
the country
c) To create new job opportunities.
d) To establish an advanced industrial and technological base.
Export oriented industries such as petrochemical, papers, glass plastics, etc. are
expected to do well during the sixth plan period. Over the next few years the
petrochemical industry is expected to grow at an average rate of more than 8 percent
annually. Thus foreign investors are invited to join the Saudi Arabian private sector to
invest in new industries that utilize modern technology, and to expand investment in
import substitution and export-oriented industries including basic, supporting and
downstream metal and petrochemical industries
- Mining and quarrying: The Saudi government has prioritized the diversification of the
Kingdoms economy and the utilization of the countrys extensive mineral wealth.
The mining industry is promising in the next few years, especially with the initiative of
the Ministry of Petroleum and Mineral Resources to develop new mines to produce phosphate,
iron, bauxite and other precious and non-precious metals. In 1993 Petromin extracted
189,353 tons of ore. Net gold production amounted to around 670,000 ounces between
1989-1993. The Directorate General of Mineral Resources (see appendix I for address) is
currently pursuing the exploitation of the mineral fields throughout the Central and
Western regions of the Kingdom. The governments investment in this sector has
already exceeded seventeen billion Saudi Riyal (more than U.S. $4.5 billion). Foreign
investors are offered tax exemption, long term extraction concessions and other incentives
to invest or establish joint ventures in this growing Saudi industry.
- Transportation, telecommunications and information technology: During the fifth
development plan (1990-1994) the Kingdoms main road network increased by about 2,100
kms, to about 43,000 kms. Rail freight volume grew by 36 percent to about 2.1 million
tons. Air passenger volume grew from 20.3 million departure and arrival to 25.1 million.
The cargo handled in the Kingdoms major ports rose from 63.7 million tons to 83
million tons.
In addition to upgrading the road network and domestic airports in the Kingdom during
the sixth development plan, the government is planning to link Dammam and Jubail
Industrial City with a new railroad. Furthermore, to enhance and modernize the fleet of
Saudi Arabian Airlines, the government has already purchased from two American companies
(Boeing and Mcdonnell Douglas) commercial airplanes worth more than six billion dollars.
The Saudi Ministry of Post, Telephone and Telegraph awarded the U.S. firm of AT&T four
billion dollars contract to upgrade and expand the telephone network in the Kingdom.
- Electricity: Saudi per capita consumption of gas, water and electricity is one of
highest in the world. Over the past two decades electricity consumption rate increased by
more than 20 percent annually. Power generation expanded from 4,214 megawatts in 1979 to
18,238 megawatts in 1994. Over the sixth development plan period (1995-1999) electric
generation capacity will be raised by more than seven thousand megawatts.
- Other important areas of growth prospects during the sixth development plan (1995-1999),
include banking and insurance, leasing, travel, and consumer products such as food and
beverages, clothing, soap, cosmetics, etc.
A further consideration for business opportunities is the procurement of government
contracts. Government contracts are often offered through tenders. There is no central
tenders board in Saudi Arabia, and every government agency may extend contracts.
Bids for tenders must be applied for by local agents. In most cases, government contracts
awarded to foreign companies require 30 percent of the total work to be subcontracted to a
Saudi Arabian contractor.
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