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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 firm’s 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.
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:
 | Import-substitution and export-oriented joint ventures. |
| Projects contributing to technological progress in the Kingdom and the development of established factories through improvement of production methods and minimization of production costs. |
| Projects directly related to the current economic development in the Kingdom which include, but are not limited to, the following: |
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:
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 Kingdom’s industrialization are: |
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
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.
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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