Skyline of Riyadh, Saudi Arabia 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 Draft 2/21/20081

Skyline of Riyadh, Saudi Arabia Purpose of these slides These slides are being developed as a teaching module to be used in Salem State College’s 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 Draft 2/21/20082

Skyline of Riyadh, Saudi Arabia Introduction to Business Culture and Economy The Kingdom of Saudi Arabia Draft 2/21/20083

Skyline of Riyadh, Saudi Arabia Outline The Kingdom of Saudi Arabia: Facts Cultural Influences Economic Influences – Conditions for Growth Key Industry Sectors Draft 2/21/20084

Skyline of Riyadh, Saudi Arabia 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 Draft 2/21/20085

Skyline of Riyadh, Saudi Arabia Facts (con’t) 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. Draft 2/21/20086

Skyline of Riyadh, Saudi Arabia Facts (con’t) 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. – 4 th 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. Draft 2/21/20087

Skyline of Riyadh, Saudi Arabia 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 Draft 2/21/20088

Skyline of Riyadh, Saudi Arabia 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 Draft 2/21/20089

Skyline of Riyadh, Saudi Arabia High and low context cultures High context (Saudi Arabia, Japan) 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 Low context (USA, Germany, Switzerland) Messages are explicit and specific Words carry all information Reliance on legal paperwork Focus on non-personal documentation of credibility Draft 2/21/200810

Skyline of Riyadh, Saudi Arabia 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 35–45% of GDP The Kingdom has sought to diversify the economy Draft 2/21/200811

Skyline of Riyadh, Saudi Arabia Table: Conditions for growth Draft 2/21/200812

Skyline of Riyadh, Saudi Arabia Table: Conditions for growth (Con’t) Adapted from the Arab World Competitiveness Report 2005 Draft 2/21/200813

Skyline of Riyadh, Saudi Arabia 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 Draft 2/21/200814

Skyline of Riyadh, Saudi Arabia Saudi economy indicators (2006) GNP for 2006 is $ 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: –O–Over 500 billion dollars in Saudi stock market –O–Over 250 billion dollars in Saudi real state market Draft 2/21/200815

Skyline of Riyadh, Saudi Arabia 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. Draft 2/21/200816

Skyline of Riyadh, Saudi Arabia 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 Draft 2/21/200817