ENTERING THE SAUDI ARABIAN MARKET

Saudi Arabia is a magnet for foreign investment and workers, but there are inevitably issues in complying with the relevant employment legislation. This revolves around the Labour Law and the Saudization program in Saudi Arabia, which sets quotas to protect the number of local workers in the expat-dominated private sector.

Opening a business in any overseas territory can be challenging. Moving staff worldwide means lengthy processes to obtain visas and work permits. When employees are in place, who will handle payroll? How will your company deal with regulations on taxation, entitlements and benefits, termination, and severance? Drawing up an expansion blueprint is not enough; your business plan must answer all these questions. By partnering with a PEO and EOR such as Bradford Jacobs, companies can plot a time-efficient and cost-effective path to locating and employing staff in Saudi Arabia. But for those who want to ‘go it alone’, here are some of the necessary steps.

Finding an office in Saudi Arabia

A booming economy is only one of the attractions of the Kingdom, which is opening its doors to international trade and investment. The government’s Vision 2030 initiative stimulates the environment for private enterprises, from start-ups to multinationals, widening its financial, digital, and economic perspectives. It encourages a more talented expatriate workforce while promoting and investing in its citizens through Saudization (Nitaqat).

What opportunities are available in Saudi Arabian cities?

Jeddah is a modern and lively city blending the old and new, famous for its shopping malls, providing a diverse cultural experience to live and work, and being the country’s commercial hub. It is also the home to many famous names such as Nestlé, Siemens, Proctor & Gamble and Unilever – to name but a few and in line with Vision 2030 to attract top companies to establish their headquarters in the country.

Riyadh is the largest city and administrative capital. A great city for business with all the facilities of a world-class destination but with little to offer in the way of nightlife. However, there is quad biking and hiking with plenty of green space even though the city is located in the desert with no coastline. It is a high-salary area and offers top-quality health care, education, and many shopping places and sites to see.

Dhahran, the top area for oil production, and maybe because of it, provides excellent facilities in a contemporary setting. It offers a well-developed IT industry with high-paying jobs. Although not offering much in music and entertainment, it is more of a traditionalist city and a place to chill with the locals; however, there are shopping malls, restaurants and things to keep the children entertained.

Some of the considerations when locating your office are:

• What government funding, grants and subsidies or tax benefits are there for start-ups and new businesses?
• Are the premises near to wholesalers, manufacturers and distributors offering ‘just-in-time’ inventory management?
• What business hubs or clusters offer networking opportunities, improved supply chains, and research and development opportunities with appropriate office space?
• How active and vibrant is the locale with a healthy business environment and proximity to commercial services?
• Does it provide good facilities for staff, impress clients, and provide good transport links, air conditioning and safe car parking?
• Is it fit for purpose but within budget … and yet still has room for expansion?
• Does it have good infrastructure with appropriate services such as WIFI, internet, maintenance and cleaning, air-conditioning, and availability of a prayer room?
• How does the nature of your business affect your choices? For instance, administrative or commercial?

Taking advantage of all this country has to offer to optimise profits, but staying compliant, means research and a good understanding of the region and the Muslim culture. 

Finding a manufacturer in Saudi Arabia

The Vision 2030 initiative aspires to huge social and economic reforms to integrate local Saudi Arabians into the workforce and employment. The main aim is diversification from oil dependency towards a sustainable manufacturing ecosystem creating specialised clusters, investment and productivity to ensure a prosperous future. 

Areas targeted to encourage efficiency and competitiveness and promote integration and expansion are the automotive and pharmaceutical industries. Also, the Research Products Development Company (RPDC) melds expertise from educational institutions and facilities for research in biotechnology through an R&D Cluster started in 2018 aimed at supporting clinical trials for emerging vaccines and medication.

In July 2022, KSA issued over 400 permits for projects in the metal, rubber and chemical sectors for new factories and facilities to encourage expansion in the manufacturing sector. Up to 2022, there were over 10,000 projects, with small enterprises accounting for over 90% of the industrial licenses. Investment has been more than SAR 1.3 billion (US$347 million).

Companies expanding into Saudi Arabia who have located their office and who have a product that requires manufacturing should not find this a problem, with the right advice and expertise from Bradford Jacobs. Partnering with the best company to launch your project and achieve production goals is a boon for any business.

A first-class manufacturer can help with the culture and local customers, the language and making the right contacts while hitting targets for quality and quantities. However, practice ‘Due Diligence’ with new contacts – start small before financially committing to large orders and seek out reviews and recommendations. Check out local embassies, most have country guidelines offering good information. Here are some of the questions you could ask:

• Are they licensed and quality assessed?
• Can they produce goods in the quantities needed?
• Can they deliver directly to your customer or distributor?
• Have they produced similar products, and can they provide recommendations?
• Can they keep pace with your expansion plans?
• Are they financially sound, and can they provide a previous audit?
• Do they have payment terms and require a deposit?
• Will there be a language problem?
• Will you have a single point of contact, e.g., an account manager?
• How are their supply chains for sourcing or outsourcing their raw materials?
• What are their potential lead times to deliver?
• Processes for dealing with poor quality or missed deadlines?
• Do they provide sampling or a prototype?
• Is their manufacturing equipment up to date?

Other considerations:

• Run market research to avoid saturating the market.
• Finding a company to both manufacture and distribute.
• Legalities in the country to protect your intellectual property rights.
• Regularly monitor your manufacturer’s performance.

Finding a distributor in Saudi Arabia

Since May 2016, foreign companies can wholly own retail and distributor trading businesses without partnering with Saudi Arabian companies to distribute goods. The Dow Chemical Company became the first in June 2016 to receive a trading license.

However, it is recommended for companies new to the KSA markets to initially partner with a local company. The three main areas of commercial trade are around Jeddah, Riyadh in the central province, and the Eastern area where the oil industry is located. Luxury goods are in high demand, as are food and beverages. Retail goods in the domestic market, especially food, are becoming more competitive with the heavy presence of hypermarkets such as Carrefour, Al Raya, Panda Retail Co., and Lulu Group.

After setting up your company, locating an office and partnering with a local manufacturer, you now have a product to sell. You need a distributor capable of starting small and locally who, in the future, can also expand to cover the whole country into the rest of the Middle East and farther afield. The KSA, as of 2022, does not have ‘Free Zones’, but as part of the Vision 2030 initiative, they are creating Economic Cities, and the NEOM Mega City is part of the expansion and diversification, with Free Zone areas part of the plans.

Situated alongside the north of the Red Sea but south of Jordan and Israel, the NEOM Mega City is estimated to cover 26,500 km2 with a 460km coastline along the Red Sea and is designed to host ‘smart-city’ tech companies as well as a holiday destination.

Apart from the main areas of distribution resting with wholesalers, major retailers such as supermarkets, department stores and huge shopping malls, e-commerce is booming; during January 2022, sales were around SAR266 million (€69.7 million, US$70.8 million) per day.

A top-rated distributor should be experienced with the larger markets, distribution channels and supply chains at home, in the rest of the Middle East, West Asia, Africa, and South Asia. They should have a handle on changes in the marketplace or emerging trends such as online shopping.

  Some pointers when vetting a distributor:

• Do they provide good storage facilities and have up-to-date machinery for handling goods before they distribute?
• How do they track changes to market trends?
• How does your product match or fit in with their existing product line?
• Do they have well-trained and enthusiastic marketing and sales teams with excellent customer service that can also assist with customs, cultural differences, and the language?
• See their plans for your product distribution, and have they worked before with foreign companies?
• Look at their processes and logistics for distribution.
• You may want to check out their customers’ history, satisfaction, and financial stability.

Getting the right distributor can mean product success for both of you. It is not just about moving merchandise, it’s also about growing and developing markets together, expanding both of your horizons and increasing your market share.

How to find a distributor

• Check out Trade missions, which are usually organised to encourage mutual trade. They can target relevant companies more easily, arrange face-to-face meetings, and be aware of the best trade fairs or conferences. They may offer financial incentives if this is a new market for you or your country.
• Networking: Joining B2B groups, Chambers of Commerce, exploring social media, e.g., LinkedIn and Facebook – all good vehicles to become familiar with your new country or to elicit experiences or recommendations
• Check out the local expatriate community, some may attend embassy functions, and many expatriates occupy top positions with international companies
• Accessing local directories and magazines, and online websites. Many in-country embassies produce country guidelines
• Why not ask your manufacturer, maybe they should be your first port of call.