Doing business in Saudi Arabia

• DOI: http://doi.org/10.1002/tie.10106
• Published date: 01 January 2004
• Date: 01 January 2004

T

in Saudi Arabia must be prepared to con-

duct thorough preliminary research, visit

the kingdom regularly, show genuine con-

cern for Saudi development goals and cul-

ture, be patient in business negotiations,

and adapt carefully to the Saudi environ-

ment. © 2004 Wiley Periodicals, Inc.

INTRODUCTION

he largest market in the Arabian

Gulf region, the Kingdom of

Saudi Arabia offers investors and

exporters many opportunities,

despite current political and eco-

nomic uncertainties. The impor-

tance of Saudi Arabia on the global

scene arises from three characteris-

tics: it has a strategic location, it

has the world’s largest reserves of

oil, and it plays a unique role in the

Islamic world. The business cli-

mate results from a number of

economic, social, demographic,

59

Thunderbird International Business Review, Vol. 46(1) 59–84 • January–Februar y 2004

© 2004 Wiley Periodicals, Inc. • Published online in Wiley InterScience (www.interscience.wiley.com).

DOI: 10.1002/tie.10106

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Saudi Arabia

Gillian Rice

Gillian Rice is an associate professor of marketing at Thunderbird, The American Gradu-

ate School of International Management. She taught at the University of Bahrain during

the 1996–1997 academic year as a Senior Fulbright Scholar. E-mail: riceg@t-bird.edu.

Executive Summary

The Kingdom of Saudi Arabia is the

largest market in the Arabian Gulf region

and, despite current political and econom-

ic uncertainties, offers investors and

exporters many opportunities in a wide

variety of business sectors. Key factors driv-

ing economic policy include the desire to

reduce the dependence on oil, and the need

to provide jobs, housing, and services to cit-

izens in a time of rapid population growth.

The foreign investment law of 2000 signif-

icantly changed the rules for foreign

investors, permitting 100% ownership of

projects. There is a streamlined foreign

investment application process with various

investment incentives. Impor tant policies

are privatization, economic diversification

(such as the development of a tourism sec-

tor), and the education and training of

Saudi workers. Although lifestyle in the

kingdom is ultramodern and high-tech,

Saudi Arabia is an extremely conservative

country and many of its citizens desire to

preserve their religious values and ancient

traditions. The Saudi culture is influenced

by two dimensions: Islam and the Bedouin

tradition. Foreign executives doing business

and political forces that will be

explained in more detail in the

remainder of this ar ticle.

Saudi Arabia occupies about

2,240,000 square kilometers on

the Arabian Peninsula, equal to

roughly three times the size of

Texas, one-quarter the size of the

United States, or seven-and-a-half

times the size of Italy. It has a

topography ranging from wide

plains to deserts, valleys, moun-

tains, and plateaus. The kingdom

is bordered by Kuwait (to the

northeast); Jordan and Iraq (to

the north); the Arabian Gulf,

Bahrain, Qatar, and the United

Arab Emirates (to the east);

Yemen and Oman (to the south);

and the Red Sea (to the west).

Saudi Arabia’s wealth derives from

oil reserves, estimated to be over

30% of known global reser ves.

The Saudi population is therefore

relatively affluent. For example, in

2001, according to Euromonitor

statistics, 99% of the 2,754,140

Saudi households owned a color

TV, 99% a passenger car, 23%, a

personal computer, and 84%, an

air conditioner. Saudi nationals

represent 16 million of the coun-

try’s population of more than 22

million. The remaining six million

are expatriate workers who consti-

tute 48% of the workforce. Rapid

population growth (the popula-

tion is forecast to be 33 million by

2015) challenges the government

to grow the economy in order to

maintain living standards and pro-

vide employment for young Saudi

nationals.

Saudi Arabia leads the Islamic

world because of its custodianship

of the Muslim holy places. These

include the Grand Mosque in the

city of Mecca and the mosque and

tomb of the prophet Muhammad

in Madinah. The pilgrimage to

Mecca once in a lifetime is a tenet

of the Islamic faith.

Saudi Arabia is an extremely con-

servative country where the gov-

ernment and many of its citizens

desire to preserve their religious

values and ancient traditions.

Simultaneously, lifestyle in the

kingdom is ultramodern and

high-tech. The government is

keen to continue economic and

technological development. There

is always an element of uncertain-

ty in the economy because,

despite the development of a

downstream petrochemical sector

and extensive natural gas

resources, economic health

depends heavily on the price of oil.

Hence, important goals are eco-

nomic diversification, privatiza-

tion and liberalization of the

economy, and the “Saudization”

of the workforce. Progress

towards these goals is slow, how-

ever, as explained in detail below.

HISTORICAL BACKGROUND

In ancient times, with the excep-

tion of a few oases, the interior of

Gillian Rice

60 Thunderbird International Business Review • January–February 2004

Saudi Arabia

leads the Islamic

world because of

its custodianship

of the Muslim

holy places.