Overcoming barriers to entry - A case study on Kingdom of Saudi Arabia (KSA)

by H.Bailas

KSA is considered – righteously – one of the most promising and emerging markets worldwide, but with high barriers to entry.

A quick glimpse at CIA’s Factbook (in my opinion the most reliable source of fast and brief data) on the country’s fiscal information may prove its high potential. On the other hand, oligopolistic industries, along with “different” to the European/UK/US government regulations and a diverse business mentality, form a puzzle difficult to solve by many Export Oriented companies.

So far, I have tried to penetrate the market of Saudi Arabia (KSA) with a new product, several times. I would like to share with you my experiences on how you may overcome barriers to entry in an emerging market, which is at the same time changing dramatically its profile, becoming more and more attractive for exports.

Local Contacts / How to establish them

Initially, chose the most appropriate process for approaching prospective customers. Cold calling, e-mail presentations and internet research is not the approach that I would recommend for KSA. Maybe after a long period and many efforts, you will manage to get your line through to a Manager of a company and maybe this Manager, will be willing to listen to you or go through your presentation, but this is a very “long shot”. In this market, the game is played mainly through personal contact.  

Visiting or even participating with a small booth in an exhibition of your industry, will

unquestionably help you establish some initial contacts. Personal contact offers reliability and will open many doors in KSA, while I strongly recommend that you chose to hire a translator during your initial visit. You will demonstrate a higher level of professionalism through this approach. After you establish initial contacts, you need to follow-up, in order to obtain enough information for your industry and start formulating your penetration strategy. In no case, do not promise or commit to an exclusivity agreement, before you collect all the market information. Consider that the word “exclusivity”, will be heard as often as you deal with this market. All above apply also in the case you are fortunate and receive an inquiry for KSA, out of the blue. Be very careful in such cases, since scams are very often.   

Furthermore, the Arab-Hellenic Chamber and the Greek Embassy in Saudi Arabia are excellent agencies that are very helpful and can definitely assist you, in case you want to collect any information on KSA. 

Using the Internet / using it accurately

In my experience, I can note with certainty that all emerging markets’ governments, which want to attract potential investors, have devoted a lot of resources in creating a user-friendly Internet interface - even Saudi Arabia. In below link you may identify the internet site of the Ministry of Commerce of Saudi Arabia.

http://www.mci.gov.sa/en/Pages/Default.aspx

One of the most detailed sites I have ever came across, which includes in English all KSA laws, that refer to commercial activities, with their development throughout the years!

Despite, overall independent initiatives are not of the highest standards. You need to keep in mind that the use of the internet was not all that common is Saudi Arabia until very recently, with official surveys indicating only about twenty percent of the population using it. There are several reasons for this but the most important ones are “legally binding”. Until recently the only internet service provider was a government corporation. A few years ago private companies have been allowed to start presenting this service, but government rules strictly limit what they can offer. In 2011, KSA introduced new Internet regulations, which require all online newspapers and bloggers to obtain a special license from the Ministry of Culture and Information. A special agency called Communications and Information Technology Commission (CITC) is responsible for regulating the Internet and for hosting a firewall which blocks access to thousands of websites, mainly due to sexual and political content. Many articles from the English and Arabic Wikipedia projects are censored in Saudi Arabia with no given explanation.

From all the above, you can easily conclude, why it is mandatory to visit the country, in order to make safe assessments.

Targeted Market Visits / What to expect and look for

One of the most important aspects when evaluating penetration in a new market is to visit it, especially in the case of Saudi Arabia. This visit should have 2 purposes and targets. First target should be to understand the market, how the pyramid of supply is shaped, which are the channels, main players and internal balances inside it. Second - and in my opinion most important aspect for the market of KSA -, understanding the people, their culture, daily habits and mentality.

Citizens of KSA are wealthy and not only they are wealthy, but they tend also to exaggerate about their wealth. Some people consider that they are showing off, but you need to understand that this is just a part of their mentality. Arabians appreciate people that have good manners, are clean, well-dressed, wear expensive watches, cufflinks, silk ties etc. Keep in this mind during your first encounter with a possible future partner.  Secondly, Arabs are traders and like to negotiate. You should never start a price negotiation close to your rock-bottom; calculate 3 or 4 buffers on the top, to be on the safe side.  Inaccuracy is also something that you might come across, so from your side try to be as detailed as possible, always keep and send minutes of meetings and pay special attention to every single detail in a contract. Arabs will never sign a contract that will be against or oppose to the law of the state, an action like this, will be considered disrespect to Almighty Allah and the King. Over-all, “Respect” is the “magic world” when you deal with Arabs, show your respect to their customs, culture and religion.

Regarding the channels and market pyramids in the KSA, certainly it always depends on the industry, but there are some common patterns. Imports in the country are performed by specific companies that are registered in the Chamber of commerce and have acquired this license. As a result, distribution networks are controlled by specific local players, which have relative “big” annual turnovers. In general, someone might say that maximum 4-5 companies in each industry control ~90% of the market. Try to identify these players before your visit and arrange at least one meeting with any of them. You will learn really valuable information on the market specifics.   

Market conditions / understand, embrace and benefit from them

Saudi Arabia is a perfect counterexample that can be used against the people that consider you can have the same strategy in all markets. For everyone to understand how different a market can be in comparison to others, I can only mention that the first day of the week for the Arabs is Sunday and non-working days are Friday and Saturday.  People in Saudi Arabia tend to work at a different “pace” to the Europeans. I always thought that it was connected to their mentality, but when I spent a period in their climate and under their sun, I completely understood the reasons.

Saudi Arabians are very proud people that want to be treated with respect and use mostly formal language. I call “Mr” people from S. Arabia that I consider friends and know for more than 4-5 years. Of course, they also address to me as “Mr”.

Over the past years, by law, only people with Saudi Arabian nationality could establish a commercial activity in KSA. Recently, new changes in governmental policies and regulations have helped creating a frame that encourages foreign companies to establish their own branches or subsidiaries in the country. Still, there are many steps that need to be taken. One of the most common terms when doing business with Saudi Arabia is the “sponsorship”. People that are not Saudi Arabians (may be Egyptians, Pakistani, Filipino, Bangladeshi or Indian etc. ) amount to approx. 6 million out of a total population of 26 million in KSA. These citizens cannot create a company of their own and receive a commercial registration number without having the support of a local Saudi Arabian company (sponsorship). This process has many different aspects and may create many misunderstanding to companies that are not used to Arabic mentality, but believe me when I say they are 100% true, no matter how strange they may sound.

In my opinion, always a good Export Manager should bear in the mind the different market conditions of a country and try to adjust his/her objectives accordingly. In order for you to change or re-establish change, you need to be the first one to drive through it.    

So, in all cases, do not call your contact/partner at KSA on Friday morning. Respect the fact that it is a non-working day for him. Otherwise, be prepared for long Sunday morning phone calls, since the Arabs will always recall that you were the one that called first. 

Concluding, I would like to stress that global current financial conditions, have imposed the need to all export-oriented companies to disperse risks and search for alternatives and/or new markets.

Despite, most companies expect fast results and are discouraged by the barriers to entry in emerging, but non-mature markets; so, prefer to re-allocate their resources into more mature markets that have fewer barriers. They do not consider that building sustainability in mature markets, will be equally (if not more) harder and costly.   

What is important in emerging markets is to have a long-term business plan and dedicated resources. Keep trying, until you finally manage to introduce your products. Once you step your foot in the market, it will much easier to build sustainability. After all, as one of the biggest leaders in the world has said:

“To learn to succeed, you must first learn to fail”

MJ23

PS. I would appreciate to receive your comments and thoughts at my personal e-mail harisisbailas@hotmail.com

H.Bailas