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
