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Doing business in Saudi Arabia

by: Amer Bitar, Associate Partner of Hofstede Insights

Overview of the Saudi business environment

The Kingdom of Saudi Arabia is an economic powerhouse in Western Asia. With the world’s largest oil reserves and cities that serve as regional hubs for business, the country is developing a modern infrastructure on par with leading industrialized nations. Thus, Saudi Arabia continues to enjoy steady economic growth and offers tremendous business opportunities for regional and international investors.

As a consequence, Saudi Arabia is home to major global corporations. These firms include Saudi Aramco, the world’s most valuable listed company;, Almarai, the world’s largest integrated dairy company and the Middle East’s largest food and beverage manufacturer and distributor; and SABIC, one of the world’s largest non-oil industrial producers. The country’s G20 economy boasts an annual GDP exceeding US$700 billion for a population of around 35 million. In strategic terms, the Arabian Peninsula lies at the intersection of the major trade routes linking Asia, Africa, and Europe. Its natural resources include not only enormous natural reserves of oil and gas but also deposits of valuable minerals that hold great potential for future investment [1]. 

The government of Saudi Arabia has embarked on an ambitious program of cultural, social, and economic reform known as Vision 2030. Launched in 2016, the aims of the program are to leverage the country’s assets and attract foreign investment in the Middle East. The expectation is that, by 2030:

  • The private sector GDP contribution will increase from 40% to 65%, and

  • The foreign direct investment GDP contribution will increase from 0.7% to 5.7%.

Hence, the government is focusing its efforts on improving the environment for foreign direct investment by modernizing foreign investment law, directing interest toward economic sectors other than energy, and strengthening and clarifying its domestic regulatory framework. With Vision 2030, the Saudi government seeks to re-orient and diversify the economy, moving away from dependence on oil revenue and promoting other economic activities, especially tourism [2].

Saudi Arabia plays a central role in the Islamic world as home to its two holiest shrines, Mecca, where the Prophet Mohammad was born, and Medina, where he was buried. Millions of Muslims from around the world travel to Mecca every year to perform the Islamic pilgrimage, or Haj, culminating in a visit to the Kaaba, the most sacred site in Islam. It is toward the Kaaba that Muslims around the world face during their daily prayers. Consequently, religious tourism represents a major source of revenue for Saudi Arabia and holds great potential for foreign investment, particularly in the hospitality industry. The government is planning to boost the numbers of religious tourists to Saudi Arabia significantly and, therefore, is investing in the infrastructure to accommodate 30 million annually by 2030.

In addition to promoting religious tourism, Saudi Arabia in 2019 opened its borders for the first time to leisure and entertainment tourists, again, as part of Vision 2030. These plans include making available more than $800 billion in funding for culture, leisure, and entertainment projects that are planned to attract 100 million foreign visitors annually by the decade’s end. Several large-scale projects are also currently underway, such as Neom, a futuristic smart city in the north Red Sea designed to serve as a major tourist destination, with completion of the first phase on schedule for 2025 at an estimated cost of $500 billion [3]. Qidddiyah, a center for entertainment, sport, and culture located near the capital of Riyadh, is another megaproject set to complete its first phase by the middle of the decade [4].

 

The four most important things to keep in mind when doing business in Saudi Arabia

 

  1. The importance of the Islamic faith
    The Islamic faith plays a central role in Saudi culture and society. Saudis consider the Holy Quran the source of its values, morals, customs, and laws. They are very sensitive about respect for their faith and the social norms associated with it.
     

  2. The central role of the family patriarch
    Inhabitants of the Arabian Peninsula lived a nomadic tribal life for thousands of years. For this reason, Saudi society is in large part based on tribal institutions. The patriarchs or heads of families are the most respected individuals in the community, serving as the final arbiters and decision-makers [5]. This social structure persists in the modern country in both government and business contexts.
     

  3. The influence of traditional values
    The values of generosity and hospitality are central to Saudi society. Visitors to the country learn to appreciate the importance of eating with their hosts as a means to create symbolic ties of friendship. This practice echoes the ancient Bedouin tradition of keeping a fire lit in their tents to show any fellow travelers in the vast desert that they are welcome [5].
     

  4. The preference for traditional clothing
    While the citizens of many developing countries have been adopting Western clothing styles, most Saudis continue to prefer traditional garb. Men wear a white tunic to reflect the desert sunlight and a headscarf, and women wear a long black gown that covers the body completely when in public. Saudis are very proud of their traditional clothing.

What to look for in a Saudi business partner

When doing business in Saudi Arabia, it is crucial to choose a local partner with whom you can build a fruitful and lasting relationship. This partner should be experienced with prevailing rules and customs and, ideally, share your firm’s values, mission, and goals. More specifically, you need a Saudi partner with the following fundamental attributes.

  1. Reliability: The partner needs to be someone you can depend on as you navigate a new market and culture. 

  2. Trustworthiness: Since the strength of a relationship with a Saudi is largely based on familiarity, you need to begin developing trust with your partner from your first meeting and ensure that you are always forthright in your interactions.

  3. Experience: To be effective in promoting your firm’s interests, your Saudi partner must be someone who has already spent years working with the government as well as national and regional firms. 

  4. Strong connections: Saudi society is highly collective and built on relationships and personal loyalty. Therefore, you need a partner who is well-established and respected in the Saudi business community and can leverage longstanding ties to facilitate your firm’s efforts in Saudi Arabia.

 

Here are some useful tips for finding partners who possess these attributes. 

  1. Define precisely the role that your partner will play by listing the skills that your firm needs to succeed in the Saudi market.

  2. Meet potential partners in person in Saudi Arabia rather than relying on virtual meetings. Visit the city where your contact is based, familiarize yourself with the local culture, talk with him and his family, and observe his personal and professional interactions before committing to any binding arrangements. (The masculine pronoun is used because the reality in Saudi society is that, in almost all cases, only men are able to form these kinds of business relationships).

  3. As always, due diligence is necessary on your part. Research potential partners to learn about their reputations and capacity to make good on their promises. 

  4. If possible, talk to someone you already trust who knows the market and can offer insight into the players and help you to narrow down a shortlist of potential partners.

  5. Though most Saudi business owners and executives speak fluent English, effective communication requires familiarity with Saudis’ high context society with implicit and nonverbal body language. Therefore, it is necessary to clearly define the roles and responsibilities of all parties to an agreement. Seek out a lawyer experienced in Saudi regulations and procedures as well as in the subtleties of communication in this high context society.

  6. Since Saudi society is patriarchal and, consequently, collective, personal relations are crucial when doing business and cannot be formed hastily. 

  7. For all of these reasons, doing business in Saudi Arabia requires great patience. It all starts with establishing a relationship with a trusted contact who can introduce you to potential Saudi partners.

  8. Families dominate Saudi businesses, so it also takes time to identify and cultivate relationships with the key decision-makers within the family hierarchy.

  9. Saudi businessmen have great negotiating skills and will expect you to be a good negotiator if you are to reach an agreement favorable to your firm.

 

Business culture and etiquette 

  • Small talk before meetings with Saudis is crucial for the participants to become acquainted. Common topics include family members, health, current affairs, and hobbies. Allow the small talk to continue until your Saudi partner brings the conversation around to the subject of business.

  • Handshaking is an important gesture during introductions and business meetings. Always use the right hand for this purpose. 

  • Maintaining face in Saudi culture is crucial, so never confront someone publicly. If it is necessary to correct misinformation, do so privately and politely.

  • Saudis value generosity, so business meals represent opportunities to build relationships and trust. 

 

Showing cultural sensitivity
 

  • Avoid physical contact with persons of the opposite gender, for instance, handshaking. Instead, greet them verbally and with a nod. 

  • Avoid situations in which you may find yourself alone with a member of the opposite gender, for instance, riding in an elevator.

  • Avoid photographing Saudis without first asking permission, especially women.

  • Saudis consider exposing the soles of the feet, whether bare or with shoes on, to be offensive and embarrassing.

  • Always use the right hand (or wrist) to shake hands, eat, wave, or, if possible, carry things since the left hand is considered unclean. 

  • Avoid wearing tight-fitting clothes and try to keep your legs, arms, and shoulders covered. Women in certain areas need to cover their hair.

  • Never critique the Islamic faith or Saudi traditions. As much as possible, avoid the subject of religion, for a misunderstanding can quickly ruin your relationship with a Saudi.

Case Study

The persons mentioned in this case study are fictitious composites, and any resemblance to individuals living or deceased is entirely coincidental.

 

Kathy Jones is a C-Level executive with XYZ, a leading US media company, who is visiting the Middle East on business for the first time. She and four members of her senior team have arranged to meet the owners of MNO & Sons, a leading Saudi family business with which XYZ has been negotiating a multi-million-dollar licensing agreement that would help the US firm to expand in the region. At stake, then, is a project that promises to generate considerable revenue for XYZ and its partners over the coming years.

The meeting is set to take place at XYZ’s regional office in Dubai. The senior Saudi team has flown in from Riyadh to Dubai, led by Faisal, the second son of the MNO’s founder and head of the firm’s media department, and the VP for media revenue who is Faisal’s right hand. Faisal is in his mid-thirties, easy-going, and, though he speaks little English, an enthusiastic supporter of the partnership with XYZ. 

XYZ’s local Middle East team has negotiated the arrangements for the meeting, including the agenda that Kathy’s PA sent a few days ahead of time. However, since they were not mentioned in the agenda, the members of the local team are not among those at the table when the meeting convenes.

The Saudi team arrives 15 minutes late. Faisal shakes hands only with the male representatives of XYZ. Each member of Faisal’s team then makes a brief presentation, after which Faisal presents MNO’s action plan for expanding XYZ’s footprint in Saudi Arabia. Next, Kathy introduces her team members cordially and asks Faisal some detailed questions about the action plan. Faisal answers politely but without making eye contact with Kathy, addressing instead the male members of her team. After about an hour, the meeting ends. Within a few months, it becomes clear that the project will not go forward.

The reasons why the partnership between XYZ and MNO failed to take root are evident, on the one hand, in the notes that Kathy made on the meeting: 

  • Faisal does not behave in a professional manner. He was not punctual and was disrespectful, failing to shake my hand when we met. During the meeting, he ignored me or avoided making eye contact. He seemed distrustful and uninterested in building a rapport with me, and I can’t imagine working with him. His arrogance and exaggerated sense of his firm’s importance were also off-putting. Regarding the actual purpose of the meeting, he failed to demonstrate a comprehensive action plan or to answer our questions about the growth strategy for the partnership. 

Faisal’s assessment of the meeting was equally unfavorable:

  • Kathy was rude in the way she dressed for the meeting and addressed questions to me directly. She made no effort to show respect to me or my family. Instead, she was very arrogant and called me out in front of everyone by asking critical questions and insisting on precise answers on the spot.

The unwelcome outcome of this one-hour meeting for XYZ Media was the loss of what could have been an enormously profitable deal. The problem was one of the cultural differences. A useful way to analyze the failure of this partnership is from the perspective of the cultural dimensions that Hofstede Insights’ Country Comparison Tool assesses. 

As has been seen, the conservative nature of Saudi society means that Saudis do not shake hands or establish eye contact with members of the opposite sex. From the perspective of Western cultures, by contrast, shaking hands and looking someone in the eye indicates sincerity and trust, irrespective of gender. Likewise, Saudis consider casual and revealing attire inappropriate for professional settings. Kathy wore a skirt at the Dubai meeting that was immodest by Saudi standards but perfectly acceptable in the workplace for Americans or Europeans.

A consideration of each of the six cultural dimensions [6] sheds further light on the problems that derailed the partnership between XYZ and MNO.

  1. Power distance: Saudi Arabia’s high score of 95 for this cultural dimension reflects the hierarchical nature of Saudi society. One implication of this score is that titles are important. Kathy’s rather informal way of addressing Faisal was an inauspicious beginning to the meeting from his perspective. 

  2. Individualism: Saudi society is highly collective while US society is highly individualistic, as shown by the countries’ scores of 25 and 91, respectively, for this dimension. Saudis value established relationships highly, and Faisal was confused and suspicious when the members of XYZ’s Middle Eastern team, whom he knew and with whom he had been negotiating for several months, did not attend the meeting along with Kathy’s US team.

  3. Masculinity: Saudi Arabia and the US have similar scores in this dimension, 60 and 62, respectively, meaning that the citizens of both countries tend to be highly competitive. For this reason, at least in part, Kathy and Faisal found each other to be arrogant and overly concerned with displaying power.

  4. Uncertainty avoidance: Saudi Arabia scores much higher than the US in this dimension, 80 compared with 46. This large difference helps to explain why Faisal felt anxious and threatened with loss of face when Kathy asked him detailed questions and the team members with whom he was acquainted weren’t there to assist him with the answers.

  5. Long-term orientation: Both Saudi Arabia and the US score low in this dimension, 36 and 26, respectively. However, this orientation takes different forms in the two societies. For Saudis like Faisal, the expectation is that lasting plans will develop slowly. For Americans like Kathy, the aim is to get the ball rolling quickly to ensure that a project gains the momentum necessary to sustain it.

  6. Indulgence: The US scores slightly higher in this dimension, which measures the extent to which people are free to pursue their desires for self-gratification. While this dimension is less relevant to the analysis of the meeting between representatives of XYZ and MNO, again, Kathy’s decision to wear the clothing that she liked without considering the preferences of the other participants in the meeting is a form of indulgence that made Faisal uncomfortable.

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References and Useful Links

[1] General Authority for Statistics, Kingdom of Saudi Arabia (www.stats.gov.sa/en/).

[2] Vision 2030 (https://www.vision2030.gov.sa/

[3] Neom (https://www.neom.com/en-us). 

[4] Qiddiya (https://qiddiya.com/). 

[5] Bitar, A. (2020). Bedouin Visual Leadership in the Middle East: The Power of Aesthetics and Practical Implications. Cham, Switzerland: Palgrave Macmillan.

[6] Hofstede, G., Hofstede, G. J., & Minkov, M. (2010). Cultures and Organizations, Software of the Mind (3rd edition). New York: McGraw Hill.

Last updated: 16.09.2021 - 11:28
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