International Business: Challenges and Opportunities for Firms Operating in Saudi Arabia

Abstract

International business consists of all the industries in the global economy. Saudi Arabia’s context in this regards is an important contribution for growth and development of the global economy and corporate sector. The international business platform has become more challenging with the growth of competition and demands an all round performance from the firms to contribute in the economic growth of their nations. Saudi corporate sector is mainly dependent on oil and petrochemicals industry. Other industries of Saudi are still in the development phase. Saudi firms from non-oil segment can be considered as late entrants in the global market place and will have to face significant challenges and tough competition from the established companies operating in the international market.

The researcher has used suitable research methodology from attaining the objectives of the study. The approach, design, philosophies and data type has been selected so as to aid the analyst in completing the work in accordance with the time horizon.   This study will evaluate the opportunities and challenges that lie in the international business platform for Saudi firms. The research will try to portray the current status and strengths of the Saudi firms for sustaining in the global marketplace.

The global economy has just suffered a setback in the recent financial meltdown. Many countries have recovered strongly form it and Saudi is among one of them. The suitability of this advantage and its importance in the global business arena are studied in this research. International business conditions are supporting new investors for growing in this economy. Globalisation, FDI and technological factors have brought some important changes in the market and economy. The study portrayed that some of these changes are in favour of the Saudi firms and some has negative impact on their operations. The Saudi firms will have to generate strategies and implement them according to the need of the business and demand of the market.   

Chapter 1

1.0 Introduction:

The term international business has taken an entirely new shape in the past two decades. The style of conducting business has changed with a parallel change in consumer needs and market demands (Dlabay et al. 2010). International market is now facing more influencing factors both internal and external. These factors are laying foundations for the business organizations to operate in a bigger market. Despite this, these factors are the reasons behind the problems faced by the business organizations in smooth operations in the global market. Major part of the international market is being populated and dominated by the small and medium scale business houses (Gilligan and Hird, 2008). These business houses have a small fund for updating their technological intermediaries as compared to the bigger firms in the market. This causes unawareness among the consumers and the business sector regarding the benefits and usage of technological tools like internet. Some other factors like government rules and regulations also create barriers for global operations (Harrell and Kiefer, 2004).

In this chapter the researcher will provide a detailed background of the business sector in the Saudi Arabia and the problems faced by them for sustaining in international market.

1.1 Background:

Growth in the global business sector has been significant in the past decade. However the effects of globalisation and technological boost are very less. Majority of the business sector is based on oil industry. The reason signified for this development was the increasing oil prices (Abdul-Ghafour, 2009). The economies of the countries are improving but in order to attain sustainability in the international market, they have to meet the standards in terms of technology and business styles. The local business houses are not inter-dependent among each other and create miscommunication and a hostile environment (Al-Ghamdi and Sohail, 2006). Moreover, the business houses don’t have adequate infrastructure support in the country that limits their business operations within the country and in the international market.

Saudi Arabian market suffered heavily from the global economic meltdown of 2008-09 (Ramady, 2012). The market gained quickly from the loss and surprisingly the other sectors (apart from oil) enhanced their performance. However, the road to success is still to be covered. The performance of the non-oil sector of Saudi Arabia after during and after the recession is has improved.

The market has experienced many ups and downs in the past few years related with the recession and increasing price of the oils in the global market (Savard et al. 2012). The comeback of the Saudi industries after the losses suffered during the recession period is significant. Apart from manufacturing industry other sectors have developed well. Government services did not face the turmoil of the recession period (Ramady, 2012).

The main industry of Saudi is based on Oil and petrochemicals industry. Ramady (2012) observed that oil industry is the fuel of economic development in the middle-east countries. In Saudi Arabia, the oil industry contributes around 36% of the total GDP (Rajhi and Malik, 2012). Hike in the oil prices all over the globe has enhanced the revenues of these firms. There is significant growth in production of oil in Saudi Arabia; and the demand of oil has also increased in the global market. In the international market, oil companies of Saudi Arabia are gaining rapid recognition. However, the non-oil segments are lagging behind according to the international standards. Strict government policies and cultural regulations still have a strong hold over the corporate sector. Globalisation and technological growth effects are yet to be framed into Saudi economy (Savard et al. 2012).

1.2 Problem Statement:

The economy of global market currently comprises of nations suffering from the trails of recession and some nations that have successfully encountered the effects of recession. For the Saudi firms surfacing in the international market,   serious challenges are still to be faced. The global market is already experiencing a dramatic expansion as the developing nations, Triads and BRIC countries are entering the market in full swing (Luo and Tung, 2007). The main opportunity will be in the form of technological benefits. Growth of technology has brought many changes in the business environment reducing the expenses and providing more scope for earning profits. The Saudi firms have to identify these factors and form suitable policies for surviving in the market.

Growing market also signifies increase in competition as more firms are entering the market. Being a late entrant, the Saudi companies have to face strong competition from already established firms in the relevant sectors. Continuously expanding market will also create problems in judging and evaluating the market conditions as the market is vulnerable to change (Helpman, 2005). Another point that will make the business organizations in co-operating with the Saudi firms is the reputation of the country as strongly Islam supportive and related with many religion based terrorist activities around the globe.

Despite these developments no significant research has been conducted to understand the effect of international business of Saudi companies. Research that evaluates the challenges and opportunities are scarce and this research seeks to contribute to the literature in this regard

1.3 Aim:

The researcher will evaluate the factors that influence the operations of the Saudi companies in the international market. The researcher will also identify the challenges and opportunists that Saudi companies face in global business.

1.4 Research Objectives:

  • To understand the impact  of International business and its various dimensions in the current competitive market scenario
  • To find out the challenges and opportunities that firms operating in Saudi Arabian  face in the context of international businesses
  • To analyse the internal and external business factors that are responsible for creating such challenges and opportunities for firms operating in Saudi Arabia

Research Questions:

  • What is the impact of international business and what are its various dimensions in the current competitive market scenario?
  • What are the challenges and opportunities faced by firms operating in Saudi Arabia while engaging in international business?
  • What are the internal and external business factors that present such opportunities and challenges for firms operating in Saudi Arabia companies?

1.6 Rationale of the study:

Scenario of the international market has experienced many changes in the 21st century. Beginning from the nearest, global financial meltdown, effects of globalisation and network burst in 2000, the business organizations are facing a phase of continuous adaptations (Rajhi and Malik, 2012). In these circumstances the basic mission, vision and objective of the organizations are to survive in the global turmoil. The international market has seen some major changes during the financial meltdown, many small and medium scale companies merged with bigger firms to survive and also enhance their market and brand image (Luo and Tung, 2007). In terms of Saudi firms, the main challenge lies in maintaining a balance between the strict government policies and surviving the challenges in the international market.

Saudi Arabia entered the global market at a very early stage with the help of its huge reserve of oil. The oil companies are established and well adapted to survive in the global industry. The main challenge for survival is for the non-oil companies operating in the country. Moreover, the competition level has surged up with technology making its mark as the dominant player. The non-oil firms of Saudi Arabia have recovered well from the recession period but they need to respond to the growth of the global economy (Ramady, 2012). The research will help in identifying the major obstacles and opportunities that are being faced by the Saudi business firms entering the market. The research will also evaluate the reasons influencing the global market for involving these factors.

 1.7 Purpose of the Study:

In the recent times, global financial meltdown has impacted the international business firms in a major way. They have urged the firms to create a more competitive and complex market scenario. Apart from Saudi oil companies, Saudi firms have not yet been successful in engaging themselves with the terms of the global market (Al-Na’imi, 2006). The new comers must understand the factors that are related with achieving success in international market. International market will ensure growth in the consumer base but it also signifies that diverse consumers with diverse taste and demands (Savard et al. 2012). The firms have to acknowledge these facts and take respective actions keeping in mind the fierce competition in the market.

This research aims to evaluate the factors that will come up as a challenge for the Saudi firms entering and operating in the global market. The research will identify the positive factors that will help these firms in gaining sustainability in the international market. The researcher will also try to analyse the suitable ways that would help the Saudi firms in gaining a sustainable competitive advantage for a longer period. These findings will in turn help the Saudi firms to identify the challenges and opportunities in the international market and formulate strategies to tackle and utilise them.

1.8 Focus of the Study:

The study focuses on evaluating the factors that act as opportunities and challenges for the oil and non-oil firms of Saudi Arabia in the international market. The business sector of Saudi Arabia can be segmented into two broad categories namely oil and petrochemical sector and non-oil sector. The market of oil industry of the country is well established in the international market but they face stern competition from other oil producing countries like Algeria, Bahrain, etc (Ramady, 2012). The non-oil segment of the country suffered heavily during the global recession and is still recovering; This sector has to toil hard for making ground in the international market among many set players.

1.9 Structure of the Research:

Chapter 1: Introduction: The first chapter of the study provides a detailed explanation of the research topic and background of the study. The researcher formulates the aims, objectives and research questions and justifies the reason for selecting this topic.

Chapter 2: Literature Review: The literature review is mainly collection and analysis of secondary data. The researcher evaluates the previous researches done in regards to the chosen topic and studies them. The researcher will also focus on explaining the different theories, concepts and models that influence international business and operations of Saudi firms. This chapter deals with identifying the gaps in the previous works and also studying the historical trends of the topic.

Chapter 3: Research Methodology: The third chapter of the study deals with explaining the methods applied by the researcher for gathering data and analysing them. This chapter explains the philosophies, approach, techniques and methods used for answer the research questions and satisfying objectives.

Chapter 4: Findings and Data Interpretation: The fourth chapter deals with analyzing the data collected through primary research and interpreting them with the help of graphical tools.   

Chapter 5: Conclusion and Recommendations: The final chapter of the study presents the conclusion of the research. This chapter reflects the success of the study in fulfilling the research objectives and answering the research questions. The researcher provides suitable recommendations based on the data analysis and findings of the study.  

1.10 Summary:  

The chapter evaluates the topic of the research. The industries of Saudi Arabia in the context of international business have been expressed in the study. The researcher has also explained the problems that are currently being faced by business organizations of Saudi Arabia in surviving in the international business market. The study states the aims, objectives and questions of the research along with justification for selecting the research topic. 

Chapter 2: Literature Review

2.0 Introduction:

Literature review evaluates gaps in the published data regarding the subject topic. The researcher will gather relevant secondary sources and study them in this chapter. This chapter consists of various theories, concepts and information regarding the international business and the challenges in the market (Corbetta, 2009). The chapter also reflects the position of the Saudi industries in response to the standards of the international market and the opportunities that will help the industries in gaining a sustainable competitive advantage for surviving in the global market. The theories and issues presented in this chapter will be connected with the topic of research.

The published literature used in this section has discussed almost all the major issues related to the topic. The analyst will try to evaluate the possibilities for the Saudi companies in the global market, in context of globalisation and FDI. The impact of these factors on the market domestic has been analysed in the used literature. The study on the influence of these factors on global business practices in respect of Saudi firms is limited. This analyst will try to fulfil this gap and evaluate the challenges and opportunities that lay in front of Saudi firms for global market operation.    

2.1 Conceptual Framework:

Conceptual framework reflects the connections between the theories and descriptions provided in the literature review. Lodico and Spaulding (2010) defined conceptual framework as the flow of theories in the content and their relation with the research topic. The framework highlights the contents of the chapter in a diagrammatic representation linking them with each other. Conceptual framework of the chapter is as followed:

2.2 International Business Trends:

The global market has faced tremendous changes from the start of the 21st century. With the network boom of 2000-01 to the globalization process and the global recession of 2007-08, has driven the market to a new level. The business organizations also faced a change in their strategies and market demands (Czinkota et al. 2009). Aswathappa (2010) observed that the growth in the international market is driven by the growth in the business sectors of the developing countries. Chacholiades (2008) estimated that 70% of business in the coming five years will be happening in the emerging countries. According to the observations of Aswathappa and Chacholiades, the new firms entering the global market should be investing in the developing countries. Dunning (2009) argued that new firms entering the international market should start by entering the established market which will provide them an insight about the threats in the developing market. London and Hart (2009) criticized that one of the major factors working in the international business is time factor, the race to reach the customers first is always important. Learning the market conditions should not hamper the business opportunities of the companies. 

Czinkota et al. (2009) stated that the most disruptive trend in the global market is the strength of the growing business houses. The consumers are always expecting something new and unexpected that would help them in the best possible way; the new business houses with technological support are doing exactly the same thing for gaining consumer trust. Bhagat and Chang (2010) highlighted that established business houses have better support financial and technical support for innovating market strategies to attract the consumers. Carpenter and Dunung, (2011) added that established firms also have the advantage of their brand image in the market for building consumer brand perception. Dlabay et al. (2010) stated that consumers of emerging markets survive in conditions where support such as retail chain, technological development, etc don’t exist. The new firms take advantage of these situations for creating their ground in the international market.

The most influencing factor in the global market is the rising population and economic conditions of the consumers and the growing culture of urbanization of societies (Dunning, 2011). Khoury and Peng (2008) explained that as the consumers move towards urbanization and modernization, their needs also change. This creates a challenge for the new firms in the global market as the expenses grow although competition factor does not allow them to increase their profit margin. Rugman and Verbeke (2008) stated that technological growth has allowed the business organizations to lower down their operational expenses by a great margin. Bhagat and Chang (2010) argued that expenses for installing the technical supports are huge and the new firms cannot afford to streamline their funds in one direction only. 

The global GDP is increasingly being dominated by emerging markets like BRIC nations and the developing markets of these countries provide a suitable scope for new firms to invest and expand their business. Business organizations entering the market should understand the trends that dominate these markets. The consumers of these countries are not aware of the business styles of established countries; they will welcome the change if reflected in the desirable manner. 

2.3 Challenges in International Business: 

Increasing change in the New Economic Dynamos of the emerging market is highlighting various opportunities for the growth of global business activities. The demand and production supply of the consumers in the BRIC nations are higher than that of the established countries. The demands in these countries are different but fulfilling these demands will be profitable for the organizations trying to enhance their brand image in the global market. Czinkota et al. (2009) stated that one of the major limitations of operating in the global market is the export and import barriers. Czinkota et al. (2009) argued that globalization has eased the pressure of export duties and political affairs on the business sector. Carpenter and Dunung, (2011) pointed that business strategies for entering a new market place should be made by considering the current and future conditions of the market. The effects of globalisation has not really put an end to the barriers, countries like India are still considering the prospects of FDI in the country. Dlabay et al. (2010) highlighted that apart from allowing foreign investors in the country, the government of the developing countries will also provide more space and benefits to the local business houses for operating and gaining consumers. Bhagat and Chang (2010) explained that based on the need to change, the possibility of accepting foreign products among the consumers is high. This factor attracts the international business organizations for milking the opportunities in developing markets.

Looking at the prospects in the international business sector, the main challenge for the business enterprises is to identify the needs of end users of the products or services (Dunning, 2011). The market environment is dominated by small operators and individuals who represent the needs of the consumers. Rugman and Verbeke (2008) further stated that organizations aiming to occupy a higher place in the international business should have strong R&D operations that would enable them to understand the demand and needs of the consumers at various levels. Rugman and Verbeke (2008) emphasised on the importance of cost management in operating in the emerging markets. Khoury and Peng (2008) stated that labour cost in the emerging markets are very low and will provide more scope for profit building. Moreover, proper training programs will also enable this labour for producing goods that can be outsourced to other markets.

Bhagat and Chang (2010) stated that as there are opportunities in the developing markets so are challenges. Emerging markets occupy most of the geographical locations and the demands in each market are of different sorts. Czinkota et al. (2009) mentioned that products of emerging market mostly have industrial products rather than consumer products. The organizations should balance their production process for satisfying the needs and creating a competitive edge in the market. Carpenter and Dunung, (2011) opined that consumer products will play a bigger role in the long term market planning of the organizations as emerging markets are labour oriented and will have ample opportunities to trade these products in free market economies. Organizations should try to neutralize the challenges of psychological barriers among the consumers. They have to communicate with the consumers directly for gaining their confidence and achieving a better brand perception. Dlabay et al. (2010) pointed that sustainability is being extensively used as one of the key tools for attracting the consumers in a foreign market.

2.4 International Business needs and standards:

International business standards have risen with the growth in the market and emergence of new markets in the sector. Globalization and technological growth along with liberalisation of doing business in the developing markets has provided the much needed space to the compact business sector of the world. Shin and Peng (2008) observed that doing business in the developing countries or on a global scale needs certain qualities form an organization, these qualities are the demands of the market place, consumers and the business environment. These can be termed as the survival needs of the business organizations. Wang and Jiang (2008) highlighted that as the global market is flooding with companies from all the industries, more changes are talking place in the market environment. The basic need for the organization is to understand the demands of the market and their capability to sustain in the market. Borck (2009) argued that business should identify their risks in the market and take risks accordingly that would allow them to get to consumers more rapidly. Khoury and Peng (2008) stated that international market throws challenging opportunities for the employees and the management of a business entity. Proper managerial actions and good support from the employees can build the much needed platform for the business entities in the global market. Dunning (2011) mentioned that employee support for the organizations should depend on the market place, as the organizations would benefit from recruiting local employees who have a better understanding of the market and the consumers.

Bhagat and Chang (2010) analysed that operators of global business should posses or build some competitive advantages for surviving the challenging environment. These advantages consist of product diversity, ability to understand the consumer needs, managerial support and innovative work culture. Wang and Jiang (2008) explained that as technology and business grew hand in hand, they were fed with new products and services regularly and this generated a new need of restlessness among the consumers. Dlabay et al. (2010) criticised that companies must not hasten for providing new products or services to the consumers; they may end up in wasting huge funds and time in developing something not supporting the consumer demands. Carpenter and Dunung, (2011) opined that market research plays a great role in international business depending the diversified group of consumers and their requirements.

Observing and analysing the above explanations of the scholars, the researcher evaluated that for being an operator in international business, the companies have to fulfil certain organizational and market needs. The first need is the ability to identify the current trends and the requirements of the business world. Then they have to build these strengths within the organization for getting into the market. The originations should understand the competition in the market and identify the most suitable place for expanding the business. The scholars mainly stressed on the need of employee support, product diversification, competition and identifying the market needs. The researcher thinks that international business needs are far more crucial, business enterprises have to consider factors like labour mobility and production facilities. Firms should consider the technological factors and support like outsourcing of business activities and products.  

2.5 Role of FDI in Saudi Companies:

Foreign Direct Investment has been taken up by the emerging economies as a method for developing their infrastructure by liberalising their market and economy. Czinkota et al. (2009) explained FDI as a long term investment by the foreign investors in a foreign country. Wang and Jiang (2008) stated that FDI can be direct investment in another economy or it can also be a joint venture or merger of two firms, one firm being a local enterprise of the economy and other one from another economy. Wang and Jiang (2008) observed that organizations are mainly using the scope of FDI and globalization for investing in the infrastructure of the developing economies. FDI has boosted up the global economy in the past few years, markets of BRIC nations have emerged as the most favoured investor locations (Almubarak, 2009).

Saudi Arabia better known in the corporate sector as the largest oil exporter of the world is one of the largest economies among the members of World Trade Organizations (WTO) (Bahgat, 2008). Saudi Arabia has stepped into international business arena long ago and majority of its GDP is based on international export of oil and petrochemicals. Oil king of WTO and the global market is not able to take advantage of the market because of the closed policy of the nations of European Union and some of the developing countries. However, they have the largest reserve feedstock in the world. Production of oil or gas in Saudi Arabia is close to £1.25 per barrel (Hamilton and Webster, 2012). European country like Germany is closed for trading with Saudi Arabia in regards to petrochemicals or energy producing goods and services (Fillis and Wagner, 2008).

Khoury and Peng (2008) signified that the main reason for restricted FDI of Saudi is their religious based economy that is not classified as a free market. In spite of beneficial opportunities in the infrastructure sector of Saudi Arabia, the foreign investors are hesitant in investing in the country. Dunning (2011) explained that lack of FDI in Saudi is due to the rise of the developing countries emerging as the major business place. Majority of the international business operators are attracted towards the emerging markets that provides more scope for business. Wang and Jiang (2008) highlighted that the legal issues also effect FDI in the country as the FDI Act revised in 2000 authorize the foreign investors to invest in all the non-oil sectors where as oil is the most profitable business  in Saudi. Investments are mainly barred in drilling, oil exploration and production. However, firms can invest in oil refining and petrochemicals production (Dlabay et al. 2010).    

Borck (2009) acknowledged that the most crucial factor attracting foreign business houses in Saudi is the availability of two way foreign investment. Foreign business houses can have a fully owned firm in the country or they can also do business by taking a Saudi firm as an ally. Bhagat and Chang (2010) demonstrated that Kingdom of the country allowed the foreign investors to own property in the country for both business and housing purpose. The scope for increasing business in Saudi economy is huge, the organizations has to maintain the legal affairs of the country for surviving in the business environment of Saudi (Almubarak, 2009).  

2.6 Export and Import Strategy for Saudi Firms:

Import and export of Saudi Arabia increased since it took the membership of WTO in 2005. International Finance Corporation ranked the nation as 13th in the list most of economically competitive countries. Saudi Arabia took over Russia as the largest oil producer in 2010 (Lippman, 2012). Oil and petrochemical export compromises of the majority of Saudi export earnings. Saudi acts as one of the largest export partners of most of the developed European countries like Germany and UK. The trade chain of Saudi Arabia expands to Asian developing countries like China and India for their oil export. However, the restrictions in trade are very strict in the country; the possibility of a foreign household living or business related living in Saudi is very less (Teitelbaum, 2010). These factors have created a negative image of Saudi Arabia in the global economy and business sectors.

Czinkota et al. (2009) explained that religious factors of the country make it difficult for non-Islamic organisations to operate in the country. The business organisations mostly form allies with Saudi firms for gaining local aid. Wang and Jiang (2008) mentioned that customs duty on the imported products is very high which creates troubles for foreign firms operating with outsourcing. This can also be barrier for the local firms operating in the international market. Most of the industries of Saudi Arabia that are related with the infrastructure of the country have to import raw materials and finished products from other countries. Agriculture being one of lesser developed sectors of the country, around 30% of the total food consumption is imported from other countries (Dunning, 2011).

Saudi Arabia firms have the potential of operating in the international market. The local firms have enabled the country as one of the top economies in the world. The global market presents opportunities that are suitable for these firms long term success. The government of the country is relaxing some rules for allowing and encouraging FDI in the country (Rajhi and Malik, 2012). Globalization affects are converting most of the markets as free market economy. This will prove to be beneficial for the corporate sector but will also have disadvantages in the long term for the consumers. Saudi has a competitive advantage over the foreign importers with their superiority in oil and petrochemicals market (Usa, 2011). They are also one of the leading energy producers of the country.

2.7 International Ties of Saudi Business:

The economy of Saudi Arabia had experienced an average annual growth of around 4% in its GDP during the period of 2002-08. Global financial meltdown affected the economy in 2009 but they by 2010 Saudi GDP climbed back to its earlier position (Lippman, 2012). International business relations of Saudi are dependent on their oil and petrochemical industry. They conduct their international business mainly in US and Asian countries. European countries are having a closed market policy which creates barriers for Saudi oil importing firms. The main exporter of oil and natural gas in Europe is Russia (Usa, 2011). However, Saudi is one of the biggest business hubs for some of the European countries.

Saudi is one of the largest exporters of UK and Germany. Saudi also has maximum trade dealings with rest of the world among the Middle East countries. The main export items are infrastructure related and constitute almost 70% of the total export of Saudi Arabia (Stenslie, 2012). In Asia, China is the biggest dealer and the estimated annual trade between the two countries will reach around $60 billion by 2015. The business relation between China and Saudi expanded around 30 to 50% from 2003 to 2008 (Rajhi and Malik, 2012). In 2009, the total figure declined because of the global recession and the amount came around $13 billion. Main imports of China are crude oil and the exports are textile, electrical and mechanical products (Stenslie, 2012).

Another emerging market India also has a strong import export relation with the Saudi Arabia. Like China, the main import item is crude oil and the export items are heavy machineries, medicinal products and other infrastructure materials (O’Kane, 2010). Labour is one the most commonly exported items of Saudi Arabia, skilled labours are brought in from all over the world for promoting and developing the infrastructure and other public utility facilities of the country (Ali, 2011). Investment in Saudi Arabia is increasing and the confidence of the investors are also boosting with the economy of the country.

2.8 Absolute Advantage Theory of International Business:

Absolute advantage theory states that every nation has some natural benefits over other nations. Luo and Tung (2007) explained that absolute advantage theory is the most practical theory as it relies on the specialization of the country and provides it scope for enchaining its corporate relations all over the world. Frederking (2010) mentioned that absolute advantage of a country can be natural or artificial based on the labours and the natural environment; these factors have been negotiated with the growth in technology. Technology has helped the world to develop suitable substitutes for covering up the natural limitations. Dlabay et al. (2010) criticized this point as absolute advantage can also be the availability of skilled labours which cannot be produced or developed by technology. Sadik and Bolbol (2010) emphasised that technology has enabled the business houses to outsource their labours or products and continue to trade in without making new competitors in the market. 

Leung et al. (2007) referred to this theory as inapplicable in the international business as absolute advantage theory has no scope for countries that have advantages in every field or countries that have no absolute advantage at all. McDonald et al. (2010) argued that this is not practical as every country has some needs that has to be fulfilled by some other nations, provided a country has everything it needs then there will be no scope for conducting business with other countries. Hence, the matter of international business does not arise in these scenarios. Luo and Tung (2007) highlighted the fact that absolute advantage theory states the trading partners of a nation are always having deficiency in something. This implies that a country should always deal with inferior countries in order to maintain their advantage. Frederking (2010) pointed the factors that were not considered while assumption of absolute advantage theory. Factors like unemployment and transportation cost are not covered in the theory which makes it unpractical in the real life scenario. 

According to this theory, Saudi Arabia has got absolute advantage in oil and petrochemical industry. Their business partners should have absolute disadvantage in these fields. The prospects of doing business are limited according to this theory as countries such as Russia and other oil producing countries will never come into business dealings as they have advantage over the same thing. This implies that the return provided by Saudi should not be their advantage (oil and petrochemical) but something different than that. Looking from the prospective of the supplier, countries like Russia have better infrastructure and agricultural resources in their countries but won’t be eager to make business as the returns are not beneficial to them. Moreover, considering factors such as transportation costs both the countries would have to find alternatives options for making business transactions. Moving on to the developing countries or emerging markets of the economy, Saudi will face a major barrier as labour is one their main import items.  Considering assumptions of full employment, the emerging markets will have no need for transferring their labour to Saudi. These factors hamper the prospect of international business for Saudi companies but the idea of dealing with countries lacking in advantages will also endure them more profit.     

2.9 Comparative Cost Theory of International Business:

Comparative cost theory was formulated by David Ricardo to answer the questions that could not be solved with the help of absolute cost theory. This theory stated that when a country can produce a good at a lower cost than another country, both the countries can trade with each other. Maneschi (2007) opined that this theory considers factors such as technology, labour skills, management styles and availability of resources. Frederking (2010) pointed on the assumptions of the theory that identifies labour as the only manufacturing cost, trade barriers of the countries are not considered and no transportation cost. Deusen et al. (2008) added that the assumptions of the theory can be partially considered as the production expenses have changed from labour force to technological factors. The trade barriers are reduced because of globalization and FDI but the free market is rare in international business scenario.

Luo and Tung (2007) highlighted that the derivations of the theory does not satisfy the real factors or outcomes in the international market or international business arena. Allocation of global resources will be based on trade relations only countries lacking production of goods in demand in the international demand will be not be able to trade in the market. Bhandari et al. (2008) stated that price of products cannot be equal in the world market as the transportation cost cannot be same; the assumption of absence of transportation cost makes this theory inapplicable in the international business. Leung et al. (2007) explained that cost of products varies according to their production expenses incurred. Considering the assumption that the price of the product will be equal in the world market, it can be evaluated that the production expenses of a particular product is equal all over the world. Hence, the all countries are self sufficient for the products and services. McDonald et al. (2010) reflected that the basic assumptions of the theory are impractical for international business. However, comparative cost theory makes it beneficial as it considers the effects of technology which is dominating the global corporate operations. Moreover, factors like management practices and quality of raw materials are essential in the era of outsourcing and globalization.  

2.10 Opportunity Cost:

Theory of opportunity cost was developed by Gottfried Haberler in 1959 in relation to the comparative advantage of the countries in regards to international business. Mishra and Daly (2007) explained that this theory aids the business firms in understanding the benefits of a business transaction and helps them in evaluating their capability of production and management. Deusen et al. (2008) mentioned that opportunity cost is mainly used for export business between two countries for any particular product. Yamakawa et al. (2008) supported this theory as it analyses the practical conditions of the business world. This theory judges the practicality of the situations of the business houses in relation to the suitability of the deals in international business. Meyer and Nguyen (2009) explained that opportunity cost enhances the business opportunities around the globe. It also evaluates the factors that provide opportunity cost to the other firms or countries. McDonald et al. (2010) explained that in order to find the comparative advantages of the business firms or countries, one should compare their opportunity cost rather than absolute advantages.

The theory of opportunity cost is applicable for the Saudi firms in the international market. This theory will help them in judging the factors that are providing the other firms or countries higher opportunity cost (Chacholiades, 2008). Opportunity cost considers factors that affect the production expenses and other managerial decisions for the organizations. In Saudi Arabia, the opportunity cost for oil and petrochemical is higher compared to other countries, however in infrastructure facilities they are at lower point. The organisations of Saudi Arabia can try to include the technological factors for creating a higher opportunity cost in the international business. Ceramic industry of Saudi is another good prospect that has higher opportunity cost than its trade partners (Bhandari et al. 2008). However, in the current global market conditions all the factors leading to comparative advantage cannot be measured or quantified. Consumer reactions, government tax and guidelines also influence the market demands and production procedure of the product. These factors have not been considered in the opportunity cost theory and it affects the calculation of opportunity cost in the international market (Luo and Tung, 2007). Moreover, technological developments ensured that importing technology and building a skilled work force for operating in the developed market will provide them the needed benefits without creating any trade relations.

2.11 Eclectic theory:

Theory of eclectic paradigm is based on the theory of internationalization proposed by John H. Dunning in 1980. Dunning (2009) explained that this theory emphasises on three major aspects of business namely, ownership, internationalization and localisation advantages.  These three aspects are judged in relevance to the organizational structure. Charles and Chan-Kim (2006) further added that eclectic theory judges all the factors related to international business and does not prioritize among them. Cantwell and Narula (2007) criticised that providing equal importance to all the factors of the theory provides impractical outcomes.  Cantwell and Narula further stated that an organization has to understand the situation and take the measures or steps based in that. Estimating impractical possibilities will only make it difficult for the management to take decisions.

The advantages described in theory are related with the position of the organization and structure of the market. The theory mainly focuses on three elements that are infecting the international business namely FDI, export and licensing (Charles and Chan-Kim, 2006). The ownership advantages are based on the organisational structure and measures the capability of the firm in production, technology and managerial aspects. Localisation is related with the situational benefits of the organisation like labour availability, wages, taxes and government customs. Internationalization focuses on developing better production techniques within the organization rather than creating joint ventures or partnership with other firms. 

Dunning (2001) stated that the factors considered in the eclectic theory of internationalization cover all the major aspects of business and is a complete theory. Charles and Chan-Kim (2006) argued that international business is too big a market for putting it down by any particular theory, the constant fluctuations in the market sceneries changes the equation of business regularly. Cantwell and Narula (2007) explained that the theories of internationalization lacks in one aspect the demand of consumers and affect of consumer diversification are not considered. In the global market, consumers of all taste and preferences exist, for doing business with such a huge consumer base organizations will have to deploy separate strategies according to the needs of the consumer (Luo and Tung, 2007). Moreover, consumer demand is also affected by the availability of competitors in the market. This fact has also been unconsidered in the theory of international trade. Current global market is surging with competition from established players of different industries. Globalization and technological growth has also lowered the barriers of entry into the market. These factors have to be considered before entering into the international market.

2.12 Summary:

The literature review has focused on various theories and details required for operating in the international business. The conceptual framework provides a briefing of the theories and discussion of the issues in relation to international business for Saudi firms. The researcher has explained the situation of the international markets and the challenges existing in the global market. Some factors like globalisation, FDI and technological factors have changed the scenario of the market. Political barriers have reduced alongside the growing competition to provide more space for the enhancing corporate industry.

The researcher also studied the conditions of the Saudi market and its industries in relation to FDI and import export tie ups. Saudi being one of the leading oil producers in the globe has developed a high place in the international oil market. In order to enhance this market scope to other industries, Saudi has to identify and judge the factors that are controlling the current market trends. Observing the theories of international business, the researcher has focused on absolute advantage, comparative cost and opportunity cost theories. These theories reflect the business between two countries and are based on assumptions that cannot be applied in the real world. The theory of eclectic paradigm however focuses on the need of the situation and considers business opportunities among different countries of the world. The researcher noticed that the major flaw or gap in these theories is that they have not considered the influence of consumer demand or consumer diversification in the product or service development of the organizations. 

Chapter 3: Research Methodology

3.0 Introduction:

Research methodology aids the researcher in conducting the study and fulfilling the objectives and aim of the research. Research methodology provides justification about the approach, strategy, philosophies and concepts used by the analyst in the study (Corbetta, 2009). The researcher will evaluate the factors that affect the workings of Saudi companies in the international market. The methodology will lay suitable passage for the researcher to collect primary and secondary data and analyse them.

3.1 Research Method Outline:

According to the nature of research, positivism philosophy is found suitable as it deals with facts based on real life events. The approach to study followed is deductive which concerns testing existing theories. Descriptive research design supports quantitative data collection and analysis which has been dealt with. Use of probability sampling technique along with survey questionnaire helped to collect primary data, relevant to the research objectives.

3.2 Research Onion:

Saunders et al. (2009) explains that layers in the research onion systematically guide to conduct the research step by step. Leedy and Ormrod (2012) have criticised that layers in the onion cannot be applicable to all kinds of research. This is because inductive research starts from observation, but the first layer in research onion shows different philosophies to be used for gaining research information. However, deductive approach has been followed in the current research and the research onion seems suitable to be applied. The following diagram presents the research onion with its relevant elements in respective layers.

(Source: Saunders et al. 2009, p.52)

3.3 Research Philosophy:

Philosophies are used to study and develop knowledge which is relevant to the research. For an academic research, positivism, realism and interpretivism are the parts of epistemology philosophy used according to the nature of research. Positivism believes that true knowledge is scientific which can be organised in lucid & generally accepted ways (Lodico and Spaulding, 2010). Supporting this view, Ellis and Levy (2009) suggest that positivists study social facts in a scientific way that reflects research process used in natural science. Handwerker (2008) criticises positivism and argues that scientific procedure of testing theories cannot be universally applied to social research.

According to Hair and Money (2011), the philosophy of realism deals with the study of objects which are independent of human mind. On the other hand, Toloie-Eshlaghy et al. (2011) opine that interpretivism deals with studying the way human beings understand and interpret the world.

3.3.1 Justification for Positivism:

Positivism is based on studying the real life events and happenings. This study is related with evaluating the opportunities and challenges for Saudi organisations in international business. The data collected for this study should be based on real statistical facts. Realism is considered weak for this study because application of human mind is essential to judge the difference between right and wrong. Interpretivism philosophy cannot be used because research problems cannot be solved only on the basis of human understanding and interpretations.

Being a positivist, the researcher studies the past, present and estimated future facts about Saudi Arabia’s position in international trade. Factual knowledge is also gathered from primary research which are quantitatively analysed. Moreover, positivism supports quantitative data analysis while realism and interpretivism mainly support qualitative arguments (Morgan, 2007).

3.4 Research Approach:

There are two types of approaches used for conducting a research namely inductive and deductive.Inductive research also called building theory starts with observation and followed by data collection & analysis, formulating hypotheses and finally new theory development (Harrison and Reilly, 2011).  As opposed to inductive approach, deductive process starts with the study of existing theories, data collection & observation, testing hypothesis based on primary & secondary data and finally theory confirmation.

Dul and Hak (2012) opine that deductive process is a top down approach and conclusions follow logically from available facts. Johnson et al. (2007) criticises deductive approach by arguing that the scope for knowledge development is not there, as it simply works on existing theories. Inductive process provides scope for new knowledge or theory development which is essential for human & social progress.

3.4.1 Justification for Deductive Approach Selection

Initially, the author studies existing theories on international trade, laws, policies & regulations involved and prepare the literature review. The next step followed is primary data collection & analysis to test hypothesis. Finally, existing theory studied earlier have been confirmed in the form of conclusions. The steps involved for deductive approach are as:

Figure 2: Deductive Research Approach

(Source: Ellis, T. and Levy, Y., 2009, p. 337)

Inductive approach is considered weak for this study because the scope for new theory development is hardly there in this research. Moreover, deductive approach is more flexible, easy, less time consuming and can be conducted with the help of quantitative data analysis.

3.5 Research Design       

In the words of Hair and Money (2011), selection of appropriate research design depends on the nature, kind and objectives of the research undertaken. Bryman (2006) suggested that exploratory design is followed to gain background information about the research subject and used in studies which are informal and unstructured in most cases.  Ellis and Levy (2009) opine that descriptive design helps to conduct a comprehensive study and find answers to research questions relating to what, how, when, who and where.

3.5.1 Justification for Selection of Descriptive Design

Both, exploratory and explanatory designs are considered weak for the study while descriptive design is most suitable. Descriptive design supports quantitative and qualitative data collection & analysis with the help of statistical methods used in the study. The use of visual aids such as tables, graphs and charts also help in describing the primary data in context of secondary data.

The current research about the challenges and opportunities of Saudi companies in international trade needs in-depth study in a scientific way. Moreover, this research has been carried out in a structured manner with a set of objectives to arrive at logical conclusions.  Explanatory design is not suitable because existing theories are available for the topic and justify the research problems. Relevant theories have been critically analysed and explained elaborately in the current research.

Harrison and Reilly (2011) put forward that descriptive design helps in analysing data through organising, analysing, tabulating and describing of the data. The nature of this research study is mainly structured and formal, focuses on the aim, objectives and the questions. Hence, the descriptive design is selected for supporting the formal and the deep analysis for the research of this topic. Limitation of descriptive is that it finds difficult to handle, process, calculate and analyse large bulk of quantitative data. Descriptive design also fails to explain subjective or non-numerical data obtained through qualitative research (Somekh and Lewin, 2011).

3.6 Working Data Type:

The researcher has used both primary and secondary data for gathering and explaining answers of the research questions. Primary data has been gathered from the respondents and secondary has been collected by studying the relevant theories and discussions regarding the topic.

3.6.1 Justification for Selection of Primary and Secondary Data:

The researcher has chosen secondary analyses as it presents the past development in aspects related to the topic. Secondary data also provides valuable information regarding the concepts utilised by the Saudi firms for adapting to changes of the market and operating styles in the global and domestic platform. On the other hand, primary data has been chosen as it aids the researcher in understanding the current situation of the global business place. It explains the problems and opportunities faced by the respondents in managing the companies in accordance with the changes in business practice.

3.7 Research Method:

The researcher has used both quantitative and qualitative research method for analysing the answers of the samples. The researcher will provide questionnaires through emails to reputed organizations of Saudi Arabia and other organisations operating in the international business arena. Researcher, being a positivist believes that quantitative data collected through questionnaire can provide scope for explaining cause& effect relationship between set of variables and test hypothesis.

As Gummerson (2010) has criticised quantitative method by stressing that numerical data is not subjective enough to understand various forms of information such as human behaviour, feelings, emotions which cannot be quantified.  Qualitative data gives the opportunity to the researcher to participate in the research along with respondents and clarify all doubts relating to the research problems (Bernard, 2011).

3.7.1 Justification for Quantitative and Qualitative Analysis:

The researcher will utilise both the methods for analysing the data. Quantitative methods are good for surveying the responses in statistical terms. The researcher could gather the facts and figures by this method. On the other hand, qualitative analysis will provide answers regarding the mental barriers faced by the Saudi companies in operating in the international business.

3.8 Sampling Choice:    

The researcher has used probability sampling in the study to ensure that the samples selected belong to the population related with the subject topic. Sampling probability also provides the researcher equal opportunity to participate in the research (Burns et al. 2008). Non-probability sampling takes huge time and the samples are selected on the basis of availability which is not suitable in this case.

3.9 Sampling Size:

Sample size chosen for this research study is 55 respondents which include international marketing senior executives, professionals, experts, consultants and senior managers working with some of the Saudi multinational companies. Although questionnaire was distributed to 100 respondents, the response rate was   60% and only 55 completed the questionnaire fully and sent back. Five questionnaires were sent incomplete and hence those were not included in the data analysis.

 

3.10 Research Ethics:

The researcher has ensured that the data acquired for the research has been used for academic purpose only. The questionnaire was prepared as not to hurt the emotions of the respondents. Data has not been used for any commercial purpose and the anonymity of the participants has been preserved on request.

3.11 Summary:

Appropriate methodology helps to proceed with the research systematically in context of aim and objectives. This chapter provides the methods used by the researcher to attain the aim and objectives of the research. The researcher has chosen appropriate design, philosophies and approach namely, positivism philosophy, deductive approach and descriptive design. The data will be analysed by using both primary and secondary data types. The justifications for the selection of these styles have been provided in the chapter. It further helps in relevant data collection and analysis to resolve the research questions and reach suitable objective based conclusions. 

Chapter 4: Data Interpretation and Findings

4.0 Introduction:

The researcher has analysed the findings of the primary research in this chapter for attaining a genuine conclusion to the study. The questionnaire was formed according to the aims, objectives and research questions formed in Chapter-1 of the study. The researcher will evaluate and understand the factors that influence the operations of Saudi firms in international business. Data analysis and interpretation helps the researcher in identifying the practicality of the situations and recognize the problems and solutions of the related topic (Ellis and Levy, 2009).

In this research, the researcher has got access to 55 international marketing managers, senior managers, consultants, Experts, business professionals from different international and Saudi firms for gathering primary data. The analyst has conducted both quantitative and qualitative analysis for collecting and interpreting the response of the respondents.

4.1 Quantitative Data Analysis:

Quantitative analysis has been conducted through 55 respondents (mentioned earlier) who work with different companies involved in international business. Questionnaires have been distributed through emails in an online survey. 

Q1. According to you, which stage is Saudi’s corporate technology running through?

Options No of respondents Total Respondents Response %
Introductory Phase 16 55 29%
Process Development 20 55 36%
Standardized Phase 19 55 35%

 Figure 6: Corporate Technology Phase

Answer to the Question:

The question got a mixed response from the respondents. 29% of the people referred the corporate technology in the introductory phase. 36% highlighted it as process development and the remaining 35% stated it as standardized phase.

Data Interpretation:

Majority of the respondents has referred the corporate technology of Saudi in the process development phase. The managers state that apart from the oil and petrochemicals industry all other industrial domains are still in the development phase. Although around 30% of the respondents disagree and put the corporate technology in the initial phase according to the global standard. Looking to the 35% of respondents who have stated Saudi corporate technology to be developed, it can be stated that as the economy is developing and is already among the top countries of the world. As discussed in the literature review, the oil and petrochemicals are no doubt running some most advanced pieces of technology but the infrastructure and health care industries still have to be developed. It can be concluded that Saudi corporate technology is in the process development phase.

Q2. Which sector do you think to be the most appropriate for inward investment?

Options No of respondents Total Respondents Response %
Oil and Petrochemicals 12 55 22%
Infrastructure 15 55 27%
IT 8 55 15%
Ceramics 9 55 16%
Health Care 11 55 20%

Figure 7: Inward Investment Sector

Answer to the question:

The respondents suggested infrastructure to be the most suitable sector for investing in Saudi Arabia with 27%. Oil and petrochemicals and health care came in next with 22% and 20% of responses respectively. 16% of the respondents selected ceramics followed by 15% for IT.  

Data Interpretation:

The respondents preferred infrastructure to be the most suitable for inward investment in Saudi Arabia instead of oil and petrochemicals. Even ceramics have been ranked fourth in the provided options with 16% of respondents going for it. The selection of infrastructure suggests that investors and entrepreneurs are going for the developing sectors rather than already established industries of Saudi Arabia. Although oil and petrochemicals were supported by 22% of the respondents, but there are complications in investing in the oil sector as the Saudi government has strict laws for this particular sector. It seems that infrastructure being the need of the country is the most preferable industry for the Saudi firms. According to the secondary data discussed in Chapter 2, the country lacks in technological factors and still the need of technology was not considered by the respondents, the reason may the influence of business outsourcing.                  

Q3. Do you agree that Saudi Arabia has benefited by joining WTO?

Options No of respondents Total Respondents Response %
Agree 13 55 24%
Strongly Agree 21 55 38%
Neutral 8 55 15%
Disagree 8 55 15%
Strongly Disagree 5 55 8%

Figure 8: WTO beneficial or not in Saudi Arabia

Answer to the question:

Involvement in WTO is being strongly supported by the respondents with 38% selecting strongly agree. 24% went for agree. Neutral and disagree was selected by 15% each, followed by 8% strongly disagreeing to this statement.

Data Interpretation:

Involvement of Saudi Arabia in WTO has been considered beneficial by the majority of the respondents. However, 15% of the respondents consider joining in WTO as non-beneficial. The reason for rendering WTO as non-beneficial can be rendered as barriers for small and medium scale local business houses. WTO has enforced certain rules which create barriers for extracting abnormal profit from the market. However, majority of the respondents have considered WTO to be beneficial for the growth of Saudi business. Inclusion of Saudi as a member of WTO has opened many new markets for the potential business houses of Saudi. Moreover, Saudi market has also been reflected in the global scenario.

Q4. Which countries will be beneficial for expanding the global business of Saudi Arabia?

Options No of respondents Total Respondents Response %
BRIC Nations 27 55 49%
Triads 7 55 13%
Other Third World Countries 21 55 38%

Figure 9: Beneficial Countries for Saudi Investors

Answer to the question:

The most beneficial market for the Saudi investors have been selected as the BRIC nations of the developing market with 49% of the respondents selecting this option. 38% selected other third world countries for doing business and only 13% chose the triads of the established markets.

Data Interpretation:

The respondents chose BRIC nations as the most beneficial market place for Saud investors. The market opportunities are high in these developing countries with new investors pouring in the local industries. A good part of the respondents selected other third world countries for starting the business as there would be less competition and more opportunity for earning profits and enhancing their business. Triads or the established market were chosen by a very small number of respondents as it would be safe for the new entrants to invest in an established market. However, the market opportunities are less in triads compared to the BRIC nations or other third world markets. In case of other thirds world countries the risk involved is too high and the market expenses will be more. This justifies the selection of BRIC nations as the most appropriate market for Saudi investors and entrepreneurs in international business. The literature discussed earlier has also pressed the importance of BRIC nations as the most preferable places for expansion of business.        

Q5. Which will be the most beneficial industry for investing into the international business?

Options No of respondents Total Respondents Response %
IT 3 55 5%
Finance 9 55 16%
Manufacture 12 55 22%
Power 5 55 9%
Infrastructure 13 55 24%
Sports and Media 13 55 24%

 Figure 10: Beneficial Industry for Investment by Saudi Firms   

Answer to the questions:

The responses gathered from the sample size ranks infrastructure and media & sports as the most beneficial industries for investing by Saudi firms with 24%. Manufacturing was ranked next in the line with 22% followed by power and IT with 9% and 5% respectively.

Data Interpretation:

The respondents selected infrastructure and entertainment industry as the most beneficial sectors for investment. Saudi investors have been heavily investing in the sports sectors buying soccer clubs of Europe and Latin America. This trend has fetched huge profits for the investors and has reflected the market and industrial opportunities in the Saudi. Infrastructure is the most sorted after sector in the global market. Most of the countries trying to develop their population along with the technological growth are going for a rapid change in their infrastructural facilities. Manufacturing industries have also gone up with the growing demand of infrastructure development.  These markets were sought to be suitable for the investment. However, finance and IT are considered to the next big thing in the international business platform. In the rapidly growing economy finance industries are enhancing with the support of IT. These industries have ample scope in the international business platform.

Q6. What are the challenges faced by Saudi companies for investing in the global marketplace?

Options No of respondents Total Respondents Response %
Political Barriers 9 55 16%
Technological Barriers 17 55 31%
Financial Barriers 2 55 4%
Managerial Abilities 9 55 16%
Limited Labour 13 55 24%
Geographic Discrimination 5 55 9%

Figure 11: Challenges faced by Saudi Companies in Global Market

Answer to the question:

According to the respondents, the fundamental challenge for Saudi companies in the global marketplace is technological barriers with 31% choosing this option. The next important challenge is labour supply with 24% followed by political barriers and managerial skills with 16% each. Geographic discrimination was selected by 9% of the respondents while 4% went for financial barriers.

Data Interpretation:

The selection of the respondents points towards the most basic fact that Saudi Arabia is still not technologically developed to compete in the international business. This is directly related with the second preference of the respondents’ i.e. limited labour. Labour is one of Saudi’s most essential import items. Saudi firms operating in international market faces a major problem with unskilled labour base, they have to import labour from other countries which adds to their expenses and the scope of revenue gets squeezed. Managerial abilities are hampered as the labour force becomes diverse because of import. Political barriers are more as Saudi has been related to many terrorist attacks and Islamic religious wars called jihad. Geographical discrimination is majorly due to the distance with potential market places. The analyst has explained the challenges and the opportunities faced by the Saudi firms while expanding their business in the international platform in the analysis of secondary data in Chapter-2.

Q7. What kind of challenges is faced by international firms for investing in Saudi Arabia?

Options No of respondents Total Respondents Response %
Legal Restrictions 12 55 22%
Political Barriers 16 55 30%
Environmental Problems 3 55 5%
Lack of Technological Support 9 55 16%
Limited Labour Supply 15 55 27%

Figure 12: Challenges faced by International Firms for investing in Saudi Arabia

Answer to the question:

The basic challenge for global firms to invest in Saudi is getting passed the political barriers. 30% of the respondents selected political barriers. Whereas 27% selected limited labour supply in the country another 22% went for legal restrictions. Lack of technology was selected by 16% of the respondents while 5% stated environment of Saudi is not suitable for doing business.

Data Interpretation:

The respondents stated political barriers as the main problem for investing in Saudi Arabia. The basic reason signified for this is prohibition of investment in oil drilling and refining. However, the government allows importing crude oil and refining it outside the country. Next main challenge is availability of labour in Saudi. This is also related with lack of technological growth in the country. Technological limitations create barriers for training and development of the employees. As the literature reviewed earlier explained that lack of technological growth has hampered the infrastructural development of Saudi and also acts as barrier for operating in the international market. This results in unsuccessful management and supervision. Moreover, lack of technology also increases the operational expenses for firms making it difficult to complete in the market.

Q8. What are the most attracting opportunities for Saudi Companies in global market?

Options No of respondents Total Respondents Response %
Globalization 7 55 13%
FDI 16 55 29%
Rise of Social Media 9 55 16%
Relaxation in Political Barriers 11   55 20%
Creation of Free market economies 12 55 22%

Figure 13: Opportunities for Saudi Firms in Global Market

Answer to the question:

The respondents preferred FDI as the best opportunities for operating in the global market with 29%. Free market economies were chosen by 22% and social media by 20% of the respondents. The Technological growth and globalization were selected by 16% and 13% respectively.   

Data Interpretation:

Selection of FDI by the respondents suggests that Saudi firms are eager to invest in the international market. They can expand their business by merging with foreign firms or creating ventures. Free market economies will allow the entrepreneurs to operate without the interference of the government. The most fascinating choice was the rise of social media. Saudi being a technologically backward country is trying to use the benefits of this new technological tool. The Saudi firms will understand the consumers better by using social media and can frame better managerial policies for surviving in the global market. FDI and globalization directed towards the relaxation of political guidelines in the business sector.

Q9. What do you think is the contribution of FDI in the expansion of international business?

Options No of respondents Total Respondents Response %
Exceptional 33 55 60%
Marginal 7 55 13%
Neutral 15 55 27%

 Figure 14: Contribution of FDI in International Business expansion

Answer to the question:

60% of the respondents suggested FDI played a major role in expansion of international business. 27% of the respondents stated the role of FDI as neutral and 13% opined that FDI played a marginal role in expansion of global business.   

Data Interpretation:

Majority of the respondents supporting FDI’s role in global business highlights the effectiveness and involvement of this policy in the corporate sector. The market has enhanced with organizations getting licensed to operate in foreign lands. FDI has also initiated an upward growing trend in the global economy. FDI has been extensively used to overcome the affects of global financial meltdown of 2007-08. It has aided in enhancing the global foot prints of the corporate firms and also boosted the local business houses providing them a bigger market. However, many other factors also triggered the growth in the corporate sector like technological boom and globalization has also helped in the growth of corporate sectors.     

Q10. The global market is demanding changes in the business scenario. Are you prepared to make any changes in your organization related to your religious issues?

Options No of respondents Total Respondents Response %
Yes 19 55 35%
No 28 55 51%
Can’t Say 8 55 14%

Figure 15: Response regarding religious chasings

Answer to the question: 

The respondents showed a strong negative reaction with 51% voting against any religious changes in the business. 355 were prepared for making changes and 14% were unsure. 

Data Interpretation:

The answer shows that majority of the Saudi organizations are not prepared to make any religious changes related to their business. This is one of the factors for lack of industrial sectors in Saudi Arabia. Even in the corporate sector, most of the organisations have a labour force that compromises and is biased to the Islam labourers. This has created a barrier for firms to grow a work force according to the international business standards. Although some firms are recognizing the importance of creating a diverse work force for attaining a sustainable competitive advantage in the market majority of the corporate sector of Saudi is still in the darker side. Saudi as a strict religious nation creates obstacles for local and foreign business houses for operating in the country.

Q11. What is the aim of Abu Dhabi 2030 taking place in Bahrain?

Options No of respondents Total Respondents Response %
Enhancing International Business and Trade 11 55 20%
Developing Infrastructure of the Country 15 55 27%
Attracting Foreign Investors 17 55 31%
Indentifying Opportunities of  Investment in Global Business 12 55 22%

Figure 16:  Aim of Abu Dhabi 2030 taking place in Bahrain.

Answer to the question:

Above given table indicates that most of the respondents (31%) think that Abu Dhabi 2030 summit will attract foreign investors in the country. 27% of the respondents suggested that the summit will develop the infrastructure of the country. 22% identified the summit as an opportunity for investing in the global business and 20% suggested that this will enhance international business and trade.  

Data Interpretation:

Most of the respondents suggested that the summit will attract foreign investors in the country, it can be evaluated that Saudi business houses and global corporate sectors are eager to invest in the country. The business sector wants to identify the scopes and opportunities in country for expanding their trade in Saudi Arabia. This question got a mixed response from the respondents as all the four options got almost balance selection. The answers suggest the importance of summit in all over development of the business industry of Saudi.   

Q12. Do you think that FDI and globalization are hampering the growth of local business houses?

Options No of respondents Total Respondents Response %
Yes 18 55 33%
No 29 55 53%
Can’t Say 8 55 14%

 Figure 17: Negative Impact of FDI and Globalization in Local Business Houses

Answer to the question:

Majority of the respondents were in favour of FDI in answer to the above question with 53% denying that FDI does not hamper the growth of local business houses. However, 33% agreed that FDI and globalization have a negative impact on the local business entities. 14% were unable to answer this question or chose not to answer. 

Data Interpretation:

Impact of FDI on the local business houses always has been a debateable issue. However, according to the respondents FDI has been beneficial for the local business houses. As new international business entities have entered the market, the scope for merging with them and enlarging the consumer base has also enhanced. New supporting business industries have opened up for transportation and communication facilities along with improved supply and distribution channels. But, local business houses also faced some problems as they saw their consumers shifting on to a larger brand. The author analysed in the secondary data that although FDI has aided business houses in expanding their area of operation and gaining a bigger consumer base, it has also suppressed the growth of many domestic firms. 

Q13. What are the positive effects of FDI in the export and import business of Saudi Arabia?

Options No of respondents Total Respondents Response %
Growing demand of local products in world market 17 55 31%
Growing demand of foreign products in local market 19 55 35%
Increased foreign investment in local market 14 55 25%
Decreasing import in the country 5 55 9%

Figure 18: Positive Impact of FDI in export and import market of Saudi Arabia

Answer to the questions:

35% of the respondents stated that FDI has initiated the demand of foreign products in the local market. 31% selected the opposite option of growing demand for local products in foreign market followed by 25% supporting increase in inward foreign investment and 9% in decrease in import.

Data Interpretation:

It can be analysed that FDI has played a great role in the development of Saudi economy. The business houses recommend that FDI has helped in promoting the local products in the global market arena. Local business houses have benefited from this as they have acquired a larger consumer base. Export of Saudi has grown but, it seems that FDI has not really helped in decreasing the import of the country. 

Q14. Do the guidelines of OPEC create barriers for international business for oil firms of Saudi?

Options No of respondents Total Respondents Response %
Yes 6 55 11%
No 47 55 85%
Can’t Say 2 55 4%

Figure 19: OPEC Guidelines as barriers for international trade.

Answer to the question:

An astounding 85% of the respondents denied that OPEC guidelines are not barriers for international trade. 11% supported this statement and 2% went for “can’t say” option.

Data Interpretation:

According to the respondents, OPEC guidelines are not creating any barriers for international business. They are infect expanding the chances of exporting oil to the European countries where Saudi is still not a major exporter.

Q15. What factors influence the export market most for Saudi Companies?

Options No of respondents Total Respondents Response %
Diversification of Consumers 7 55 13%
Competition from Rival Firms 20 55 36%
Technological Factors 19 55 35%
Political Barriers 6   55 11%
All of the above 3 55 5%

 Figure 20: Factors influencing export market of Saudi.

Answer to the question:

The respondents selected that competition from rival firms (36%) and technological factors (35%) are the most important factors acting as barriers for the Saudi firms. Diverse consumer base was selected by 135 of the respondents followed by 11% in political barriers and mere 5% suggested all the above options. 

Data Interpretation:

The export market of Saudi is mainly affected by technological and competition factor. This suggests that Saudi firms are still lacking in technology that affects their ability to compete in the global market. Moreover, most of the firms target a special group of consumers rather than going for a global consumer base. This also neutralizes their financial and brand building capacity.     

4.2 Qualitative Questions:

Qualitative data analysis emphasise on the non-quantified aspects of the topic (Bryman, 2006). The researcher will understand the psychological and emotional barriers and opportunities by this analysis. A total of 8 managers from the sample size agreed to participate in face to face interviews.

Q1. How FDI and globalization has influenced the operations of firms in the international business arena?

Response:

The participating managers gave a mixed response to this question. Although almost all the respondents gave a positive response stating that FDI and globalization has a positive impact on international business. 2 of them stated that FDI and globalisation had initiated free market economy and also hampered the business of small and medium scale business organizations. Among 8 respondents supporting FDI and globalisation, 3 stated that FDI has encouraged the investors to invest in foreign market and enhance their reach. This has also benefitted the local entrepreneurs as they can outsource their products to other countries expanding their consumer base. 4 respondents stated that FDI has increased the cash flow in the local markets by bringing foreign products to the consumers. 2 respondents stated that FDI and globalisation have a significant contribution in enhancing global currency flow in the market. Small and local entrepreneurs are now able to merge with bigger brands for endorsing their products in the international market.

In case of Saudi Arabia, the respondents gave a common response and market it as potential market for the infrastructure and health care industry. However, 3 respondents describing the negative impacts of Saudi stated that as bigger firms are entering the local market, the consumers are getting pulled towards them. The smaller firms are being neglected which is hampering the economy of the country. The result of this primary research tallies with the secondary data explained in chapter 2. FDI has definitely improved the business scenario, however small and medium scale industries are finding it difficult to match the competition level of the multinational firms and retain their customers.                            

Q2. Is there discrimination in the international business scenario regarding geographic and religious issues?

Response:

The respondents gave an assorted answer to this question. 4 respondents stated that inward or outward investment in Saudi Arabia is subject of religious issues. According to them, Saudi rules and regulations create barriers for outside investors. In some other markets also FDI and globalization impacts are very minimal, religious beliefs of the natives hamper the market growth and the economy. 2 respondents stated that geographic discrimination is visible in international business platform. Main reason is communication and transportation problems. Exceeding cost of operation impede the margin for earning revenues.

Almost all respondents stated that geographical and religious issues are not as harmful to the business sector as cross cultural discrimination. As studied in the literature review section, cross cultural discrimination provides more space for new products in the market but it also provides the local entrepreneurs an added advantage related to the cultural faith of the consumers. 3 respondents mentioned African countries as example of cross cultural discrimination. 1 respondent stated that communication discrimination is more vital than geographic and religious discrimination. They further stated that communication problems with the locals create problems for the multinational or international investors in developing products or services according to the need of the people as they are unable to understand their language and life style.

Q3. What are the most critical challenges in front of Saudi organizations for entering the global business?

Response:

The respondents agreed that there are certain challenges in front of Saudi firms in entering international business. 6 respondents stated that technological barriers are the most important factor faced by the Saudi firms for operating in international business. The corporate infrastructure of Saudi is still in the developing phase making it unsuitable to face the competition in a bigger market.

1 respondent declared political barriers to be the most effective force that prevent Saudi firms from operating effectively in the international market. In case of European countries, this condition can be considered as EU countries import oil and petrochemical products from Russia at higher cost. This hampers the business prospect of Saudi firms as well as other firms importing from Russia also has to suffer the higher price. 3 respondents stated that managerial abilities are one of the foremost reasons affecting Saudi Arabian firms in international business. The managers are not able to tackle a huge and diverse employee base. Relating to the above response, 5 respondents highlighted that lack of skilled and talented labours also act as a barrier for Saudi firms in the global market. The analyst earlier discussed in chapter 2 that as Saudi firms have to import labour from other countries, the cost of operations are increased and the employee base becomes diverse. This creates problems in making managerial decisions regarding the strategic and operational goals of the company. Importing labour also creates other operational problems as they are not familiar with the corporate crowd and style of Saudi firms; they have to be trained extensively before the employees hit the field.     

Q4. Has FDI changed the globalisation scenario by reducing political, legal barriers for export, import business of Saudi Arabia?

Response:  

All the respondents mentioned that FDI has definitely changed the globalization scenario and had an impact on the import export business. However, in case of Saudi Arabia they provided different opinions. Among 8 respondents, 4 opined that Saudi rules have been relaxed after globalisation and FDI came into existence but to a marginal extent. Instead of being one of the most developed economies of the world, Saudi Arabia has limited its potential corporate sector from freely operating in the global market. The respondents also stated that the fact that Saudi is among the top strong economies of the world is creating barriers for the firm as the kingdom is hesitant in making decisions that would allow more power to the corporate sector. Political barriers have reduced for the corporate industries but still the stakes are high for investing in Saudi Arabia. Some other factors such as environmental and technological factors also prevent foreign firms from investing in Saudi. This creates a hostile scenario within the corporate industry heating up the competition in the market for Saudi firms. 3 respondents stated that political and legal barriers have come down rapidly after FDI surfaced in the international business platform. Saudi Kingdom has allowed firms to invest in the oil industry for the refining. However, drilling and filtering is still rest recited in the country for outside investors. The respondents emphasised that the country is recognizing the potential of its corporate sector and the scope for developing its economy. Saudi kingdom is taking initiatives for making the investors and the domestic business houses comfortable in operating in the firm. These steps have allowed the business houses to import technology and export their products to foreign countries building a batter brand perception to the global methodology.

4.3 Summary:

This chapter focuses on analysing the answers gathered from the respondents with the help of qualitative and quantitative analysis. The researcher has explained the quantitative questionnaires with the help of diagrammatic and graphical tools. The qualitative answers have been discussed thoroughly according to the answers of the respondents. The analysis reveals that some challenges for Saudi firms are mainly in related to political, technological and labour factors. The main opportunity lies in investing in the developing markets and understanding the market needs and demands.  

Chapter 5: Conclusions and Recommendations

5.0 Conclusion:

Harrison and Reilly (2011) explained that conclusion represents the understanding of the researcher. The main aim of this research was to identify and evaluate the challenges and opportunities for the Saudi firms in international business. The researcher has studied the theories related to international business and trade and made thorough discussions about the important topics in the international business arena. Gathering primary data and their analysis has also helped the analyst to understand the different factors that affect the operations of Saudi firms in the global market. This chapter will present the effectiveness of the study in fulfilling its objectives and present suitable recommendations for Saudi firms to invest in international business.

5.1 Linking with objectives

Objective 1: To observe the trends in global market economy that provides opportunities for the Saudi companies.

The objective is related with identifying the opportunities for the Saudi business houses in the global business scenario. The researcher has asked some questions related to this objective in the previous chapter namely, question 2, 4, 5 and 8 of quantitative analysis. The respondents replied that factors such as FDI and globalization have presented vital opportunities to the firms of Saudi Arabia for entering the international business. They have stressed on FDI and globalization as the most important factors acting as opportunities for the Saudi firms.

FDI and globalization has allowed foreign investors to expand their reach and gain more consumer attention. FDI has also benefited the entrepreneurs by allowing them to invest in new markets. In Saudi, FDI is a major tool for encouraging international business and trade in the country. Infrastructure of the country is on the developing phase and there is ample scope for foreign investors to bring in new technologies, products and services in the country. Saudi can make outward investment in the developing countries like BRIC nations. These countries have emerged as the most beneficial markets for international business houses. Oil and petrochemical firms are already flourishing in the global market. Other sectors are not that much familiar in the bigger market. Saudi firms have started investing in the sports industry by purchasing soccer clubs of English Premier League. This has reflected the financial and managerial strength of the Saudi investors in the global platform. The factors stated above present opportunities for Saudi firms to invest in the global market. 

Objective 2: To evaluate the challenges for Saudi companies for sustaining in the global market.

The objective is to identify and understand the factors that are creating challenges for Saudi firms in the international business. This objective is reflected in quantitative analysis questions number 1, 6, 7 and 10. Again in question number of 3 of qualitative analysis this question has been answered by the respondents. The respondents replied that Saudi corporate technology is not according to the standard of international business, it is still in the developing phase. The most important factor or trend in the global market place is technological development of the corporate sector. However, Saudi firms still have to develop this element in their technological support system for competing in the international business.

Apart from technological factor, the other challenges faced by Saudi firms are managerial abilities and limited labour force. These factors create barriers as Saudi lacks in skilled labour they have to import labour from other countries. This increases their operational expenses and also hampers their managerial abilities as the employee base becomes diverse. The managers find it difficult to handle the HRM issues of the diverse workforce. Decision making process is fettered especially strategic and operational decisions are difficult to make for a diverse workforce. Political factors and religious, cultural and geographical discriminations also affect the operations of Saudi firms in the international business. Diverse consumer base is another major barrier for firms of Saudi Arabia in the international market.

Objective 3: To highlight the impact of globalization and technological growth in the business activities of Saudi oil companies in the global market.

This objective highlights the impact of globalization and technological factors in Saudi oil industry in the international market place. The researcher has mentioned this objective in question number 1 and 4 of the qualitative analysis. This objective is also highlighted in quantitative questions 3, 9 and 12. Most of the respondents agreed that globalisation and technological factors have improved the conditions for operating in the global market. In the oil industry Saudi is already established player in the global marketplace. The market opportunities have grown with these forces. Technology has aided in building more cost effective ways for drilling and refining oil proving the organisations more scope for profit.

The effects of globalization have lowered the political and legal barriers that were binding the Saudi firms from investing freely and operating in the global market. FDI is another factor that has had a huge impact on the global business scenario. Firms are now able to invest in other countries and business directly. They can also enhance their business merging with organizations of the host countries. The suitability of these factors has allowed business houses to grow rapidly and gain global acceptance. Small and medium scale business houses can also expand their business by merging with the bigger firms. This will provide the smaller firms a larger consumer base and the bigger firms will achieve a new market to operate.

5.2 Recommendations:

International business is a very vast topic comprising of many opportunities and challenges for business organisations. Saudi firms have to overcome certain challenges for sustaining themselves in the international business platform. The researcher has gathered the following recommendations that would help Saudi business entities in the bigger market:  

5.2.1 Inward Investment in Hospitality and Tourism sector:

Saudi Arab is already as established economy in the world. They are operating in the global market mainly with oil and petrochemicals industry. However, the other industries of the country are not as much developed for competing in the global marketplace of international business. Saudi should take advantage of scenic beauty of the country and develop their tourism and hospitality sector. They have a rich culture and heritage which will attract visitors from all over the globe. The challenge for the Saudi firms will be to make the tourists comfortable and also make them enjoy and praise culture of the country. Another problem that will be faced in this sector is regarding transport and communication industry. The transport and communication industry of Saudi is still developing; they need to focus on building better transport systems and infrastructural support for hospitality and tourism industry. 

Tourism and hospitality is the most profitable and growing segment of the leisure industry. Saudi can flaunt its elegance and potential to the world by developing this industry. Moreover, growth in tourism industry will provide the necessary urge for infrastructure development of the country.                      

5.2.2 Outward investment in Entertainment, Finance and Sports industry:

Middle East entrepreneurs are heavily investing in the sports industry, mainly in European soccer. Saudi investors should start investing in these segments. They can gain recognition in the world market as well a better consumer and shareholder base for their organisations. Saudi investors are mostly stuck in investing in oil and other industries of their country. They need to move out of the nutshell to occupy a better platform in international business. This will give them a chance to attract investors in their company and get into other sectors for expanding their business. Saudi firms can invest in other sports sector such as tennis, basket ball, cricket and motor sports. These are some of the most expensive and growing sports sector in the world and are viewed by millions of fans all over the globe. Middle East countries already hosts F1 races, they can also host races like Nascar and safari car races that will attract viewers from all over the world giving their media a necessary boost up.  

Saudi can also boost up their entertainment by broadcasting the beauty of their land and also promote their infrastructural growth in the country. Global viewers will be excited to see a new side of a nation that is mostly known for religious activities only. Saudi media persons should focus on the developing industries of the country rather than oil and petrochemical firms only. This will reflect the benefits of investing in the country and also bring in new technologies for promoting a better and up to date way of life style.

In the financial sector, Saudi should welcome foreign banks into the country that would encourage the public in investing their currency in the global market. This will ensure better cash flow within the internal and external markets of Saudi. Foreign exchange deposit of Saudi will also enhance with this policy. A strong financial sector will also provide more confidence to the investors for making business in Kingdom of Saudi Arabia. 

5.2.3 Corporate Technology Development of Saudi Business Enterprises:

Saudi firms are still lacking behind in terms of corporate technology. They have to acknowledge and apply the technological supports in their business operations that would allow them to gain a sustainable competitive advantage in international business operations. Technological support has helped in accelerating the organisational operations and has reduced the expenses. Saudi firms have to include these technological benefits in their work culture. New technologies like social media marketing, monitoring and supervision tools, performance evaluation tools, digital branding, etc should be involved in the working environment. These tools will help in boosting the brand image of the company and connect to the consumers more effectively. They can also understand the needs and requirements of consumers of new markets in a better way.   

Another major hurdle for Saudi companies is that they have to import labour from other countries. This increases the operational expense and leaves less space for profit. They have to build efficient training and monitoring process for guiding the local employees and developing their skills. This will aid the organisations in getting future leaders of organisations from their country and the scope of controlling the company will remain within the nation.             

 5.3 Limitations and Scope for future research:

The researcher was not able to conduct focus group or any other methods of face to face data collection in the primary research because of time constraint. Some of the questionnaires were not completely answered. The possibility of biasness in some of the answers cannot be ruled out.

International business is a vast field in the corporate sector. It includes all the economic activities of the globe. Conducting a research on this subject requires more time and a bigger sample size. Inclusion of more managers and executives will provide more insight to the study. Moreover, the researcher was not able to gather any responses from members of Saudi Kingdom. It is important to understand the concepts and visions of the ruling family for providing recommendations for growth of corporate sector of the country. Further research can be conducted on the basis of steps that should be taken for promoting the industrial growth of the country and identifying the key sectors of investment for Saudi firms in international business. The aspect of financial sectors can also be included in further studies conducted on this topic.       

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