HOW DOES IT DIFFER FROM DOING BUSINESS IN OTHER ARAB COUNTRIES
K. P. DUDAREV
Saudi Arabia Keywords:, Arab market, oil industry, business negotiations, competitive advantages
What are the qualities of an entrepreneur who is going to work in Saudi Arabia? Ideally, it is probably a manager who has serious professional experience, is fluent in English and Arabic, knows the traditions of Arab countries, their customs and customs, knows how to negotiate, etc. It is almost impossible to find such a person. Therefore, in most cases, company managers have to choose between a well-known experienced builder or a little-known diplomat, journalist, orientalist, translator, etc.
Both options are not perfect: a construction worker usually does not know the language and country, and, for example, a diplomat or journalist does not have professional knowledge of the construction worker. Therefore, at first glance, the best option is the joint work of specialists of both profiles. The disadvantage is the high price of the issue, as well as a very real problem of compatibility of two people with different mentalities, education, and life experience who are forced to work "in the same team".
The experience of large Russian companies with a large number of branches abroad has shown that at the first stage, the choice should be made in favor of an Orientalist who can quickly and successfully implement a complex procedure for bringing a Russian company to the market of a particular Arab country.
This article is part of K. P. Dudarev's forthcoming book "Saudi Arabia: The World Gas Station "or" Laboratory of Innovation and Excellence".
One example of an erroneous approach to appointing a representative in Saudi Arabia is the decision of a large Russian company to send a respected elderly employee who had the title of "Honored Builder of the USSR", but who did not speak English and did not work abroad before, to open a business in this country. Naturally, with all due respect for such a person, it is difficult to blame him for the poor results of his work in the Kingdom of Saudi Arabia (KSA).
The main requirements that a company representative must meet are knowledge of the language, customs and traditions of the Arab world, the ability to adapt to interlocutors of different minds, the ability to look at himself, the company and the country he represents, through their eyes. It is very important to be able not only to see, but also to correctly assess risks, not to fall into despair when the actions taken do not lead to success, the ability to think positively and constructively, changing approaches and tactics of entering the market when circumstances require it.
Here are the words of an English businessman who has worked in Saudi Arabia for many years:
"The Kingdom of Saudi Arabia is an amazing place for business. However, it's easy to get frustrated here if things are moving much slower than you'd like, or faster than you expected. In this diverse society, there is no one right path to follow. However, if you are willing to change your approach, adapt to local conditions, and be courteous and respectful when communicating, you will definitely succeed. In sha'Allah..."
What is the basis of the investment attractiveness of the KSA?
The fact that Saudi Arabia is a very attractive country for investment is indicated at least by the fact that the kingdom ranks first among Arab countries and 14th in the world in terms of foreign direct investment. What determines the investment attractiveness of the KSA?
KSA's market - based economy is the largest in the Middle East and North Africa and is ranked 23rd in the world.
According to the International Monetary Fund, the KSA ranks 3rd in the world in terms of macroeconomic stability.
According to the World Bank's annual report, KSA ranked 12th out of 183 countries in terms of favorable conditions for starting and running a business in 2012. For comparison, Russia ranks 123rd in this list.
KSA ranks 2nd after China in terms of economic development among the G20 countries and is one of the fastest growing countries. So, in October 2011 Saudi Arabia recorded economic growth of 7.1% of GDP, instead of the expected 5.6%.
In the world competitiveness rating for 2011, KSA ranked 17th. For comparison - the rating of neighboring countries: The UAE ranks 27th, Kuwait 34th, Bahrain 37th, and Qatar 14th.
More than 25% of the world's oil reserves are concentrated in the country. KSA ranks 4th in the world in terms of natural gas reserves.
In 2011, KSA's GDP was a quarter of that of the entire Arab world.
KSA is one of the twenty countries with the lowest percentage of government debt to GDP, as well as the twenty countries with the lowest percentage of external debt to GDP.
Gross income per capita, which was $20.7 thousand in 2011, will increase to $33.5 thousand by 2020.
IT'S NOT LIKE EVERYWHERE ELSE
Everyone knows the saying: "You don't go to another monastery with your own charter." When applied to Saudi Arabia and Russian companies, it can be paraphrased: "Do not try to behave here as you do at home, or in other countries, no matter how successful you are there."
Even if a Russian company is successful in a neighboring country, this does not mean that it will be successful in Saudi Arabia, using the same tactics that it used, for example, in the Emirates. The experience of a Russian company operating in Syria or Algeria may hinder rather than help it adapt in Saudi Arabia. Because success in this country can be achieved only when an entrepreneur takes into account the traditions and specifics of doing business in Saudi Arabia as much as possible. If there is no understanding of this, it is better not to waste time and do not try to enter the markets of the countries of the Arabian Peninsula.
One of the main features of business in Arab countries is that the key to success is established personal relationships. If a representative of a foreign company demonstrates knowledge of the Arabic language, and therefore knows the culture, way of life and Muslim customs, is familiar with the basics and history of the Islamic religion, and, at the same time, can answer the interlocutor's questions about certain events in Russia-this causes the Saudi partner sympathy, trust, desire to cooperate, receiving satisfaction from communicating with a highly educated and interesting person. In this case, the distance between two strangers with different mentalities, who have met for the first time and have the intention to cooperate, will be reduced by at least half.
If a foreign businessman does not speak Arabic, is not familiar with the culture of the Arab world, but speaks good English, behaves respectfully, demonstrates a desire to learn about local traditions and norms of behavior, and also shows deep professional knowledge, then mutual understanding will also be established. If, on the other hand, a foreigner behaves arrogantly, tries to show his superiority, treats the local language with disdain (not wanting to learn the simplest words), local customs (for example, the fact that during negotiations the Saudi interlocutor will ask for an apology and take a short break for prayer, or will answer the phone).In this case, the relationship is unlikely to be fruitful, if at all.
A useful tip: do not engage in discussions about religious topics, regardless of how you feel about religion, as differences in these issues can negatively affect your relationship with a business partner. At the same time, when you are in the country as a guest, you should treat the Islamic religion with respect, as, in my opinion, you should also treat other world religions, wherever you are...
BUSINESS WORK AND ... HOBBIES
According to an ancient tradition, Saudi interlocutors usually begin meetings, no matter how serious they may be, with a conversation on general topics - about recent events, local or international, about the weather in the country from which the guests arrived, about how the flight to KSA went, etc. And this is not just a tribute to tradition. Usually this is done in order to "tune in" to the interlocutor, to feel what mood he came with, what is his character, temperament, to understand whether it is easy to deal with him...
Sympathy is caused by the potential partner who listens benevolently to the interlocutor, skillfully supports the conversation, knows how to make a joke on a neutral topic in time. A foreigner who shows impatience and is determined to move on to the main topic of negotiations as soon as possible does not arouse sympathy. I do not like the behavior of a businessman who shows increased emotionality, waving his hands and gesturing excessively.
In Arabia, balance, goodwill, persuasiveness of arguments, and the ability to quickly offer a compromise solution if disagreements arise during negotiations are more valued. In the Saudi tradition-to conduct business calmly, without haste, showing respect for the counterparty. Here it is believed that the days granted by Allah are endless, and what cannot be done today can always be done the next day.
An ancient Arabic proverb says: "Al-Sabr jamil!" - " Patience is beautiful!" The fact is that over the decades of relations with American and European businessmen, Saudi entrepreneurs have accumulated both positive and negative experience. Simply put, decades ago, "grated" foreigners repeatedly deceived Saudi partners, using their inexperience and ignorance of the techniques developed in the West. Hence the extreme caution and slowness in the behavior of the Saudis. In addition, local businessmen should be extremely careful about the fact that the money they use often belongs not to them personally, but to the whole family or even the clan.
And one more thing. For many Saudi business people, business is not only a way to improve their well-being, but also a hobby, an occupation that, in addition to money, brings new impressions, knowledge and moral satisfaction from communicating with new interesting people. Therefore, well-established personal relationships significantly contribute to achieving success in business. Conversely, if personal relationships do not work out, then success is unlikely to come.
It should also be borne in mind that Saudis in general, and even more so businessmen, are very good physiognomists and psychologists who are able to quickly, within a few minutes of communication, assess the character traits of the interlocutor, first of all, the most important thing in business is how honest and decent he is. In this regard, attempts to mislead, ascribe to themselves or the represented company any traits or virtues that they do not actually possess, as a rule, do not lead to success.
Another distinctive feature of Saudi businessmen is their excellent memory. This is probably due to the centuries-old tradition of the Arabs to learn by heart surahs from the Koran and other religious texts, with a long-standing habit of passing various stories heard earlier from mouth to mouth. In other words, for centuries and until recently, information was transmitted and disseminated among the inhabitants of the Arabian Peninsula, as well as the entire Middle East, not through the printed word, but mainly through oral retelling. This is probably why Saudi partners rarely make recordings of conversations, but they are good at remembering the content of negotiations and the agreements reached during them. It should also be borne in mind that almost everything that is said by foreign interlocutors or partners, their promises and obligations, are stored in the memory of their Saudi interlocutors for a long time.
Competitive advantages of the KSA market
There are a number of significant factors that favorably distinguish Saudi Arabia from other Arab and Middle Eastern countries and make its market particularly attractive to foreign investors. They consist of the following:
- a high level of socio-political, economic and financial stability that has persisted for several decades;
- the economy's resilience to the global financial crisis, high rates of economic development - GDP growth in 2011 was 6.7%.
The stability of the Saudi market is also evidenced by the fact that against the background of a general decline in the level of direct investment in the 21st Arab country from $66.2 billion in 2010 to $55.1 billion. - In 2011, investment in Saudi Arabia increased from $28.1 billion in 2010 to $29 billion. - in 2011. Moreover, this happened despite serious financial problems in the United States, Europe and other countries of the world, as well as despite the "Arab Spring" that engulfed a number of states in the region.
The presence of a large number of large and medium-sized projects in almost all areas of the economy, primarily in the oil and gas, petrochemical industries, in the construction of civil, industrial, mining, infrastructure and military facilities. Entire sectors of the economy are being created from scratch, and new cities and industrial centers are being built. According to some sources, the total investment volume for the next 10 years reaches $1 trillion.
Stability of the national currency pegged to the dollar-the Saudi rial is considered one of the most stable currencies in the world.
The Saudi civil and industrial construction market is considered one of the most capacious and dynamically developing in the world. As of 2012, KSA and other Gulf countries account for the largest volume of construction work in the world per inhabitant.
High degree of accessibility - openness of the market for participation of foreign companies with modern technologies. Foreign firms that have passed commercial registration in the KSA by opening their own branch, creating their own subsidiary or a limited liability company with the participation of a Saudi partner (s) have the opportunity to participate in almost all projects for which competitive bidding is conducted, with a few exceptions. Unlike Saudi Arabia, other countries in the region (for example, Turkey and Iran) restrict access to foreign firms only in areas where their own companies are unable to operate, seeking to carry out all projects on their own.
The simultaneous closure of the Saudi market to non-registered foreign companies restricts the number of bidders. For comparison, in neighboring Qatar, the majority of tenders are open to participation of any foreign companies that have passed prequalification for a specific project. At the same time, companies that have proven themselves well during the implementation of the first project are preferred by Saudi customers when selecting contractors for the implementation of subsequent projects.
High solvency and financial discipline, which distinguishes, first of all, the largest customer - Saudi Aramco, and to a slightly lesser extent other government customers.
PROVE YOUR ADVANTAGES AND CONVINCE YOUR INTERLOCUTOR
Businessmen and merchants of the Persian Gulf countries, who have considerable funds at their disposal, are spoiled by the attention of foreign companies. Therefore, when asked "what are you interested in?" or "what do you need?" they usually answer: we have everything... But if you can offer something better, more modern, and even at lower prices, then we are ready to consider your suggestions...
Don't expect them to be immediately interested in your products. Both the individual businessman and state-owned companies in Saudi Arabia need to be convinced of the benefits of the product or technology you are offering by providing visual evidence and evidence. However, in most cases, they are only interested in fully prepared and" brought to mind " products and technologies. Saudi businessmen agree to finance the final stages and "final refinement" only in exceptional cases.
Certification of a new product or technology in the Saudi market usually takes a long time. The largest oil company, Saudi Aramco, for example, has a complex system for passing certification of new products and technologies. Even if the advantages and benefits of new products and technologies offered by you are obvious, and the customer confirms their interest in receiving them, the multi-stage certification procedure takes months, and sometimes even years. At the same time, the certification period depends, among other things, on your perseverance, flexibility, ability to find the right approaches and the right people who can help accelerate progress...
It is necessary to talk about this because some Russian companies, especially successful ones, have illusions that their products and technologies will be "in demand", as they say, once they are offered. In fact, this is rarely the case. In addition, it is clear that along with a complex certification system in the KSA, as in any country in the world, there is also competition among manufacturers and software developers.-
suppliers of goods and services. Therefore, even if your products are very good, those who have supplied similar products before you will try to discredit the new supplier and prevent it from appearing on the market they have already mastered. However, if you manage to overcome systemic and non-systemic obstacles, your perseverance will be rewarded by becoming a "vendor" (supplier, contractor) of the world's largest oil company, and this, along with a stable income, will also be a recognition of the high competitiveness of your company, a kind of international " quality mark".
THE PRICE OF PROFESSIONALISM
What is most appreciated by our Saudi partners is professionalism. If a local businessman sees that his Russian partner is highly professional, demonstrates a good knowledge of the subject, has extensive work experience, and also has a good command of English (the working language of business in KSA is English), this invariably causes sympathy and respect, as well as a desire to work with him and his company. Evasive answers to questions, attempts to "impress" with their education are counterproductive and cause distrust.
Great importance is attached to the external design of presentation and advertising documents - booklets, videos, advertising brochures, etc. The better the paper on which they are printed, the neater and brighter the design, the more expressive and visual the photos, the better and more competent the English language, and the more professional the advertising materials are in general, the more impression they make on Saudi customers and partners. Blurry images, faded, blurry colors, and small, fuzzy printing can greatly spoil the impression not only of the document, but also of the company itself. As the Saudi officials and businessmen themselves admit, they attach no less importance to the appearance of the submitted documents than to their content.
If a foreign company really has something to show, then it is best to include video material in the presentation, accompanied by a text in English. Even better, if a native speaker from the United States or England is reading the texts behind the scenes. Well-organized presentation material - both slides and a video clip, voiced by a real native English speaker-all this has the maximum effect on the leaders of Saudi companies, and on any participant in the presentation. The most important, vivid and impressive materials should be placed at the beginning of the presentation. It doesn't need to start with "the background of the company's creation, a description of the life experience of its creators", etc. As the event progresses, the audience's attention wanes, and if you put the main materials at the end, they may be left without proper attention.
I can safely say this, because in 2003 I myself participated in the creation and conduct of such a presentation at Saudi Aramco, which was attended by almost all the top management of the company, who gave it the highest rating.
It is interesting that a few years later, at a meeting with the president of a large state-owned enterprise created with the participation of the Ministry of Oil and Saudi Aramco, when I started to talk about this Russian company, he interrupted me: "Being the vice-president of Saudi Aramco in those years, I was present at the presentation of your Russian company and I was so impressed that I still remember its contents very well..." During the same meeting, we were offered carte blanche to create a new Saudi company in the field of oil and gas construction with guaranteed contracts for the implementation of major projects with its participation and on its terms...
As is customary all over the world, preliminary agreements and intentions of potential partners in Saudi Arabia are usually recorded in the relevant documents - a Memorandum of Understanding (Moll) or a Letter of Intent (LOI). In most countries, these documents are not legally binding and serve only as a guide for further progress, indicating the goals that both sides intend to strive for. Therefore, representatives of Russian companies are quite easy to sign these documents. And they do it in vain, because in Saudi Arabia and some neighboring countries, a Memorandum of Understanding and a Letter of Intent are legally binding. If one of these two documents is signed, then in case of violation of the provisions contained in it, as a rule, by a foreign company, the Saudi counterparty has the right to sue it, creating serious troubles for the foreign partner that are completely undesirable at the stage of its entry into the Saudi market. Therefore, it makes sense to involve not only a Russian but also a Saudi lawyer in the preparation of any agreements at an early stage.
Other features of the KSA market:
- the right to create companies that are 100% owned by foreign capital;
- an opportunity for a foreign company to own a plot of land and real estate for its own needs;
- no restrictions on the export of capital and profit, currency exchange and foreign exchange operations;
- no taxes other than income tax;
- low customs duties on imported equipment and goods;
- low rental rates for land plots, housing, cars;
- availability on the market of a large number of construction equipment of the world's leading manufacturers for rent, leasing and purchase, as well as the availability of repair bases;
- equal rights and conditions for doing business with local companies;
- ability to transfer current year's losses to future years;
- ability to receive funds from numerous Saudi and international financial programs and funds;
- low cost of gasoline ($0.12 per liter) and other fuels and lubricants;
- low (state-subsidized) cost of electricity - $0.39 per kWh.
WHAT DO THEY KNOW AND THINK ABOUT RUSSIA?
Returning to the presentation made by the Russian company and highly appreciated by the management of Saudi Aramco, it was also useful in refuting the false ideas that existed among the employees of this company, for example, that in Russia "almost all oil and gas pipelines, as well as other oil and gas facilities built... by foreign companies". There are other myths. However, I think this alone is enough to imagine the degree of ignorance of the real state of affairs in Russia, even on the part of those Saudi specialists who, by the nature of their activities, should have an idea of the development of the related oil and gas industry in the Russian Federation.
Despite all the absurdity of such judgments for us, it is hardly possible to lay all the blame for ignorance of Russian reality on Saudi managers. Distorted ideas about life in the Soviet Union and in Russia were born in the minds of Saudis for decades, when the USSR and KSA were on opposite sides of the "barricades" during the Cold War, and then the war in Chechnya.
There were practically no relations between the two countries. People in both Russia and the KSA judged each other on the basis of reports spread by the media - their own and Western media, which were not very keen to present the Saudis as Russians and the Russians as Saudis in the best possible way. Even today, reports from Russia distributed in local media are mostly negative.
Unfortunately, ignorance of each other, lack of reliable information and the associated mutual distrust and wariness still serve as serious moral and psychological obstacles on the way to establishing business cooperation between the two countries.
An important objective reason that slows down the development of business cooperation is the lack of experience in working abroad and entering foreign markets of Russian companies that emerged in Russia after the liberalization of the economy in the 1990s. First of all, these companies have almost no competent personnel for conducting foreign economic affairs. Unlike the well-trained personnel who in Soviet times worked in the system of the Ministry of Foreign Trade (MVT) and the State Committee for Foreign Economic Relations ( SCEC), they were proficient in foreign languages, had communication skills with foreign firms, worked within official state institutions and were mostly engaged in the implementation of contracts signed at the state level with "friendly countries". In the current market conditions, every Russian company must do everything independently from the very beginning in a competitive environment and in a completely new situation.
All-means studying the market, its characteristics and features, determining the degree of attractiveness of various sectors of the economy and the prospects for working in the new market of this particular company. It is extremely important to assess and understand whether there is a niche in this country that a Russian company can occupy, and whether it is actually ready to work in a country like Saudi Arabia. This means whether the company has sufficient financial resources for "Startup", whether it will be able to find enough qualified specialists and managers with a good knowledge of English, taking into account that all tender and project documentation is prepared in English. It goes without saying that technical and commercial proposals of companies participating in tenders should also be submitted in English. Plus, all commercial calculations should be prepared on the basis of detailed knowledge of the state of prices for materials and services, as well as the situation with taxes and other realities in the Saudi market.
"EGG " AND" CHICKEN " IN SAUDI
The main objective difficulty in obtaining a project in the KSA is the need for any bidder to have everything necessary for the implementation of the contract in Saudi Arabia: a complete set of construction equipment, an industrial site for its storage and repair, as well as management personnel with relevant experience and a workforce of at least a hundred people. Often, winning a tender depends on all this. Almost all labor is imported to Saudi Arabia from abroad-mainly from India, Pakistan, Bangladesh, the Philippines and other countries. Saudi citizens do not want to engage in low-prestige and tedious physical labor, so it is impossible to find Saudi workers for the project inside the KSA. The importation of workers from abroad is carried out by recruitment agencies. At the same time, there are more than enough people who want to come to work in the KSA. However, they can only be imported if they have special "work visas" issued by the KSA Ministry of Labor, which may take several months to obtain. The Ministry strictly regulates the process of issuing work visas in order to limit the entry of foreigners to the kingdom, the total number of which reached at the beginning of 2012. 9 million, with the total population of KSA about 27 million.
At the same time, no foreign company that has entered the market can have either labor or equipment in the kingdom until it has received a project for which they may be required.
So, what should a company have first: a project or labor and equipment-an egg or a chicken? Moreover, the project may be received in a year or two, or it may not be received at all.
Answer: the only reasonable solution may be to create a consortium or joint venture with a local or foreign company already operating in the market, which could take over the implementation of the initial stage of the project...
By the way, the huge dependence of the Saudi Kingdom on foreign labor is one of the most intractable problems that create social tension, which it would be good for Russian specialists to get acquainted with in light of the ever - growing migration of foreign workers to Russia.
(The ending follows)
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