Dr. Mohamed A. Ramady, Arab News
Publication Date: 
Mon, 2008-03-31 03:00

Premier Saudi companies represent a significant contribution to the domestic economy and affect the livelihood of many thousands in the Kingdom. And yet, something seems amiss. Financial data, concerning corporate equity, sales performance or turnover does not tell us much about a company’s commitment to pursue meaningful innovation and internal R&D programs that often only yields results in the future.

Corporations, like many individuals, are generally risk aversive, and something that promises future gains, as opposed to immediate benefits, is often put on a back- burner. While it is encouraging to note that more Saudi companies are openly stating in their annual reports their financial commitment to R&D expenditures, this is still not the case with the majority of Saudi and Gulf companies. The result is that, unless such an internal culture of innovation and risk taking in R&D is actively pursued, Saudi companies will always be held hostage to external R&D developments and imported technology transfer.

In an increasingly competitive world, this can only lead to a widening in the Kingdom’s ability to compete in the knowledge-based global game. Countries that have been blessed with far fewer natural resources than the Kingdom, such as Singapore, Korea, Japan or Finland have transformed their economies and societies by both encouraging and fostering a spirit of innovation and R&D culture amongst their citizens and corporations. It is not an easy route to take, but, once transplanted into mainstream thinking, then such an innovative spirit takes off under its own momentum and flourishes. The spirit of inquisitiveness and trying to do better takes over, with corporations encouraging and rewarding their employees to excel without fear or punishment for thinking “outside the box”. The employee is then indeed the most precious capital that any corporation possesses.

The difference is that some corporations do mean it, and believe in constant self-betterment, however small. There are those in the Top 100 Saudi Companies who have enthusiastically embraced new concepts of management practice and internal innovation, especially those with Japanese corporate partnerships or dealerships. They have introduced concepts such as “Hoshin Kanri” whereby mid to long-term directions and key responsibilities of management are set, and also by encouraging continuous bottom-up so-called “Kaizen “activity through problem solving. The Japanese believe that this is a key driver of continuous human resource development.

Throwing money at R&D and forcing employees at being more innovative will also not work, if the entrepreneurial culture is not installed in people from an early age. In technologically advanced countries higher standards of living and growth in national income nearly always correlates with countries that encourage such an entrepreneurial spirit from early school days. To fail is not frowned upon, with failure used as a learning tool to encourage even greater efforts to success.

Such changes can only be brought about if a massive commitment to improve education takes place — as well as the nourishing of more than one world-class university to generate a critical mass of qualified labor force and a research and development culture. This requires openness, transparency and incentives for those who contribute to intellectual property development, as well as attracting some of the best academic brainpower in the world to Saudi Arabia. The launching of King Abdullah University for Science and Technology (KAUST) is one bold attempt at breaking the shackles for establishing a science and practical research oriented university in Saudi Arabia, and the progress of this new “model” university will be closely watched by the more established institutions. Already KAUST has signed agreements with leading research institutions around the world to create a new R&D environment and joint collaboration in areas of high priority for the Kingdom.

However, instilling a love of entrepreneurship and risk taking is paramount, given the Kingdom’s emphasis that the private sector has to assume a greater degree of responsibility in diversifying the country’s source of income and more sustained wealth generation. The instillation of such a culture takes time and cannot be bought overnight. This involves Saudi universities taking the lead in encouraging students to establish start-up companies through so called incubator programs, and by encouraging R&D through the establishment of more formal science parks appealing to established corporations and those in their early stage of development. Again the message is clear — innovation and enterprise, even if it means pain at the onset, is the way forward to create an inquisitive enterprise spirit amongst the young.

The overall aim of all these initiatives is to secure continuous improvements in the level of private sector services, based on the premise that private corporations are often more efficient and better run their bureaucratic public bodies. To their credit though, in Saudi Arabia it is often government-owned corporations that are leading the way in promoting more R&D and innovation. Saudi Aramco, Saudi Basic Industries Corp. (SABIC) and Saudi Electricity Co. to name but a few, actively encourage R&D through their dedicated research centers or in collaboration with selected Saudi Universities.

In the final analysis, one must truly believe in the long term benefit of creating such an innovation and R&D culture, because without such a deep seated belief, any program will only be paying lip service for the sake of public relations. Saudi Arabia today has the critical mass in terms of qualified human resources, centers of research excellence, augmented by private sector entities, and a booming economy to sustain a long-term vision of entrepreneurial development. Not to change the R&D culture might be costly to Saudi companies, as they might find out that some of their long held foreign agencies and franchises being moved to more nimble and entrepreneurial competitors. This is the price of globalization.

(Dr Mohamed A. Ramady is visiting associate professor, finance and economics, King Fahd University of Petroleum and Minerals, Dhahran.)

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