JEDDAH, 6 September 2005 — Saudi Arabia is lagging behind the rest of the world in the rate that e-business is being adopted as a marketing tool or way to purchase goods and services.
Businesses in Saudi are proceeding cautiously as they perceive problems both cultural and technology based. The online bug has not caught on with retail companies and few are planning to enter this market even though it has proven to be a successful venture for all who entered it.
According to an economist in a private company in Saudi Arabia, e-businesses are the most efficient and fastest growing form of business making we have today.
The e-business market is still young in Saudi Arabia and the Middle East but is slowly gaining momentum. Economists believe that Saudi Arabia has the potential of growing in the information technology (IT) and e-businesses sector what is needed is the proper infrastructure and foundation.
Some entrepreneurs in Saudi, however, have chosen to take the risk and enter the e-business market. Rubaiyat, a clothing company, and Z-Grocer, a local grocery store in Jeddah, have both began an online shopping service.
“At the moment we have no competition in our market so we are doing really well,” said a representative from Z-Grocer. “We get eight to 12 orders a day, and we have seen reasonable growth in demand since the business started.”
Shopping, in Saudi culture, has become a major feature of family life.
“People think of shopping as a past-time in Saudi Arabia,” said an owner of a clothing company. “The shopping is not done out of necessity but because people have nothing better to do. So If I have an online website I’ll be taking an important part of the shopping experience away from them.”
Officials from a well-known company of electronics services company in Saudi agreed there are five main reasons e-businesses are not taking off in the Kingdom.
First is the banking system in Saudi Arabia. Banks have not developed an efficient online banking system; this means companies cannot quickly check an online buyer’s credit history before they allow a transaction to go through.
The second obstacle is the number of Internet users in the Kingdom. Many businesses are not open to the idea of e-businesses because of the technical difficulties and volume of users associated with the Internet in the Kingdom. The percentage of users in the Kingdom is very small by western standards.
Not all of the population has or want access to the Internet. The number of Internet users is growing slowly in the Kingdom. According to data collected by King Abdul Aziz City for Science and Technology, the number of Internet users in July 2002 was 1,453,000 and in September 2003 the number reached 1,462,000. This is a small increase for one year; according to the official the number of users from 2003 to today would not have increased by more than 10 percent.
Another problem Internet users face is security. An Internet specialist in the Kingdom verified that the current network is not very secure and can easily be penetrated. Therefore, many fear putting sensitive information on the Internet because of weak safety measures and constant fear of identity theft and hackers.
The fourth obstacle is that companies themselves are not interested in e-businesses - a result of low Internet usage.
“I asked a client if they wanted to advertise online,” said an advertising representative in Jeddah, “and the client said no I’m not concerned with the Internet.” Business owners are more interested in other forms of advertisement such as flyers, posters, TV advertisements, said the representative.
The fifth obstacle is that developing and maintaining an e-business is difficult and expensive. “Companies are not willing to spend hundreds of thousands of riyals yearly just to upgrade and update computer software and websites,” said the representative from the electronic services company. Many computer specialists in the Kingdom believe the IT foundation in Saudi Arabia is weak and many companies are accustomed to their old method of business making and are not willing to change. Companies also face technical problems that make online businesses hard to manage. One of these problems is the mailing system in the Kingdom. The system is slow and unreliable.
“Mail that should take a day or two to arrive takes four or five days within the city of Jeddah,” says a business owner. “The mailing system is not developed here it just won’t be able to handle big shipments of packages.” There is also the constant fear many have of the mail never reaching to its proper destination and then having no one responsible for its arrival or loss. This mailing problem comes from unreliability and because many homes do not have easily identifiable addresses, making it hard for packages to be sent directly to homes.
Experience elsewhere suggests that through the Internet people will have easy access to a variety of goods from different sources. This will introduce a higher sense of competition between suppliers, which in turn increases productivity, and efficiency. This leads to better product options for the consumer and higher customer satisfaction. Customers will also no longer be confined to a stores working hours, people will be able to view products on their own time from their homes or offices. E-businesses provide opportunities for new companies to develop and create employment - something that the Kingdom desperately needs. Businesses will also have a wider spread of customers; businesses can therefore expand and grow beyond city boundaries without having to set up a physical store.
According to the Internet Advertising Bureau, a company which represents over 200 leading interactive companies that are actively engaged in and support the sale of interactive advertising, revenues from Internet advertising reached $2.8 billion in the first quarter of 2005. Saudi advertising contributes little to this revenue, said an economist.
However there is no doubt that Saudi Arabia is taking steps to advance in information technology, which will directly help in the development of e-businesses.
According to International Data Corporation (IDC) covering the Middle East and North Africa, IT expenditure in Saudi Arabia was predicted to increase from $1.88 billion in 2003 to just over $2 billion in 2004 - a 6 percent growth. This is a substantial increase in comparison to IT expenditure in UAE which was predicted to increase from $1.04 billion in 2003 to $1.15 billion in 2004 - a 10.6 percent growth and in Oman by 7.6 percent and 12.9 percent in Qatar.
Saudi Arabia needs to advance technologically before e-businesses will be fully embraced. “If trends keep on showing positive signs and Saudi overcomes their obstacles,” the economist said, “there is no reason why businesses in the Kingdom cannot benefit from e-businesses too.”