JEDDAH, 26 December 2005 — With the acceptance of Saudi Arabia as the 149th member of the World Trade Organization (WTO) globalization forces are coming in full play in the Kingdom.
As a result, xenophobia is spreading among the business community, especially among owners of small and medium-size enterprises (SMEs) who see in economic globalization and the accession an end to their business success.
The survival of Saudi businesses in the changing business environment, thus, is becoming the major concern, and many small and medium-sized businesses are becoming skeptical about their readiness in integrating with the global economy.
However, Ghassan A. Al-Sulaiman, the former head of the Jeddah Chamber of Commerce and Industry (JCCI) and the local partner of the Swedish furniture giant, IKEA, believes the contrary.
He says that the competitive landscape in the country will not change after the Kingdom’s accession into the WTO for several reasons. Firstly, the Saudi economy has been a relatively open economy prior to its accession to the WTO, and most small and medium-size businesses are accustomed to the presence of large foreign companies in the Saudi market. Many of these foreign-owned operations work through subsidiaries and affiliates even if they do not have full presence and 100 percent ownership, Al-Sulaiman said.
Secondly, large multinational companies (MNCs) that are about to access the market will compete mostly with large Saudi companies because they both operate on the same level. Al-Sulaiman believes that smaller businesses can survive if they play a supportive role to the large companies.
Another reason why large Saudi companies should be affected more than small and medium ones, according to Al-Sulaiman, is that many MNCs might revaluate their joint ventures with large Saudi companies after they are able to have full presence in the Kingdom. Al-Sulaiman points to the possibility that many MNCs might abandon their Saudi partners if the Saudis are not adding value to the company’s operation.
“But even this is good,” he asserts, “because we do not want the continuation of idle Saudi partners whom are benefiting from the joint ventures even if their contribution to the operation is minimal.”
Al-Sulaiman’s views on the joint-venture relations in Saudi Arabia do not differ from that of Amr Al-Dabbagh, the governor of the Saudi Arabian General Investment Authority (SAGIA) and a former colleague of Al-Sulaiman in the JCCI.
“The future of any relationship between a local company and an international one will be governed by the added value brought to the table by both parties, and the performance of both,” said Al-Dabbagh.
He said that the agency system of joint ventures would not vanish from the Saudi business environment as a result to the Kingdom’s accession to the WTO, however, due to WTO membership, “foreign investors no longer require an agent to market their own products, nor is a local sponsor required to license or operate a business in the Kingdom.”
Al-Dabbagh said that even prior to the Kingdom’s accession, the government opened many sectors for 100 percent foreign ownership. SAGIA’s governor has a strong belief, he said, that Saudi businesses will not suffer from global competition, even those that hold monopolies in the market due to the “the added value they provide and their own unique entrepreneurial approach.”
The most worrying issue for Al-Sulaiman is the condition of the Saudi labor force. He argued that the economic boom the country is experiencing will attract a lot of foreign investments that require highly skilled labors. The number of the skilled Saudi workers is small and they will face severe competition between companies to attract them. According to Al-Sulaiman, the shortage in skilled labor plus the increase in demand for them will “increase the salaries substantially of the qualified people, and this will create an inflationary impact on the economy.”
“We have a boom and yet at the same time we have an untrained labor force, restrictions on visa issuance and new companies entering. This mix can be explosive,” said Al-Sulaiman.
In response to the new challenges imposed by globalization and WTO accession, the business community, in recent times, witnessed the transformation of many old small and medium family businesses into joint stocks companies that aims at floating their shares in the stock market. For smaller businesses, the Saudi government is conducting several seminars in commerce chambers throughout the Kingdom to advise them on survival strategies in an increasingly globalizing Saudi economy.