JEDDAH, 29 December 2004 — A recent study listed 10 obstacles facing small and medium businesses in Saudi Arabia; these account for 80 percent of commercial enterprises. The obstacles are categorized as financial, administrative, marketing and technical.
According to the report, the financial obstacles are in depending primarily on personal and family funding, receiving financing from suppliers and customers based on high prices and unsuitable conditions in addition to a lack of collateral making them ineligible for financing by financial institutions.
Administrative obstacles include the business being too closely linked to its owner, the owner’s lack of administrative skills, central management, poor educational and vocational training, and inadequate accounting and financial statements.
Marketing obstacles were identified as the availability of alternative products with lower prices, fluctuations in the demand for certain products and not conducting market studies or developing marketing techniques. Technical problems are related to lack of technical support and small business sponsors who train and develop the business to make it competitive.
The report recommends defining what a small and medium business is and consequently establishing a formal organization that supports, finances, trains and manages these businesses and markets their products.
Some small business owners find that they are suffering in the current economy for reasons other than those cited above.
Hassan Ahmad, a salesman in a cosmetic shop in Jeddah’s Basateen Center, said sales had dropped 50 percent this year compared with last year as a result of the increasing number of shopping centers in the city.
For Abdullah Al-Ghamdi, a businessman with four fashion shops, profits had fallen as a result of costs and overheads. He explained that he operated the shops as a group and divided income among the four but that things are still difficult. “We have to pay rents and salaries which takes a large part of the income,” he said.
Lina Bangash, owner and manager of Masinah House, blames high rent. “I don’t understand why, with all these shopping centers opening every day, rents are still high,” she said. “Another problem is advertising. It would cost a lot to advertise properly and a few ads would not necessarily bring in customers and increase sales. I wish there was some kind of regular local publication offering affordable advertising for small and medium businesses,” Lina said. She also mentioned the lack of networking opportunities among small businesses which could help them cooperate.
For Inge Pharaon, who opened the Rosenthal shop off Palestine Street in 1979, the euro exchange rate has affected her profits enormously. Another problem is that many of her clients were expatriates who have now left. During the boom, there were a number of well-paid expatriates who bought quality items from her shop but the Saudi population is generally unaware of these brands. She is trying to attract new customers through end-of-year sale and other promotions, but so far the results have not been encouraging.
Zakia Bushnaq, owner and manager of a hair salon and a real estate project, complained of the lack of regulations and laws to protect the rights of business owners. “There is no permit for a hair salon so you have to open as a tailor shop, which leaves you at the mercy of the inspectors and religious police if they want to cause you problems. As for real estate, we have problems with tenants all the time and it is a real hassle to get anything resolved,” she said.
The problem is that when a new project opens and is successful, everyone immediately jumps on the bandwagon and sets up similar businesses which force prices down — and eventually quality as well. The result is that everyone loses money.
Zakia recommends zoning laws based on market studies; the laws would limit the number of similar businesses in one area. “There should be some government committee that studies proposed projects and directs investors to what is needed and what would serve the community. There is a lack of direction and a lack of information on where to invest and in what,” Zakia complained.
