For years, foreign companies doing business in Saudi Arabia, particularly those selling services or wanting to set up a regional company, chose to be based in Dubai, Abu Dhabi and Qatar, or, in the case of financial services, Bahrain.
From the foreign companies’ point of view it was more comfortable, more cosmopolitan and less of hassle. As to the latter, Saudi Arabian officials candidly admit the bureaucracy was largely responsible. Faced with the relative difficulties of getting staff in and out of the Kingdom — visas, iqamas and the like — and the impossibility of setting up wholly owned subsidiaries, the commercial crowd headed elsewhere. Indeed, in many ways Dubai and Bahrain built themselves up as the Kingdom’s offshore commercial and financial centers.
That is no longer the case. Companies, particularly those selling services, have to have a base in Saudi Arabia.
“The model of flying in and out from elsewhere is outdated. It doesn’t work anymore. It’s a business requirement to be here,” says Martin Chapple of URS/Scott-Wilson, the environmental services company that last summer was awarded the project management consultancy contract for the 449-km Haramain high-speed railway linking Makkah, Jeddah and Madinah.
Being in the Kingdom, as opposed to elsewhere and regularly traveling in, is vital says Christian Falkenstein of BW Engineers, a German company from Baden-Wüttemberg that has been working in the Kingdom for the past three years. It is involved a number of projects in the water, energy, hospital and roads sectors.
“It is 100 percent necessary to be here. Because so much is done in Saudi Arabia by personal contact. If you’re not here, that’s just not possible,” he said.
The same view comes from Herrenknecht, one of the world’s leading tunneling companies. In its most high profile project worldwide, it is the currently drilling its way through the Alps to create the longest rail tunnel in the world — 85 km in all. It too has a full-time operating subsidiary in the Kingdom and its Jeddah-based general manager Bodo Kern says the same about a permanent Saudi presence.
“The most important point is to be located here in Saudi Arabia. It’s not enough to send some people over here a couple of times a year to visit the client. You have to be located here, available for the client — for spare parts, technical advice, for cost advice. It might be different for some other industries, but not for ours. It’s absolutely necessary. “
Aggreko, the international power-generation rental company, has had a permanent base in Saudi Arabia for the past two decades. Being available at all times, and not on just during periodic visits, is crucial to the company’s success in the Kingdom says its area general manager, Anthony Herriot.
“We need to be available for our customers day or night. If one of our customers has a breakdown on a piece of equipment that we have rented to him, we want him to know that he can call us any time. We’ll send someone in the middle of the night. If he has a generator that provides power for air conditioning for his men who are sleeping, or is running a freezer with a lot of expensive items inside, he can’t wait till the next morning. He wants someone out there that night. That’s why we are inside the country and available 24 hours a day, seven days a week.”
Being based in Saudi Arabia helps win further contracts.
“Our clients have been telling us that if you are based here permanently you stand a much better chance of gaining contracts,” says Chapple. “They don’t want companies coming in from elsewhere. They say: ‘The business is here. You should be here.’“
Another British businessman concurs: “Saudis would rather give to companies that are here. In the 12 months since moving here, we have been awarded contracts because of our presence in Eastern Province.”
It is the same from Herrenknecht. Asked if he company gained more work are a result of being here, “sure” is the enthusiastic answer from general manger Kern. Likewise, being in the Kingdom rather than coming in from outside “definitely helps win” contracts says Aggreko’s Herriot.
Some Saudi-based managers of foreign companies point to a specific reason for that.
“There is a different commercial culture in the region. You have to live to here to understand and adapt to it,” explained one European businessman who has been living and working in the Kingdom for 26 years. “You learn when you’re meeting a Saudi customer how he likes to do business. You don’t talk business right away. There are protocols to be observed — having tea, talking, building up a relationship. He is more like a partner than a customer. That is very important. It’s not like in the US or Europe where everything is business-oriented. In Saudi Arabia, you have to create a bond, a relationship with your customer. The person who does not respect those protocols, who rushes in, who goes straight to the business in hand, may not get the contract.”
Conversely, once the trust is there, the willingness to do more business follows.
It is difficult to pinpoint exactly when it became the obvious choice for companies to open a subsidiary or joint venture in Saudi Arabia but it clearly is now an imperative.
Indeed, there are now suggestions that the trend has gone a step further. Increasingly there is a perception in the foreign business community in Saudi Arabia that being based elsewhere can do positive harm.
“Our Saudi customers tell us: ‘Yes, we like the expertise but we don’t want it jetted in when it suits. Why should we have a different service to what other counties get?’” explained one Jeddah-based expatriate businessman.
From a US company in Riyadh with a major government contact comes very specific confirmation.
“We’ve been told that if want to make money here, we have to be based here,” said a company official.
There is an exception to this logistical shift. Bahrain is still seen as the Kingdom’s offshore banking center; financial service companies still need to be there because of issues of getting registration in Saudi Arabia.
But otherwise it is bye-bye Dubai, hello Riyadh. Saudi Arabia now has to be the location for companies wanting to do serious business in the Kingdom.
