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International Business Roll No.

108
Assignment No.1 Aditya Chaobal
1. Why is Saudi Arabia an important country for MNEs? Comment on Saudi Arabia's location,
its impact on Saudi Arabian culture.
Following are some of the reasons for because of which Saudi Arabia remains strategically
important for MNE’s in the world.
a. Oil reserves: Oil reserves in Saudi Arabia are largest in the world with an estimated 267
billion barrels. This is about one fifth of total estimated gas reserves in the world. They
produced 9.2 million barrels per day in 2009. Presence of oil makes it a very rich
economy with a lot of spending power.

b. Economy: Its GDP is estimated to be around 619 billion and its per capita income is
around $23,701. This presents ample opportunity for the MNE’s to try to cash in on this
rich middle class.
c. Untapped market: Culture in Saudi being predominantly a conservative one, has resulted
in less penetration of modern world business ideas and opportunities. Concepts like
lounges and other life style items have just started to enter their market. With huge
spending power, Saudi becomes a very mouth watering option for MNE’s worldwide.
d. Location: It is located in a very strategic location with presence of a huge coast line and
ports. Compared to its neighbours, it has more stable governance and situation is calmer
here. This presents favourable conditions for MNE’s to operate for and in Saudi for its
operations in Saudi and nearby countries.
e. Infrastructure development: Saudi Arabia is poised for massive expenditure in
infrastructure building. Hence MNE’s from UK are vying for these projects, so are other
MNE’s.
f. SAGIA (Saudi Arabia General Investment Authority) are intending to bring Saudi into
the World Bank list of the 10 most competitive world economies by 2010. Many see this
as an indicator that Saudi is becoming integrated into the world market, rather than
remaining a sleeping giant.
g. Saudi Arabia has cities Mecca and Medina. They are considered very holy cities in Islam.
This provides a huge opportunity for tourism which could be cashed by MNE’s.
h. Easing up to the world: Globalization has resulted in Saudi Arabia adapting to the world
ideas for business and other wise. People there are slowly adopting new ideas. This
presents MNE’s to introduce Saudi to their work culture and system.

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International Business Roll No. 108
Assignment No.1 Aditya Chaobal
The neighbours of the country are Qatar to the east; Oman, United Arab Emirates and
Yemen to the southeast. Jordan is to the north and Iraq and Kuwait to the northeast. The
two water bodies around the country are Red Sea lining almost all of the western border
and Persian Gulf to the east. Its neighbours are predominantly Islamic nations and hence a
huge influence in Saudi Arabia’s culture. It is also an Islamic country. Presence of Mecca
and Medina imparts importance to Saudi in Islam and thus in Islamic countries. It has an
absolute Islamic monarchy. Currently Abdullah is the king of Saudi Arabia. It is governed
by Sharia law and they consider Quran as their constitution.

2. State & explain any 12 cultural traits of Saudi Arabia. What is the extent of cultural variation
within Saudi Arabia? Why?
Various traits of Saudi Arabian culture are as follows:
a. Conservative regarding Woman rights: Rule regarding what women can and cannot do is
very rigid. Especially where males are present. They are not allowed to drive, shop alone,
etc.
b. Pork products and alcohol are prohibited in Saudi Arabia. In case if authorities find out
any such things, MNE’s stand to lose their working licenses. Individual breaking of these
rules are subject to very harsh punishments.
c. Working of MNE’s and other businesses are adjusted according to period. For example,
in Ramdan, business is normally done in the evening.
d. Saudi Arabian people are not very punctual and meetings often start late with respect to
scheduled time. They indulge a lot in idle chitchat. European and US people find this
insulting and wastage of time.
e. Punishments like beheading or cutting of hands often are done in public and people are
forced to watch it so they know the consequences of breaking the rules. Homos sexual are
beheaded here.
f. Loans given in Saudi Arabia are interest free as it is considered un-Islamic to charge
interest.
g. Issuing insurance until recently was not allowed.
h. As is seen in their naming conventions, Saudis are cognizant of their heritage, their clan,
and their extended family, as well as their nuclear family.
i. Most Saudis wear long white thobes. You would be expected to wear a suit.
j. Gifting is a very important part of their culture. Saying no to the gift would mean
insulting them. Also when any eatables or drinks are offered by them, it is considered
rude to refuse it. Care needs to be taken to convey this message in order to avoid
misunderstanding.
k. Saudi Arabian dress strictly follows the principles of hijab.
l. Enjoying movies and music in public is not allowed. It is just recently that h=they have
started screening movies publicly.
Above are some of the traits of Saudi Arabian culture.

Cities like Jeddah which are situated near ports have more contact with outer world and
are less conservative as compared to cities situated in the interiors. Dress code in Jeddah
is more relaxed as compared to other parts of Saudi. Hence cities near ports are initially
targeted by MNE’s. Then as people warm up to new ideas, they move towards interiors.

3. Outline the difficulties MNEs face for market research in Saudi Arabia? How do MNEs deal
with these?

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International Business Roll No. 108
Assignment No.1 Aditya Chaobal
Market research is difficult in Saudi Arabia because of following reasons:
a. Customs limit male and female interactions.
b. Home is considered as private and questioning about it is considered rude and invasive.
c. Similar dressing makes it tough for marketing teams to identify economic status of the
people.

Following solutions are implied by market research firms to counter above problems.
a. Take permissions to interact with the whole family, woman included.
b. Try to limit the questions so that they are not offensive or considered as rude in any way.
c. Features like beard, accessories which are used by people are taken as indicators of
economic status of people. Accordingly market is gauged for potential customers.
d. Local people who have know how of the market and the people are employed and
consulted for the same.

4. What was the business model of java lounge? What key actions owners of Java lounge took
for its success?
Following were the features of business model of Java Lounge:
a. This project was initiated by 4 people. Java lounge was an upscale 250 seat establishment.
b. Entire staff was male.
c. During daytime, men coming without female were made to use a different entrance and
sat upstairs where they could not be seen by the families and female group on the floor. In
the evening time, only families were allowed inside.
d. Pork products and alcohol were not served. Also live music was also prohibited.
e. Any violations of above rule would result in cancellation of licenses for Java lounge.
f. Saudi Arabia strives for economic growth and they interact with foreigners for the same.
They needed a place like Java lounge to interact with the foreigners.

All said and done, the people in Saudi wanted a restaurant offering western amenities,
adjusted to suit their culture. A huge niche market was available for the same and hence
Java lounge is such a successful venture. Above were some of the features of Java lounge
and various steps they took in order to make this venture a successful one.

5. Comment on Saudi Arabia's politics, legal environment & political risk.


Political environment in Saudi Arabia:
a. There is absolute monarchy in Saudi Arabia where the king is the absolute head of state
and government. Their current king is Abdul-Aziz Al Saud.
b. Decisions are made by the senior princes and final authority lies with the king.
c. Quran is the constitution of Saudi Arabia and it is governed by Islamic Shari’a law.
d. There are no political or national parties in Saudi Arabia. Elections were held for the first
time as recently as in 2005.
e. King’s powers are governed by Shari’a law and Saudi traditions.
f. Saudi kings have gradually developed a central government. They have a national
consultative council which is composed of 150 Saudi citizens. The council of ministers
appointed is responsible for policy formulation and other bureaucratic activities. This
council has limited power and is controlled by the king.

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International Business Roll No. 108
Assignment No.1 Aditya Chaobal
Legal environment in Saudi Arabia:
a. They consider Quran as their constitution and they are governed by Islamic law.
b. Courts follow Sharia law and court exercises it over whole of their population.
c. Smaller issues are solved in summary courts. They too are governed by sharia law
d. Saudi legal system can give capital punishment. Theft is punishable by amputation and
murder or homosexuality is punishable by beheading of the culprit. This beheading or
amputation is often done publicly and people are made to watch it so that they can see the
consequences of the illegal activities.
e. Women are not allowed to travel without permission of a male.
f. Loans have to be given interest free as it is considered un-Islamic to charge interest.
Instead, they can ask for share in profit or shares, etc.
g. They have little or no formal criminal code. Criminal laws are through kingdoms
adherence to Sunni Islam.
h. Their national legislation comes from Saudi Council of ministers. It should be in
adherence to kingdoms interpretation of Sharia law.
i. King acts as highest law and he has the power to pardon the crime.
j. Religious police named Mutaween are used to enforce Sharia law.

Above political and legislative factors present a great challenge to MNE’s in order to
operate in Saudi Arabia. These factors present politically risky environment. Risks
involved include sudden changes in policies, constrained operational freedom, etc. New
ideas have to be tested thoroughly and cautiously interwoven in Saudi’s system.

6. What are the guidelines MNEs should follow for sustained success in Saudi Arabia?
It is difficult to derive fixed systematic steps to be followed in order to succeed in Saudi. But
following certain guide lines can certainly increase the chances of success. Some of the
guidelines are as given below:
a. Patience: Saudi people like to know the people with whom they are going to do business.
This slow behaviour towards business should not be taken otherwise. Also they should be
given freedom towards time so that they won’t find MNE’s behaviour rude. Patience will
surely reap big rewards as they are believed to have fixed loyalties.
b. Avoid raw deals: Saudi people even though rich are known to go only for good deals.
They should be offered value for money deals.
c. Punctuality: Saudi people like punctuality, but don’t enforce it. Punctuality is not a norm.
Also they themselves are not very punctual. It is common for a meeting to start late with
respect to the scheduled time. This should not be taken as rude behaviour.
d. Show respect: It is important for the MNE’s to understand the culture of Saudi Arabia
when they are operating there. Certain actions which might be normal in other parts of the
world might be considered rude here. Care should be taken to avoid misunderstanding,
because of this.
e. Lunch or dinner: Saudi people don’t talk much while they eat. They do have a talk before
lunch or dinner but not during it. They believe in enjoying their lunch without any
hindrance. So lunch meetings should be planned accordingly.
f. Prayers: MNE’s need to take care of their working hours according to period of the year.
For example, in holy month of Ramdan, working in the evening should be avoided. Also
they need to adopt accordingly if their operations involve interaction with people over
there.

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International Business Roll No. 108
Assignment No.1 Aditya Chaobal
g. Religious sentiments are one of the most important factors which should be given due
importance. It often is one of the main issues discussed when strategies for Saudi are to
be derived.
h. Woman: Care must be taken to the extent up to which women are to be included in the
staff or how they need to be dealt when they are prospective customers.
i. Privacy: Saudi people consider home related issues very private. They should not be
asked about the same unless you have permission to do so.
j. Religious sentiments regarding food, drinks should be respected.
k. Foreign staff should be given a head start about the kind of cultural shocks they might be
subjected to.
l. Gifts given by Saudi people should not be rejected. This is considered as rude. Also they
expect return gifts. So foreigners should be ready with the same.
m. Way of greeting each other should be learnt by foreign nationals who are working in
Saudi Arabia.
Above are some of the guidelines that MNE’s should follow in order to operate in Saudi
Arabia without problems and increase their chances of success.

References:
1. Wikipedia
2. International Business by John Daniels
3. www.executiveplanet.com

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