Saudi Market Entry: On localizing global teams in the Kingdom
The Saudi Vision 2030 presents an untapped opportunity for companies to not only serve a population of over 35 million people but also be part of building the future of Saudi Arabia. Surely, this translates to hyper-growth opportunities across virtually every industry.
The level of transformation and investment presented under the Saudi Vision 2030 has opened Saudi’s economy for global expansion interest, with the number of companies expanding or showing interest in scaling to the Kingdom has been increasing at an accelerated rate.
In the construction sphere, for example, the Saudi market is currently open for more than 400K units to be built using high-tech and modern methods by 2025. With $300Bn in total spending on the construction sector over the past 5 years, there’s an opportunity for global and regional construction and support operations to shape some of the biggest projects in the world including the Riyadh Metro, the Red Sea Project, and the building of futuristic regions including AlUla and Neom.
Last year, we observed the first Saudi Megadeal ($100M+) by cloud communications developer Unifonic, which was also the first investment by global giant SoftBank in Saudi Arabia. This came in parallel with a 17% YoY growth of the Saudi e-commerce market, generating $7.7Bn by the end of 2021, to rank as the 27th largest e-commerce market in the world.
Fueled by digitally-driven governance and diversified economic planning, Saudi Arabia has also seen spikes in internet connectivity across the Kingdom. By the end of 2021, Saudi’s internet penetration has signaled positive growth to cross the 95% mark. This provides a striking opportunity for digital players such as e-commerce, and online payment as well as grows the need for data-driven solutions such as API integrations, and B2B SaaS solutions.
As companies of all sizes and sectors maneuver to establish their presence in Saudi, learning the intricacies of expansion becomes of utmost importance. Here are some of the many on-ground insights from our Saudi Expansion team that will be useful:
Foreign ownership with a local drive
Saudi Arabia has been rolling out incentives and infrastructure enhancements for global & regional players to set up in its market. While the opportunity for a 100% foreign-owned company to set up and operate in the Kingdom was far-fetched some five years ago, today the Kingdom is providing impactful openness and flexibility for global contribution. Surely, as we’ll find out through the rest of this overview, having local partners will provide a plethora of advantages throughout the setup cycle. To this avail, and while many variables are considered, the simple premise for foreign-owned players to enter the market is the following:
For a company to expand to Saudi Arabia, it should be a branch or an LLC of a parent company that has been operating outside the kingdom for more than 1 year with a proven healthy financial standing.
This premise brings forward many unprecedented possibilities and is driven by further incentives in different scenarios, which include boosted support if the company moves or sets up its headquarters in the Kingdom. However, the biggest win at hand is the localization of fully foreign-owned companies, where virtually, Saudi Arabia considers every successfully expanded player as a local compartment and values them as one of their own local players, aside from unique requirements applicable across industries.
Leveraging local networks for effective expansion
The process of setting up in Saudi has many steps (20 steps as per the AstroLabs entry methodology) over the course of 3 main stages. The process engages with a range of government entities including the Saudi Ministry of Commerce, the Ministry of Investment in Saudi Arabia (MISA), the Ministry of Human Resources and Social Development, and the Zakat, Tax and Customs Authority (ZATCA).
It also includes registration in a plethora of portals including the Muqeem Portal which facilitates visa and entry permits, the Absher portal which connects Saudi citizens and residents to a network of interconnected governmental services, and the Qiwa portal which allows engagement with the Ministry of Human Resources and Social Development in Saudi Arabia.
While the intricacies of a Saudi expansion seem complicated at a first glance, engaging local networks will make for a seamless expansion; where a PoA (Power of Attorney) and local address become two of the most vital and helpful tools for companies looking to front-run their expansion into the Kingdom. Having teams soft land at our offices in Riyadh has alleviated many of the potential challenges in the setup process exponentially. Even further, this enhanced their growth strategy, as operating from a physical office remains one of the most important assets for their first few years of scaling.
Saudi Arabia, the GCC, and the rest of the MENA region have had many enriching interactions, and most are passing through similar tides of digital transformation and economic diversification tailored to fit their market. Last month, the Dubai Ministry of Economy and Tourism announced the second phase of its Entrepreneurial Nation program under the scale-up initiative.
While Dubai has extended its outreach to emerging markets, Saudi was on top of the mandate where AstroLabs was officially assigned as an expansion partner for UAE-based companies to expand into the KSA. On the other end, Saudi Arabia has imprinted the GCC flexibility into its expansion infrastructure.
If there is any great lesson we can take from the ongoing historical #fifaworldcup2022, the globally renowned #expo2020dubai, or the highlight #AlJanadriyahfestival – aside from the power of sports and tourism to bring together cultures from across the globe in heterogeneous harmony of mutual value and respect – it is that the growth of any market inspires and directly enables the growth of its surroundings; we also take this moment to reflect on the nature of digital technologies born anywhere around the world in enhancing global industries.
On Finding Your Local Heroes
As with entering any market, the need for local communicators and facilitators becomes pivotal for the success of your expansion. In Saudi Arabia, finding your local champions is a cornerstone of your scaling strategy. On one end of the spectrum, hiring Saudi nationals, for example, is a prerequisite to operating under the Nitaqat program, the official national policy to grow local integration in foreign-owned businesses.
The Nitaqat program provides a framework for expanding players to leverage the local potential of the market. On a high level, the Nitaqat Saudization rates assess the balance of international to local staffing, where generally a 3/1 ratio applies (3 international hires for every Saudi National Hire). However, these rates are calculated and assessed on a case-by-case basis, depending on a mix of variables including the type of activity, the full size of teams, and the mode of staffing for individual employees. Furthermore, some positions like Director of Personnel, Director of Labor Affairs, and Senior HR Managers are reserved for Saudi Nationals.
On another end, having local champions who understand the legal frameworks and could foresee any possible roadblocks can save valuable time and resources. Our partnership with MISA, for example, allows businesses to directly engage with the right stakeholders for effective progression in the setup process. Here, we also dive into proactive servicing- where our teams would already be accessing and identifying top local talent even before completing the final stages of setup. This forward-looking method has always been a winning card for the companies we’ve helped expand into the Kingdom.