Investing In Saudi Arabia

Market Entry Strategy

U.S. exporters are not required to appoint a local Saudi agent or distributor to sell to Saudi companies, but commercial regulations restrict importing for resale and direct commercial marketing within the Kingdom to Saudi nationals and wholly Saudi-owned companies. Depending on the end-user, an American company is encouraged to appoint a local agent/distributor to be able to promote and sell its products/services in Saudi Arabia. It is also advisable for an American company to identify a well established and financially sound partner to pursue government contracts, even though a service agent is no longer required.  Although the Saudi Government encourages foreign investment, a U.S. firm that is evaluating this venue is strongly encouraged to seek in-country legal counsel on the best approach to this option. The Commercial Service can assist by providing a list of local attorneys, which may be associated with U.S. law firms.

Using an Agent or Distributor

U.S. exporters are not required to appoint a local Saudi agent or distributor to sell to Saudi companies, but commercial regulations restrict importing for resale and direct commercial marketing within the Kingdom to Saudi nationals and wholly Saudi-owned companies. Nationals from the Gulf Cooperation Council (GCC) countries, which include Saudi Arabia, Kuwait, Qatar, Oman, Bahrain, and the UAE, are also allowed to engage in trading and retail activities, including real estate. Agent/distributor relations are governed by the Commercial Agency Regulations of the Kingdom of Saudi Arabia that is administered by the Ministry of Commerce and Industry. These regulations are currently still being revised.

In July 2001, the Council of Ministers cancelled a decree compelling foreign companies with government contracts to appoint a Saudi service agent. The old decree also specified a maximum commission of five percent. Some government contracts, however, will require a minimum requirement to subcontract to Saudi companies. In addition, government contracts will include a clause to develop training programs for Saudis.

Terminating an agent/distributor agreement can be difficult even though Saudi policy has changed to permit registration of a new agreement over the objections of the existing distributor. The U.S. Commercial Service, through the U.S. Export Assistance Centers and overseas posts, offers a variety of services to assist U.S. firms in selecting a reputable and qualified representative. Our International Partner Search will provide you with pertinent information on up to six pre-qualified potential Saudi representatives. This customized search will put you in touch with firms that have expressed an interest in representing your product or service.

Another service is the Gold Key Service, which is a personalized and targeted matchmaking service that combines orientation briefing, a profile of each Saudi prospect, interpreter services for meetings, a local Commercial Specialist to escort you to your meetings, and assistance in developing follow-up strategies. Saudi law is based on the Islamic Shari'a and differs considerably from U.S. practice. U.S. firms contemplating an agency or a distribution agreement are advised to consult with a local attorney.

Establishing an Office

The procedures to follow in establishing an office in Saudi Arabia differ according to the type of business undertaken. The most common and direct method of establishing an office is simply to appoint an agent/distributor, who can set up the office under its own commercial registry. The agent/distributor agreement should be registered with the Ministry of Commerce & Industry as previously described. The Commercial Agency regulations govern the agent/distributor agreement.

A second method might be to establish a technical and scientific service office, which also requires a license from the Ministry of Commerce and Industry. This approach preserves the independence and identity of the foreign company's local office as a separate entity from the Saudi agent/distributor. Foreign companies represented in Saudi Arabia may apply for permission to open a technical and scientific service office. Technical and scientific service offices are not allowed to engage directly or indirectly in commercial activities, but they may provide technical and advisory support to their Saudi agent/distributor as well as conduct market surveys and product research.

A third method is to establish a branch office. Under the new Foreign Investment Act, the requirements and procedures for establishing a foreign branch office have been eased. Foreign companies may set up a wholly foreign-owned Saudi branch office to engage in any government contract or private sector work depending on the office license and scope of activities. Foreign companies that are contracted to do work for the Saudi Government must obtain a temporary commercial registration from the Ministry of Commerce and Industry, and then proceed to establish a branch office. Under certain circumstances, a foreign company may apply for a permanent registration if it wishes to engage in permanent business in Saudi Arabia.

A fourth method is to establish a representative (or liaison) office. This is normally granted only for companies that have multiple contracts with the Government and require a local office to oversee contract implementation. Representative offices are not allowed to engage in direct or indirect commercial activity in the Kingdom. Establishment requires a license from the Ministry of Commerce and Industry.

A fifth method is for a foreign company to establish a joint venture with a Saudi firm. Usually, the Saudi business community refers to limited liability partnerships as joint ventures. These partnerships must be also registered with the Ministry of Commerce and Industry and the partners’ liabilities are limited to the extent of their investment in the partnership.

Finally, foreign companies can get a license from the Saudi Arabian General Investment Authority (SAGIA) to set up an industrial or a non-industrial project in Saudi Arabia. SAGIA will license projects under the new Foreign Investment Act, which allows for 100 percent foreign ownership. In addition, foreign investors can open a sales/administration/marketing office to complement their industrial or non-industrial project. SAGIA has a broad mandate on all matters relating to foreign investments in industry, services, agriculture, and contracting.

Costs associated with setting up a business in Saudi Arabia went up in 2006. Utilities rates have remained unchanged but office and residential rental rates have more than doubled, especially for prime locations. A general guide to the current costs of office rental is priced based on location and quality of the building and amenities. It is important to note that the law forbids females in Saudi Arabia, regardless of nationality, to drive motor vehicles. Money should be included in an office budget to provide sufficient cars and drivers for transportation of female family members and staff.

Franchising

Franchising is a popular and growing approach for local firms to establish additional consumer-oriented businesses in Saudi Arabia. Although the franchise market is small relative to that in the United States, it is rapidly expanding in several business sectors. According to a local study, the Saudi franchise market is growing at an astronomical rate of 27 percent annually with investments in excess of $250 million in 2005. The growth in this sector is based on Saudis' desire to own their own business and a widely held appreciation for Western methods of conducting business. Competition is particularly fierce between U.S. franchisers and local and third country competitors in the following sectors: car rental agencies, laundry and dry cleaning services, fast food, and auto maintenance. Franchising opportunities exist in the following business categories: apparel, laundry and dry cleaning services, automotive parts and servicing, restaurants, mail and package services, printing, and convenience stores.

The Commercial Agency Law applies to any franchise agreement, and the Ministry of Commerce and Industry is the government entity that licenses and approves such agreements. Under the new Foreign Investment Regulations, a foreign franchise owner may apply for a license to establish a company with a 49 percent foreign ownership for the distribution of its franchised product(s) that are locally produced. The Commercial Agency Law, however, will not make a distinction between an Area Developer (Master Franchisee) and a sub-franchisee. Either will be considered as being a local agent/distributor of a foreign principal.

Direct Marketing

Direct marketing is not widely used in Saudi Arabia. Personal relations between vendors and customers play a more important role than in the West. Furthermore, many forms of direct marketing practiced in the United States are unacceptable due to Islamic precepts regarding gender segregation and privacy at home. Limitations in the Saudi postal system are also a constraint, however, a new but comparatively expensive mail delivery system was launched, Wasel, which entails delivering mail and parcels to residences. The Saudi Post, moreover, set up a company named Naqel, which is a joint project with the private sector and aims at upgrading Saudi Post competitive capabilities and develop its services. Direct marketing has been conducted on a very limited basis using unsolicited mail campaigns and fax, catalog sales (with local pick-up or delivery arranged), and commercials on satellite television providing consumers in many nations (including Saudi Arabia) with a local telephone number to arrange delivery. Extensive consumer surveys are being undertaken, mainly on behalf of multi-national manufacturers and particularly in the consumer goods sector.

Joint Ventures & Licensing

Under the Foreign Investment Act, a foreign investor may either chose to set up his/her own project or in association with a local investor. If the latter option is chosen, foreign investors may structure their enterprise as a limited liability company, which is the most commonly used approach. By law, limited liability companies must not have less than two nor more than fifty shareholders and must be capitalized with at least SR. 1,000,000 ($267,000). Joint venture companies are a variety of the limited liability company that can be held either privately or publicly. The Ministry of Commerce and Industry approves formation of all joint ventures.

If the foreign investor chooses to set up his/her own business, the amount invested should not be less than $533,000 for agricultural projects, $1 million for industrial projects, and $533,000 for other projects. The Investors Service Center (ISC) at the Saudi Arabian General Investment Authority (SAGIA) oversees all matters related to a foreign investor licensing and registration process. The ISC is intended as a one-stop shop that will assist foreign investors and minimize lengthy procedures. Another very significant change that accompanied the new Foreign Investment Act is the reduction in the corporate tax rate for foreign companies with profits in excess of $26,000 a year. It lowers the maximum rate from 45 to 20 percent and allows companies to carry forward corporate losses for an unspecified number of years.

Depending on the nature of the foreign investment, the Saudi Arabian Standards Organization (SASO) may be involved. SASO is the Saudi authority for establishing product standards for imports and locally manufactured goods. The Communications and Information Technology Commission (CITC) also has authority on imported telecommunications and IT products and services. Recently, the CITC has taken a more proactive role and has published a number of specifications relating to various products and services within its jurisdiction.

The Saudi Industrial Development Fund (SIDF) may be engaged to provide up to 50 percent financing for approved industrial projects, and payback period could be up to 15 years. Market intelligence also is available through the SIDF for prospective investors. Other Saudi Arabian Government entities that may be involved in the process include: Ministry of Foreign Affairs (visas), the Ministry of Interior (residence permits and industrial safety and security approvals), the Royal Commission for Jubail and Yanbu (if the project is placed at the Saudi industrial cities of Jubail or Yanbu), the General Organization for Social Insurance (social insurance and disability payments for Saudi employees), and the General Organization for Technical Education and Vocational Training (training programs for Saudis).

Selling to the Government

In July 2001, the Council of Ministers cancelled a decree compelling foreign companies with government contracts to appoint a Saudi service agent. The old decree also specified a maximum commission of five percent. Therefore, foreign contractors wishing to bid for SAG contracts do not need to appoint a local service agent. Some government contracts, however, will require a minimum requirement to subcontract to Saudi companies. In addition, government contracts will include a clause to develop training programs for Saudis. As a practical matter, U.S. companies seeking sales of goods and services to the Saudi Government are encouraged to appoint a reputable and well-entrenched agent or distributor with experience in the field. U.S. firms considering sales to the Government should request a briefing from the U.S. Embassy concerning the latest situation on payments and how U.S. firms can protect and secure timely disbursements.

Foreign contractors operating solely for the Saudi Government, if not already registered to do business in Saudi Arabia, are required to obtain temporary registration from the Ministry of Commerce and Industry within 30 days of contract signing. Foreign companies also may be allowed to establish a branch office through the new Foreign Investment Regulations. These offices were usually approved only for foreign defense contractors and high-tech companies, while for others, a liaison office may be established to supervise work in Saudi Arabia and to facilitate coordination between the Government and the foreign company home office.

Foreign contractors involved in government projects are required to establish a training program for Saudi nationals. Some government contracts will also require a minimum amount of subcontracting with Saudi companies. In addition, the SAG may favor Saudi-foreign joint venture companies as opposed to foreign firms and will also support companies that use Saudi manufactured goods and services. Some of the growth sectors include:

• The Oil and Gas Sector: Being the largest producer and exporter of crude oil, Saudi Aramco, the national oil company, is augmenting capacity to maintain a surplus production of 1.5 – 2.0 million barrels per day. By the end of 2009,the company will invest in five major projects worth $18 billion to enhance its production capacity. The company is also expanding its Master Gas System, building an NGL recovery plant, a new grass-roots gas plant, and enhancing capacity at an existing plant. Saudi Arabia is one of the top oil exporting countries, and Saudi oil export revenues were expected to reach $194 billion in 2006.

• Petrochemicals: Industry sources believe that more than $70 billion in petrochemical projects are under development. The  evelopment of downstream, value added industry is a cornerstone of the government’s efforts to diversify the economy away from oil and gas. The Saudi Government aims at consolidating the country’s position as the leading bulk petrochemicals commodities producer of the 21st century; as such, a new wave of specialty petrochemical products is being developed, including polycarbonates, phenols, engineering plastics and thermoplastic olefins. Recent projects to produce specialty chemicals include the Saudi Kayan Petrochemical Company complex, which will produce the region’s first polycarbonates and phenols; the mega Ras Tanura refinery upgrade and integrated petrochemicals complex, which will produce more than 300 different products, and the third-phase Saudi International Petrochemical Company (Sipchem) complex, which will produce synthetic fibers. Saudi Arabian Basic Industries Corp. (SABIC) is planning to increase its annual production volume of petrochemicals and steel to 64 million metric tons by the year 2008. The planned expansion at Jubail Industrial City II with around 20 petrochemical and infrastructure projects worth more than $21.6 billion dollars will also bring various opportunities for U.S. petrochemical and engineering companies, as well as to American U.S. manufacturers/suppliers of equipment, parts, supplies, and services related to the petrochemical industry.

• Construction: All trends point to massive investments in the construction sector, with billions of dollars of investment still to come in real estate, industry and the hydrocarbons sector. Oil revenue surpluses are boosting the government budget and overall spending. In 2007, the Saudi Government allocated more than $42 billion for various projects and programs in its 2007 budget. In the private sector, investments in the industrial sector, especially in petrochemicals, will require construction investments reaching more than $500 billion over the next 10 years depending on the project and construction time frame. Like the rest of the Gulf, the kingdom’s construction boom has reached unprecedented levels in 2006 and expected to gain more momentum in 2007 and beyond. Work is available for most companies, but many contractors are already fully booked. Contractors are unlikely to see the boom calm down any time soon, and international contractors are returning to the market. Total banks lending to the construction sector went up more than 36 percent during the third quarter of 2006, from $7.1 billion to $9.7 billion.

• Banking: The Saudi banking system remains one of the strongest and most profitable in the region. By the end of the third quarter of 2006, total assets of the Saudi banking sector went up 13.5 percent, from $195.4 billion to $221.8 billion. Net income surged by more than 41 percent to $7.3 billion during the third quarter of 2006. Eleven majority Saudi-owned banks and five GCC banks are licensed to operate in Saudi Arabia. In addition, licenses were also granted to Deutsche Bank, BNP-Paribas, State Bank of India, National Bank of Pakistan, and J.P. Morgan Chase. So far, only Deutsche Bank and BNP-Paribas are operational. As of January 2007, the Capital Market Authority has licensed 45 foreign and local companies to provide financial services and brokerage services from dealing and managing portfolios to arranging and advisory services. The kingdom’s stock market continued its 2006 losing run into 2007.

The Tadawul All-Share Index (TASI) ended 2006 at 7,933, down by more than half the 2005 record. Trading volumes continue to be extremely high in relation to the number of stocks. At the end of 2006, the total value of traded shares went up by more than 27 percent to $1,403 billion in 2006, while overall market capitalization dropped almost 50 percent in 2006, from $650 billion in 2005 to $327 billion in 2006. - Water & Power: Ample opportunities for Independent Water and Power Projects (IWPP). The first of four IWPP contracts was signed in 2005 for the Shuaiba-3 Desalination plant with a Saudi-Malaysian group of companies at a total cost of $2.43 billion. Saudi Arabia plans to launch ten independent water and power projects (IWPPs) by 2016 at a total investment of $16 billion. The first phase of this plan, to be completed by 2009 at an approximate cost of US$7.3 billion, will consist of three IWPPs:

• Shuqaiq, Phase II - $2.5 billion BOO project to produce 850 MW of electricity and 212 million cubic meters of desalinated water per day. Shuqaiq II will be modeled after the Shuaiba III IWPP project, with similar guarantees and a 20-year power and water purchase agreement (PWPA).
• Ras Azzour - $2.4 billion project to produce 2,500 MW of power and 176 million gallons of desalinated water per day.
• Jubail, Phase III – The project will produce 1,100 MW of electricity and 25,000 gallons of desalinated water per day.

Private investment in this sector is also a key component of the development plan of the two major industrial cities of Jubail and Yanbu. In the summer of 1999, the Saudi government officially approved the creation of the join-stock Water & Electricity Utility Company named (MARAFEQ). On December 20, 2006, MARAFEQ signed a contact with Suez Energy International to develop a Combined cycle gas turbine plant on a BOOT (build, own, operate, transfer) basis in Jubail. MARAFIQ IWPP plant’s capacity is estimated at 2,750MW, and 800,000 cubic meters of water per day. The first phase of the project will deliver 660 MW and 300,000 cubic meters per day starting in summer 2009, with full capacity being achieved in March 2010. Saudi Arabia will need close to $93 billion in investments in the water and sewage treatment sector and another $91 billion for power projects over the next 20 years.

• Insurance: The Saudi insurance sector is expected to double over the next five years from its current level of $1.25 billion. The  audi market is the largest representing one-fourth of the total market value in the GCC region, which is currently estimated at $5.1 billion. Industry sources expect the insurance sector contribution to GDP to increase from 0.5 percent to more than 2.5 percent in 2007. In 2006, the Saudi Council of Ministers granted approval to 13 companies to sell insurance products in Saudi Arabia, with an additional 11 more expected to be licensed in late 2007, while another seven companies are still pending further
  evaluation and review. The Capital Market Authority (CMA) has approved the listing of two out of the 13 insurance companies. All insurance companies have submitted their IPO applications to the CMA in December 2006, joining a constantly lengthening pipeline of firms waiting for the authority’s approval to sell shares to the public.
  
  Currently, insurance premiums are estimated at $300 million and expected to reach more than $1.6 billion in 2008, growing an average of 54.8 percent annually compared to a 7.5 percent real premium growth for the emerging markets. The Saudi Council of Ministers approved the opening of branches of foreign insurance companies to transact business in Saudi Arabia. The Council granted a transition period of three years to rectify the legal status of existing insurance companies to be in compliance with the terms and provisions of the Cooperative Insurance Companies Control Law. The Council of Ministers also decided the formation of a tri-committee to be responsible for the settlement of disputes arising between insurance companies and their clients, or between insurance companies and other parties, and any breach to the monitoring and supervisory rules set for insurance companies.

One of the noticeable developments of the Saudi insurance market in 2006 was the issuance of the law making medical mal-practice insurance compulsory for all physicians and dentists working in the public and private health sector in the Kingdom. The law may also include other categories of health professionals in later stages of its implementation.

• Telecommunications: The telecommunications sector continues to be among the most active sectors in Saudi Arabia. Since its privatization in 1998, the Saudi Telecommunications Company (STC) has been carrying out major telecommunication projects kingdom-wide, gradually taking over this role from the Ministry of Post, Telephone and Telegraph (PTT). In line with its liberalization process, the Saudi Government will be inviting more foreign companies to invest in the information and communications sector, especially in the field of fixed and mobile telecommunications services. Revenues from the kingdom’s GSM market will soar to $2.37 billion in 2007, due to the partial privatization of Saudi telecom and increased competition. A new study projected that the demand for landlines will drop an average of 7.6 percent annually over the next five years, largely due to the migration to mobile service. ADSL and other broadband technologies will open the door to voice over broadband services in the country, and that will help mitigate the effects of the contracting circuit-switched telephony market. The Communications and Information Technology Commission is finalizing plans to issue a third GSM license and a 3G license, two additional licenses to qualified firms to provide data services, a license to provide bulk SMS services, a license for Global Mobile Personal Communications by Satellite, a license to provide automatic vehicle locator, and a license for a mobile broadband satellite service.

Distribution & Sales Channels

There are three major distribution and sales regions in Saudi Arabia: The Western Region, with the commercial center of Jeddah; the Central Region, where the capital city Riyadh is located; and the Eastern Province, where the oil and gas industry is most heavily concentrated. Each has a distinct business community and cultural flavor, and there are only a few truly "national" companies dominant in more than one region. U.S. exporters may find it advantageous to appoint different agents or distributors for each region having significant market potential. Multiple agencies and distributorships may also be appointed to handle diverse product lines or services. Multiple agencies and distributors can present logistical and management difficulties, so often U.S. firms, particularly in the franchise sector, choose to appoint a master franchiser or distributor for states of the Gulf region, which includes Saudi Arabia, Kuwait, Qatar, Bahrain, Oman, and the UAE. However, finding a master regional distributor can be just as problematic as dealing with half a dozen or more for some very small countries and markets as the Gulf States often compete in commercial sectors. While there is no requirement that distributorships be granted on an exclusive basis, it is clearly the policy of the Saudi Ministry of Commerce and Industry that all arrangements be exclusive with respect to either product line or geographic region.

Selling Factors & Techniques

Expatriate managers have had a strong influence in introducing advanced selling techniques into a market that relied heavily on word-of-mouth and established buying patterns until a few years ago. Saudi consumers are increasingly becoming discerning and more sophisticated. Although details of a transaction can be handled by fax, now widely used, no serious commitment is likely to be made without a face-to-face introduction. Business cards are usually printed in English on one side and Arabic on the other. Saudis are gracious hosts and will try to put a visitor at ease, even during arduous business dealings. A large portion of upper and middle class Saudis were educated in the United States or in Europe.

Financing and credit facilities may be offered as part of a sales proposal, usually after a solid relationship has been established. Recently, the Saudi Government approved the Capital Markets Law, which will regulate the stock market and pave the way for a more sophisticated financial market. Foreigners, except GCC nationals, need to find a Saudi partner before they are allowed to engage in trade within Saudi Arabia, but direct sales can be made to Saudi private clients without having to use a local agent.

Many Saudi companies handle numerous product lines (sometimes even competing product lines), making it difficult to promote all products effectively. Saudi agents typically expect the foreign supplier to assume some of the market development costs, such as hiring of dedicated sales staff (especially for high-tech or engineered products), setting up workshops and repair facilities, and funding local advertising. Foreign suppliers often detail a sales person to the Saudi distributor to provide marketing, training, and technical support. Absent such an arrangement, U.S. firms should expect to make frequent, periodic visits each year to support their Saudi distributor.

Electronic Commerce

Internet services are freely available and the main cities have several Internet Service Providers (ISPs) and Internet café's. High speed DSL Internet is also available. Moreover, the Internet infrastructure can now support over one million concurrent customers. When compared to the global volume, E-commerce in Saudi Arabia is significantly low at $150 million. Some of the obstacles that hinder the rapid and smooth implementation of electronic business in the Saudi market include:

• The unfilled (and ever-increasing) demand for bandwidth
• The relatively high cost of an e-business transaction compared to the cost of conducting a voice transaction
• The social adaptation that is necessary for people to gradually understand and use E-commerce
• Consumer confidence in electronic transactions in a still mainly cash-driven society
• The shortage of skillful people to transform to an electronic business model
• The current shortage of interconnectivity in the region’s web sites, and
• The lack of commercial legislation specifically for E-commerce transactions; however, the Saudi Government is putting the final touches on a law for e-crimes. Saudi Aramco, the national oil company, is spearheading the use of e-commerce and also encouraging local vendors to do the same in order to expedite and streamline procurement procedures.

The Saudi Government has allocated more than $800 million for implementing the first phase of e-government project. Four projects for e-transactions were officially inaugurated in January 2007. The Ministry of Finance is planning another eprocurement portal for government purchases.

Trade Promotion & Advertising

Advertising, especially on satellite television, is rapidly expanding. Any commercial has to conform to religious and ethical codes. With some modest exceptions, the female human form is not culturally or religiously acceptable in the media. Saudi monopoly on television broadcasting was infringed with the advent of satellite television, which also forced TV advertising rates to come down.

Saudi companies have opted to run commercials through international satellite TV channels such as the Middle East Broadcasting Corporation (MBC) and Arab Radio & Television (ART). Other Arabic satellite channels that also have proved to be popular in the Arab world include LBC, Future Television, Dubai One TV, Dubai TV, New TV, Channel 2, MBC2, MBC3, and MBC4. Many Saudi companies place commercials on these channels as well as on two pan-Arab news channels, Arabiya and Al-Jazira channels. In addition, two encrypted TV networks each provide approximately 30 channels for an average subscription of $1000 per year. The networks include Orbit Communications and ShowTime.

Newspaper advertising is carried in both the local English and Arabic press, but its effectiveness is somewhat limited by relatively low readership rates. The three local dailies published in English have a circulation in the range of 20,000 to 50,000 copies: Arab News, Saudi Gazette, and Riyadh Daily (Riyadh). The leading Arabic newspapers, with nationwide distribution, have circulation in the 70,000 to 100,000 range: Al Hayat, Asharq Al Awsat, and Okaz.

Other relevant newspapers have lower circulation, and some have only regional distribution: Al Bilad, Al Jazirah, Al Madina, Al Nadwa, Al Riyadh, Al Youm, Um Al Qura, Al Watan, Al-Riyadiya (sports only). Another economic daily, Al Eqtisadiah, has rapidly earned a loyal readership of executives and Government officials. Numerous trade promotion events take place from September through June, with most of them held in the modern exhibit centers in Saudi Arabia's three major cities, Riyadh, Jeddah, and Dhahran. Smaller exhibit facilities are also located in regional centers, and often operate in cooperation with or under the sponsorship of a local Chamber of Commerce.

Most Chambers have a proactive approach to promotion and trade, organizing shows and presentations for individual companies or groups, and have been eager to attract American and other Western suppliers. In addition, the Commercial Service (CS) has a very dynamic annual Trade Events Calendar with Trade Missions, Catalog Shows, Domestic, and International Trade Shows. CS Saudi Arabia office is also very active in promoting and recruiting for trade shows in the U.S. under the International Buyer Program (IBP).

Pricing

The Government maintains a free trade approach and since 1981, the Saudi Arabian Monetary Agency (SAMA), the Central Bank, has pegged the Saudi Riyal to the U.S. Dollar, to facilitate long term planning and minimize exchange risk for the private sector. As such, Saudi importers expect U.S. producers to practice a more stable pricing policy than their foreign competitors. Products are usually imported on a CIF basis, and mark-ups depend almost entirely on what the vendor feels that the market will bear relative to the competition. There is no standard formula to come up with the mark-up rates for all product lines at different levels of the relatively short distribution chain.

Contrary to popular belief, pricing is very important to the average Saudi. Therefore, where there are competitive products, Saudi buyers frequently will compare prices before making a decision. Stability of prices has been a policy of the Saudi Government for years, and inflation has been roughly maintained at very low levels. For the U.S. supplier, some give-andtake is expected in preliminary negotiations. The asking price is usually lowered slightly to entice the client and to bow to the old-fashioned Saudi penchant for bargaining and personal exchange. As leveraged transactions become the norm, Saudis have come to understand that an attractive financial package can be even more interesting than an up-front low price.

Sales Service & Customer Support

Saudi Arabia is a relatively open market, which makes it highly competitive. Brand loyalty and established preferences are less developed than in other countries. Consequently, sales service and customer support is indispensable to win and maintain new clients. Saudis view a foreign firm's physical presence in the Kingdom as a tangible sign of a long-term commitment. Prompt delivery of goods from available stock and the presence of qualified support technicians have become more important, and they influence repeat business much more now than ten or even five years ago. Government agencies usually require equipment suppliers to commit to providing maintenance and spare parts for an average period of three years.

Protecting Your Intellectual Property

Saudi Arabia became the 149th member of the WTO on December 11, 2005. As part of its accession, the Kingdom committed to fully implement the TRIPS Agreement without any transition period. The Saudi legal system protects and facilitates acquisition and disposition of all property rights, including intellectual property. The Saudi Government has acceded to the Universal Copyright Convention; implementation began in 1994. The Saudi Copyright Law was amended in August 2003 to improve protection and to provide for serious deterrent penalties for violators. The government also endorsed the country’s joining the “Paris Convention for Protection of Industrial Property” and the “Berne Convention for the Protection of Literary and Artistic Works”. Moreover, the highest religious authority in Saudi Arabia has condemned software piracy in a “Fatwa”, a religious edict. Though intellectual property protection has steadily increased in the Kingdom, piracy remains a problem.

U.S. firms that wish to sell products in Saudi Arabia should work through their local representative to register their trademarks with the Ministry of Commerce & Industry, copyrighted products with the Ministry of Information, and patents with KACST or the GCC Patent Office. Although these government entities are responsible for IPR protection in their respective areas, any reported incident of piracy or infringement may not entail immediate and decisive action by the concerned government entity. Patent and Trademarks protection and enforcement remain cumbersome and inconsistent. Both the Additional information on Saudi Arabia’s protection of property rights, trademarks, and patents is addressed in more detail in Chapter 6 (Investment Climate).

Due Diligence

In 2001, the Commercial Service in Saudi Arabia reinstated the International Company Profile (ICP) reports. The report will provide detailed information on a specific Saudi company and comments based on information from the U.S. Embassy Commercial Section.