Saudi Arabia Market Ready For Take Off Economics Essay

Are there any concealed premises or monetary value rigidnesss in Saudi Arabia that might suppress market force indexs from uncovering the true economic wellness of the state, thereby either preventing authorities policy actions from rectifying the jobs or otherwise doing them uneffective and counterproductive? How hard is it to put and repatriate net incomes and how would you cover with the demand for educated directors and executives that can run efficaciously in Saudi Arabia? 2

2.What is the current domestic and international economic state of affairs in the state comparative to outdo public presentation steps for that state? 3

3.Is Saudi Arabia presently following appropriate economic policies from a domestic every bit good as international position? Provide back uping justification for your reply? 6

4.If you recommend that WCC proceed with the determination to put in production and distribution installations which scheme would you suggest they follow from among those we have discussed? Explain and warrant your recommendation. 7

Bibliography I

Executive Summary

Saudi Arabia is a immature populated land. 96 % of the population is under age 60 and among them 35 % are under age 15. More than half of the population earns their life from service sector ( 72 % ) . Industry comes in the 2nd topographic point ( 21 % ) . Saudi Arabia ‘s aspiration is to take portion in top 10 most competitory states ranking.

Saudi Arabian General Investment authorization ( SAGIA ) which aims to make healthy investing environment is the lone go-between between Saudi Government and investors. For this ground, investors can reach this establishment and acquire elaborate information and aid. In way of Saudi Arabia ‘s aspiration on fight, SAGIA established coactions with governmental and private establishments in order to be best environment for the FDI ‘s in footings of international Torahs and policies. With the recent developments, Saudi Arabia besides accommodates success narratives from Batelco ( Bahrain telecommunication Company ) , SAP, Cisco ( web academy plan ) .

SAMA ( Saudi Arabian Monetary Authority ) is responsible for the executing of the pecuniary policy of Saudi Arabia. Since Riyal is pegged to US dollars, while SAMA needs to follow US pecuniary policies, it besides needs to modulate the domestic economic system.

Saudi Arabian economic system developed beautifully due to increasing oil monetary values and exports in 2008. However, in the undermentioned twelvemonth, the universe confronted with economic recession. Oil monetary values and exports felt down. Since Saudi Arabia ‘s economic system based on oil monetary values, it was one of the states impacted by planetary crisis. The authorities boosted domestic substructure undertakings in order to cover with economic recession. The authorities needed to equilibrate the pecuniary and financial balances. In order non to be impacted by that sort of crisis in the hereafter, the authorities wants to diversify its export grosss. Therefore, they figured out new investing countries and wanted to pull FDI ‘s. The authorities provided inducements for FDI ‘s. However, the state was in deficit of qualified employees and directors.

WCC will necessitate to organize its action programs. WCC can maintain exporting to this state or put in this state. In instance investing determination, while WCC can work revenue enhancement ordinances and investing inducements, WCC will necessitate to cover with the deficiency of skilled employees and jobs go arounding around state ‘s pecuniary and financial policies.

Are there any concealed premises or monetary value rigidnesss in Saudi Arabia that might suppress market force indexs from uncovering the true economic wellness of the state, thereby either preventing authorities policy actions from rectifying the jobs or otherwise doing them uneffective and counterproductive? How hard is it to put and repatriate net incomes and how would you cover with the demand for educated directors and executives that can run efficaciously in Saudi Arabia?

While the authorities is fixing its pecuniary and financial policies, it assumed that oil monetary values and demand would remain stable long term. It besides assumed that exchange rate pegged to US Dollars would non be affected by the international currencies and economic kineticss ( Porter, 2009 ) .

The authorities has established Saudi Arabia General Investment Authority consisting related governmental offices in order to modulate the investings and help the investors. The companies desiring to put in Saudi Arabia need to acquire licence from the authorization after carry throughing the demands. So, the investor like to put in Saudi Arabia can travel to authorization ‘s OSS ( One Step Shops ) and acquire the information about the state, economic state of affairs, and its investing state of affairs. The authorities facilitated investing processs in the state.

As stated in the instance, revenue enhancement rates and revenue enhancement ordinances are the least debatable factors in Saudi Arabia for the investors. Normally, the net incomes earned in the host state are taxed and so transferred to the place state. Since Saudi Arabia is really competitory in revenue enhancement issue, companies are non exposed to extra revenue enhancements. This is really attractive characteristic for the Foreign Direct Investors in Saudi Arabia because international companies are forbearing from the dual revenue enhancement. Additionally, the low-level load of authorities ordinances is another advantage for the FDI ‘s. Therefore, repatriating the net incomes would non be debatable in Saudi Arabia.

Since there is a deficit of qualified directors and executives in Saudi Arabia, it would be all right to make full direction places by mother company ‘s professionals. Shortly, the ethnocentric staffing policy would be appropriate ( Hill, 1994 ) . The ground for that is that Saudi Arabia is non a developed state in footings of human resources. Additionally, in footings of corporate civilization, delegating mother company ‘s subjects who have worked for a long clip for that company as director or executive would ease the version procedure. It is obvious that it would besides be possible to use and work experiences and cognition for mother company ‘s subjects who have gained in central offices. Ethnocentric staffing could do displeasure in Saudi Arabia among the employees and mid-level directors. It is besides obvious that directors assigned from other states can be confronted with cultural differences. In order to get the better of these disadvantages, directors and executives should be trained for the cultural issues. ( Hill, 1994 )

What is the current domestic and international economic state of affairs in the state comparative to outdo public presentation steps for that state?

Saudi Arabia is one of the largest oil exporters in the universe. As stated in the instance, export grosss originated from oil histories for 83 % of entire its entire exports. Government aims to diversify its export grosss in order to decrease its dependence on the oil.

Monetary policy is being executed by Saudi Arabian Monetary Agency ( SAMA ) . Tasks of this establishment are involvement rates, rising prices, pecuniary conditions and the exchange rate. The major issue for the state is to choose the correct policy and make up one’s mind to utilize which policy can be used to accomplish the marks. As stated in the instance, since riyal is pegged to US dollar, involvement rates were needed to be adjusted to US involvement rates.

Inflation led to depreciation of riyal which caused more monetary value additions. At this point, Saudi Arabia wanted to harvest the advantage of arbitrage ( riyal-EUR-USD ) which could stabilise the monetary values of consumer goods imported and needed to set the exchange rate in order to impede these additions. SAMA needs to keep foreign militias to maintain the Exchange rate stable. These militias can be used as excess fund by the authorities. By using these militias, money supply and rising prices can be adjusted.

Falling oil monetary values, shortages of the makers and economic crisis are impacting the state ‘s growing. Due to the jobs stemming from economic policy, rising prices, exchange rates are being affected in the signifier of concatenation reaction. Falling oil monetary values have direct negative impacts on current histories ensuing in runing in international militias and larger financial shortages. At this point, it is really obvious that the authorities needs to aline the precedences in its pecuniary and financial policies. Monetary and financial political relations should work in the purpose of overall wealth in footings of rising prices, exchange rate, growing.

Inflation: As shown in exhibit 1 in the instance, rising prices increased from about 4 % in 2007 to 9,9 % in 2008. In earlier old ages, rising prices increased continuously and reached the peak value in 2008, while targeted GDP growing was in scope. The ground for this monolithic addition was the lifting energy monetary values. SAMA decelerated the money supply and ensured hard currency flow for the economic growing. Due to the investing expenditures of the authorities, authorities needed to increase the size of the money supply which ignited rising prices rates. The authorities tended to cheaper imports from Europe -by sing exchange rate advantage between Euro and riyal- in order to decrease the rising prices rate. The authorities still concentrated on the substructure undertakings and subsidies. With the grasp of the US dollars, cost of import and trade goods are lowered and rising prices reduced. So, the authorities could besides harvest the advantage of the recovery of the international markets in footings of rising prices.

Beginning: Mathis, F. , Petitt, B. ( 2009 ) Saudi Arabia: ready for Takeoff. Thunderbird School of Business Management.

GDP: GDP rate is straight related to oil monetary values and production in Saudi Arabia. Equally long as oil monetary values addition in international market, concern environment and consumers ‘ trust and authorities disbursement addition in Saudi Arabia. As shown in exhibit 2 in the instance, outgo based GDP has changed by clip after 2003. The authorities increased its ingestion and investings after 2006. In 2009, it was estimated that GDP would diminish somewhat, but would increase in 2010. Government wanted to pull the sectors apart from oil in order to diversify the economic system and grosss. Therefore, authorities made investings in substructure. By making that authorities aimed to make new concern country for investors and occupation chances for the unemployed people. In 2008, due to falling oil monetary values and planetary economic recession, authorities wanted to incite the domestic economic system in order to keep the growing. However, in 2010, while being successful in decreasing the rising prices, GDP marks felt short. The ground for that was the lower oil export and gross. Therefore, the authorities is really acute to increase its investings in societal substructure in order to incite domestic economic system. Additionally, the authorities is good cognizant of the demands for the FDI ‘s and variegation of the economic system.

Beginning: Mathis, F. , Petitt, B. ( 2009 ) Saudi Arabia: ready for Takeoff. Thunderbird School of Business Management.

Interest rates: Because Interest rates lowered, the authorities reaped the advantage of this state of affairs since the Bankss needed lend these moneys alternatively of keeping and lodging hard currency with the SAMA. So, Bankss were volitionally or unwillingly besides in favour of state ‘s growing. However, the state still needs to follow up the US involvement policies in order to maintain the exchange rate at 3,75.

Balance of payments: After 2003, because of the increasing energy demand and monetary values, Saudi Arabia ‘s economic system had big excesss. However, in 2009, balance of payments decreased due to take down oil monetary values and demand. Since oil monetary values were low and really competitory, the authorities needed to devaluate the riyal to diminish its budget shortage. Saudi Arabia would necessitate to devaluate the riyal in order to retrieve its budget shortage every bit much as possible.

Price stableness: Monetary policy ‘s purpose is to maintain the dollar/riyal rate at 3,75 every bit long as possible. By making that, authorities would non merely be able to keep populace ‘s support and excite the investors to do domestic investing, but besides equilibrate the balance of payments and internal monetary value stableness ( Al Jasser & A ; Banafe, 1999 ) .

Stability: Since oil monetary values are defined and paid in dollars, Saudi Arabia used US dollars as an intercession currency ( Al Jasser & A ; Banafe, 1999 ) . This means that the authorities allows the riyal ‘s value to alter freely in relation to EUR and other currencies. Fluctuations in rates could do ambiguity in monetary value appraisals of imported and exported goods. In order to clear ambiguities in the state, authorities would necessitate to maintain exchange rate stable every bit much as possible.

Is Saudi Arabia presently following appropriate economic policies from a domestic every bit good as international position? Provide back uping justification for your reply?

Their chief troubles that Saudi Arabia need to cover with ( Porter, 2009 ) :

Saudi Arabia ‘s macroeconomic policies are non crystalline and really unfastened to guess.

Country ‘s budget is fluctuated due to increasing or falling patrol monetary values.

Since exchange rate is fixed to US dollars, pecuniary policy can hold negative effects on trade balance and hence rising prices.

While authorities is concentrated on societal demands and public wealth, their programs on instruction and wellness are falling short.

As stated in the instance, excess of money supply caused a capital escape and loss of international militias. Additionally, in instance of high demand on money, capital influx will be created and international militias will be increased. This is the consequence of the pecuniary policy on the domestic side.

Harmonizing to Hill ( 1994 ) , there are some statements on fixed and floated exchange rates:

With respect to pecuniary subject, fixed exchange rate disabled Saudi Arabia to provide the money at inflationary rate, since the exchange rate is depended on US dollars.

With respect to guess, guesss cause swings in exchange rates. It is possible to impact the rates with guesss, even though rising prices and balance of trades are in a good place. This is really unsafe for the state in footings of export and import monetary values. Since riyal is dependent on US dollars, exchange rate issue is really unfastened to guesss. However, the policy of the authorities is non really unfastened and transparent. Therefore, the authorities should use crystalline policy.

With respect to uncertainness, fixed rate nullifies the uncertainness and reinforces the international trade. Investors can be certain of the exchange rates and make non necessitate to worry about the exchange rates in the hereafter. Floating exchange rate can get the better of uncertainness job by forward exchange market.

With respect to merchandise balance accommodations, fixed exchange rate policy complicates the equilibrating trade jobs.

If Saudi Arabia aims to be competitory, it needs to put a free economic system and alter its exchange rate scheme. By nail downing its currency to US dollars, it created a stable environment for the FDI ‘s in footings of exchange rates. However, since its economic system is to a great extent dependent on oil exports, falling monetary values of oil monetary values can alter domestic economic system in footings of rising prices, balance of payments. Additionally, the place of US dollars in international market has a direct impact on Saudi Arabia. In order to accommodate itself to international developments, Saudi Arabia needs US Dollars as inter-mediator. If Saudi Arabia were utilizing drifting exchange rate, it could put its ain pecuniary policy and suit its domestic market to international economic tendencies.

Presently, authorities is the determination shaper and intervener on the economic policies. In order to develop the economic system, authorities has taken an of import measure by affecting governmental offices, schools, private organisations and companies. However, authorities demands to work on doing the Economy transparent and stopping point to guesss.

If you recommend that WCC proceed with the determination to put in production and distribution installations which scheme would you suggest they follow from among those we have discussed? Explain and warrant your recommendation.

Saudi Arabia ‘s telecommunication sector is really promising. Investors are constructing up pools to put in and set uping offices in order to take place in Saudi Arabia. Since Information and Telecommunication sector is dining in Saudi and major companies are puting in this state, this market can be a really good chance for WCC to turn and take place in GCC market besides. Since the sector is really competitory, WCC will necessitate to be really nimble. WCC will necessitate to concentrate on gross revenues and concern development activities. Therefore, WCC can seek for and get a local or international company which is managed ill and in a quandary due to economic crisis but had a successful background in the market ( Hill, 1994 ) .By making that, WCC can work this company ‘s experiences and cognition on the local market and combine that with its ain nucleus competency and know-how.

Horizontal FDI construction needs to be applied by WCC ( Hill, 1994 ) . WCC will necessitate to afford lasting constitution costs or unify with a company presently runing in Saudi Arabia. Since WCC will come in into a new state with wholly different civilization, the direction needs to carefully put entryway and issue schemes.

WCC as Telecommunication Company needs smaller parts to be imported and exported, import and export costs of these stuffs can be negligible. So, WCC can export its merchandises manufactured in Saudi Arabia to other states in the part via its distribution points in the state. Saudi Arabia can go an export hub for WCC.

WCC can set up gross revenues office affecting exiles. Management staff should come from place state and they should be familiar with the company ‘s regulations and civilization. Gross saless staff can chiefly affect exiles who are experienced in telecommunication sector and cognize WCC. In order to run into the ends, disputing marks and inducements demands to be set by the direction. Organizational construction should be chiefly based on operational activities in order to diminish overhead costs and be agile in the market. Know-how will be kept in place state. However, in footings of effectivity and net incomes, some stuffs which do non necessitate specific know-how and competency can be assembled in Saudi Arabia. For the assembly, WCC can develop the employees. In order to get the better of the cultural job, preparations for these issues should be set.

Since Saudi Arabia is a new market for WCC, WCC will necessitate to strictly command the fiscal state of affairs of its regional entity in order to maintain its mark in the scope. Therefore, commanding and describing processs will be really stiff. In order to keep proper information flow to central offices and supply common apprehension between headquarter and regional entity, directors from place state will be assigned to critical places like CFO, CEO, and Accounting.