Analysis of Saudi Arabian ICT Business Market - Research Paper Example

Business Executive Summary The report provides an analysis of Saudi Arabian ICT business market and seeks to investigate the difficulties, risks, benefits and potential of this business environment. The purpose is to examine the market factors that Apple Inc would anticipate as it defines its strategy to develop an ICT infrastructure manufacturing plant in Saudi Arabia. In terms of the potential, Saudi Arabia has high affinity for ICT technology. Although the telecommunication network is already developed, the digital technology is still poor in this country. Between 2003 and 2008, the ICT market sector contributed only to 9% of the economic growth. Being a growing country, the government has launched strategies to encourage integration of the digital technology within the business sector. In this light, this is a potential market for ICT infrastructure. If Apple invests in this business sector, it is likely to benefit from high market demand, high customer loyalty, less competition and a stable market position. With a high bargaining power, the organization should expect more profits from this environment. These benefits are expected to last in the long term. The challenges that exist in this market sector cost of imports, delay in obtaining a license and high construction costs. In fact, this market is ranked as one of the hardest market for foreign investors to launch their products. This makes it quite hard for Apple Inc to launch its business plan in this market. Its ability to design a strategy that overcomes these challenges will determine its survival in this market. Numerous risks threaten business survival in this market. Existence of terrorism and political instability promises an unpredictable future within this market environment. Also, religious conflicts make it hard to predict consumer behavior in this market. On entry in this market, Apple Inc should be aware of these risk and devise plans to neutralize them. Altogether, Apple Inc should consider entry in this market as challenges and risks are inevitable in every market environment. Saudi Arabia Analysis Report Introduction In the 21st century, there is pressure for every business organization to push its operations in the international markets as a strategic plan to target more customers and optimize profits. Before developing an international investment plan, it is crucial to conduct a thorough environmental market scanning before choosing potential countries where business is viable. This process requires a clear identification of the opportunities available in the country, risk, difficulties and potential of the target country. This helps a business entity to understand the nature of the new market, and decide whether it is worth to invest in this country. In addition, this helps the organization to devise the right market entry strategy to take advantage of the opportunities, neutralize risks and overcome difficulties associated with the new environment. Understanding the market environment goes way far in determining the success of the organization within the international market. Saudi Arabia is one of the countries that are becoming potential investment market sectors especially in the field of technology. As the country struggles to absorb technology within its industry, there is potential for ICT business in this part of the world. However, this market has associated risks that pose threat to business survival in this industry. For Apple Inc, this market sector is a potential investment environment due to the demand of technology infrastructure that is building up in this country. Although Apple Inc products are already trending in this market, there is need to develop a manufacturing plant in this country to take better advantage of this market. This report is a presentation of the image of the Business environment in Saudi Arabia. It presents the opportunities, benefits, risks and difficulties that Apple Inc would encounter in launching manufacturing operations in this Saudi Arabia. The ICT Potentials of Saudi Arabia Saudi Arabia is a potential ICT market for multinational companies from all over the world. The country is in a transition process migration from the analogue technology to adopt the digital culture within its economy. A report by Waverman (p. 12) indicated that the economy of Saudi Arabia heavily depends on the ability of the country to integrate digital technology within the business and social sector. Waverman points out that the country has already adopted ICT within its communication framework but it still lags behind in terms of digital technology. An evaluation of statistical data shows that between 2005 and 2008, ICT contributed only 9% to the economic growth of Saudi Arabia. As compared to other countries such as Australia whose IT sector contribute to about 36%, it is clear that this country still lags behind in terms of technology. The government has encouraged the business industry to take advantage of the ICT technology to develop the economy of the country. This points out that this market is a potential investment market that Apple can take advantage. Secondly Waverman (62) states that the demand for ICT technology is developing within the country. As more business organizations recognize the value of internet culture and web advertisement, the market is open for more IT infrastructure. As people take refuge in online presence, they will demand hardware, software and smart phone technologies so as to meet this demand. For a country such as Apple that develops own software, tablets, iPads, Smartphones and computers, this will be a potential market for investment. Being a developing country, the business industry is experiencing growth as more organizations take advantage of the growing business sector. These new market entrants are expected to impact the demand for ICT technology within this country. The scarcity of this technology in this environment promises that there is the likely hood that the demand will overwhelm the supply. This an opportunity that would be worth to take advantage before the demand supply curve balances. Another factor that indicates that Saudi Arabia is a potential market for the IT business is the high number of middle income earners. Currently, Saudi Arabia has a population of over 28 million people and more than half the population are middle level earners. The GNI per capita in this country is $18, 030 which shows that this is a developing country at the take off stage. According to a report by Doing Business (4), more people in this country are joining the middle class level and expenditure on secondary needs is growing. In this regard, the demand for luxury items such as iPads, Tablets and Smart Phones is growing as more people enter the middle class level. The fact that there is a high demand for Its infrastructure and that the people are empowered to afford these technologies, then it is clear that the country is a potential market for ICT companies such as Apple. The high population of the country shows that the country has many potential customers that an It company can target. For a country that is at the transition stage, this demand is expected to grow in the long term promising sustainable market. Benefits of the Saudi Arabian Business Market By investing in Saudi Arabia, one is entitled to numerous benefits that will contribute immensely to the success of the business. For Apple Inc, this business environment provides the benefit of operation in a non-competitive market. In Saudi Arabia, ICT companies have invested in the sale of telecommunication equipment while the supply of digital technology remains very low compared to the demand. As such, supplying digital equipment in this country is likely to efficient as competition is still minimal in this business market (Doing Business 7). The benefit of such a market is that it is possible for an organization to attract more customers and gain a strong market position before competition sets in. Although competition can be anticipated in the long term, Apple will have gained a competitive position before other organizations enter into the market. This promises high profit margins for the organization in both short term and long term plans. Secondly, the organization will be able to reduce its expenses, a critical element of an effective supply chain management. In Saudi Arabia, the import and export taxes are relatively high, which increases the investment cost and reduces the profit margin. If Apple manufactures its products within the country, it will avoid heavy import tax and hence reduce its import overheads. The cumulative benefit of this is that the company will be able to motivate the customers with cheaper products without having to sacrifice its income benefits. The implication of this is a better market position and more affordable services, attracting more middle income earners and business organizations. Another benefit of this market environment is a high company bargaining power that the market provides. The fact that the demand is high and the supply is low, Apple will have a higher bargaining power with freer price standardization strategies. In addition, since there are few ICT technology investors and there are no new market-entrants into this industry, Apple will expect less price competition within the industry (Waverman 12-18). This presents the organization with the opportunity to maximize their profits before entry of new investors. Resultantly, able can invest in the quality of its products to attract more customers before considering pricing strategies within its supply chain management. The management team will have a better opportunity to develop their product flow considering that the initial costs of investment are expected to be high. The associated benefit is that the company will have a better moment of settling in this country before the onset of competition in the ICT investment sector. Finally, the fact that these benefits are will be sustained in the long term makes it reasonable to seize this business opportunity. As the business industry in this country continues to grow, the demand for ICT infrastructure within organizations will continue to grow in the long term. With the government support of the development of IT infrastructure, it is expected that more people will be motivated to acquire these gadgets (Ali 34). Additionally, the number of potential buyers is increasing with time in a country whose population is struggling to enter into the bracket of middle income earners. In the short term, the competition is not anticipated implying that this company will enjoy a non-competitive environment for a long period of time in this society. With long term benefits, the organization is expected to reap high profits for a long period in this market. As such investment in Saudi Arabia would be worthwhile in the long term. Difficulties in Investing in Saudi Arabia Saudi Arabia has been ranked among the harsh business environment to start a business. An international business organization that intends to invest in this country should take the challenge posed by a country with a strict regulatory system that governs business operations, and especially when it comes to foreign investors. One of the challenges that Apple should anticipate in its investment strategy in this country is the high import cost of raw materials. Saudi Arabia import laws aim at protecting local business organization by instituting high taxation rates for foreign organizations. The percentage rate ranges from 5% and can go as high as 12% for some items. As Apple opens a manufacturing plant in Saudi Arabia, it is expected that the organization would import raw materials from nearby countries meaning that this would attract high import tax (Watkins 5). A high import tax contributes to the overall organization an expense which is against the principle of product management. The aim of managers is to minimize expenses and maximize profits for the success of the organization. In this regard, import of raw materials would be a big challenge in this country that charge high import tax. In the event that Apple intends to construct own manufacturing plant in Saudi Arabia, it is necessary to consider the cost of construction and the related regulations. Just like any other nation, Saudi Arabia requires that any foreign company that intends to construct new structures within the country comply with the legal standard pertaining to construction. The country provides a long regulatory procedure for any person foreign company that intends to start a business in this country. For instance, start a medium size warehouse in Riyadh, a city in Saudi Arabia, it would take over 6 months to complete the prerequisite procedures necessary before starting a formal construction procedure (Watkins 11). In addition, the organization has to cater for cost associated with construction, which are relatively high in this country. In Riyadh, to construct a standard size warehouse, the organization would pay a fee of not less than SAR 2.6 million before commencing the construction procedure. For a big organization such as Apple, a production unit would cost a lot more than the cost of a ware house. The lengthy procedure and the high cost of building and construction procedures would add to the investment overheads and slow the process of investment. Although the Saudi Arabian government has a well-developed procedure for licensing foreign countries, the discretion on the legibility of a foreign company is subjective. For a 100% foreign owned company, the government provides that an interested organization provides legal as well as supportive documents as stated by the Saudi Arabian General Investment Authority (SAGIA). This provides a short grace period within which an interested investor must present all supportive documents. Failure to provide these documents within a grace period of 2 months automatically leads to disqualification of the application. Considering that this is a short time to gather supporting documents, it is crucial that a foreign company such as Apple be prepared to face this challenge within the shortest time period for its application to be granted. Another challenge that Apple would face is the limitation of opening branches within the business sector. In an unsaturated market, it would be worth for Apple to open as many branches as possible to take advantage of the open business environment. This procedure would be faced with a number of challenges as Watkins (3) highlights. First, the government regulates the fluorishment of new business branches and there is a limitation on the number of branches that a foreign organization can open within the country. Secondly, the process of starting a new branch is more similar to the process of opening the first branch within this country. The foreign company has to pay an amount equivalent to that paid by a local bank and this amount is blocked until the organization receives a license for the new branch in the organization. This elaborate procedure will slow down the process of development and increase the cost of the investment projects. The cultural aspects of the business environment are likely to pose difficulty for establishment of business in this country. The society in Saudi Arabia is governed by Muslim laws and most of the society is affiliated to this culture (Ali 1-16). Target a new environment with a new culture is difficult for any business organization. An effective international strategy must be deployed to gain the trust of customers within this business network. Culture is likely to affect the labor market as cultural norms dictate the nature of work, the working period, remuneration and the business norms. The Muslim culture is rather static and flexibility is a habit that is only generated through consumer trust development. As such, Apple would take more time to settle in this business environment and to gain the trust of both the employees and target customers. This is a difficulty that any foreign nation must be prepared to face as it enters this business environment. The Risks of Investing in Saudi Arabia One of the risks that a foreign investor launching its operations in Saudi Arabia is likely to face is insecurity. An organization such as Apple that would have more investment capital in this country, there is a reason to worry about insecurity issues. Sadiq (Para. 5) points that Saudi Arabia is one of the countries that have risk of terrorist attack in the world. The Asian news reporter points out that western investors are target species in Saudi Arabia due to the rivalry that exists between western countries and the Al-Qaeda gang of terrorists. This is the priority threat that Apple should consider while investing in this country. Moreover, the government has undermined the threat of terrorist attack making it a worse business environment for foreign investors. This is a risk that could cost the organization its entire investment in the flash of a second. In this light, Apple should be compelled to compute the risk involved in investing in this market. Another business risk that Sadiq (Para. 8) warns about is the risk of market rejection due to religious differences that exist within this society. In Saudi Arabia, religious wrangles have punctuated the history of this country as Muslim versus Christianity conflicts emerge. The risk that this conflict poses is that there is the likelihood that customers will be divided in terms of religion. This would reduce the number of customers that Apple Inc would attract in its business operations. Reducing the number of target customers reduces the income and consequently impacts negatively on the profitability of the foreign investor. An organization that experiences market rejection is likely to perform poorly in a foreign market. The fact that it is a complex matter to predict the nature of this risk, it becomes a risk that cannot be measured accurately before the implementation of the management plan. Consequently, the organization should anticipate for this risk and a thorough market research has to be conducted to ensure that better market strategies are developed to focus on customer attraction. Although low, the risk of competition is likely to set in some time in the future of this business market. As the market in other countries saturates it is possible that ICT companies will be looking forward to venture in unexploited market environments such as Saudi Arabia. Companies such as Microsoft and Samsung are already considering exploiting these markets. Although this is a risk that can be anticipated in the long run of the business, it cannot be undermined. When new market entrants set in the market, they reduce the supplier bargaining power and increase the customer bargaining power (Ali 101). For instance, Samsung is a dominant in the ICT industry and its entry in the Saudi Arabian market would be a great threat to the survival of the company. In this regard, competition is a risk that must be mitigated as the organization settles its business operations in Saudi Arabia. The uncertainty of political stability is a major threat in the Kingdom of Saudi Arabia. Although the country has continuously invested in efforts to combat political instability, there is no surety that the country would remain stable in the future. The conservatism monarch system that has been adopted in this country seems to be swayed by the waves of social and political modernization (Ali 101). This volatility of the government is a matter of concern for many foreign investors as they venture into this market. Political instability is a great business threat for new market entrants as it is a cause of market disorientation. In a politically unstable society, the consumers’ economic status is likely to fluctuate and hence the purchasing power. The cumulative impact of these changes is that the demand would be unstable and the productivity level of the business may be unpredictable. This demands that investors in this market device effective exit strategy to avoid ensure that there are minimal business losses. For a long term project like Apple’s plan to develop a manufacturing base in this country, it would be difficult to deploy an effective market exit strategy. Conclusion A thorough Saudi Arabian market environment scanning reveals that the ICT business sector is expanding rapidly. It is possible to anticipate that the demand will shoot as the supply of ICT infrastructure remains low in this country. For an IT industry investor like Apple, this is a potential market that they should consider exploiting. As the number of people joining the middle level class of income earners increases, the demand for this infrastructure is expected to grow rapidly. Consequently, Apple can take the advantage the leverage of investing in this environment. Such a move would guarantee the company high profits and a stable market position in the long term. However, the company should anticipate a wide range of difficulties and risks in this environment. The company is likely to experience difficulties in imports of raw materials, high costs of construction, delay due to registration and clearing. Numerous market risks exist that make the future of business a complex matter to predict. For instance, the risk of terrorist attack is likely to destabilize business operations. The risk of political instability promises an unclear future for foreign companies. The religious conflict that exists in this market environment threatens the customer loyalty makes the customer behavior quite unpredictable. In this regard, it would be worthwhile for Apple to weigh the option of launching a manufacturing plant in Saudi Arabia. This is a potential market for ICT business investment. However, it would be crucial for this organization to have a strategic plan to overcome the difficulties and risks that exist in this environment. The success of Apple in Saudi Arabia depends on its ability to design an effective strategy to take advantage of this business market that just like any other, has its own risks. Works Cited Ali, Abbas. Business and Management Environment in Saudi Arabia: Challenges and Opportunities for Multinational Corporations. London: Routledge. 2008. Print. Amri, Al. Doing Business in Saudi Arabia. 2013. Web. Accessed from: < http://www.alamri.com/doing %20business%20in%20saudi%20arabia.pdf> [Accessed on 30th Nov, 2013] Doing Business. Economy Profile: Doing Business in Saudi Arabia. 2013. Web. Accessed from: < http://www.doingbusiness.org/~/media/giawb/doing%20business /documents/profiles/country/SAU.pdf> [Accessed on 30th Nov, 2013] Sadiq, Nauman. Saudi Arabia: The Real Terror Tyrant. Asian Times. 2013. Web. Watkins, Latham. Doing Business in Saudi Arabia. 2010. Web. Accessed from: [Accessed on 30th Nov, 2013] Waverman, Leonard. ICT in Saudi Arabia: A socio-economic impact Review. STC Group. 2011. Web. Accessed from: < http://www.enlightenmenteconomics.com/Reports /assets/ICTinSaudi%20Arabia.pdf> [Accessed on 30th Nov, 2013] Transmittal Letter Street Address City, State ZIP Month Date, Year Name of recipient Title Apple Incorporation Street Address City, State ZIP Dear Dr. Name: I hereby present a report of a Saudi Arabian ICT business industry survey. Since the assignment of this task in July, 2013, I have conducted a thorough market survey to evaluate the possibility of Apple to launch an ICT product manufacturing plan in Saudi Arabia. This report covers the political, legal, social and economic factors that influence ICT business market in Saudi Arabia. The purpose of this research is to point out the challenges, risks, benefits and potential of this business market. Although this report is limited to secondary research, it is a general representation of the Saudi Arabian business environment. The recommendation of this report is that Apple Inc develops a strategic plan to invest in this market soonest possible. However, it would be crucial to launch a statistical survey to get a better picture of this business industry. Yours Sincerely, Signature Name, Title Read More