Business Culture

Conducting Business in Saudi Arabia: A Brief for International Managers A B B A S J . A L I Among the countries in the Middle East, Saudi Arabia offers one of the most promising business opportunities in the foreseeable future for multi- national corporations. The kingdom has embarked on billions of dollars’ worth of investment projects and has developed a world-class infrastructure. In recent years, Saudi Arabia has presented and cul- tivated a liberal and business-friendly investment environment. In the last 20 years, political and eco- nomic stability have been achieved through serious and pragmatic measures and reforms that are aimed at strengthening the power of the ruling family while facilitating economic growth and foreign investment and involvement. This article provides useful infor- mation on the business, social, and economic envi- ronment. It aims to provide international managers with essential and insightful information in order to conduct business in Saudi Arabia with confidence and in the most effective way. The information and insight will enrich and sharpen international man- agers’ skills in competing in the global marketplace. © 2009 Wiley Periodicals, Inc.

In an era of a liberalized world economy, multi- national corporations (MNCs), more than ever, seek global opportunities in business-friendly and politically stable environments that are financially rewarding and likely to strengthen their competitive positions. Saudi Arabia is one of the few countries in the developing world where these attractive qualities exist. The country has embarked on development strategies and has attracted major MNCs to partici- pate in the building of the national economy and to reap substantial economic benefits. In recent years, the kingdom has invested heavily in its infrastruc- ture, making it one of the most alluring places for MNCs’ activities. Indeed, the kingdom has initiated programs for building economic cities. Four of these

highly integrated cities have been started, and two are planned. The development of additional new cities is expected to cost about $283 billion over the next three years. The Knowledge Economic City alone, to be fully completed by 2020, is projected to cost $7 billion and aims to attract and develop talent from around the world (Saudi Arabian General Investment Authority [SAGIA], 2007). Through 2020, the kingdom is expected to offer $1 trillion worth of business opportunities for MNCs (U.S.-Saudi Arabian Business Council [USSABC], 2008). Furthermore, the kingdom has become a hub for Middle East business and a staging ground for MNCs that seek to establish a stronghold in a grow- ing regional Arab Gulf and in Middle East markets. Likewise, since the establishment of the Saudi Arabian General Investment Authority in April 2000, the country has substantially overhauled its investment policies and business regulations. In 2007, the World Bank ranked Saudi Arabia as one of the most attractive countries in the world for business and the number-one place in the Middle East in terms of the ease in conducting business.

Because Saudi Arabia houses the two primary holy shrines in the Muslim world and has, at this time, the largest proven world’s oil reserve, familiarity with its business environment takes on an added value. The kingdom is a distinctive country, and as the Economist (“A Long Walk,” 2006, p. 3) observed, “Saudi Arabia seems a Law unto itself: rich, unequal, uncompromising and unchanging . . . . But . . . it is moving forward.” This feature, though exceptionally attractive, represents genuine chal- lenges for MNCs to effectively nurture ongoing busi- ness, capture emerging opportunities, and overcome difficulties. Some MNCs might find the market mi- lieu an enigma; others might find it a thrill and a

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c© 2 0 0 9 W i l e y P e r i o d i c a l s , I n c . P u b l i s h e d o n l i n e i n W i l e y I n t e r S c i e n c e ( w w w . i n t e r s c i e n c e . w i l e y . c o m ) G l o b a l B u s i n e s s a n d O r g a n i z a t i o n a l E x c e l l e n c e • D O I : 1 0 . 1 0 0 2 / j o e . 2 0 2 8 9 • S e p t e m b e r / O c t o b e r 2 0 0 9

place of endless opportunities. While religious and political constraints demand caution and prudence, the presence of huge business opportunities stimu- lates fierce competition and deepens rivalry among companies attempting to strengthen their compet- itive positions in a vital market. This very rea- son makes it essential for both senior executives of MNCs and expatriate managers to understand not only the cultural underpinnings of doing business in Arabia, but also how to avoid possible minefields, seize opportunities, and strategically outmaneuver competitors, be they local or international.

At the outset, it is important to mention that in conducting business in Saudi Arabia, MNCs are confronted with a pervasive harmonious existence of contradictions. Thus, traditional and novel ap- proaches may need to be utilized simultaneously. This possibility demands a grasp of what is com- mon and what is peculiar, what is sanctioned and what is prohibited, and what is passing and what is emerging. This article is designed, therefore, to pro- vide a genuine and insightful coverage of the criti- cal components of the sociopolitical and economic environment. It seeks to identify the most critical aspects of doing business in the kingdom and how to effectively overcome obstacles and achieve goals using, when possible, the Carlyle Group as a case study. There will be an emphasis on investment and labor laws and on communication and negotiation processes.

Sociopolitical Aspects

Unlike most countries in the world, sociopolitical as- pects in the kingdom are considered a potent factor in shaping and determining the nature of the busi- ness environment and the relationship with MNCs. Though these aspects simultaneously serve as both constraining and facilitating factors, in recent years the political dimension has been more of a facilitator than a constraint of business operations in encour- aging the integration of the national economy in the global marketplace. To provide a better under-

standing of both social and political systems, a brief discussion follows.

Unlike most countries in the world, sociopolitical aspects in the kingdom are considered a potent factor in shaping and determining the nature of the business environment and the relationship with MNCs.

Political Aspects

Politically, the kingdom is characterized by the ex- istence of an absolute monarchy. The kingdom is named after the family of Abdulaziz al Saud, who established the monarchy in 1932 and successfully unified the vast competing regions of Arabia under the rule of his family, al Saud. He was one of a few leaders in Arabia who utilized his tribal and religious knowledge, along with his social and polit- ical network, to build a centralized state under ad- verse conditions. He sought and was granted British protection and support to keep rival neighboring states at bay. Domestically, he utilized religion and tribalism in sustaining his power. He embarked on two strategic initiatives: strengthening Wahhabism by making it the official religious creed of the newly founded state, and taming the fierce spirit of power- ful tribes through carefully crafted alliances, delib- erate fragmentation of tribal solidarity, and forceful molding of those tribes that showed resistance. He enacted religious law, Shariah, which was admin- istered by religious judges. The latter were selected based on their allegiance to him and were strictly from the Wahhabi religious establishment. This gave religious figures a say on how tribal affairs should be managed, thereby weakening tribal heads’ authori- ties and facilitating the spread of Wahhabism. Fur- thermore, almost all heads and subheads (sheikhs) of tribes were linked to the Palace and were com- pensated accordingly. This eventually made these sheikhs who traditionally took pride in being in- dependent an extension of the Palace and virtually

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ended their autonomous stance. The titles of sheik and administrator were given to tribal leaders along with access to lucrative businesses. Gradually, the king made social privileges and access to wealth con- tingent on the degree of relations with and obedience to the Palace. In particular, this policy diminished the traditional tribes’ independence and created a new type of loyalty that transcends the normal kin- ship basis and ensures the emergence of a salary- dependent tribal population.

Today, there are more than 30,000 members of the Saudi family who are situated in important govern- ment and business positions.

These developments have given the Saudi ruling fam- ily a free hand in running the country. Today, there are more than 30,000 members of the Saudi family who are situated in important government and busi- ness positions (Economist Intelligence Unit, 2007). The decision-making power, however, is kept in the hands of the most senior members, the living sons of Abdulaziz and his immediate adult grandsons. To- day, the living sons are King Abdullah (who acceded to the throne in August 2005 after the death of his half brother, King Fahd), and his several half broth- ers, including the most powerful princes: Crown Prince Sultan, Deputy Prime Minister and Secretary of Defense; Prince Nayef, the interior minister; and Prince Salman, the governor of Riyadh Province. Who is going to be the successor to the king is a se- cret and, on the surface, appears to be a mysterious matter. The decision will be made through thorough maneuvering and deliberation among the living sons of Abdulaziz. The present king, Abdullah, estab- lished an Allegiance Council (October 20, 2006), formally called the Allegiance Institution Law. The Council comprises the “Sons of King Abdulaziz Al- Saud, the founder of the Kingdom of Saudi Arabia,” Grandsons of King Abdulaziz whose fathers are de- ceased, incapacitated, or otherwise unwilling to as-

sume the throne, and a son of the king and a son of the crown prince. In case the king dies, Article 6 states that “Allegiance Institution will pledge alle- giance to the Crown Prince” who will serve as a king. If both the king and crown prince die simulta- neously, Article 13 states that the Council will select a “suitable candidate for governance from among the sons or grandsons of King Abdulaziz Al-Saud.” It is assumed that this law will ease the selection of the successor and the succession process and reas- sure the public that there will be an orderly transi- tion process of power. The selection, though secre- tive, is logically a result of internal power struggles within the senior members of the ruling family and is shaped by these members’ sophisticated networks inside and outside the kingdom.

Politically, the king is the head of the executive branch, serves as the prime minister, and appoints members to the Shura (consultative) Council and the senior members of the religious establishment. The king is also the head of the legal system, acts as the final court of appeal, and can issue pardons. Furthermore, most of the important ministries, mil- itary, and security, as well as other vital agencies, are headed by members of the ruling family. The presence and influence of the ruling family, how- ever, goes far beyond the central government. The kingdom is divided into 13 provinces that are gov- erned exclusively by members of the ruling family. Likewise, important or major cities are supervised directly by members of the al Saud family.

The kingdom’s political scene is unique in today’s world and strikingly conveys an appearance of sta- bility in a region awash with chaos and where the only certainty is instability. Freedom of association and assembly is outlawed. Consequently, the coun- try has no political organizations and opposition groups are prohibited. Likewise, unions are not al- lowed, and civic organizations, if any, are merely an extension of the government. Nevertheless, there are small underground or exiled opposition orga- nizations. Currently, these groups do not present

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a serious threat to the regime. In terms of internal forces, the only credible threat, in the near future, comes from the religious Wahhabi establishment. This entity has traditionally been known for its com- plete and unwavering support of the ruling family. The establishment, or ulema, represented by the se- nior leaders of the Wahhabi denomination, is well funded and over the years has established deep roots in the society and attracted a wide range of follow- ers across the kingdom and abroad. These follow- ers have shown fierce and unwavering commitment to their religious interpretations and beliefs. Histor- ically, the ruling family has channeled the energy and religious fervor of these groups into external concerns (e.g., Afghanistan, Bosnia, Chechnya, etc.). On some occasions, though, this has backfired as small disgruntled groups have emerged and begun targeting the ruling family and demanding an end to its cooperation and friendship with the West, es- pecially the United States; for example, the seizure of the holy site in Mecca (November 20, 1979) by Wahhabi dissidents who opposed relations with the West, the rising local resentments for the kingdom’s cooperation with the United States during the Gulf crisis (1990–1991), and the subsequent emergence of al-Qaeda. The latter, however, has been success- fully distracted, and its efforts have primarily fo- cused on events outside the kingdom, especially Iraq, Somalia, and Pakistan. The latter is a testimony to the ability of the ruling family to contain or divert political threats.

In terms of political risk, the government in Saudi Arabia represents one of the friendliest regimes for MNCs. This situation is a logical outcome of the de- pendence of the kingdom for its economic prosper- ity on active involvement in the global economy and the reliance of the ruling elite on the United States in their ever-present need for security. While the ruling family has been successful in situating its members in important government agencies and geographic re- gions and municipalities, the two primary pillars for its security, in recent years, have been the continuing political and military support of Washington and the

religious Wahhabi establishment’s commitment and obedience to the ruling family. These two factors have been instrumental in facilitating the resilience of the Saudi regime and in enabling the ruling fam- ily to weather chronic security and political risks in the region. While in the short term, public unrest is expected to be contained and the ruling family is firmly in charge, the prospect of political stability in the intermediate and long term cannot be taken for granted. There are several factors that, if not prop- erly contained, may fuel instability. These are: in- creasing unemployment rates, especially among new graduates; failure to accommodate the needs of the existing large, young segment of the population and the rising middle class; lack of political openness; failure to achieve peace between Palestinians and Israelis; spreading unrest from Iraq, Somalia, Su- dan, and Afghanistan; the U.S.-Iran conflict; Wash- ington’s withholding security support for the ruling family; and a sudden and sustained drop in oil rev- enues. While the majority of these factors have long been in existence and have been contained, the last three could seriously damage the foundation and stability of the regime.

While in the short term, public unrest is expected to be contained and the ruling family is firmly in charge, the prospect of political stability in the intermediate and long term cannot be taken for granted.

Social Aspects

Traditionally, most of the commentaries on Saudi social aspects have focused on tribal identity and blood linkage, which keep families, groups, and clans in close and dynamic contact while weathering modernity and waves of regional political upheaval in recent years. These commentaries are necessary but not sufficient to capture the reality of the so- cial complexities. Indeed, the society is a mosaic one where the traditional and modern, the young and the old, the conservative and liberal, the Bedouin

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and the urbanized exist in a seemingly harmonious equilibrium. Since the mid-1940s, the simple life that the majority of indigenous citizens used to enjoy has given way to more complex and sophisticated patterns. During the pre-oil-boom era, most Ara- bians merely sustained life and were comfortable with a minimum standard of living. Only a few tribal, political, and merchant elites lived in pros- perity. The discovery of oil and the sudden increase in oil revenues in late 1973 changed the Arabian so- cial and economic structure. Cities and towns flour- ished (e.g., Dammam, Jeddah, Jubail, Riyadh, and Yunbi) and per capita income increased ($1,040 in 1972 vs. $15,711 in 2005). Economically, the soci- ety has evolved in the last 40 years into an urban- ized, oil-based economy and modern industries have been built using the latest Western technology. In addition, notable social transformations have taken place. Chief among them are that Bedouin, religious, and communal leaders have experienced a gradual erosion of their power to the benefit of the ruling elite, technocrats, and professional groups.

During the pre-oil-boom era, most Arabians merely sustained life and were comfortable with a minimum standard of living. Only a few tribal, political, and merchant elites lived in prosperity.

Nevertheless, the social fabric of the society has not been seriously shaken. The society has always been highly personalized and generally relationships among Arabians are mostly governed by friendship, kinship, regionalism, and communal outlook. These relationships evolve around the person-tribal net- work. Despite the erosion, for historical reasons, of tribal organizations, individuals take great pride in keeping up their clannish feelings, attitudes, and Bedouin heritage. Ghazi al-Qusabi (2006), a sea- soned minister and a technocrat, noted that a high percentage of citizens in the kingdom still consider themselves, in terms of tradition and tribal origin, to

be from the desert. The preservation of this tradition and the pride in guarding it manifests, among oth- ers, a deep infatuation of and attachment to Bedouin virtues. In fact, there are certain values and tra- ditional norms (e.g., respect for elderly, obedience to those in power, concern for others, generosity, etc.) that still command influence and bestow spe- cial privileges on those with recognized lineages.

In the last 40 years, the kingdom has experienced rapid urbanization and a growing middle class. This has not yet weakened the pivotal role of the family. The family is still the basic social unit to which in- dividual members are subordinate. The transforma- tion of Arabia into a semi-industrial and semi-urban society, however, has given new meaning to the role of family. In the old traditional sectors (Bedouin and rural), family relations reach beyond the ex- tended family to include the entire kinship network. Individuals not only identify with larger organiza- tions (tribes), but their welfare and fate depend on the actions of that network as a whole. In cities and towns, however, the tribal network evolves pri- marily around extended family. Individual concerns and loyalty are to parents, grandparents, and im- mediate relatives. Unlike rural areas where tribe and tribal identity are the essence upon which life and loyalty revolve, in cities and towns where the middle class segment is present and has its mark, the tribe assumes a new role: a reinforcing fac- tor that sustains the continuity of the social fab- ric and revitalizes the role of the extended family. It has increasingly become a source of reference or pride but not the once-dominating force that shaped existence and priorities. Urbanization and the ac- companying flourishing of schools, businesses, and government networks may give the appearance of modernity but are not yet effective in reducing the need for tribal organizations. This, however, has not precluded the emergence of new relations based on social class identification, career interests, reli- gious activities, and social and organizational inter- ests among career-oriented individuals and the rising middle class. Though this development has not been

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widely accepted, it is more likely that this new trend constitutes the beginning of a new social foundation that Arabian society has never before experienced. It is this new foundation that poses a challenge to old political thinking and patterns of relations. In fact, with the rapid degree of urbanization, educational achievement, and economic affluence, inclusive and conflicting loyalties may appear on the social and political stage. The outcome of this divided loyalty remains to be seen.

In addition, the kingdom confronts several social problems, including youth resentment, diminishing opportunities, and women’s roles in the society. These problems are not exclusive and, taken collec- tively, they could be a serious destabilizing political factor. The most crucial destabilizing factor, how- ever, remains the growing influence of the youth seg- ment. The Eighth Development Plan (2004–2009) shows about 40.4 percent of the total Saudi popula- tion are below 15 years of age, and the median age of the population is estimated at 17.3 years. This means that one half of the population is at or be- low age 17.3 years. Most of the youth population is concentrated in the relatively few urban centers. This could make this group a potential bombshell and a source for social and political unrest. This particular group, relative to other and previous gen- erations, has access to satellite communications and various sources of media. This factor, coupled with an extensive use of cellular phones and other media technologies, makes the youth less inclined to show conformity to social and political order. Their ex- posure to world politics and their interest in unbri- dled political and religious debates via Arab and for- eign television stations such as Al Jazeera, al-Manar, BBC, MSNBC, and CNN reinforce such tendencies and most likely lead them to question political deci- sions and the ruling family. Bradley (2004) suggests that the frustration among the youth in the kingdom is akin to that which led to the French Revolution. However, Bradley’s assertion that this frustration and resentment toward the privileged classes and the ruling family is certain to result in a popular rev-

olution against the al Saud family seems unrealistic given the nature of prevailing social forces, the depth and complexity of the Saud family network with tribes, influential families, Wahhabi religious au- thority, and the superpowers. This, in addition to the ability of the ruling family to manage social and po- litical crises, makes it impossible to have a full-scale uprising.

While tribal and family identity along with social classes (e.g., middle class, lower class, etc.) are the typically common classification for social groups in the West and other regions, in terms of power and rising influence, such classification may not be adequate in Arabia.

This is particularly true as traditional social forces and norms constitute a powerful restraining factor in the society. While tribal and family identity along with social classes (e.g., middle class, lower class, etc.) are the typically common classification for so- cial groups in the West and other regions, in terms of power and rising influence, such classification may not be adequate in Arabia. For many years, the power of the ruling al Saud family and the al Sheikh (descendents of the founder of Wahhabism) have maintained a hold on power and influence, and will do so for the foreseeable future. But these two families confront a changing landscape in the king- dom. Not only has the size of the middle class and urban dwellers dramatically increased, but also in- teraction with the outside world and exposure to competing ideologies regionally and globally have given rise to various groups. These groups, though, are not yet cohesive, tend to leave their mark on policy direction either directly or indirectly, are des- tined to shape the evolution of events in the years to come, and help to accurately predict the directions and trends in the area both politically and econom- ically. The following is a brief description of the groups.

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Secular Groups

These are most common among intellectuals and entrepreneurs and are found in major metropolitan areas (e.g., Jeddah, Riyadh) and in the western and eastern regions. Due to the nature of the political system and possible prosecution, these groups do not voice their concerns assertively. Among these groups, there are those who are alienated: specta- tors, idealists, nationalists, reformists, and pragma- tists. The last four segments seek political openness and more open relations with other civilizations. Most of them strike a fine balance between their pro- fessional and family duties, civic responsibilities and political constraints. In addition, they see no contra- dictions between patriotism and global trends.

Among these groups, there are those who are alien- ated: spectators, idealists, nationalists, reformists, and pragmatists. The last four segments seek po- litical openness and more open relations with other civilizations.

Conservative Groups

These are the silent majority. They are either socially or religiously conservative. Their identity centers on their tribal, family, or religious affiliations. They are concerned with social and economic trends. These groups, however, are not necessarily rigid or ex- tremist in their religious beliefs and interpretations. Rather, they are suspicious of changes that are not sanctioned by their charismatic leaders, be they rulers, traditional tribal chiefs, or religious figures. Their views on women’s roles in the society are strictly limited, but they do not necessarily object to women’s participation in economic activities. They are hopeful but not pessimistic, are influenced by religion but shy away from rigidity and extremism. Their religious identification primarily stems from what has been transmitted from previous genera- tions, but they are not dogmatic. They tend to view any social or economic program in terms of its

possible negative consequences on accepted social norms. Their preference for the status quo or oc- casional gradual changes should not be interpreted as a protest against business globalization but as identification with what is traditionally cherished and appreciated.

Religious Wahhabi Elite and Network

These are the most powerful groups after the ruling family. Their pronouncements have far-reaching po- litical and social implications. They tend to view all events, inside and outside the kingdom, from their narrow religious perspectives. These groups repre- sent the Wahhabi establishment and have tradition- ally shown a complete obedience to the ruling fam- ily. Among them are the traditionalist, illusionist, and extremist groups. The last two have dispropor- tional power and often use the mutawaa (religious police or what is formally known as the Commission for the Promotion of Virtue and Prevention of Vice) to directly force their will on the public and punish those who are perceived to be deviating from Wah- habi instructions. Human Rights Watch (2008) re- ported that the Commission has executed people for sorcery and witchcraft. Likewise, the Saudi Gazette (see Zawawi, 2008) reported that members of this Commission visited flower and gift shops in Riyadh and instructed them to remove red items includ- ing red roses, wrapping papers, boxes, and teddy bears from their shops before Valentine’s Day, as red items are symbols of love. The report quoted a Wahhabi religious scholar stating that celebrat- ing this day “encourages immoral relations between unmarried men and women.” This group is an im- portant pillar of political stability and security in the kingdom, constitutes a serious obstacle to integrat- ing into the global economy, and often questions the merit of economic globalization.

Rebellious Groups

These groups constitute the rising segment of the population that is exposed to iPods, iPhones, satel- lite TVs, and the Internet. They enjoy material pos- sessions and resent social and political restrictions.

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They appreciate Western offerings and identify with entertainment celebrities both at home and abroad, especially the West. Their infatuation with Western offerings, however, is superficial and appears to have not taken root. Though they are more immersed in consumerism than other groups, they tend to lack discipline and generally are not persistent in pursu- ing clear and well-articulated goals regarding work or national issues. They are mostly driven by imme- diate desires and gratifications. Their resentment of social norms is easily contained, as both their par- ents and the regime allow them to take trips abroad to engage in what is prohibited at home. For ex- ample, a report in the Saudi Gazette indicates that young Saudis travel to Dubai, Bahrain, and other places looking for leisure activities and personal enjoyments.

All these groups appear to understand existing po- litical limitations, know their boundaries, and act accordingly. Yet, the shape of society will eventu- ally be decided by the interplay among these groups. In the 1960s–1970s, society was able to weather the wave of Arab nationalism and liberalism. Seg- ments of the younger population, between 15 and 25 years old, were infatuated with the prevailing ideologies and constituted a serious threat to the ruling family. Nevertheless, once they got jobs and established families, their priorities shifted and they became part of the very regime they had despised. At that time, however, religious extremism and rigidity were not common, and the regime was able to co- opt the liberal and national voices through careful courting. In recent years, however, the ruling family has come under simultaneous pressure from the in- ternational community, which calls for introducing orderly change, and from the Wahhabi elite, who re- sist any measurable change. The public is cautiously watching these two forces at work.

Aside from radical change in the kingdom, currently there are three possible alternate scenarios: more likely (controlled changes are introduced gradually and prudently), likely (cosmetic changes are under-

taken), and less likely (no change). Under the first scenario, both secular and rebellious groups are able to coherently present their concerns to the ruling family, and the latter concludes that the only way to survive is to convince the religious groups that gaining legitimacy in a changing world requires a form of political openness and some relaxation of social regulations combined with widening business opportunities for diverse groups. Under the second scenario, both the ruling family and the religious groups give lip service to demands made by the so- ciety and the international community. While they publicly espouse and call for change, including an encouragement of national dialogue and political inclusiveness, practically, social and political restric- tions are enforced but access to economic opportu- nities is sanctioned. The less likely situation is for the ruling family to maintain the status quo and resist any demand for tangible ease of social and politi- cal constraints. This possibility, however, will ulti- mately radicalize the secular and the youth segments and lead to inflaming of public resentments.

In recent years, the ruling family has come under simultaneous pressure from the international com- munity, which calls for introducing orderly change, and from the Wahhabi elite, who resist any measur- able change.

Economic Conditions

Unlike many other developing nations, Saudi Ara- bia has several economic characteristics that posi- tion it differently from other developing and market economy countries. First, the huge oil revenue al- lows the government to reward Arabians lavishly, regardless of efficiency. Second, the share of for- eign workers in both the total workforce and the private sector is relatively high. The Ministry of La- bor reported that for each employed Arabian, there were 31 employed expatriates in 2007 (Al-Dossary,

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2008). Most foreign residents work in the private business sector as housemaids. Indeed, some fami- lies have two or more house servants. The kingdom receives between 250,000 and 300,000 domestic ser- vants from various nationalities annually (“Saudi to Hire Over 2 Million,” 2008). Third, the government requires foreign business individuals to have a local citizen or an existing company as a guarantor or sponsor for their operations. Fourth, most of the private businesses are controlled by family houses. Of the largest 100 corporations in the kingdom in 2006, more than 70 percent were held directly by family houses. Fifth, the government invests heavily in infrastructure and, due to increasing oil revenues, it mostly seeks know-how and networking instead of capital in its encouragement of foreign direct invest- ment (FDI). Sixth, the kingdom espouses a form of free market economy called Sheiko-Capitalism (Ali, 1995). In this system, the fate of the market economy is dependent on the wishes of the ruler, who acts, us- ing government resources, as an enabling and con- straining force simultaneously. That is, the market mechanism is useful as long as it serves and furthers the interest of the monarchy. Sheiko-Capitalism is characterized by lack of institutional arrangements and procedures; the supremacy of the ruler’s will in determining when and how to interfere in market mechanisms; trade and market being in the service of the government, not vice versa; weak manage- ment tradition and professionalism; and a tendency to overlook corruption, especially when committed by influential individuals. The system offers a mech- anism to safeguard the interests of the ruling elite, co-opt powerful national actors while meeting the demands of the global superpowers, and facilitate MNC operations by complying with the regulations of international organizations such as the Interna- tional Monetary Fund (IMF) and the World Trade Organization (WTO).

The kingdom, since 1970, has enacted eight five- year development plans with the aim of reducing dependency on oil and diversifying sources of in- come. The primary goals, however, have been to pre-

serve the country’s traditions and conservative cul- ture. These are considered supreme goals and appear to underlie all major economic programs. Neverthe- less, the kingdom is embarking on mega economic projects and has intensified its involvement in the global economy, making it almost impossible not to undergo some cultural changes and rethink na- tional priorities. These involvements have widened the commitment to global economic integration and offer MNCs vast and lucrative opportunities. Fur- thermore, these economic activities may steadily im- prove the welfare of Arabians, thereby increasing demands for goods and services provided by MNCs.

The Saudi middle class is considerably large and is practically one of the most economically dynamic segments in the Middle East. Its ability to spend money on consumer products and shopping in gen- eral is not driven solely by its newfound wealth, but also because there are limited leisure outlets in the kingdom. The Global Retail Development In- dex 2007 (A.T. Kearney, 2007) shows that Saudi Arabia ranks at the top among the most attractive 30 emerging countries for retail investment: a climb from number 17 in 2006 to number 10 in 2007. This manifests itself in an appetite for a variety of goods and services, a desire to spend money, and an adaptation of Western-style retail concepts and consumerism. Over the years, the per capita income has been relatively high, and the kingdom ranks 61st out of 177 countries in the United Nations Human Development Index 2007/2008 (United Nations Development Programme. 2008), placing it among the high category.

The Saudi middle class is considerably large and is practically one of the most economically dynamic segments in the Middle East.

Exhibit 1 presents major indicators of the economy. It appears that for the last few years, gross domes- tic product (GDP), per capita income, population,

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Exhibit 1. Major Economic Indicators (Million SR)

1999 2000 2001 2002 2003 2004 2005 2006

Gross Domestic Product- Nominal (SR billion)

603.6 706.7 686.3 707.1 804.6 938.8 1,182.5 1,307.5

Growth in GDP-Nominal (%)

10.4 17.1 −2.9 3.0 13.8 16.7 26.0 10.6

GDP Real (1999 prices— SR billion)

603.6 633.0 636.4 637.2 686.0 722.2 766.0 798.9

Growth in Private Sector (%)

3.8 4.3 3.7 3.8 4.4 5.7 5.7 6.3

Growth in Government Sector (%)

0.9 3.0 2.3 2.4 2.6 2.2 3.3 5.7

Gross Fixed Capital Formation (1999 prices—SR billion)

118.2 123.8 126.2 130.0 145.2 154.8 167.7 180.5

Growth in Gross Fixed Capital Formation (%)

8.6 4.8 1.9 2.9 11.7 6.6 8.4 7.6

GDP/Capita Total Population (SR)

30,210 34,674 32,821 32,979 36,608 41,669 51,147 55,216

GDP/Capita Saudi Population (SR)

41,427 47,650 45,092 45,296 50,259 57,174 70,179 75,711

Total Population (Millions persons)

19.98 20.38 20.91 21.44 21.98 22.53 23.12 23.68

Arabians 14.57 14.83 15.22 15.61 16.01 16.42 16.85 17.27 Non-Arabians 5.41 5.55 5.69 5.83 5.97 6.11 6.27 6.41

Total Labor Force (Thousand persons)

7,230.3 7,155.6 7,582.7 8,244.7 8,278.1 8,281.8 8,520.0 8,707.6

Arabians 2,712.0 2,844.1 2,991.5 3,108.1 3,303.3 3,536.3 3,741.3 4,017.4 Non-Arabians 4,518.3 4,311.5 4,591.2 5,136.6 4,974.8 4,745.5 4,778.7 4,690.2 Government Sector 1,001.2 1,020.1 1,036.2 1,053.4 1,072.7 1,105.4 1,151.9 1,193.3 Private Sector 6,229.1 6,135.5 6,546.5 7,191.3 7,205.4 7,176.4 7,368.1 7,514.3

Government Budget Balance (SR billion)

–36.4 22.8 –26.9 –20.5 38.0 107.1 217.8 280.4

Revenues 147.4 258.1 228.2 213.0 295.0 392.3 564.3 673.7 Expenditures 183.8 235.3 255.1 233.5 257.0 285.2 346.5 393.3 Balance as % Share of

GDP-Nominal –6.0 3.2 –3.9 –2.9 4.7 11.4 18.4 21.4

Merchandise Exports (fob—SR billion)

190.1 290.6 254.9 271.7 349.7 472.5 677.1 791.3

Oil (crude and refined products)

168.2 265.7 224.2 239.3 308.5 415.3 604.7 705.8

Others (non-oil) 21.9 24.8 30.7 32.4 41.1 57.2 72.4 85.5

Merchandise Imports (CIF—SR billion)

105.0 113.2 116.9 121.1 138.4 167.8 222.8 261.4

Crude Oil Production (million barrels/day)

7.6 8.1 7.9 7.1 8.4 8.9 9.5 9.2

Average Price—Arabian Light (U.S.$/barrel)

17.45 26.81 23.06 24.32 27.11 34.53 49.67 59.01

Source: Based on Ministry of Planning (2008).

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national budget balance, and trade balance are steadily increasing. Furthermore, the share of Arabi- ans in the workforce is improving, with a noticeable decrease in the share of expatriates, from 63 percent in 1999 to 54 percent in 2006. For the same period, however, the share of oil in total merchandise export (88 percent) stays almost the same, demonstrating chronic dependency on oil revenues and the demand for it in the global market. Since 2003, crude oil pro- duction (million barrels/day) has steadily increased to accommodate world demand for oil, reflecting the kingdom’s willingness to increase production to prevent a dramatic jump in oil prices.

Liberalization of the Economy

In March 1991, immediately after the United States ended Saddam’s occupation of Kuwait, both reform and conservative groups in the kingdom petitioned the king to relax political restrictions on freedom of speech within specified boundaries. This develop- ment, along with international pressures, forced the king to initiate rapid economic liberalization pro- grams and to purposefully integrate the national economy into the world market. The ruling fam- ily appeared to reach a conclusion that opening the economy for MNCs would result in diverting the attention of the public from internal political affairs by focusing on emerging business opportunities and simultaneously persuading foreign powers that the ruling family is the only reliable defender of MNCs and their economic interests in the region. In the meantime, the kingdom took steps to open the local market to international trade and applied for mem- bership in the WTO and obtained it in December 2005. Since then, the kingdom has embarked on lib- eralizing trade policies and actively sought FDI.

In March 1991, immediately after the United States ended Saddam’s occupation of Kuwait, both reform and conservative groups in the kingdom petitioned the king to relax political restrictions on freedom of speech within specified boundaries.

In fact, foreign capital investment has increased and joint ventures have flourished in the kingdom. The United Nations Conference on Trade and Develop- ment (UNCTAD; 2007) reported that in 2006 Saudi Arabia was the second-largest FDI target in West Asia, receiving $18 billion (an increase of 51 percent over 2005). Most foreign participation is motivated by Saudi government support and by the opportu- nity to establish a niche in a highly competitive mar- ket. The value of licensed investment in the kingdom rose from SR 18 billion in 2004 to SR 334 billion in 2007. This encompassed about 1,438 joint ven- tures (JVs) distributed among the most promising sectors, including 104 projects in telecommunica- tion and information technology, 63 in energy, 28 in real estate, 24 in health care, 15 in earth science, and 17 in transportation (“Sagia’s Plan to Develop New Region,” 2008). In 2006, the total licensed projects since 2000 reached 4694, amounting to $78 billion (SAGIA, 2006). Countries with the largest FDI in- flow into the kingdom in 2006 were the United Arab Emirates ($4.9 billion), Japan ($3.5 billion), France ($2.0 billion), the United States ($1.6 billion), and Canada ($1.6 billion) (SAGIA, 2007). In an edito- rial, the Arab News (“Partnerships to Open New Doors,” 2008) asserted that almost every business in the kingdom is engaged in some forms of foreign re- lationships, stating, “The Saudi economy, and with it Saudi prosperity, is one of the most involved in foreign trade in the world—which means that what happens internationally is of immense importance.”

While considerable attention has been given to the position of the kingdom in the world’s oil market, there is little, if any, coverage of the kingdom’s ac- cumulated wealth. As of 2007, the kingdom has had the largest sovereign wealth funds in the world, amounting to $900 billion (“Saudi Arabia ‘Should Revalue Its Currency,” 2008). This development, accelerated by the tripling of oil prices since 2002, represents the largest and fastest-growing element of a broader shift in global economic markets and in- creasing influence of petrodollar investors (Farrell & Lund, 2008). These funds and other activities place

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the kingdom as one of the most competitive and attractive locations for MNCs. Planned investment for the completion of King Abdullah Economic City alone is estimated to be $120 billion. Moreover, the kingdom’s annual spending on the Internet is about $3.38 billion (Trade Arabia, 2008) and on pharma- ceuticals, $1.7 billion (Stensgaard, 2008). Likewise, Saudi Arabia has $184.4 billion worth of projects either planned or under way (Bowman, 2008) and plans to invest $40 billion on water and sewage in- frastructure in the next 20 years (Gulf Research Cen- ter, 2008a). In the energy sector, the kingdom plans to invest $70 billion to expand its crude oil and natural gas production, and $25 billion to increase its refining production capacity (Global Investment House, 2008).

These activities have been facilitated by a profound reform in trade, FDI, and labor regulations. Mem- bership in the WTO and subsequent bilateral trade agreements with the United States and other coun- tries have led to the opening of the kingdom’s market for foreign trade and FDI. The Ministry of Com- merce and Industry announced in early 2008 that it would complete commercial registration of com- panies within two hours after application (Gulf Re- search Center, 2008b). The FDI law of 2000 has removed most of the restrictions on foreign invest- ment, permits the establishment of full foreign own- ership, and offers the same incentives to MNCs as those granted to national firms. In 2005, the king- dom enacted a new labor law that abolished many limitations on employment and training from the previous laws. The law, however, prohibits firms from engaging in recruiting without prior approval and valid licenses. This applies both to recruiting of citizens and of foreign personnel. Furthermore, the law specifies the requirements for recruiting nation- als and the steps that must be taken to obtain work permits for noncitizens. Guidelines for labor con- flicts and problems are specified, along with possible penalties. The law also specifies steps that companies should undertake to improve the hiring of nation- als (i.e., the Saudization program). The Ministry of

Labor (2008), however, acknowledged the failure of the program and reduced the sanctioned share of na- tionals in the workforce in the private sector from 30 percent to 20 and 15 percent for existing and new factories, respectively. The ministry, however, encourages companies that recruit foreign personnel to come up with a plan to train and hire nationals.

Fundamental Challenges

While business opportunities are ample in the king- dom, there are serious problems that might impede smooth conduct and operation. These are not the result of a lack of adequate infrastructure, skilled labor, or government support. Rather, these chal- lenges stem primarily from the nature of the po- litical system and its complex reliance on a highly conservative religious institution. The latter, because of its dual contradictory functions (legitimizing and constraining the ruling family), often views open- ness as a threat to the continuity and prosperity of the ruling family. Consequently, it seeks to maintain conservative social, economic, and political outlook and behavior. Furthermore, since the early 1970s, the public sector has expanded dramatically, liter- ally paralyzing the implementation of enacted ad- ministrative and economic reforms. The challenges can be grouped into three general categories:

1. Political Limitations. The lack of political free- dom, free press, and political association, along with the reliance of Arabian businesspeople on the approval and support of the ruling fam- ily, sets clear but limited boundaries on what is permitted and prohibited in the public dis- course. This might place considerable constraints on Arabian executives and policymakers in their discussion and dealings with foreign business- people, thereby preventing them from consider- ing various possibilities and opportunities.

2. Conservative Religious Outlook. Interactions, whether business or personal, between men and women are highly restricted. The religious authority not only views economic openness with great suspicion, but also prohibits any

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display of immodest appearance and attire. Like- wise, it considers simple public meetings with the opposite sex who are not family members or close relatives a heinous crime. The Saudi Arab News (“Virtue Commission Defends Ar- rest of Businesswoman,” 2008) reported that a businesswoman and her colleague were arrested for being together in a Starbucks café in the cap- ital, Riyadh. In justifying the arrest, the Com- mission for the Promotion of Virtue and Pre- vention of Vice stated, “The Ministry of Labor does not approve mixing of men and women at work places. So it’s both a violation of the coun- try’s law and the Shariah.” Such restrictions and bans impede business interactions and dealings and may divert attention from business priorities as executives may be psychologically concerned in figuring out what is permissible and what is banned.

3. Massive Bureaucracy. The sheer size of the public sector and its inefficiency and lack of professionalism hinders the implementation of comparatively liberal and business-friendly trade and investment instructions. The Khaleej Times (“Saudi Economy Losses $16b in Investments,” 2007) reported that the Saudi economy loses $16 billion in investments and more than 120,000 jobs annually as a result of bureaucratic practices and obstruction in implementing major projects.

The sheer size of the public sector and its inefficiency and lack of professionalism hinders the implemen- tation of comparatively liberal and business-friendly trade and investment instructions.

Overcoming Challenges

The kingdom is not only one of the major growing economies in the Middle East but also the one with the most extensive experience in the world economy and with MNCs. The latter have been operating in

the kingdom since the turn of the twentieth century and their presence, both in terms of number and size of involvement, has intensified. Many MNCs have expanded rapidly in the kingdom and expe- rienced steady growth. These companies, however, have utilized various strategies and made successful adaptation to social and political constraints.

In fact, international managers should keep in mind that companies that have made remarkable inroads into the kingdom and have achieved noticeable suc- cess have employed a number of skills to dominate the market and compete effectively. These corpo- rations can be grouped into three categories: the all-powerful, the well connected, and the compet- itively capable. The first group includes energy and chemical corporations (e.g., Texas Oil Co., Stan- dard Oil of California-Chevron, Exxon) that estab- lished a foothold in the early stage of the kingdom’s formation. During that time, the king and his al Saudi family were in need of cash and technology to explore resources. These corporations provided the king with needed finance and economic advice when no other feasible alternatives existed. In re- turn, these services have deepened the dependency of the ruling family on these companies, which has situated them as major players in the kingdom. Con- sequently, these companies have exercised tremen- dous influence and have obtained considerable con- cessions from the ruling family.

The well-connected corporations (e.g., Carlyle, Halliburton) are those that have utilized their politi- cal capital at home to reach out and link themselves to powerful individuals in the kingdom, including members of the ruling family. These corporations use their connections to outmaneuver competitors and earn attractive returns on capital. The third cat- egory encompasses corporations that have a proven record in the global marketplace in terms of quality, productivity, and image (e.g., Toyota, Cisco, Sony, and Mercedes). The competitive advantage of these corporations enables them to market their products and services easily in the kingdom, where customers

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have a great appetite for something new, special, and/or prestigious.

The Case of Carlyle

Carlyle has conducted its affairs in the kingdom in a most profitable way. Indeed, Carlyle manage- ment has used its savvy market approaches and con- nections with policymakers in Washington and the kingdom to build, in a short time, one of the most successful corporations in modern history. The com- pany was cofounded in 1987 by David Rubenstein, a foreign policy expert, as a private equity firm. Since then, the firm has become one of the world’s largest private equity firms with $81.1 billion under man- agement and current investments in more than 200 companies (Carlyle Group, 2008).

In the first few years, Rubenstein recruited former President George H. W. Bush and his Secretary of State, James Baker III, along with John Major, for- mer prime minister of Britain, to serve as senior advisers and or/partners, while former Secretary of Defense Frank Carlucci served as chairman/CEO. Rubenstein has shown exceptional interest in the Middle East in his search of energy dollars to fi- nance deals in the United States and other places. Indeed, Carlyle has been one of the most aggressive private equity firms in courting investors from Saudi Arabia and other Arab oil-producing countries. Ac- tually, Rubenstein may be helped by the billions of dollars that the oil-producing countries are invest- ing in the United States and Europe. The Middle East spent more than $64 billion in 2007 on invest- ments abroad (Sorkin, 2007), and this amount is ex- pected to increase substantially as the six gulf coun- tries (Saudi Arabia, Bahrain, UAE, Kuwait, Oman, and Qatar) are destined to accumulate more than $3 trillion in sovereign wealth funds alone by 2010 (“Gulf SWFs to Surge Twofold by 2010,” 2008).

In its business operation in the kingdom, the Car- lyle Group embarked on three interrelated strate- gies: seeking the service of and employing influential Western politicians to smooth its operation in the

kingdom, working closely with senior members of the al Saud ruling family, and participating in busi- ness and cultural activities in the Kingdom. The first strategy gives the group not only the needed access to market, exposure, and publicity, but also the needed political capital to act with the confidence and flexi- bility necessary for concluding business deals in the highly personalized society of the kingdom. It has recruited people (e.g., George H. W. Bush, James Baker, and Richard Darman) who have been known for having close working and personal relationships with senior members of the al Saud ruling family, in- cluding the king and the crown prince. For Carlyle, this star power is part of an acknowledged long- term strategy to effectively link the firm to brand- name politicians and business executives to help it broaden its political and business networks and gain access to their money, insights, and connections (Wayne, 2001). According to Daniel A. D’Aniello, a Carlyle managing director, this strategy assists in strengthening the brand awareness for Carlyle and “shows that we are associated with people [Bush and Baker] of the highest ethical standards” (quoted in Wayne, 2001).

In its business operation in the kingdom, the Carlyle Group embarked on three interrelated strategies: seeking the service of and employing influential Western politicians to smooth its operation in the kingdom, working closely with senior members of the al Saud ruling family, and participating in business and cultural activities in the Kingdom.

The second strategy focuses on working with in- fluential members of the ruling family (e.g., Prince Faisal bin Saud, Prince Waleed bin Talal, and Prince Bander) and business executives. This connection enables Carlyle to raise funds and get access to cer- tain deals and opportunities that it might otherwise not have. For example, Carlyle represented Prince Waleed bin Talal to buy a large share of Citicorp

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in 1991. Rubenstein underscored this development when he stated, “We were mostly interested in de- veloping a relationship with him [bin Talal] that might lead to other things in the future” (quoted in Gilpin, 1991).

The third strategy revolves around participation in cultural and business activities in the kingdom (e.g., the Jeddah Economic Forum). Such participation not only strengthens the Carlyle’s position in the kingdom, but also projects it as a major player in current regional affairs, gives it regional expo- sure, and enhances its connection with powerful eco- nomic and political actors in the kingdom and the region.

Finding the Right Path

The success of Carlyle in the kingdom, to a large degree, is the result of a simultaneous and careful implementation of the above three strategies. It is not known, however, whether other MNCs can do the same, face similar circumstances, and seize on opening opportunities. MNCs have ample oppor- tunities in the market, and the competition land- scape stimulates creative approaches for addressing emerging challenges. Indeed, the unlimited support the senior members of the ruling family, including the king, provide for MNCs and the commitment to economic reform should be pivotal factors for facili- tating and encouraging MNC operations. Neverthe- less, international managers can ease their dealings in the kingdom and seize on emerging opportuni- ties to the benefit of their firms by acquiring general information and skills for effective conduct.

International managers can ease their dealings in the kingdom and seize on emerging opportunities to the benefit of their firms by acquiring general information and skills for effective conduct.

It is possible to outline three elements necessarily for devising a practical framework for optimally over-

coming problems and setting the stage for fruitful business and personal conduct in Arabia. These are interpersonal relations, communications, and man- agement orientations and practices.

Interpersonal Relations. Despite the enormous accu- mulated wealth at the national and organizational levels, the kingdom remains a highly personalized society. Due to this fact, essentially there is no sepa- ration between personal and business matters. Ara- bians do not imagine existence without personal networking and intense interactions. Their primary domain is the personal sphere and relationship in which their personalities evolve and their aspirations thrive. Their personal disposition and their warm- ness coupled with their fierce loyalty to those who are treated as friends make them receptive to con- tradictory messages but attentive to concerns and requests of those with whom they are dealing. This should be kept in mind, especially in an initial meet- ing with Arabians. Once a positive perception of their counterparts is enforced, their willingness to cooperate and do business is an ensured outcome. Indeed, informal dealings and friendships ease un- derstanding, breach obstacles, and motivate Arabi- ans to look at ways to accommodate the MNC’s concerns.

Senior businesspeople give special attention to for- eigners whose names are known globally and who have either a personal connection to the ruling fam- ily or policymakers abroad. Furthermore, they ap- preciate those who engage in their social and cultural activities. Carlyle management has taken note of this fact and has always included Western politicians on its team and has actively participated in economic and cultural activities organized in the kingdom.

Arabians are sensitive to their local image and reputation and strive to project themselves as hospitable, concerned, and observant of prevail- ing societal norms. As such, they make consider- able efforts to maintain a balance between social norms and Western expectations. Their quest for

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face saving while pleasing their business counter- parts, especially Westerners, is genuine. It is impor- tant to note that the majority of Arabians believe that Islam is the foundation of their conduct and that their version of religion, Wahhabism, resembles pure Islam. Whether this is accurate or not, it should not be a subject of debate and should be taken at face value. In personal conversation, therefore, it is advisable to avoid, if possible, any argument rel- ative to religion. Comments about some practices may be taken negatively and open the door for sus- picions. In the case that an individual there raises a religious issue, listening first is prudent. Interna- tional managers should also be sensitive to the fact that expressing political thought freely may not be wise. While knowing the personal political thinking of the Arabian counterparts is an advantage, Arabi- ans, in general, have to live within their own political constraints and thus tend not to express their feel- ings freely. Only after several encounters, especially when they are abroad, may Arabians express their political views on internal affairs relatively openly. Usually, it is only after personal relationships with Arabians are maintained and understanding is es- tablished that international managers can address emerging political issues without necessarily offend- ing their counterparts.

Communications. Arabians are trained from early childhood to engage and take part in group conversation and social gathering. Citing tradi- tional/religious sayings and poetry is considered a virtue and a useful means for cultivating a pleas- ant personality. Therefore, Arabians develop a pref- erence for oral and face-to-face communication. It is in these personal interactions and through verbal and nonverbal communication that Arabians seek to demonstrate their eloquence in style and in project- ing a positive image of themselves. Ali (2008) argues that Arabians in their interactions prefer direct eye contact and a display of attentiveness and warmth in interaction. Individuals are received and treated ac- cording to personal reputations; are at ease in their usage of Arabic words and terms that assume differ-

ent meanings depending on the context; frequently use nonverbal communications that are situational, thereby conveying contradictory messages (e.g., a direct look that conveys surprise could mean ad- miration or contempt); keep family affairs within a very close circle (therefore, it is advisable not to ask direct or specific questions about a spouse, though indirect comments such as “how are the children or family?” may be looked at favorably); show respect for elders in communications and interaction; pre- fer to be addressed by first name with appropriate titles (e.g., sheikh, doctor, hajji, etc.) or a nickname (e.g., Abu-father of, usually son or daughter); and tend to have segregation based on gender—Western women may serve on the team but should not antic- ipate a noticeable presence of Arabian women when members of the team are mostly men.

Arabians are trained from early childhood to en- gage and take part in group conversation and social gathering. Citing traditional/religious sayings and poetry is considered a virtue and a useful means for cultivating a pleasant personality.

In order to avoid possible blunders in communica- tions with Arabians, Carlyle initially relied on heavy- weight politicians (e.g., James Baker) to get advice on how to deal with Arabians. Later on, as its busi- ness thrived in the Middle East, Carlyle established offices in the region and employed personnel who have professional and deep personal knowledge of the region’s culture, political affairs, and communi- cation patterns (e.g., Walid Musallam, its managing director and head of the Middle East and North Africa fund, and Firas Nasir, a managing director with special focus on countries such as Qatar, Saudi Arabia, and the UAE).

Ali argues that Arabians, like many in other parts of the Gulf states, have certain etiquettes and expecta- tions. Familiarity with them is useful for smoothing

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business negotiations and cultivating friendly rela- tions. They are:

1. Arabians are mostly inclined toward face-to- face meetings. It is during such encounters that Arabians relate to their counterparts and de- termine whether or not long-term dealings are possible. Furthermore, it is during such encoun- ters that Arabians seek to show their hospitality and clarify their priorities.

2. Scheduled meetings may be delayed or often rescheduled because personal matters, often involving family, take priority. International managers should not regard this tendency neg- atively, because meeting family matters and ur- gent requests are part of societal expectations.

3. Arabians prefer handshakes, and in the case of acquaintances, kissing on the cheeks is com- mon. These should be viewed as a sign of friend- ship and/or may convey that approval of a busi- ness dealing is in the making.

4. Handshakes and greetings to members of a ta- ble meeting usually follow a counterclockwise direction.

5. Arabians prefer close proximity and intimate conversation. This is applicable both to per- sonal and business encounters.

6. Meetings are often interrupted by subordinates, friends, or relatives. While socialization and cul- tural norms sanction such behavior, Arabians may display it to demonstrate their relaxed and friendly style.

7. Arabians prefer consultation before formally announcing a final decision. This does not con- vey a lack of authority or hesitation but a will- ingness to let others be in the picture and/or to get the blessing of senior members of the com- pany/family.

8. Arabians have a strong desire to know the peo- ple and the general backgrounds of those with whom they are dealing. International managers should not expect direct or immediate coverage of the business topics and should not consider it as intrusive.

9. Arabians have a tendency to compromise and are easily persuaded to offer concessions once they feel that their counterparts are honest and willing to reciprocate.

10. Arabians do not like to be rushed into finish- ing business deals. This may reflect a belief that business is just part of life and personal relation- ships are the foundation of fruitful dealings.

11. Arabians are less inclined to gather detailed in- formation about the negotiation subject and subsequently spend less time then their West- ern counterparts on preparations and planning platforms.

12. Gifts, though accepted, are not necessarily ex- pected, especially in the first meeting.

13. Arabians, generally, prefer enduring and stable business relationships. They often utilize per- sonal contacts and friendships in meeting such goals.

14. Business cards may be exchanged but are not es- sential. Priority is given to personal information and casual introductions.

15. Business meetings are not necessarily well struc- tured and seldom follow specified agendas. Some topics on the priority list of interna- tional managers may be casually covered, and religious or social obligations may render the agreed-upon schedule tentative (e.g., prayer time, receiving calls, delivering messages).

Arabians do not like to be rushed into finishing busi- ness deals. This may reflect a belief that business is just part of life and personal relationships are the foundation of fruitful dealings.

Management Orientations and Practice. Senior Arabian managers and businesspeople are inclined toward a consultative style. This style is sanctioned by both tribal tradition and religion. However, the inter- play of sudden economic prosperity and boom, a heavy reliance on expatriates, social priorities, and

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traditional norms and values has generated four commonly distinct but not exclusive management practices. The first is management by measurement, common among managers who are influenced by Western practices and emphasis on performance. The second is management by “gool tem” (say done), whereby a superior may be approached to act on a request or to grant permission without know- ing in advance the nature or the extent of the subject matter. This practice is common among senior mem- bers in their dealing with the influential ruling elite. It is possible that the founders of Carlyle were famil- iar with this approach when they included in their contact with the Saudi ruling family former presi- dent George H. W. Bush or James Baker. The third is management by others, whereby national managers serve as figureheads, while the bulk of the business is carried out by expatriates. And the fourth is man- agement by exception, in which huge organizations are established with elaborate rules and procedures and specifications. These rules, however, are treated with exception depending on relationships with oth- ers, nature of requests, and urgency of the matter.

While the above practices are common among senior managers, be they in public or private, small or large organizations, international managers should also be familiar with the three types of bureaucrats:

1. Kafoa: These types of Arabian employees observe rules while maintaining professional conduct and performing their duties. These are not common in the public sector but can be found in some private companies.

2. Maslaki (literally a career-oriented, go-along, professional): These are national employees who do their work at a slow pace, strictly follow the rules, and are often impersonal with their clients but not with their peers and supervisors. They are faceless, faithful, and subservient but with no deep convictions and just do what they were told to do. Their distinctive qualities are: avoid- ance of any creative conduct, high sense of sur- vival, strict observance of instructions, obedience

to supervisors, loyalty to those in power, insecu- rity, slow processing of work, and treatment of rules as contingent upon the wishes of the boss (Ali, 2005).

3. la Mubali (the indifferent): These nationals are not concerned with efficient operations, organi- zational goals, or clients, and silently express dis- may with those in power in the organizations. Psychologically, they are not committed to work. Their belonging to the organization stems pri- marily from their needs for income and a job. They view work as a burden and therefore do not process it unless they are forced to do so. If work is processed, it is done as a favor to some- one but not as part of their normal duties. Of- ten, they ridicule creativity and commitment to work. Often, they attempt to impede the orderly conduct of work by finding excuses and reasons not to process work, delay action, and/or take responsibility.

Whether international managers are dealing with se- nior or middle-level Arabian executives, they should take note of a widely common practice of wasta (in- tercession) and its derivative wasiet (intercessor).

Whether international managers are dealing with se- nior or middle-level Arabian executives, they should take note of a widely common practice of wasta (intercession) and its derivative wasiet (intercessor). This is the hallmark of Arabian business and gov- ernment affairs, as personal connection and relation- ship are instrumental in getting things done. Indeed, wasta is common as members of family, friends, and influential people interfere on behalf of others to process requests or ignore certain organizational is- sues and/or requirements. There are three types of wasiet: a salaried employee (national or an Arab ex- patriate, often called a mendoob, or representative), a commission-based agent, and a volunteer. The lat- ter could be a national friend, supplier, partner, or

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customer who volunteers to interfere on the behalf of the international managers or their companies to expedite their requests, get them needed informa- tion, and so on. Individually and collectively, these individuals provide invaluable service and make life for international managers much easier. They per- form several functions, including sensitizing inter- national managers to possible minefields, important political, social, and economic issues, and emerg- ing trends; processing work on time and avoiding routines; networking with influential people; scan- ning the general environment; and recognizing new opportunities.

It should be mentioned that in the early years of its operations, Carlyle Group utilized its close connec- tion with influential politicians, be it Arabians or Westerners, to get its way and effectively meet its goals. In recent years, however, Carlyle has sought to expand its business beyond its main base (mem- bers of the ruling family and traditionally influential business houses) to include second layers of business houses and emerging investors. Perhaps this in part explains why the company has decided to establish a conspicuous presence in the region, especially as it starts to do more than just raise money by search- ing for investment opportunities in that part of the world. Therefore, Carlyle may find it prudent to en- large its network of wasiets to optimally serve its new strategic posture.

Conclusion

Saudi Arabia represents an attractive market for MNCs. Its huge oil reserves, friendly political environment, advanced infrastructure, skilled and relatively cheap foreign labor, steady economic growth, and phenomenal investment opportunities in megaprojects make it an ideal place for MNCs seeking vast and reliable returns on their economic involvement. While these aspects are attractive, they have been clouded by internal forces, including rigid religious interpretations of world events, sanction- ing conservative behaviors, and slow progress in political reform. These forces may constitute a ma-

jor obstacle for business involvement and productive conduct. Nevertheless, international managers may be able to work around them and minimize their adverse impact.

In addition to huge investment opportunities and the unwavering support of the ruling family for free trade and MNCs, the rise of the middle class repre- sents a healthy trend and may strengthen the king- dom’s integration in the world economy. Members of the middle class, including managers, are aware that their freedom is limited but they have man- aged to carve a fine balance between their business demands and the political reality of absolute monar- chy. Their flexible ethics and long-term perspectives enable them to maintain a controllable, often unno- ticed unease with the lack of political progress and openness. In the absence of political freedom and association, neither professional elite nor business executives would like to publicly lose face with the ruling family. Therefore, these elite look at MNCs as long-term allies in their quest for political openness and further integration in the global market.

In addition to huge investment opportunities and the unwavering support of the ruling family for free trade and MNCs, the rise of the middle class represents a healthy trend and may strengthen the kingdom’s integration in the world economy.

In the near and intermediate future, the business environment is expected to be stable, with low risk. The only two serious threats are Washington’s with- holding of its support for the ruling family and dramatic decreases in oil prices. These two factors, however, appear unlikely. Indeed, the probability of a drastic drop in oil prices or oil demands is very low, and Washington, due to geopolitical consid- erations and its dependence on oil, will not make drastic changes in its policy toward Saudi Arabia. Politically, the ruling al Saud family seems to be

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firmly in control and has been effective in contain- ing internal threats and channeling the fierce and ag- gressive spirit of its militant Wahhabis into foreign focus and events.

In this article, we outlined challenges and opportu- nities for MNCs. Without a doubt, the kingdom’s market offers MNCs a wide range of opportunities, and MNCs may find it rewarding to use the Arabian market to seize emerging opportunities, strengthen their presence in the Gulf area, and expand into the Middle East. The prospects for economic growth in the coming decade are highly promising for MNCs and international managers can utilize their busi- ness and social skills to deepen their involvement in the market and cultivate benefits for their respective corporations.

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Abbas J. Ali is a professor of management and the director of the School of International Management in the Eberly Col- lege of Business at the Indiana University of Pennsylvania. His current research interests include strategy and interna- tional management. He has published more than 135 schol- arly journal articles. He has authored six books, including Islamic Perspectives on Management and Organization, pub- lished by Edward Elgar, and Business and Management Envi- ronment in Saudi Arabia (2008), published by Routledge. He serves as editor of the International Journal of Commerce and Management, Advances in Competitiveness Research, and Competitiveness Review.

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