Business Strategy for a New Organisation in the Kingdom of Saudi Arabia Coursework

Introduction

The Kingdom of Saudi Arabia (KSA) is a unique destination for tourists over and beyond the Hajj Pilgrimage season. With 6366 heritage sites and antiquities, the Kingdom is every cultural and historical tourist’s dream. Unfortunately, most potential tourists to the region are yet to know of the unique attractions that the country has. The strict government regulations that barred foreigners from accessing Saudi Arabia are partly to blame for the underutilised tourism potential of the kingdom.

In the past, Visa issuance was a selective process with only foreigners attending the Hajj and other Islamic tours being granted the Visas. Foreign direct investments in the tourism sector especially in Hajj and Umrah related tours were completely barred. In the recent past however, the KSA government has started opening up the country for non-Muslim tourists.

Although the government is still taking a cautious approach towards people who try to gain entry into the Kingdom, recent events such as the issuance of Visas indicate that the KSA government is slowly opening up the country. This paper will model an e-business service that is intended to act as a gateway of information and service provision to tourists. The service will be in form of an online tour agency, whose main platform will be a website.

Business Strategy

The scope of the business

The Online tour agency will be modelled according to Ionica’s definition of the tour and travel agencies. Ionica (154) defines such agencies as intermediaries between tourism services consumers and the providers of tourism products and services.

Hence, the proposed tours and travel agency will tap into the local and international market targeting the existing information and service provision gap that existing brick and mortar tour firms in KSA are yet to fill. By making e-business its main platform, the proposed company will enable potential tourists who are in distant locations to arrange their travel to KSA without having to make expensive long-distance calls to the firm, or having to deal with third-party tour agents who are in their countries of origin.

According to (Euromonitor International), one of the most prominent problems that visitors to KSA face is the lack of fast and reliable tour services. This is made worse by the fact local tour firms that have websites rarely reply to emails or online instant messages sent to them by clients. While KSA is not lacking in tour companies, most of them are in brick and mortar offices and most of them focus on Hajj and other form of religious tourism (Euromonitor International).

Additionally, Euromonitor International found out that most tour firms in KSA lack an online booking and payment system. The proposed tour firm will seek to fill these gaps by providing potential clients with as much information as they may need in regard to tourist destinations in the country, and will also facilitate online booking and payments.

In addition to the recreational tourism sector interested in visiting KSA outside the Hajj and Umrah seasons, the tour firm will also target attaining a market share from business travellers. According to a country report published in part by (Euromonitor International), there is a great potential in business tourism especially considering the number of inbound business people who travel to KSA at the corporate level. Such travellers are always on the look out for companies that understand their needs, and would therefore be willing to engage the services offered by the proposed tour and travel agency.

Overall, the proposed agency will package itself as a subcontractor working between product and service suppliers in the tourism industry, and the tourists. By narrowing its business focus to being a subcontractor, the tour and travel agency will fit in Ionica’s description of how such agencies operate. In the definition, it is stated that such agencies neither have stocks in major tourism service providing firms, nor do they engage in the production of the main tourism services; rather, they act as the main coordinators between tourists and the tourist service providers such as airlines and hotels (Ionica 155).

To enhance its brand presence in the KSA, the proposed tours and travel agency will create a brick-and-mortar office. However, the physical office will not be used as a location where clients can book or order services. Rather, it will be used to host the Agency employees who will be in charge facilitating the electronic processes of the business. The decision to have a brick and mortar office is also informed by Porter’s arguments, which indicate that internet technologies should be used to complement traditional ways of doing business, rather than being substitutes of the same (Porter 63).

The workflow for the tour agency for non-religious package tours to KSA will include the following steps all done on an online set-up:

1. Yesser will contact service providers (airlines, hotels, travel companies, and travel destinations) to familiarise itself with available or upcoming tourism opportunities. Based on such knowledge, the Agency will then prepare the preliminary viable tour.
2. Yesser will then make reservations with identified service providers and make any applicable down payments
3. Next, the Agency will prepare a tour schedule, which will be sent to service suppliers for confirmation. After confirmation, Yesser will then declare the charges for the tour.
4. The tour program will then be sent to Yesser’s branches abroad where the non-religious tourist markets are located. Such locations include Europe, Asia, and the US.
5. Marketing of the tour packages will then commence in the respective markets until a specified date. However, considering that Saudi’s tourism market admits only a limited number at one time, marketing may be halted whenever the tour packages are sold out.
6. When the tour package sales are complete, the list of tourists will be emailed to service providers and their reservations confirmed.

Notably, the e-business strategy is a dynamic concept that involves rethinking and even redesigning some business processes (Ionica 155). Hence, the above workflow may change whenever there is a need to amend some of its aspects.

Yesser Tours and Travel Agency (hereunder Yesser or the Agency) is a Saudi term meaning “made easy” or “simplified”. The term was chosen for use because it reflects one of the core objectives of the company, which is to make customers the central focus of the agency by providing them with easy, fast and reliable tours and travel booking solutions.

Objectives

These objectives by Yesser are intended to strategically position the firm in the KSA’s tourism sector. Specifically, the objectives will identify distinctive value chains for the agency, and trade-offs between Yesser and tourism service providers. By so doing, Yesser will probably have continuity in its corporate direction, hence ensuring that the Agency will have long-term returns on its investment.

• To be the number one tour company in KSA with special focus on necessitating online booking and payments for our clients
• Facilitate fast, easy and convenient travel for local and international inbound tourists
• Establish an online booking system where visitors can ‘shop around’ for desired services, and pay for them online.
• Avoid overhead costs that usually make tours and travel expensive for consumers
• Partner with tourism service suppliers to provide clients with easy access to information regarding travel destinations in KSA.

Market Analysis: Current and Future Needs in KSA’s Tour and Travel Industry

The current situation of the travel industry in KSA

In a 2006 document released by the Library of Congress, it was revealed that the non-hajj tourism potential in KSA is greatly untapped (Library of Congress 13). Notably however, the KSA government had realized the need to tap in the tourism sector to boost its non-oil revenues. To accomplish its target, the KSA government through the Supreme Commission for Tourism (SCT) started implementing changes that would present the non-Muslim tourists with attractive tour experiences.

To begin with, the government started issuing tourist visas to non-Muslims and even went ahead and allowed tour companies to conduct group tours to various destinations in the kingdom. Another step towards opening up KSA to non-Muslim tourists was initiated by SCT, when it started rating all hotels in the country in 2006 (Library of Congress 13).

Other initiatives undertaken by SCT between 2006 and 2010 include developing hotels and other facilities in viable tourist destinations, funding the construction of hotels in rural areas, encouraging cultural and historical tourism, and enhancing the licensing procedures for tourist companies (Library of Congress 13). Another vital step that SCT has taken includes the expansion of education facilities to train an increased number of tourist professionals.

Current and future needs

The most persistent need in KSA’s tourism industry, especially in relation to the non-Muslim tourists is the lack of information. The proposed e-business service therefore hopes to fill this gap by researching and publishing detailed information about Saudi Arabia and the tourist destinations therein. To succeed however, the tour firm whose proposed name is Yesser Tour Company will need to be approved by the Saudi government, like all other tour companies operating in KSA have.

Considering that the tourism sector in Saudi Arabia is greatly misunderstood by international tourists and strictly regulated by the Saudi government, there is a great need for tour companies and other stakeholders to provide relevant information especially concerning the country’s history, religion, culture, and social behaviours.

The preconception that many potential visitors have about Saudi Arabia also needs to be reconstructed. As (Verde) notes, most tourists would be wary of touring KSA destinations, because of the link that is created regarding Islam and terrorism. In his own admission, (Verde) states that just like many Westerners who had been socialised to believe that Saudis were cold, distant, haughty, conservative and grim people, he was surprised to find a totally different reality on the ground. The proposed e-business will therefore contain dedicated web pages, whose sole aim will be to demystify the Saudi society through informing potential tourists of the Saudi culture, and the cultural sensitivities that people have.

The lack of tourist services that conform to non-Muslim traditions is also an issue that stakeholders in the KSA’s tourism industry have to address. In the past, the highest numbers of inbound tourists were pilgrims attending either the Hajj, or other religious-related tours such as Umrah. Consequently, most service providers in the tourism and hospitality industry have fine-tuned their services to address the needs of such pilgrims, and as a result, the niche market segment, which is made up of non-Muslim tourists seems to be neglected.

Market size

Although there is no accurate way of quantifying the market size targeted by Yesser, a rough estimation indicates that international tourists interested in historical and cultural tourism in KSA are in the thousands. Statistics for the 1994 non-Islamic tourist arrivals indicates that there were 1727 tourist in KSA.

At that time, the Kingdom had just opened up its non-Muslim tourism sector and all visits were made in groups. In recent years however, the popularity of KSA as a cultural and eco tourist destination has increased. Hence, more people are interested and could indeed visit the kingdom. The market size is however limited by the visa regulations imposed by the KSA government.

Statistics by the (Oxford Business Group 119) displayed in figure 1 below however indicate that if all things remain the same, the market size that Yesser should target is less that 49 percent. This is because religious tourism remains the dominant type of travel to KSA. Notably, foreign investors are barred from investing in religious tourism. In the market segments, the largest potential market for Yesser is in the business travel segment, which represents 19 percent of all inbound tourists. Leisure shopping and the ‘others’ segments are also potential markets for Yesser.

Growth

According to the (Oxford Business Group 119), the Saudi tourism market is in its infancy. Hence, there is a great potential for growth. As a matter of fact, the Saudi government projects a 3.1% annual growth in inbound non-religious tourism. The growth will be aided by government initiatives such as the development tourist facilities in identified destinations. One such destination is the Red Sea, which the KSA targets for improvement through the ‘Red Sea Tourism Development Strategy’.

According to the (Oxford Business Group 119), the KSA government aims at attracting “$40 billion of investment” to the Red Sea region from both domestic and foreign investors. Limiting the growth of Saudi’s mass tourism capacity if the government’s decision to restrict access to the kingdom. Hence, while growth of the sector is assured, its pace is left entirely to government dictates.

Competitors

Yesser’s competitors are mainly found as brick and motor travel agencies. Fortunately, the KSA has a strict approval system which makes it hard for new market entrants to penetrate the market. Specifically, any tour agency must gain government approval (Paul and Rimmwawi 503)

SWOT Analysis

Strengths:

• Yesser’s e-business strategy will endear it to consumers who have always found it hard to access non-religious tour operators in KSA
• The agency ease of access and operations will enhance consumer experience thus attracting tourism consumers
• Yesser is among few other travel agencies targeting the non-religious tourism sector. Hence, competition in its target market is low
• Entry barriers are high, and this means that competition in Yesser’s target market will remain relatively low.

Weaknesses:

• Government regulations have restricted mass tourism to the kingdom to the very bare minimum (Sadi and Henderson 98; Seddon 11). Hence, the potential in the market remains underutilised
• Individual travel in the non-religious sector is restricted, and Yesser will thus have to market the tour packages to groups

Opportunities:

• Yesser can partner with tour operators in key tourism source markets such as Europe and United States to organise for group tours to the Kingdom
• The E-business model makes establishing contacts, and providing information a fast and easy process, hence meaning that Yesser can setup and develop its business network in a short time.
• The regulated nature of the KSA tourism market has sparked curiosity among tourists who will embrace the chance to visit the kingdom wholeheartedly.
• The expansion of shopping malls in major cities as documented by (Saudi Commission for Tourism & Antiquities 5) presents Yesser will likely expand shopping tourism sector, which Yesser can take advantage of.

Threats:

• Yesser will probably face challenges especially in visa-related cases, during the Hajj season when the influx of religious tourist is at its peak.
• Cultural clashes are likely to occur and such may increase the negative perceptions that some people have on Saudi Arabia and vice versa. Burns for example observes that some international tourists have never understood why the Saudi culture insists on keeping women’s faces covered. Hence, some may ignorantly chose to disobey such cultural aspects. Consequently, Saudis may perceive such disregard of their culture as an affront to their religion (Burns 231).

Yesser’s Competitive Advantage

According to Porter (Cited by Dess, Lumpkin and Marilyn 12), there are five factors that a company can use to determine its competitive advantage in a given market. The factors are:

• Buyers’ bargaining powers: In Yesser’s case, the bargaining power of buyers is low considering that Yesser will be operating in a niche market. The restricted access to the non-religious tourism market, and the
• Threat of substitutes: The e-business model adopted by Yesser makes it a unique case in the tourism market to Saudi Arabia, especially considering that most travel agencies have physical offices either in oversee locations or in Saudi Arabia. Hence, Yesser does not face any significant threat from substitute service providers especially in the short term.
• Supplier’s bargaining power: Yesser will have to rely on suppliers for the provision of tourism related services. As an intermediary between the client tourists and the service providers, Yesser will have to rely hugely on the goodwill and assurances of quality from service providers such as airlines, hotels and restaurants, and transport firm. Knowing the kind of leverage they have in Yesser’s business, such service providers will have relatively high bargaining powers. The only reprieve for Yesser is found in the fact that competition in the tourism and hospitality industry in KSA is slowly heating up. As such, one would expect that there will be more airlines, hotels and transport companies willing to give Yesser good deals in the future.
• Competitive rivalry: According to (Kirby 3), there is only a handful other travel agencies targeting the non-religious tourism market in KSA. Although there are no official statistics regarding their adoption of e-business, a search on Google using targeted keywords such as ‘online booking to Saudi Arabia’ and others, did not return any results indicating that existing tour agencies have adopted e-business. Hence, one could argue that although Yesser will probably face significant competition from its brick and motor rivals, such competition will not be significant enough as to threaten Yesser’s operations in the Saudi market.
• Threat of new competition: the threat of new competition for Yesser is relatively low in the KSA market especially considering the prevailing entry barriers that make setting up mass tourism-related business a painstaking task.

Setting up Yesser Tours and Travel Agency in KSA

Setting up a new business in Saudi Arabia is relatively a difficult task especially for foreigners. In Yesser’s case, the investor(s) needs to justify their interest in the tourism sector, and they must also prove how they are going to stay away of the Hajj and Umrah tourism sectors, which are barred from foreign investors. The applicant (Yesser) will have to approach the Saudi Arabian General investment Authority (SAGIA) with the investment application request.

SAGIA is “responsible for proposing and implementing policies to promote foreign investment in Saudi Arabia and for issuing licenses, visas, residence permits and other related papers to foreign investors” (Al Swalem Consulting Group 2). The investor should preferably acquire a work permit, although a visitor visa is also acceptable to make their entry into KSA legal. The investor should also prove that they possess “work-related abilities or educational qualifications as required by state” (The Government of the Grand Duchy of Luxembourg 23). Copies of following documents should be attached to the application form:

• The Manager’s passport
• Residence permit
• Labour card
• Lease contract issued to the Agency
• The approval decision by SAGIA

On receiving the application, the directorate of companies makes another application to the Minister of Commerce, who then provides a decision on whether to approve the Company. If it is approved, the directorate of Companies order the commercial registration office to enter Yesser’s name into its register. At this point, Yesser’s manager would be required to visit the registration to fill the required form and pay the applicable fee, hence marking the end of the registration process.

Seeking regulatory approval in KSA

To start with, Yesser will have to submit a business application to the Saudi Arabian General Investment Authority (SAGIA). To qualify for consideration however, the agency will need to prove that it intends to invest mot less than 2 million Saudi Riyals, which is the minimal investment amount that foreign firms are legally allowed to invest in the kingdom. The company will also need to write and send an operations application to the “General Directorate of Companies”, in which case a copy of Yesser’s articles of association will be needed.

Additionally, the agency must provide proof that it is commercially registered, and if Yesser is a partnership business, resolution made by the partners to establish the business in Saudi Arabia must also be provided to the Directorate of companies. All documents availed to the directorate of companies should be certified, and translated into Arabic (The Government of the Grand Duchy of Luxembourg 24)

Marketing strategy – marketing mix

The Marketing strategy for Yesser Tours and Travel Agency will be pegged on the e-business concept. According to Andam, e-business is “the transformation of an organisation’s processes to deliver additional customer value through the application of technologies, philosophies and computing paradigm of the new economy” (Andam 7).

Wang and Cheung, on the other hand, broadly define e-business as the “innovative business mode involving delivery of products/services, exchange of data/information, and financial payments through the internet between the focal firm and its customers, suppliers, and other business partners” (Wang and Cheung 1). Following the two definitions by Andam, and Wang and Cheung, Yesser will seek to do the following in relation to the marketing mix:

• Product: To enhance consumer satisfaction, Yesser will link with suppliers of tour services in KSA in order to provide tourists with complete tour packages. Such service providers include airlines, hotels and the transport companies. As a catalyst between tourist and the service providers, Yesser will have an opportunity to earn commissions and discounts from the service provision firms it contacts. The e-business concept will facilitate fast and convenient booking and procurement of services, and payment processes. To deliver good services to consumers, Yesser will develop a virtual market place through a high quality website that is flexible, informative, and easy to navigate.
• Price: Establishing links with key service providers in the tourism and hospitality industry will enable Yesser to have some considerable bargaining power. It is thus possible that the tour company will be able to get good discounts, some of which it can pass to its clients hence giving it a price advantage over other tour companies. Even where the price advantage is not possible, clients may still want to conduct business with Yesser based on its differentiation strategy, which is the virtual provision of tour-related services. Theory of consumer behaviour indicates that while some consumers may be sensitive to prices, others are more interested in the perceived value of a product or service (Phan 583). As such, Yesser may still have a significant market share especially from the business tourism segment. Such consumers would be willing to pay high prices as long as they perceive the value proposition of the e-business as worthwhile. The transparency in pricing on the electronic platform will also probably give tourism consumers the impression of fairness. Such is contrary to the quotations made by the brick-and-mortar tour companies whose pricing may change to favour some.
• Promotion: Yesser will use the e-business platform to advertise its tour packages over the internet. To this end, the company will develop a mailing list, which it will use to inform its existing and potential customer of any promotions or discounts. Additionally, Yesser will use key-word rich articles in its WebPages in order to enhance its chances of appearing on search engine searches whenever clients are looking for information about KSA’s tourism industry. The company will also negotiate a complimentary formula with other service providers in the tourism and hospitality industry, whereby the partner organisations can advertise in each other’s websites. For example, the Yesser’s website can host adverts for a partner airline, a partner transport company and a partner hotel. In return, the Yesser advert would appear in websites hosted by the three entities hence increasing the tour company’s exposure to a wide range of potential clients.
• Place/distribution: electronic applications, mainly represented in the Yesser website will allow for the publication of tourism-related information. With the possibility of different potential tourists having access to the information through the internet, Yesser will be in a good position to make its services known to potential clients. E-business also makes mass customisation of tour packages possible. Tourists can specify their preferred tour packages, and based on that Yesser would organise with the tour providers for the provision of the same. Traditionally, such customised products could involve prolonged communication via telephone between the customers, the tour company and the service providers such as hotels, airlines and the transport companies (Phan 584).

Key People in Yesser Tours and Travel Agency

• The managing director: The MD in Yesser will responsible for the management oversight in the company. Additionally, the MD will be responsible to gathering industry intelligence and advising other stakeholders on the ideal future management strategies. The management decision-making prerogative will be squarely on the MD, thus meaning that he will have a major role in directing the agency in future.
• Director of operations: the main operations for Yesser will be tour-related. Hence the director of operations will be in charge of arranging tour packages that meet customer requirements. To effectively discharge duties in the position, the DO will need to work closely with tourism service providers. The DO will also be charged with ensuring that the e-business processes are running as they should. Hence, he will work closely with employees in the IT department in order to ensure that the Yesser website is current, secure, easy to navigate and resourceful.
• Operations assistant: will be responsible for the administration work at the Saudi based office. The OA will also liaise with tour service providers in KSA to ensure that all bookings are reserved. The OA’s job will also involve communicating with tour service providers in order to identify good offers that may be included in tour packages. The OA will need to ensure that an IT specialist is always on standby to ensure that any problems that may occur on the Agency’s website are resolved fast and efficiently. Additionally, he will be responsible for ensuring employees are always on duty ready to answer to any instant messages or emails that consumers send via the Yesser website.

Premises and Equipment Needs

The brick and mortar office for Yesser will be in Riyadh. The office will have a front office area, and two large office rooms for the staff and a medium–sized boardroom. According to statistics released by Jones Lang Lasalle (9), such an office would cost approximately SAR 1,075. Office furnishings will include ten chairs and 7 computer desks for the two separate offices.

Five desktop computers will also be purchased for use in the office, while another four laptop computers will be bought for the operations assistant, the MD and the director of operations. The portability of the latter will enable the three key people in the company as identified elsewhere in this report to keep close tabs on what is happening on the website. The budget for the premises and equipment is contained in Table 1.

Table 1: Estimated budget for office space and Office furniture.

Registering a domain name in Saudi Arabia is a procedural process that must abide by the regulations provided by Saudi Network Information Centre (SaudiNIC). To start with the applicant needs to sign a sign up for an account with SaudiNIc (Figure 2). Next, the applicant needs to conduct a name search with SaudiNIC to determine if indeed their preferred domain name is available for use. The third step involves setting up the servers that will host the domain name, while the fourth step involves filling a registration form provided by SaudiNIC. Yesser will have the option of either filling the form online, or downloading it and taking a hard copy to SaudiNIC.

The fifth step will involve submitting legal documents to SaudiNIC, while the final step involves following up with the government body in order to ensure that the domain name is activated. Usually, one needs to wait for at least three working days before commencing the follow-up. (Al Swalem Consulting Group) recommends that any business that does not receive a response regarding the domain name registration within ten working days should lodge a complaint with SaudiNIC.

Yesser will employ an in-house web-designer, who will be responsible for designing, maintaining, and upgrading the website on a needs basis. The web designer will also be in charge and ensuring that the website is easy to navigate, and easy to use. He will also update the contents of the website whenever the need to do so arises.

Funding

Yesser can access funding from sources such as the Saudi Credit and Saving Bank, the Public Investment Funds, the Centennial Fund, the Saudi Industrial Development Fund, or the Human Resources Development Fund. To qualify for funding however, Yesser would need to prepare a convincing business proposal for presentation to the financial firms.

Evaluation Mechanism for Yesser

To determine whether the e-business strategy is working or not, Yesser will regularly audit its performance. Specifically, the company will check the documented number of tourists it had sold tour packages to in a given time in order to determine its effectiveness in the same period.

Yesser could also compare its performance with other brick and mortar tour agencies in KSA. According to (Al-Otaibi and Al-Zahrani 6), the main goals of e-business are to automate or digitize business, reduce costs and raise productivity.” Hence, Yesser can develop mechanisms that will gauge whether the digitized business aspects are saving the agency any costs or raising its productivity especially when compared to brick and mortar firms targeting the same market segment as Yesser.

For equity’s sake, such tour firms will need to be targeting the same non-religious tourism segment as Yesser. Some of the pointers that Yesser will use in order to determine the effectiveness of the e-business model include the ease of communication both in the office, and with either the clients or with the tourism service providers. The Agency will also establish a system that documents the number of clients reaches at any given moment through its online content. An internal survey will also be conducted among employees in order to gauge their preference or lack thereof of the e-business strategy.

Conclusion

The adoption of e-business strategy by new firms such as Yesser has multiple advantages. However, such business can only succeed if they are founded on solid market intelligence. True to (Porter 63) observation, e-business and other forms of electronic dealings rely on human input for them to succeed. Consequently, sufficient strategic thinking and planning need to occur before the same can be implemented or executed through the electronic platform.

In Yesser’s case, the combination of industry intelligence as contained in the market analysis section and the SWOT analysis is enough reason to believe that if the e-business is well implemented, then the tours and travel agency will have an advantage over its competitors who are yet to embrace the e-business concept.

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