Exporting Paper Products from Sydney, Nova Scotia to Saudi Arabia Research Paper

Executive Summary

ABC Handmade Paper Industry is a Canadian company engaged in the manufacture of handmade paper and its products. Starting production in the year 2003, the company has come a long way in providing quality handmade paper and its products to customers throughout Canada. After achieving a niche in customer satisfaction at home, the company now plans to extend its services to the Kingdom of Saudi Arabia.

Environmental pollution is a great threat to humankind. Handmade paper contributes towards minimizing this pollution. The reason being it helps in stopping deforestation because the raw material for handmade paper is cotton and not wood.

The company has a team of expert and well trained craftsmen who deliver innovative products that are unique and elegant. It is the first time that a company is setting up its own paper conversion unit in the Kingdom of Saudi Arabia. The paper sheets shall be imported directly from Canada. Quite a few jobs will also be created for the Saudi youth who have completed their studies and are on the lookout for a rewarding career.

Introduction

Owing to the new inventions in modern science and technology and the subsequent rapid industrialization and modernization, life has become very fast. People step out of their homes in the mornings and by the time they return back during the evenings or nights, they are so exhausted that they don’t have time to pay attention to something that seems not related to them.

But there is one thing that we all ignore in spite of the fact that we all are related to it and our existence solely depends on it. It is none other than our mother earth. We have stopped thinking about the issues that are affecting the ecological system of the earth.

As we all know, paper is manufactured from wood pulp. And to get this wood pulp, hundreds and thousands of trees are cut every day. Available statistics indicate that around 4 billion trees are cut annually, around the world, to cater to the world’s paper needs.

Trees, as we all know, are part of our nature. If we interfere in the process of nature, there are bound to be dangerous outcomes or after-effects. One of the most dangerous after-effects of deforestation is the global warming. Deforestation changes the climate, towards a negative impact on that particular region.

Areas where deforestation has been carried out are bound to have soil erosion as a result of which the land becomes infertile. Other drawbacks of deforestation are decrease in animal habitat, frequent floods and drought. “Climate changes that have swept our planet had impact on many natural disasters that happened on our earth.

And one way to tackle climate change is planting a lot of trees to maintain the balance of nature” (Globalgiving). In such circumstances, it becomes the duty of all of us to either minimize the use of paper (made from wood) or think of some substitute to the current raw material (wood) of paper.

Handmade paper, though centuries old, is not known to most of the people. The reason, probably, are the traditional methods being used in the manufacture of handmade paper and the lack of awareness among the people. Basically, handmade paper is made out of waste cotton rags. No wood is used in the process and due to this fact, it can be said that it is 100% eco-friendly.

We, at ABC Handmade Paper Industry, thought of contributing towards making the earth greener and a better and healthy place to live. ABC Handmade Paper Industry is located in Nova Scotia, Sydney. We invited some traditional paper making people (kagzis) from India to our manufacturing facility in order to get the know-how of the process involved. The kagzis were kind enough to transfer their technology to us. It has been eight years since we started manufacturing handmade paper.

After catering to the local Canadian market for all these years, we now plan to venture into exports of our products to countries such as most of the European countries and the United States of America. We also plan to extend our sales to the Middle Eastern countries like the Kingdom of Saudi Arabia and the United Arab Emirates. We are of the firm opinion that due to the eco-friendly nature of handmade paper, it won’t be difficult to convince people to use and promote it.

Management

The success of any business greatly depends on the interest and support of the management. It has been due to the initiatives of the management that ABC Handmade Paper Industry came into existence. The management is keen on promoting the eco-friendly culture. The directors will go to any extent to ensure that people start using handmade paper in their daily needs of paper.

The management has been very careful in recruiting staff for its various departments. The employees engaged in the manufacturing process are mostly trained in India and they consist of Indians as well as Canadians. The sales team consists of well qualified and energetic professionals who have a penchant for selling innovative ideas.

The export department is well staffed with duly qualified personnel who are well aware of the export policies of our government. The management has also recruited some retired people from the Ministry of Export and Import. One of the most important departments in our company is the designing department.

This department has various responsibilities like arranging samples as per the customers’ requirements, screen printing, and developing new designs or products out of handmade paper. It is noteworthy that irrespective of the department that they are working in, all the employees are imparted proper training on the basics of handmade paper.

The company follows the principle of work mixed with entertainment. The management is of the opinion that all work and no play will make the employees dull. So in order to rejuvenate their energy, the company organizes a quarterly get-together wherein, apart from the mingling of employees of different departments, the best performers in their respective fields are rewarded.

This motivates other employees to work better. During the normal work routine, it becomes impossible for employees of different departments to mix-up. But such get-togethers offer them a platform to share their ideas. It has been noticed that the inter-department co-operation has increased during the years.

Before deciding to enter the export market, the management has conducted a thorough research and even some surveys in order to have a firm opinion about the scope of handmade paper and its products in the outer world. Simultaneously, the export documentation requirements have been fully studied and arrangements have been made to follow all the guidelines from the government. The retired employees from Ministry of Export and Import have been very instrumental in this process. In calculating the export prices of various products, all the prevailing taxes have been taken into account.

Products and Services

As mentioned earlier, handmade paper is manufactured mainly from waste cotton rags. These rags can be purchased from hosiery factories. It should not be misunderstood that handmade paper means paper alone. The paper itself can be created in various designs and with various ingredients such as:

  • Moon rock paper
  • Marble paper
  • Deckle-edged paper
  • Flower petals paper
  • Tea leaves paper
  • Straw paper
  • Jute paper
  • Silk paper
  • Batik print paper
  • Embroidered paper
  • Leather effect paper
  • Embossed paper
  • Water marked paper
  • Moon drops paper
  • Screen printed paper
  • Metallic paper

Following are some pictures of various kinds of handmade paper:

Various kinds of handmade paper

In addition to this, there are several products that can be crafted with this paper. A list of some of the major products is as follows:

  • Beautiful customized letterheads
  • Carry bags
  • Wrapping sheets
  • Gift wrapping paper
  • Envelopes
  • Greeting cards, wedding cards and invitation cards
  • Magazine holders
  • Lamp shades
  • Tea coasters
  • Gift boxes
  • Chocolate boxes
  • Christmas stars
  • Office stationeries like visiting cards, card holders, pen holders, daily planners, telephone indexes, etc.
  • Diaries
  • Photo albums and marriage albums
  • Photo frames
  • University degrees
  • Wall papers

Following are some images of some of our handmade paper products:

Some of our handmade paper products

According to the research and surveys done by our company, it is understood that most of the countries around the world, in their pursuit to minimize pollution, are promoting the idea of using paper bags instead of the usual plastic ones used in shopping. There is also a very good scope in the gift box market.

The people nowadays have a custom of giving gifts to near and dear ones and as such, gift boxes are always in demand, especially during festive seasons. Along with gift boxes, greeting cards are also a must.

The same applies to our other products as well. Moreover, handmade paper products are totally different and unique. The feel of the paper itself gives you a feel of elegance. An added advantage is the eco-friendly feature of handmade paper.

In addition to the European countries and the United States, we plan to extend our services to the Middle Eastern countries, mainly the Kingdom of Saudi Arabia. We plan to start with appointing some wholesalers in the major cities of the Kingdom of Saudi Arabia like Riyadh, Jeddah, and Dammam.

We also plan to start a small paper conversion workshop in one of the cities where we plan to make products as per orders. This will help our company manifold. Firstly, the time consumed in transporting products from Canada to the Kingdom of Saudi Arabia will be saved. Secondly, the cost will be decreased.

Thirdly, if any customer needs any modification done to the product, it can be done there only. We need to send only our handmade paper from Canada. As per our research, the Kingdom of Saudi Arabia doesn’t have any industry engaged in the manufacture of handmade paper. Although some handmade paper companies from India are exporting their products to the country, yet the quantum is very less as compared to the requirement that can be created.

Moreover, since our company plans to start a paper conversion unit in the country, our costs will be much less than other companies’ products. Hence we shall have an upper edge.

The distributors will be selected on the basis of their marketing network and their capacity to invest in the stocks. The concerned sales persons will be imparted the required training of handmade paper. Since Arabic is the vastly spoken and accepted language of communication, it will be a prerequisite for the distributors to hire Arabic speaking sales staff.

The language barrier shall be overcome by doing this. Handmade paper products are such that they don’t need any specific ethnicity or culture to use them. Any person can have the enchantment towards the products. But certainly, the print designs and the colour of the paper shall be according to the Arabic art and culture.

Our survey revealed that green is the most favored colour among the Saudi nationals; green being the favorite colour of Prophet Mohammed (PBUH). For a business to succeed in any country, it is very essential to respect the art and culture of that particular country. We shall incorporate Arabic designs in the screen prints.

Since all our products are custom made as per customers’ requirements, there is not a single chance of being faulty as far as the standards of the country are concerned. Measurements of all our products are taken either in inches or in centimeters. And both these units are popular the world over.

Market Overview

In recognition of the need for change in an industry it is important to consider the strategic position of the industry, whether it is in decline or growth compared to the wider market. Other factors which will influence the need for change consist of changes to the legal framework and social environment in which the handmade paper industry operates.

Macro environment consists of such factors that affect an organization but the organization doesn’t have any control on them. It is obvious that there is always competition in the market and moreover, if the product is being marketed globally, the level of competition increases. In such circumstances, organizations have to be more careful about new companies entering the market.

Certain audits have to be done in order to know the macro and competitive environments of any company. Actually there are two kinds of audits that are usually done namely, the external audit and the internal audit. The external audit is done on variables that the organization cannot control. The internal audit is done on the variables that can be controlled by the organization.

As far as environmental audit is concerned, it is again external as well as internal. According to the Confederation of British Industry, Environment audit is explained as, “The systematic examination of the interaction between any business operation and its surrounding.

This includes all emissions to air, land and water legal constraints; the effects on the neighboring community, landscape and ecology; and the public’s perception of the operating company in the local area” (CBI, 1990). Strategic audits are normally conducted to enable the management to establish a match between internal operations of the firm and the business environment it operates in (Porter, 1996).

PESTEL analysis

The external environmental audit can be better understood with the help of the PESTEL analysis. PESTEL means the Political, Economic, Social, Technological, Environmental, and Legal factors that can affect a business. Following is a representation of a typical PESTEL analysis.

PESTEL Analysis

Figure 1: PESTEL Analysis

Political

The kingdom of Saudi Arabia has abundant oil deposits. The country being rich in oil has strengthened the government to a great extent. There is commendable stability within the country and this is an encouraging factor for international business houses that want to venture here. Even though the country is ruled by a Sunni Muslim dynasty, the Shia community is not disregarded.

A few years back (2005), the Kingdom of Saudi Arabia held its first ever general elections for the municipal council. Unfortunately, women were not allowed to vote. The elected members constituted about fifty percent of the total strength, the remaining members were appointed. During the years, the media has been given a free hand but still there is more freedom of press to be announced.

The Kingdom of Saudi Arabia houses certain radical Islamic groups that are supported financially by some wealthy locals. Such locals are considered to be dissidents and the government is aiming its guns towards them in the name of tackling extremism.

The United States plays an important role in the affairs of the Kingdom of Saudi Arabia. This is not taken in good spirits by the locals. It is also understood that there are serious differences among the royal family. King Abdullah and his followers are in favor of a modernism approach whereas Prince Nayef and his followers prefer the conservative approach.

Economical

The Kingdom of Saudi Arabia holds a very strong spot in the OPEC lobby. Owing to the boom in oil prices during the years, other sectors such as infrastructure, housing, business, communications, etc., have experienced considerable growth and as such, the demand for different products has also increased, making it more feasible for new business houses to set up their trading offices in the country.

The future of the Kingdom of Saudi Arabia holds great opportunities for investors. Due to the slow pace of growth and lesser liquidity ratio, the inflation rate is bound to come down. This feature will compensate the low customer turn out.

There are certain negative economic aspects that may have a downbeat impact on businesses. Firstly, the economy is mainly dependent on oil. Any major downslide in oil prices will result in a serious setback to the country’s economy. Also, any attack on the oil fields will result in the oil supplies being disrupted. Since the country’s economy is mainly dependent on oil, such an incident will totally crumple the country’s economy.

Secondly, majority of the workforce, throughout the country, is constituted by expatriates. This is due to the fact that in spite of the expatriates accepting lesser remunerations as compared to the locals, they are well skilled and proficient in their respective fields; a quality that is not visible among the locals.

Social

The Kingdom of Saudi Arabia is a predominantly Sunni Muslim country. The rules and laws are totally inspired by the Sharia (teachings of Prophet Mohammed PBUH). It is mandatory for all females (including expatriates, irrespective of their religion) to wear ‘Hijaab’ (veil). The society is dominated by males.

Females don’t have any say in any of the government matters. Until recently, women were not allowed to work even. But recent years have witnessed some positive changes in the government policies and the initiative has been welcomed the world over. The ensuing years might witness some more changes towards giving more freedom to women.

These steps are a positive factor towards the success of our company’s products. Our products are mainly gift oriented and it is understood that gifts are the forte of women. The more the women are allowed to participate in day to day business, the better for our company.

The citizens of the Kingdom of Saudi Arabia have become financially sound, thanks to the exploration of oil. Initially, the locals did not want to come out of their new found glory but gradually, the government felt it necessary not to depend on oil alone. So the government started various industrial and construction projects in order to employ its citizens.

But since not many of them had the required qualification, the government and the business houses across the country had to employ people from other countries like India, Pakistan, Bangladesh, Sri Lanka, Nepal, Egypt, Lebanon, etc. Meanwhile, the local youth has started indulging themselves in different academic courses depending on their interests.

Now the problem is that every year Saudi locals are graduating with the requisite qualifications and are searching for jobs, but replacing the expatriates with the locals will mean extra financial burden, since the expatriates used to work on lesser salaries.

Being a Muslim country, there are security risks that should be considered. Even though the government imposes strict penalties on the wrong doers, the risk persists.

Technological

Undoubtedly modern technology has made our lives easier, faster and safer. They play an important role in the lives of each one of us. Today, we can find the effect of the modern technological devices in all walks of life. We can judge the effect of modern technological devices from our surroundings.

Getting technology involves finances. The Kingdom of Saudi Arabia is financially very strong. Moreover, having good relations with the United States of America has helped the country in acquiring the latest technology in various fields. Be it the desalinization plants, railways, roads and bridges, housing, etc., one can see the latest technology at work.

Menafn reported that “The third plan is for the country to become a leading country in science, technology and innovation in Asia and by the end of the fourth plan, the country will be transformed into a knowledge-based economy and society joining the advanced industrialized countries” (Menafn, 2010).

This is again an encouraging factor for our company because we plan to setup a paper conversion unit in the country. We shall have access to the latest technology used in the field. This will help us maintain better quality and precision.

Environmental

The geographical location of the Kingdom of Saudi Arabia is very well suited to the business houses across the globe. Business houses interested in starting a business in the country have easy access because of its being centrally located. Moreover, being a member country of the Gulf Cooperation Council (GCC), the products from the country have the benefit of being duty free in other member countries of the GCC.

The climatic conditions of the country are very severe. Summer days experience temperatures of up to 50 degrees Celsius. Rains are very scarce. Due to the scarcity of rainfalls, drainage system of the cities is not well planned.

The Saudi government is interested in the Saudization of all jobs. It means that the government wants the locals to take up jobs that are being done by the expatriates. But the salary expectations of the Saudis are higher and this is posing to be a great hindrance.

Latham & Watkins LLP reported that “MEPA has issued Environmental Protection Standards (General Standards) covering, among other things, ambient air quality, air pollution sources, receiving water guidelines, direct discharge performance and discharge pre-treatment guidelines” (Latham & Watkins, 2010).

Since our products are 100% eco-friendly, there is no need for the company to worry about such restrictions. But since adhering to the laws is a must, our company shall apply for the necessary certificate.

Legal

It is mandatory for expatriates to obtain a visa to enter the Kingdom of Saudi Arabia and a permit for residing. No expatriate can work for anyone except his/her sponsor for a period of at least two years, after which the sponsor can issue a ‘No Objection Certificate’ and the expatriate can search work elsewhere.

This clause is very important for our business because our kind of business will need skilled people and once we train them, it will be utter waste of time of money if they leave our company and join somewhere else.

Ali & Partners indicated that “Foreigners wishing to conduct business in Saudi Arabia may do so in one of the following ways: By establishing an incorporated entity, by entering into a partnership, by establishing a branch office, by establishing a representative office, or by engaging a service agent” (Ali, 2004).

The Saudi Law is based on Sharia i.e., the Muslim Law. There are several laws relating to the business transactions also. Some of the important laws are enlisted here. Charging interest on money is forbidden. Partners of any business have to share the losses also as they share the profits. It is prohibited to have uncertainty (gharar) in a contract. Parties entering into a contract should do so at their own will and not by force.

SWOT Analysis

SWOT analysis (The Strengths, Weaknesses, Opportunities, and Threats) explains the internal as well as external factors that may have direct or indirect impacts on the business.

SWOT analysis

Strengths

The main strength of handmade paper is that it is an export oriented product. Paper is a product that is used worldwide. Moreover, products like letter heads, carry bags, gift boxes, greeting cards, etc., are also used by people around the globe and as such there is no need to teach people about the products.

But the innovation of making these products out of handmade paper, that our company has made, shall be an added advantage while marketing them in the global market. Also, our designing team is always endeavoring to develop innovative products and launch them in the market. People are always on the lookout for innovative ideas and prefer buying them.

The investment required to start this project is not much. The process of manufacturing being traditional, there are not many machines required. The main machines used in the process are rag chopper, beater, agitator, vat, pressing machine, calendaring machine and cutting machine. The manufacturing process is also very simple.

Except for the workers at the vats, no special skills are required. The best part is that free solar energy is used for drying the paper sheets. The raw material for handmade paper is waste cotton rags that are available easily from hosiery factories and since the rags are a waste for the hosiery factories, they are available at reasonable price.

The wastage in the manufacturing process is absolutely zero. Even the cuttings of paper left after the paper-sizing, are reused for making pulp. Handmade paper is 100% eco-friendly because no forest based products are used in the manufacturing process. Since the governments of nations worldwide are promoting environment protection, handmade paper is surely a prospective product.

Weaknesses

The major weakness of handmade paper industry is that before starting the actual sales, people have to be educated about the benefits of handmade paper. They have to be made aware that by using handmade paper and its products, they would be indirectly contributing towards a greener earth.

Since the methods used in manufacturing are traditional, the quality factor is of great concern. There are no set standards pertaining to handmade paper. The thickness of the paper is measured in grams per square meter (GSM). The process is such that an accurate thickness can’t be maintained.

Also, the thickness of papers will differ from each other. The main process in the manufacture of handmade paper is that where the vats are used. It is a manual process wherein the worker takes pulp from the storage tank and pours it in the vat tank. The vat has to be vibrated and then lifted with an even layer of pulp.

This is a process that involves very skilled workers. There is a dearth of such skilled workers and the company has to rely on the workers from India. However, our company has deployed some local workers along with the Indians so that they can learn and master the art.

Opportunities

Due to awareness of ecological misbalance, governments of various nations are devising ways and means to minimize the environmental pollutions and global warming. Handmade paper helps achieving both the parameters.

Handmade paper carry bags can replace the normally used plastic bags (not bio-degradable) and help in minimizing the environmental pollution. Handmade paper helps reducing deforestation because wood is not its raw material.

Huge markets spread over nations remain unexplored. There is a lot of scope for handmade paper and its products. The probable reason for markets being untouched may be that till now, handmade paper was a product of undeveloped countries and as such, the people did not have the proper sources to approach foreign buyers.

Since ABC Handmade Paper Industry has taken the initiative to market its products worldwide, there are very bright chances of acceptance by the general public. Moreover, it has been noticed that people are always on the lookout for better and innovative products.

And when there is an added advantage of the products being eco-friendly, the response will be even better. It is quite possible that people may not be aware of handmade paper but they do have the awareness and sensibility of environmental pollution and global warming.

Threats

Handmade paper is not a product being manufactured in the developed countries and as such, there is not much material available for studying and research work. The research has to be based on surveys.

Canada is situated very far off from the target markets like the Kingdom of Saudi Arabia. As such, the cost of transportation is higher. Similar products being exported from India and other neighboring countries have to bear less transportation costs. This has an effect on the cost of the products.

Even though ABC Handmade Paper Industry has plans to open paper conversion unit in the Kingdom of Saudi Arabia, the paper sheets will have to be imported from Canada only. As such, the cost of paper sheets will be higher as compared to those from India and other neighboring countries.

As far as handmade paper is concerned, ABC Handmade Paper Industry faces stiff competition from its Indian competitors.

In spite of having the advantage of being eco-friendly, a major drawback of handmade paper is that the cost is higher than the normal mill paper. This is due to the fact that the manufacturing process involves manual labor to a great extent and as such, the production is slow.

Market Entry Strategy

Even though handmade paper is being imported in the Kingdom of Saudi Arabia, one can find only a few shops that maintain stocks. Most of the imports being made are by companies for their personal use. If anyone from the general public wants to purchase any handmade paper product, it will be an uphill task to find one.

As mentioned earlier, our company plans to appoint distributors with adequate sales staff. The sales people are expected to visit all business houses, hotels, hospitals, malls, educational institutions, government departments, printers, photo studios, gift shops, etc., in order to spread the awareness of eco-friendly handmade paper and show them samples of products.

The Kingdom of Saudi Arabia is an economically well to do country. People appreciate innovations in any field and have the craze to buy new things. Handmade paper products will definitely impress them. Following are the probable target customers of our handmade paper products:

  • Business House: Annual Diaries, Calendars, Desk Planners, Visiting cards, Letter heads, File covers, Tea coasters, Pen holders, Card holders, Magazine holders, etc.
  • Event Organizers: Wedding invitation cards, Wedding albums, Favor boxes, Gift boxes, Carry bags, etc.
  • Photo Studios: Photo Albums, Wedding albums, Photo frames, etc.
  • Hotels: Guest stationary, Letter heads, Visiting Cards, Tea coasters, Lamp shades, Magazine holders, File covers, etc.
  • Malls: Carry bags, Gift boxes
  • Bakers & Confectioners: Chocolate boxes, Carry bags, etc.
  • Printers: A4 size paper, Blank Visiting cards, etc.
  • Hospitals: File covers, Hospital stationary, etc.
  • Educational Institutions: Note books, Diaries, Chart papers, Degrees and Report cards, etc.
  • Gift Shops: Almost all the products.

As mentioned earlier, there no severe competition as such for our company in the Kingdom of Saudi Arabia. If at all there is any competition, our company will have an upper hand due the fact that we plan to have a paper conversion unit in the country. This will decrease our cost of transportation and at the same time, our customer service will be better.

Our products shall be of the highest quality and precision. Being customized as per the customers’ requirements, our products won’t face any problem with regard to the design, size and/or the colour.

We plan to appoint distributors in all major cities of the country. Our representative will supervise the workings on a daily basis. The sales personnel of the distributor shall visit customers and get orders. The confirmed order shall be accompanied with 30% of the total bill amount.

The order shall also have the colour sample, the approved design and the size specifications. The orders received by the distributors shall be conveyed to our conversion unit. The person in charge shall arrange for a sample according to the given specifications and send it for approval from the customer. Once the sample is approved, the production shall start.

The concerned distributor shall be responsible for the delivery of the goods to the customer. The distributor will also be responsible for the payment. It has been decided that the company shall not accept credit sales. All sales have to be paid at the time of delivery (minus the advance).

Our company plans to float advertisements in the leading newspapers and local television channels in order to spread the awareness of our handmade paper products. The newspaper advertisements shall contain information about our products whereas the television advertisements shall contain information about handmade paper and its products in general.

Our company name will obviously be flashed. We also plan to organize seminars at schools, colleges and other educational institutions. The students shall be encouraged to submit their designs and the best designs shall be rewarded. The company plans to include the school staff in the judgment process.

Our company also plans to send introductory letters to all ministries, updating them on handmade paper and requesting them to patronize our products due to their eco-friendly nature.

Our company shall also participate in any exhibition related to our products. A skilled worker shall be posted at the stall to demonstrate the making of different products to the visitors.

As required by the Saudi Law, our company plans to enter into a partnership with a responsible and energetic Saudi national with good approach in all government departments. The company shall take his services in all government related jobs. As per the rules, the company will have to offer him some percentage of stakes in our company (in Saudi).

Regulatory and Logistical Issues

Ali & Partners reported that “The Saudi Patent Regulations (Royal Decree No. M/38) provide for a system of patent registration that covers any new article, method of manufacture (including improvements) or product” (Ali, 2004).

As per the regulations, any Saudi or expatriate company can apply for a patent registration. The registration shall be valid for a period of fifteen years, further renewable for five years. Our proposed sponsor shall be able to do the formalities because only a Saudi local is authorized to carry out the procedures.

Since it is human tendency to copy, it is very essential that our company gets patent registration for all its products. Since there are no specific designs of handmade paper products, our designs will be safe from being copied or duplicated.

There are certain Import and Export regulations that all businesses in the Kingdom of Saudi Arabia have to follow. All imports into the country, except those from the GCC member countries, are levied an import duty.

For products that are not manufactured in the country, the tax is five percent and for those products that have similar products being manufactured in the country, the tax is twelve percent. This is done in order to safeguard the interests of the local manufacturers.

The following documents are required while importing into the Kingdom of Saudi Arabia:

  • Certificate of Origin: The certificate of origin should be authorized from the Chamber of Commerce and should be translated to Arabic.
  • Saudi Arabian Customs Invoice: The invoice should be in triplicate.
  • Company Invoice: The invoice should be in triplicate and should include the country of origin, ship’s name, brand name of the products, and description of the products with total weight and total value.
  • Bill of Lading
  • Original documents of Insurance with Arabic translation.
  • Certificate of Conformity from Saudi Arabian Standards Organization.

The Kingdom of Saudi Arabia has a structure of Income Tax as well. The income tax charged on the taxable income is twenty percent for most kinds of the businesses.

Another tax prevailing in the Kingdom of Saudi Arabia is the Withholding Tax. As per the conditions of this tax, any payments going out of the country have to be taken into consideration for tax purpose. Latham & Watkins suggest that tax should be held as follows “(1) Five percent for rents; (2) 15 percent for royalties; (3) 20 percent for management fees; (4) five percent for payments for air-tickets, air-freight and maritime freight; (5) Five percent for payment of international telecommunications services; and (6) 15 percent for any other services” (Latham & Watkins, 2010).

As far as the transportation of papers from Sydney is concerned, the same shall be done in 20 ft containers via a ship. Local transportation, as per agreement, shall be taken care of the concerned distributor. The cost of transportation has been taken into consideration while calculating the prices of different products.

Handmade paper being a non-palatable product, environmental regulations pertaining to food products, prescription drugs and chemicals are not applicable. But our company plans to take the required pollution clearance certificate from the concerned authorities.

Saudi being an Arabic speaking country, our company shall ensure that only Arabic speaking individuals are employed in the sales department by our distributors. This will make communications easy and clear. The interests of the customers shall be taken care of.

Financial Plan

Before embarking on the plan of exporting our handmade paper to the Kingdom of Saudi Arabia, the management was careful enough to study all the relevant procedures. We started with approaching ‘Austrade’ for guidance. From here, we were able to get information on the grants being offered by our government on exports.

We also learned about export financing. We were advised to approach some banks, the names of whom were suggested. We chose the HSBC bank for our export financing requirements. Another requirement for export financing was the credit insurance.

This has to be done so that our payment shall be secure. For this purpose, we approached a well reputed and renowned insurance company. Some of our export department employees were enrolled for training in the export documentation.

It is critical to take care of certain areas before starting the exports. Following are the main areas:

  • Working Capital: When our company starts preparing to export its products, it is but obvious that its finances will crunch and the company will require funds for keeping its operations unhampered. So the working capital requirements of our company before and after the shipments will increase and as such it will require financing from external sources.
  • Costs of Marketing: The development of any business involves many overhead expenses such as travelling, product promotion campaigns, foreign tours, sample development, market research, survey, communication costs, conveyance costs, etc. It is commendable that the Export Market Development Grants (EMDG) program, sponsored by Austrade, offers grants for such overhead expenses. Such a grant will ease the financial burden on the company.
  • Financing the credit sales: Although our company has decided to do no credit sales in the Kingdom of Saudi Arabia, yet as far as the distributors are concerned, we will have to give them some credit for their stocks. For this facility to be given to our distributors, the company will have to seek finance form external sources.
  • Rates of currency exchange: Exports always involve another currency. As such, there is a risk involved. If other currencies experience a down slide conversion rate with regard to the Canadian Dollar, the company will incur severe losses. But there are certain financial institutions and banks that can help us in offsetting such a risk.

Following are the ways in which export payment can be secured:

  • A seldom way to secure export payment is cash payment. This is a very remote possibility.
  • The buyer opens a Letter of Credit in our company.
  • A very safe method for securing export payments is sending the export documents through a bank. This is called ‘Bill of Collection’. The exporting company prepares all the required export documents, including the bill of lading, and submits them to its bank. Instructions are given to the bank that the documents should be released to the importing company only after the company has made full payment. The bank sends the documents to the importer’s bank with the instructions. Once the importer deposits the stipulated amount, the documents are released and hence a transaction is completed. The exporter is not at a risk of not getting his money and the importer is not at a risk of not getting the goods.
  • A very risky way is to have faith in the importer and send the goods. The importer will then remit the payment after a specified number of days. This is normally done once both the parties have full faith in each other.
  • At times, importers demand performance bonds. These bonds act as a security against the quality of the goods supplied and also for the advance payments made. In such instances, banks provide export financing and bonds are a part of it.
  • We have prepared some reports that will prove to be handy while applying for grants and export financing.
  • Report for grant from Export Market Development Grants (EMDG):
S. No. Description of Expenditure Head Amounts in Canadian Dollar
01 Amount to be incurred in the development of the market. Expenses include conveyance, communication costs, travelling costs, buying literature related to our project, etc. 500,000
02 Amount to be incurred in the modification of the existing manufacturing facility. 700,000
03 Amount to be incurred in buying new machineries to increase the capacity 600,000
04 Amount to be incurred as charges pertaining to freight and logistics. 200,000
05 Amount to be incurred as costs of before and after shipment. 100,000
06 Amount to be incurred as cost of credit insurance, bonds and management cost of exchange rates 300,000
07 Amount to be incurred as distributor commission 200,000
08 Amount to be incurred as consultation charges 100,000
Total 2,700,000

The aforementioned table shows that Canadian Dollars 2.7million are required for exports. The company plans to arrange the funds as follows:

S. No. Description Amounts in Canadian Dollars
01 Owners’ Investment 1,000,000
02 Loan from financial institutions 500,000
03 Export Financing from Banks 1,200,000
04 Total 2,700,000

The total financing required is Canadian Dollars 1.7million. Out of this amount, the loan from the financial institutions shall be short term loan and that from the banks shall be long term loan.

Following is our company’s projected cash flow statement:

Amounts in Canadian Dollars
CASH FLOW FROM OPERATING ACTIVITIES
Cash receipts from customers 2,000,000
Cash paid to suppliers and employees (400,000)
Cash generated from operations 1,600,000
Dividends received 80,000
Interest received
Interest paid (70,000)
Tax paid (100,000)
Net cash flow from operating activities 1,510,000
CASH FLOW FROM INVESTING ACTIVITIES
Expansion of existing facility (700,000)
Replacement/addition of equipments (600,000)
Proceeds from sale of old equipment 100,000
Net cash flow from investing activities (1,200,000)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from capital contributed 1,000,000
Proceeds from loan 1,700,000
Payment of loan
Net cash flow from financing activities 2,700,000
NET INCREASE/DECREASE IN CASH 200,000
Cash at the beginning of the period
Cash at the end of the period 200,000

The company plans to follow the following procedure to successfully embark on the exports. The company will start the surveys and market researches. Meanwhile, it will approach the banks and financial institutions for applying for the required financial assistance. The company will also call for quotations from suppliers of machineries.

The management has already finalized the kind of machines they want. The company also plans to engage a civil contractor to carry out the required expansion and changes in the existing manufacturing facility. Meanwhile, some of the Directors plan to visit the Kingdom of Saudi Arabia to finalize the distributors and register our company with the concerned authorities.

Visas and permits for our employees who are to be transferred to that country shall also be arranged. The required documentations pertaining to exports will also be gathered. The venue of establishing a paper conversion unit shall also be finalized. By the time all these formalities are completed, the finance will be arranged from the banks and financial institutions.

The new machines can be ordered after that and once the machines are installed, eventually the production can be started. This shall follow the transfer of employees and the required machineries to the Kingdom of Saudi Arabia.

The payment option that our management has decided to adopt (for exports) is the ‘Bill of Collection’ method. As discussed earlier, the company will submit all the relevant documents to our bank and once the goods reach the Jeddah Islamic Port or the Dammam Port, the distributors will deposit their respective amounts and will release the shipments. As soon as this is done, our bank will get the intimation and the amount shall be credited to our company’s account.

As for the local payments from customers in the Kingdom of Saudi Arabia, the company has decided to give the responsibility of payment collection to the distributors. The distributors will be responsible for payment collection in their respective regions. Initially, the company has planned to appoint three distributors, one each in Jeddah, Riyadh and Dammam.

The distributor of Jeddah shall be catered from the Jeddah Islamic Port and the distributors of Riyadh and Dammam shall be catered from the Dammam Port. Riyadh being closer to Dammam (400 km), it was thought feasible to cater it from Dammam Port.

The company has decided not to give any sort of credit to customers. All sales will be on cash on delivery basis. A nominal advance of thirty percent shall be taken at the time of booking. The distributors shall be responsible for any discrepancies in the payments.

Risk Factors

As mentioned earlier, the Kingdom of Saudi Arabia is an economically strong country. Investksa reported that “Saudi Arabia has a sophisticated domestic market with strong purchasing power that is necessary for the success of any business. According to the World Bank, Saudi Arabia is ranked # 1 in the ‘ease of doing business’ report that compares 183 economies in Middle East & North Africa” (Investksa, 2011).

Oil has given the country a strong economy. Since the oil reserves are high, there is very remote possibility of these reserves being exhausted in the coming years. So it is feasible to start a business in a country where the buying power of people is great and moreover, where the products to be launched are new. There is always an enchantment for innovative products.

As far as the political stability of the Kingdom of Saudi Arabia is concerned, the country is ruled by a family. The successors are from among the family members, depending on the seniority. Though there is no democracy in the country but the recent elections to the Municipal Council have paved way to public participation in the government decisions.

Women also have started getting some relaxations and privileges as far as their rights are concerned. Educational Institutions have started coming up and as such, the Saudi youth have started becoming educated. Massive industrialization has further enhanced the country’s economy.

The only drawback that can be considered is the dependence of the country on the United States of America. But this cannot be considered as a setback to the business. In fact it is good that America has an influence over the country. This way, the country can progress more due to invent of newer technologies in all fields.

Our company conducted a survey that involved 110 people from the age group of 20 to 40 and were from all walks of life. It was noticed that the majority of people were interested in buying innovative products. The eco-friendly concept of handmade paper was praised by almost all of the participants.

Almost eighty percent of the participants believed in giving gifts and were of the opinion that gifts should be attractive and of daily use. The feature of custom made products was also liked very much by the participants. Usually, they had to buy whatever was available in the shops. Size was not a matter of choice.

But since our products will be custom made, the customers will have the choice of size, design and even the colour. This was thought to be plus point by all the participants. Most of the participants were not aware about handmade paper. Some had seen a few products in some gift shops. But those were to be bought as they were whatever the size, colour or design.

Following is a theoretical framework that our company has formulated for customer satisfaction.

Theoretical framework that our company has formulated for customer satisfaction

The company has forwarded this framework to all the people concerned and they have been directed to follow this to the maximum possible level. Customer satisfaction has been rendered as being of utmost importance. The company feels that if the customers are happy, the company as a whole will benefit on various aspects such as popularity, credibility, performance, business expansion, sales, profits, etc.

The currency of the Kingdom of Saudi Arabia is Riyal. As compared to the American Dollar, the conversion rate of 1USD has been stable at SAR3.75 for the past so many years, barring a few instances.

As compared to the Canadian Dollar, the Saudi Riyal has always been on an upswing. If we consider the conversion rates for the past ten years, barring the year 2009, the conversion rates have continuously increased. Following is a small chart that will prove the point:

Conversion rate for one Canadian Dollar to Saudi Riyal
Year Conversion rate as of 31stDecember
2002 2.39
2003 2.86
2004 3.08
2005 3.21
2006 3.22
2007 3.77
2008 3.08
2009 3.57
2010 3.77
2011 3.70

It can be noticed from the table that except a few instances, the rates have continuously increased generally. This is supposedly a good indication that business in the Kingdom of Saudi Arabia will be profitable. There is no risk of the currency fluctuating downwards.

Implementation Plan and Timetable

Short term objectives

Within the initial three to nine months, our company plans to tap all the major sectors mentioned earlier in this paper. The initial target will not be the sales but to spread the awareness of handmade paper. The details of all the people shall be noted down and these people shall be contacted later.

Meanwhile, the marketing network of the distributors shall be reviewed and the sales staff will be given ample training about handmade paper and its various products. At the unit front, sampling will be carried out and sample kits shall be prepared for the sales people. Also, the required documents like invoices, delivery notes, visiting cards, etc., will be arranged.

Long term objectives

Long term objectives involve severe marketing of all our products throughout the country. The sales staff will be given targets that they will have to achieve on a monthly basis. Incentives shall be given to target achievers.

The main motive shall be to increase the sales with each passing month so as to enable the company to repay the loans that it has taken from the financial institutions and the banks. But in the pursuit of sales, the quality will not be compromised. The company wants to establish itself as a quality provider of handmade paper products.

The Saudi local that the company plans to take as a partner shall help the company in all government related legal jobs. He will also help us promote our products in various ministries.

The main objective of the company is to achieve better sales while maintaining the quality. These can be measured by the amount of sales done and the customer satisfaction. The company plans to introduce a customer feedback form that the sales people will have to get filled from the customers after the delivery of products.

The main team members shall be as follows;

  • Sales team: Responsible for the sales and after sales service. The sales team will also be responsible for the collection of payments.
  • Production team: Responsible for order completion on time.
  • Design team: Responsible for sampling and creating new designs in line with the Arabic culture.
  • Accounts team: Responsible for maintaining customer records and bank transactions
  • Delivery team: Responsible for delivering orders to the respective customers safely.

References

Ali. (2004). Doing business in Saudi Arabia. Web.

CBI. (1990). Narrowing the gap: Environmental auditing guidelines for business. London: CBI.

Globalgiving. Trees cultivation to lessen impact global warming. Web.

Investksa. (2011). Invest in strong and stable economy: Saudi Arabia. Web.

Latham. , & Watkins (2010). Doing business in Saudi Arabia. Web.

Menafn. (2010). The future of technology in Saudi Arabia. Web.

Porter, M. (1996). What is strategy?. Harvard Business Review, 1(1), 81-89.

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