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The government of Saudi Arabia adopted a new labor in 2012 that compels companies in the private sector to employ more Saudis than foreigners. The government adopted the new law in order to reduce the high unemployment rate in the country. However, the law is expected to have significant effects in various industries in the country because most companies depend on the labor supplied by foreigners rather than Saudis (Hamdan).
This paper will analyze the effect of this law on Jarir Bookstore, which is a leading retail company in Saudi Arabia. The company supplies computers, office equipment, and books among other products (Jarir). In particular, it will shed light on the risks associated with the legislation and the strategies that the company has adopted to overcome them. Additionally, it will highlight the future implications of the new law to the company and its stakeholders.
The Major Issues
In November 2012, the government of Saudi Arabia enacted a new labor law that forces all private companies in the country to hire more Saudis than foreigners (Hamdan). This law was adopted against the backdrop of rising unemployment rate in the country. According to the new law, the number of Saudis working in private companies must exceed that of foreigners. Companies that fail to comply with this law are expected to pay a fine of approximately $640 annually for each employee from a foreign country (Hamdan).
Jarir Bookstore is one the companies that were negatively affected by the new labor law. In 2012, the company had more than one thousand employees who were working in its stores in Saudi Arabia (Jarir). 60% of the employees were expats from Asian countries (Jarir).
This means that the company had to pay the fine of $640 per foreign employee in order to maintain 60% of its workforce. In this regard, the operating cost of the company was likely to increase because it was not ready to absorb the extra labor costs associated with the fine.
Since its inception in 1979, Jarir Bookstore has focused on employing foreigners in order to reduce its operating costs. This strategy was based on the fact that expats demand lower wages than Saudis (Madhi and Barrientos 70-77). Thus, it is cheaper to employ foreigners than Saudis. In addition, most Saudis are reluctant to work in the private sector because the public sector pays higher wages.
Since the company operates in cosmopolitan cities within Saudi Arabia, it prefers to employ people with good command of English and other international languages in order to serve its diverse clientele effectively. In this regard, the company hires multilingual foreigners since most Saudis speak only in Arabic rather than international languages such as English. Thus, replacing the expats was likely to have negative effects on the competitiveness of the company.
Even though the enactment of the law came as a surprise to the company, it had no choice but to comply with it in order to avoid the costs associated with the fine. In order to prevent disruptions in its operations, the company had to replace most of the expats in its workforce immediately. Almost 80% of the company’s workforce consists of frontline employees who are responsible for performing duties such as sales and fulfilling customers’ orders (Jarir).
Even though most Saudis are qualified to perform clerical and supervision, as well as, sales and marketing related duties, the company had trouble in replacing its frontline employees. This is because most of the new hires did not have the commitment that the expats had. Besides, most of them were fresh graduates from colleges and universities. Thus, they did not have adequate work experience that would enable them to fit into the organization without training.
In response to this challenge, the company had to review its staffing policies in order to hire the right people. In particular, the company had to identify the job requirements that new recruits had to meet in order to be hired. This included possession of excellent skills in areas such as communication, negotiation, and leadership (Jarir).
Moreover, the company designed and implemented training and development programs in order to enable the new recruits to acquire the skills that they needed in order to perform their duties effectively. The company has had to change its human resource policies in order to attract and retain the best talent from Saudi. This involved offering attractive remuneration packages, flexible shift schedules, and acceptable work environment.
In addition, the company implemented a performance-based pay system in order to motivate the employees and to improve their productivity (Jarir). A performance-based pay system involves rewarding employees who are able to meet or exceed their targets (Martin 75). At Jarir Bookstore, the employees were paid annual bonuses if they achieved predetermined conditions such as sales targets.
The Future Implications
The new labor law has several future implications for the company and its stakeholders. To begin with, the company will have to look for alternative ways of reducing its operating costs. This is because it can no longer depend on cheap labor to maintain low costs. In this regard, the company is likely to focus on the use of modern technologies to reduce its operating costs in the long-term.
This will involve the use of technologies that reduce human involvement in the provision of its services. For example, the company has already established a sales and marketing website that enables it to reach its customers (Jarir). Thus, the company is likely to focus on online sales rather than the store model in future. This will help it to reduce the number of employees that it needs to serve its customers, thereby reducing its operating costs.
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The second implication is that the company will have to strengthen its employ retention programs in order to reduce labor turnover. This is because the competition for skilled labor is likely to increase as more companies comply with the new law in future. Labor turnover is often high in markets where companies are competing for the few skilled workers. This is because employees will prefer to work for the few companies that are able to offer high wages (Hartel and Fujimoto 96).
Consequently, the cost of acquiring talent is likely to increase significantly. The company can avoid losing its valuable employees by improving their commitment and job satisfaction. The third implication is that the morale of the employees is likely to reduce as the expats leave the company. Employees usually lose morale in their work when a large number of their colleagues leave the workplace.
This is because existing work relationships are destroyed and the remaining employees might not have adequate sources of support in their work (Hartel and Fujimoto 112). In addition, conflicts are likely to arise if the company is not able to integrate the new hires with the remaining employees. In this regard, the company will have to implement team-building initiatives in order to improve cohesion among its employees.
Finally, the new law will enable the company to improve its reputation in the country by providing jobs to Saudis. Currently, the company has a bad reputation in the country because its staffing policies favor foreigners. However, the company’s reputation is likely to improve as it begins to hire more Saudis as required by the law.
The implementation of the new labor law was associated with the following risks. First, the company was likely to lose its investments in knowledge and skill development as it replaced its employees from foreign countries. The company had already spent its scarce resources to train the expats on areas such as customer service, sales, marketing, and management.
The benefits of this investment such as creativity among employees were likely to be lost if a large number of the expats left the company. This would reduce the firm’s competitiveness by limiting its ability to engage in product and process innovation (Madhi and Barrientos 70-77).
Second, the company was likely to face disruptions in its operations if it was not able to find skilled Saudis to replace the expatriates. This is because the process of replacing employees who leave the company often takes a lot of time. Third, the company’s operating costs were likely to rise because hiring Saudis would increase the labor costs, whereas employing foreigners would attract high fines. High operating costs was likely to reduce the company’s profits, thereby limiting its ability to expand to other markets.
The strategies that have helped the company to overcome these risks include the following. First, company has implemented training and development programs in order to replace the lost skills and knowledge in its workforce (Jarir). These programs will enable the firm to improve the competence of new hires, thereby increasing its competitiveness in terms of ability to meet market needs.
Second, the company has focused on reducing labor turnover in order to avoid losing its talented employees. This involves using intrinsic rewards such as promotions, as well as, extrinsic rewards such as bonuses to improve job satisfaction, motivation, and employees’ commitment. Finally, the company has embarked on cost cutting measures in order to absorb the high cost of hiring Saudis. This involves outsourcing processes such as transportation and logistics.
The aim of this paper was to analyze the effects of Saudi Arabia’s new labor law on Jarir Bookstore. The new law requires private companies to employ more Saudis than foreigners. Jarir Bookstore focused on employing more foreigners than Saudis in order to reduce its labor costs.
The main effects of the law included increased operating costs and loss of skilled employees. However, the company is also likely to improve its reputation in the country by employing Saudis. The company has not only complied with the new law, but has also implemented strategies to cope with its negative effects. The strategies it has adopted include staff training programs, cost cutting measures, and staff retention schemes.
Hamdan, Sara. Saudi Arabia to Fine Firms with too Many Foreign Workers. New York Times, 21 Nov. 2012. Web.
Hartel, Charmaine and Yuka Fujimoto. Human Resource Management. New York: McGraw-Hill, 2010. Print.
Jarir. Company Profile. Jarir Bookstore, 31 Dec. 2012. Web.
Madhi, Salah and Armando Barrientos. “Saudisation and Employment in Saudi Arabia.” Career Development International 8.2 (2012): 70-77. Print.
Martin, John. Human Resource Management. New York: McGraw-Hill, 2008. Print.