Company overview
ABB is one of the leading players in provision of power and automation technologies which allow utility and industry clients to enhance performance while at the same time reduce effects of environment. The company is customer centric and organizes all its operations around its clients as a way of being able to serve them better and more efficiently. ABB Saudi Arabia is part of the company and like the main company, it actively offer services to its clients through provision of a full range of products related to power and automation technology. Its integration into the local market allows it to provide appropriate and relevant products and services which suit the nation’s special requirements and needs. The company specializes in engineering and manufacturing of products and systems for industrial automation. Its full access to global ABB technology and technical know-how, combined with its local manufacturing and engineering abilities enhances its provision of modern and efficient utility/industrial solutions.
Additionally, its vast resources assist it to provide range of solutions as well as systems/services with respect to power and automation. Generally it has a number of activities which constitute its main business operations across the globe. These include:
- Sub-station operation and automation.
- Management of networks.
- Communication system utility.
- Control systems for power plants.
- Plants and networks used in water treatment/service stations.
- Other services related to power and automation industries.
The company’s sales staff and representatives are present in major parts and cities within Saudi Arabia allowing it to easily access its clients. Its major activities are however restricted to its major factory located in Riyadh’s second industrial area.
Problem statement
The global power and automation industry is subject to price, supply and consumption matters. The power and automation companies are additionally faced by political, regulatory and legal risks along every aspect of their operations. International operated companies face an increased load of risks through its susceptibility to commercial and security threats resulting from inconvertibility/transfer restrictions of currencies, contract breaches, confiscation/nationalization threats (creeping expropriation of assets) and wars/civil unrests among others (Hengel, 2002: 62). These issues bedevil managers and subject to critical decision making processes. Additionally, the managers face difficulty in determining the real threats to a company between the constantly changing scenarios and the immense real-time data available. Discrimination between the varying threats and hence their relative importance remains a great challenge to the risk managers in power plants and industries. Prioritization is also of fundamental question to such managers. Risk management attempts to answer these questions through a guided framework.
Management of challenges involves discovery of individual industry assets and understanding the weaknesses, expected losses and appropriate tactics in mitigating the risks to ensure sustained values. The IEEE standard 15408 defines a common criteria risk assessment table that assists in depicting relationship of owner’s value to firm assets (Hengel, 2002: 62) with respect to possible risks. The diagram described above illustrates a process aimed at threat agent restriction hence allow exploitation of threats that pose vulnerabilities to the industries assets. Though it based on power and automation industries, it’s basically representative of the general challenges that multinational companies have to make do with in their line of operation.
Entry in the Saudi Arabian market presents a number o challenges to multinational companies. Just like any new markets, the market has its own social, political and economic aspects which impact on its performance. Points of vulnerability are fundamentally important in ensuring that entry in new business area does not amount to failure. In Saudi Arabia, just like in other countries (Martin and Peter 1996), such challenges that mount to vulnerability can be classified into several broad categories. These include regulatory challenges, economic challenges, and social challenges. In the case of ABB, the key challenges experienced in entry into the market included access to industry information, hiring process, work culture, custom issues, attitude to time and challenges faced by women.
In seeking to understand and propose alleviation challenges faced by multinational entering the Saudi expansive market and more specifically ABB, it is fundamental to a number of questions.
- What challenges do power and automation industries face in entering new markets?
- What business challenges does Saudi Arabia pose to multinational companies entering its market?
- What strategies can multinational corporations (ABB) employ to cushion itself from challenges posed by the Saudi Arabian market.
- Who are the stakeholders how contribute to the challenges faced by ABB in entering the Saudi Arabian market? The utility provision sector is complex and subject to rapid technological changes.
The main players or actors who contributed to this problem (at the international level).
Challenges, issues, and prospects
Socio-Cultural Challenges
Saudi Arabia unlike most global companies has its own unique cultures within business operations are conducted. Fitting into new cultures has always remained a challenge that multinational cultures have had to reckon with in entering new markets. Solving of societal problems often begins with understanding of the cultural background affecting the environment in which the problem occurs. Merging cultures requires a layer by layer understanding of the uniqueness each culture present to the society ((Martin and Peter 1996). Persons from rather neutral cultures do not often show their feelings and are often capable of keeping them controlled. Highly affective cultures on the other hand impact greatly on the society around them and easily express their feelings towards the society either by laughing, smiling and gestures among others. Reconciliation of neutral and affective cultures is essential if they are to do business together. The ice cold nature of neutral persons and out of control nature of affective cultured individuals need to be merged together to produce a more universal culture conducive for doing business. Essentially, when these two cultures merge their differences are accepted and recognized by both parties to produce grounds for constructive communication. Intercultural communication is fundamental in any diverse culture. Essentially communication is the only way to exchange information, thoughts and ideas. Communication constitutes both verbal and non-verbal elements. Most of communication globally is done non-verbally. Globalization has in the recent past brought business operators together thereby stressing the need for inter-cultural understanding. Being a new market, adjustment to the new market by expatriates and the management team required time and a deeper understanding of the ways of life of the Saudi Arabian. This was necessary to avoid collision with the local doctrines and culture.
Nature of cultures in the Saudi Arabia
Globalization of business has not spared Saudi Arabia. Diversity has been able to creep its way into business aspects within the Saudi Arabia. Diversity issues that constitute the challenge include styles of communication, religious activities, attitude of the persons doing business in the country and hierarchy. Like any other diverse society, UAE faces a number of challenges due to its diversity ((Martin and Peter 1996). Communication style is an important tool in business facilitation. Communication however, varies from one country to another. Doing business in UAE requires increased awareness levels and a deep understanding of the difference in communication arising from the diverse cultures that converge at this point.
The Kingdom of Saudi Arabia is popularly known as Saudi Arabia and is the largest Middle East country. The nation is bordered by Jordan, Iraq, Kuwait, Qatar and the United Arab Saudi which are all exclusively Muslim based just like it. The company has an estimated population of 28 million persons making it a large an attractive market to multinational corporations. The country has often been subject to criticism from human rights organizations and more so Amnesty International. Most of these criticisms have bordered on the rights of women. Multinational companies intending to operate in the country therefore have to bear in mind the nature of treatment and behavior that is expected of the women population. Like in any modern country, clash of cultures attempting to impose its ideal is a common occurrence (Pool 2002). Additionally, its position as a global business center further diversifies the cultures and some are likely to conflict with business in the country. Its culture is however largely influenced by the Arabic culture and Islamic religion. For instance while in most parts of the world, alcohol consumption is a normal occurrence, in the UAE alcohol consumption is forbidden in some areas on basis of the Islamic culture (Pool 2002). However, in recognition of some other non-Islamic cultures, in some areas it is not forbidden. For instance in specific hotels and locations serve alcohol though there s a strict enforcement that consumption remains limited t those designed locations.
Generally, religion stands out as the prime driver of Saudi culture. Noting that Islam is the major religion, it commands a large proportion of the country’s culture. Islam plays a fundamental role in shaping the countries culture and trickles down to everyday life of persons conducting business in the country both within offices and outside. Observing Islamic culture is a necessity and its effect on business operations must also be respected (Pool 2002). Westernized area/locations are however exempted though under strict observations to allow those who do not subscribe to the Muslim faith some taste of their own cultures. Another area that segregates cultural observation of UAE from other countries is the approach to time. In the Saudi Arabia time is viewed from a more relaxed perspective. Its common for meetings to run over, begin late or get cancelled altogether without prior warning (Pool 2002). Perhaps a very significant difference is the running of week’s operations. Unlike most countries in the world, its operation week days run from Saturday to Wednesday to allow the weekend cover the muslin Sabbath.
Person’s doing business in Saudi Arabia also need to under the hierarchy concept. Respect for other persons titles and societal position is a necessity. Most businesses are operated on basis of top-down hierarchy with the most important persons in the hierarchy charged with responsibility of making important decisions. It s rapid modernization has not been able to do away with the impact of Muslim culture and practices within the nation. Organizations conducting business in Saudi Arabia therefore need to understand the bridge between the new and the nod cultures in Saudi Arabia. In general, it is important to understand the existing cultural differences and their effect of business operations and management is therefore a necessity. It is important to note that every global culture important phenomenon like bureaucracy, authority, creativity, verification and accountability impact their influence in varied ways.
Value differences and similarities across cultures
The cultural quality of sabur which stresses patience and steadfastness is adored by the citizens of Saudi Arabia. On this basis, the citizens are commonly known for informal, relaxed approach to life. However, good manners and respect for other persons are greatly upheld amongst the nation’s citizenry. Just like in most Arab nation’s Islam profoundly affects Saudi Arabia’s cultural background (Saudi Arabia4). However, tolerance to other religions is largely presents within the federation. As mentioned earlier, a working week in the Saudi Arabia runs from Saturday to Wednesday. Unlike in the western countries where time is of essence, people and relationships are held with more esteem in the Saudi Arabia and hence schedule and punctuality runs second to them. However, cultural diversity is gradually implanting elements of western culture into the Saudi Arabia’s culture though there are still significant differences (Saudi Arabia4). Generally, the federation is endowed with and unique culture and personality blend. Its culture is mainly shaped with religious and historical events which combine to enhance its progressive and extensive outlook of the economy. The combination not only makes it an intrigued place to do business but also unique in its own fashion. To understand cultural contribution to business in the federation it is vital to look at key cultural aspects independently.
Challenges and effects of diverse culture in workplace
The cultural practices that affect business in the Saudi Arabia include religion, family ties to business, hospitality of the citizens, and work place practices and relations.
Religion
The role of religion and its influence in the culture and business lifestyle in the Saudi Arabia cannot be underestimated. The county’s official and major religion is Islam and it affects every aspect of life, business inclusive. Eating habits, clothing, daily routines and personal conversations are strongly prejudiced to Islam. The faith puts lots of emphasis on morally upright behaviors including generosity, respect and modest behavior in the society. Conducting business in the Saudi Arabia requires that one understands Islam and ways in which it affects business life within the United Arabs Emirates. Among the key areas linked to business that are directly affected with Islam are clothing and role of women. The dressing code within the federation is determined by the Islamic Sharīah law (Martin and Peter 1996). Traditional Muslims clothing are a common sight across the nation. The traditional clothing worn by men includes white robes, and head covering (white) tied using a black headband. Women are strictly required to wear long skirts and the top wears should have long sleeves. Conservative dressing by women is mandatory and both shoulders and knees should be covered at all times. The business life of women is directly affected by laws within the federation. Unlike some Arab countries, women are allowed to drive, work and posses property. Additionally, they are also permitted to go to school and even proceed to the university. However, they are not allowed live independently or engage in co-habitation out of marital commitments. Western women are allowed to attend specified official functions under specified conditions (Martin and Peter 1996). However, Emirati women are normally not allowed to be present in official functions/events. Another interesting phenomenon is a tradition that requires that men don’t shake women’s hands unless the women are the first to stretch out for a handshake. is avoidance of shaking hands with women unless the woman so extend her hands first. Additionally, business cards used in Saudi Arabia needs to be printed in both English and Arabic.
Family Business and Hierarchy
The social culture in Saudi Arabia is basically founded on strong family ties and tribal affiliations. Individual values and morals are strongly shaped by family and tribal ties. Family loyalty supersedes any other thing including business. Most business entities belonging to the Saudi Arabia citizens are run and operated primarily by family members (Martin and Peter 1996). Most Emirati businesses are founded on strong vertical hierarchies. The key determinants of personal status include family connections in addition to age and money. Additionally, most persons prefer to personally operate businesses rather than through other persons/employees. In most instances, business transactions depend on the hierarchy rather than professionals benefits. Uneducated persons led corporations by virtue of family society and lacked knowledge to make reasonable decisions of behalf of company’s dealing with ABB Corporation.
Hospitality
A nation’s hospitality determines how comfortable individuals from other backgrounds can do business there. Emirati culture considers hospitality a vital part of both social and professional life. Outstanding generosity is accorded to guest visiting the country. In homes, arrival of guest often turns into feasts involving traditional Emirati foods (Martin and Peter 1996). Normal formal business meetings are accompanied with Arab coffee and locally made pastries. The importance they attach to hospitality is only rivaled by a similar importance witnessed when it comes to relationships. Foreigners are expected to reciprocate this gratitude by being courteous themselves and engage in activities that facilitate building of relationship between them and the nationals. Generally understanding of Arab culture and etiquette is fundamental to persons intending to undertake business within the Saudi Arabia.
Economic Challenges/Opportunities
Just like any other business, power and automation industries are subject to financial risks. Prioritization is thus fundamental in safeguarding of stakeholders returns. Financial risks to power and automation industries are either internal or external. External risks are often beyond the industry’s ability to rectify them. The industry is thus forced to adjust its operations as a risk management measure rather than attempting to correct the external factor. Such risks include; economic conditions, contractual risks, competition risks, and fuel costs among others. Internal risks on the other hand are financial risks, Insurance and claims, Threats Posed by Double Running Investments, Increment in Net Debts and credit risks, and Threat of legal actions (Martin and Peter 1996). Unlike external risks, internal risks are a making of the industry’s making. They usually result from managerial decisions made by the industry’s management team. Such risks are within the control of the industry and hence the industry can undertake corrective measures.
Financial risks are a product of financial variable that are affected by various undertakings of a power industry. Analysis of financial risks include a deeper examination of resources pricing, power pricing, new ventures costs, probable losses from a unit failure in multi-unit operating industries, contractual related losses, fluctuations in currency in circumstances where multi-national transactions take place (Martin and Peter 1996). The risks may be classified as financial market risks, credit risks, liquidity risks, and financial operations risks.
Value at risk methodology has emerged as a state of the art way of measuring financial risk within an enterprise. It summarizes the maximum loss expected over a target horizon at a specified confidence interval (Martin and Peter 1996). Its calculations are based on standard statistical methodologies. It helps apprise the senior management team on the risks involved in its trading and an investment undertaking inform the shareholders and financial markets on the financial risks and hence enhances better debt pricing, create a comparison of risky market activities, adjust risk performance measures and improved cash flow management in multiple currency trading (Martin and Peter 1996).
Internal financial risks pose a major risk to all industrial players. The most recent being the economic recession awakened all industries, power and automation industries inclusive to a reality of the external financial effects to company’s financial performance. The energy information in the United States reported industrial energy consumption as being the largest compared to all the other sectors. This makes the overall industrial sector, a major client to the power and automation industries. The effect of economic recession on this sector led a decline in energy consumption. For instance in the US, industrial consumption decline from 33% of total national grid in 1996 to 25% in 2009. This comes with a decline in income generation by the power and automation industries. Such a decline negatively affects industrial performance and it has to devise ways of managing this risk, either through cost cuts, discontinuing some of its operations and in some instances through debt outsourcing. Debt outsourcing on the other hand increases the net debt owed by the industry which is not a good sign for its growth. Additionally, it results into a reduction in free cash flow thereby limiting investment undertakings that the firm may engage in.
Credit risks arise from downgrading of a borrower’s credit rating hence market value decline. It arises from unwillingness of counter-parties to fulfill their contractual obligations. The credit risk level is estimated through calculation of the costs incurred in replacing cash flows in case of defaulting by the other parties (James 1998)
It includes imposition of foreign exchange restrictions by the domicile countries hence the counter-parties find it difficult to honor their contractual obligations. Power and automation industries also suffer liquidity risks in instances where transactions cannot be undertaken within prevailing environments due to market activity insufficiency and inability to meet the flow of cash obligations (James 1998). For instance the economic recession created an environment where consumer had to reduce production and hence reduced power requirements. This threatened the income generation and hence cash flow of various power and automation industries in Europe and the United States. Financial operation risks result from model misspecifications, system inadequacies, failures in management, faulty controls, fraud and human errors in financial resources management.
Financial market risks are a result of market price changes with regard to assets and liabilities leading to absolute risks (a measure of potential loss in currency values and often results into volatility to total returns), relative risk (comparable to benchmark indices) and basis risks (result from break down of relationship between products used in hedging each other or are non-linear). A change in currency value during an accounting period of multinational firms which engage in cross-border transactions with buyers and suppliers is likely to either negatively affected or positively affect the industry (James 1998). Most multinational companies often attempt to manage these risks by putting in place measures that cushion it from such.
The recent commodity prices increase is creating increased concern among the industry’s players. The strained materials market is a product of increased global demand at the pre-recession period. The industry’s management have to think more strategically in their product design to avoid unaffordable rates to consumers while at the same time profitably produce. Most cited pricing increases that are causing concern within the power industry is the increase in copper and aluminum pricing. The emerging tradeoff of material cost and energy efficiency maximization remain key driving forces in the power and automation industry. Some power industries are already exploring the possible of having a complete shift to use of thermoplastics given their pricing, light end products and recyclability as a risk management measure.
Based on economic circumstances, Saudi Arabia succeeded to attract more FDI investments during 2009. Total FDI inflow amounted to US$ 35.5 billion. FDI inflows to the Kingdom in 2009 distribute over a wide range of economic sectors, most important of which are:
- Investments in real estate and infrastructure
- Building contracts
- Financial services (Banking and insurance)
- Quarrying, mining, oil and gas explorations
- Transportation, Telecommunications and Information Technology
Analysis of FDI inflows to the Kingdom, reveals that sources of largest FDI inflows during 2009 were USA with FDI inflow amounting to US$ 5.8 Billion, followed by Kuwait with US$ 4.3 billion, UAE with investments value of US$ 3.8 billion, France US$ 2.6 billion, and Japan US$ 2.0 billion.
Safety Related Challenges
In this context, safety related risks are defined on the base of key safety areas encountered within power and automation industries. These include electrical and electronic, environmental risks and industrial safety risks. In characterization of these risks, it is important to not only consider the types involved but also attempt to establish both the internal and external consequences associated with risk. Safety risks are extensively researched on and most of the industries have safety manuals within the plant premises. However, it is not enough to merely develop safety manual within the context of previous research. Every industry must independently audit its own safety vulnerabilities and hence develop appropriate manuals.
While electrical risks are generally physical and easy to analyze, with automation comes a new form of risk. Cyber risks pose new threats to control networks. Though typically well engineered they are subjected to infringement and system crash. In building cyber safety, its asset’s functionality and critically must be assessed and their communication with each other established. NERC from instance developed a document for identification of cyber critical assets within a given system. Corporate IT vulnerability assessments use both commercial and open source tools in analysis of cyber security states of the respective automated systems (James 1998). Often it is appropriate to run the tools in network test environments to avoid self imposed denial of service attacks. This ensures that the effect is not transferred to the actual production environment. Virtualization technology offers an appropriate avenue for network emulation. However, it is important that the virtual system used be representative of the production environment with all un-patched services and system wholesomely running. Some of the vulnerable cyber assets employed in power and automation industries are summarized below;
The table above represented some of the key vulnerabilities that companies dealing in power and automation industries have to reckon with. More vulnerabilities are discovered by the days as unscrupulous individuals attempt to infringe such systems either for malicious or adventure purposes. The real challenge is in assessment of immediate configurations of IEDs e.g. remote terminal units (RTU), PLCs, relays and other devices used in network controls (CERTS). This calls for incorporation of cyber security professionals in understanding of utility specific devices configuration. Mostly, limiting of system vulnerabilities relies on system firmware and constant software updates. Updates are confirmed via integrity checks like SHA (2)-256 among others (CERTS).
Industrial, environmental and electrical safety assessments are supplemented by both national and international guidelines which act as the reference standards upon which safety assessment is based. Arguably safety assessment tools in power industries remain one of the best developed as compared to other industries. Each industry has additionally, developed internal frameworks for management of environmental hazards. British energy, US for instance has a framework that makes it mandatory for all power and automation industries to avail inventory of potential environmental hazards from its operations and their respective magnitudes (James 1998). This framework provides a point of integrity and barriers aimed at ensuring hazard free/minimized environment. This informed risk analysis approach allows room for focusing resources on most beneficial trend o all stakeholders as risk is all round. Additionally, in 1998 USNRC undertook a major regulatory sweep shifting away from the traditional resource intensive, subjective and arbitrary compliance errors analysis to more objective, measurable, safety significant indicators of performance. Its focus then moved towards process/system inspection and enforcement procedures based on aforementioned indicators. Technical safety related risks have additionally employed the use of PSA methodologies with regard to their nature and impact to technical specifications. Accepted TS approach is based on traditional engineering evaluations procedures in analysis of significance of risks in the proposed changes. ABB is a high-tech company and its operations are heavily reliant on the software mentioned earlier. Their vulnerability translates into the overall vulnerability of the company as they from basis for information management of the company in addition to operations control.
Hiring challenges
At the time of entry in the Saudi Arabian market, ICT development was at relatively low level and most of the processes had to be handled using paper work. This resented enormous challenge to the corporation as the process was largely labor and capital intensive. Additional finding the right professionals remained largely difficult more so taking into consideration that by then not large proportion of the population bore the knowledge necessary within the industry.
Information
Market information was largely scarce and most evaluations had to be done from scratch which meant investing heavily on this exercise. The market remained largely unexplored with regard to power and automation industry and hence finding relevant information was not easily possible.
Professional’s inadequacy
Professional scarcity in this field meant that the company had to heavily invest in training of individual from scratch. Some thing of which impacted largely on the return period.
Related literature
Despite the homogenous Saudi culture, the population remains largely experienced in interacting with other people. Until the discovery of oil, the Kingdom of Saudi Arabia produced very little, and the primary business activity was trading. This merchant culture helped them become shrewd and highly skilled bargainers. However, that does not necessarily mean that they are open-minded. Negotiating business in Saudi Arabia require an understanding that they like doing business their own way. Being an Islamic country, religion is fundamental and any disrespect to religion could have dire consequences.
Relationships and Respect
Saudi Arabia’s culture expects its members to have a strong sense of loyalty to their group. At the same time, it leaves room for individual preferences. Building lasting and trusting personal relationships is very important to most Saudis, who often expect to establish strong bonds prior to closing any deals (John 1994). People in this country prefer to do business with those they know and like. Establishing productive business cooperation requires a long-term perspective and commitment. Social interactions are just as important as business contacts, if not more.
Business relationships in this country exist between people, not necessarily between companies. Even when you have won your local business partners’ friendship and trust, they will not necessarily trust others from your company. That makes it very important to keep company interfaces unchanged. Changing a key contact may require the relationship building process to start over (John 1994). Worst case, such a change may bring negotiations to a complete halt.
Establishing relationships with others in Saudi Arabia can create powerful networks, especially if they reach into the extensive royal family. Whom you know may determine whether people want to get to know you. Maintaining cordial relations is crucial. Third party introductions can be very helpful as a starting point to building a trusting relationship with a potential partner, especially since Saudis may initially not trust Westerners.
‘Saving face’ is very essential. Causing embarrassment to another person may cause a loss of face for all parties involved and can be disastrous for business negotiations. The importance of diplomatic restraint and tact cannot be overestimated. It may be better to accept a compromise, even an unfavorable one, if the alternative means that your counterpart loses face.
In Saudi Arabia’s business culture, the respect a person enjoys depends primarily on his status, rank, and age. It is vital to treat elderly people with great respect. Showing status is important since people will take you more seriously. Carefully select your hotel and transportation (John 1994). Use the services of others, such as a porter, to avoid being viewed as a low-ranking intermediary. Admired personal traits include poise, sociability, and patience.
Communication
The official language of Saudi Arabia is Arabic. Many businesspeople, especially young ones and those in top positions, speak English well enough, so you rarely need an interpreter. When communicating in English, speak in short, simple sentences and avoid using jargon and slang. It will help people with a limited command of English if you speak slowly, summarize your key points often, and pause frequently to allow for interpretation.
Saudis usually speak in quiet, gentle tones. A raised voice usually indicates anger, which is a very bad signal. Being loud may be regarded as bad manners (John 1994). Never back away, even if this is much closer than your personal comfort zone allows. Doing so could be read as a sign that you are uncomfortable around them.
Communication is generally rather indirect. Saudis often use circuitous language, which can make it difficult for Westerners to figure out the exact message. They love flowery phrases, exaggerations, and other rhetoric, and generally consider eloquent people more respectable and trustworthy. Open disagreement and confrontation are rare and best avoided. You will usually not hear a direct ‘no.’ When a Saudi says ‘yes,’ he may actually mean ‘possibly.’ Ambiguous answers such as ‘we must look into this’ or ‘we will think about it’ usually mean ‘no.’ Silence is another way to communicate a negative message. It is beneficial to use a similarly indirect approach when dealing with Saudis, as they may perceive you as rude and pushy if you are too direct.
Gestures and body language are usually more restricted than in other Arab countries. Men tend to make frequent physical contact, though. They may greet each other by hugging and kissing as a sign of friendship. However, never touch someone’s head, not even that of a child. Since Muslims consider the left hand unclean, use it only if inevitable. The soles of your shoes are also considered unclean and you must avoid showing them to others, even when seated on a cushion. Pointing at people or objects is impolite. Instead, wave your open hand toward the object. The thumbs-up gesture is an offensive gesture throughout the Arab world. Eye contact should be frequent, almost to the point of staring. This conveys sincerity and helps build trust. Saudis enjoy showing positive emotions as long as it is done in a controlled fashion. However, they may smile less often than some of their neighbors.
Initial Contacts and Meetings
Choosing a local intermediary who can leverage existing relationships to make the initial contact is crucially important. Having a sponsor is also a legal requirement for visiting the country. A person who can introduce you to the right contacts and help you build relationships is essential when doing business in this country. This person will help bridge the gap between cultures, allowing you to conduct business with greater effectiveness. Let him set the pace of your initial engagements.
It is vital that teams be well aligned, with roles clearly assigned to each member. Saudis may be very good at exploiting disagreements between members of the other team to their advantage. Changing a team member may require the relationship building process to start over and should therefore be avoided. Worst case, such a change can bring negotiations to a complete halt.
If possible, schedule meetings at least three to four weeks in advance. The length of a meeting is usually unpredictable, so do not try to schedule more than one per day. Since Saudis want to know whom they will be meeting, provide details on titles, positions, and responsibilities of attendees ahead of time. Be prepared for your counterparts to cancel or postpone meetings with little or notice. Schedules are often loose and flexible, and meetings may start considerably late. However, Saudis generally expect foreign visitors to be punctual. Avoid being more than 15 to 20 minutes late, and call ahead if you will be. Displaying anger if you have to wait, which happens often, reflects very poorly on you. The most senior meeting participants often arrive last.
Saudi names can have several parts and may be difficult to identify. It may be best to inquire from someone upfront or politely ask the person how to address him or her correctly. In that case, make sure you do the same for your own name. Titles, such as Doctor or Professor, are highly valued. Always use them when addressing a person who carries one. Do not call Saudis by their first name unless they offered it. Arabs may see mispronouncing their names as a sign of disrespect. Greet the most senior person first, and then greet everyone else in the room individually (John 1994). Introductions and greetings are accompanied by extensive compliments as well as handshakes using the right hand. Saudi women generally do not shake hands with men. Saudi businessmen may be reluctant to shake the hand of a foreign woman.
After the introductions, offer your business card to everyone present. Cards should be in English on one side and in Arabic on the reverse, and must be in pristine condition. Present your card with your right hand, with the Arabic side facing the recipient. Similarly, accept others’ cards using only the right hand. Smile and keep eye contact while doing so, then examine the card carefully. Next, place it on the table in front of you. Never stuff someone’s card into your back pocket or otherwise treat it disrespectfully.
The first meeting may consist entirely of small talk, which may include prolonged inquiries about your health, family, and so on. This may include very personal questions. It may actually take several meetings before you even get to discuss business. Be patient and let the other side set the pace. Frequent meeting interruptions are normal and do not signal a lack of interest.
Presentations should be short and concise. Allow sufficient time for questions and clarifications. Either the decision maker is a silent observer, or that person may not attend at all. People asking many questions usually hold less important positions. Your presentation materials need to be of good quality and attractive visuals. Use diagrams and pictures wherever feasible, cut down on words, and avoid complicated expressions. Having your handout materials translated to Arabic is not a must, but it helps in getting your messages across and is thus preferable.
Negotiation
Attitudes and Styles
Leveraging relationships is an important element when negotiating in Saudi Arabia. Nevertheless, Saudis often employ distributive and contingency bargaining. They expect long-term commitments from their business partners and will focus mostly on long-term benefits. Although the primary negotiation style is competitive, Saudis nevertheless value long-term relationships. They will ultimately look for win-win solutions and show willingness to compromise if needed. Saudi negotiators may at times appear highly competitive, fiercely bargaining for seemingly small gains (John 1994). They respect hard bargainers as long as they avoid creating direct conflict. You earn your counterparts’ respect by maintaining a positive, persistent attitude. It is critically important to remain calm, friendly, patient, and persistent, never taking anything personally.
In case of disputes, it is easy to arrive at solutions through personal relationship leverage. Show your commitment to the relationship and refrain from using logical reasoning or becoming argumentative since this will only make matters worse.
Sharing of Information
Information is rarely shared freely, since the Saudis believe that privileged information creates bargaining advantages. In contrast, expect any information you share to reach your incumbent competitor. Based on their existing relationship, your Saudi counterparts will likely believe that this party must be given the right to respond to the new competitive threat.
Pace of Negotiation
Expect negotiations to be slow and protracted, and be prepared to make several trips if necessary to achieve your objectives. Throughout the negotiation, be patient, control your emotions, and accept that delays may occur. Attempts to rush the process are highly unlikely to produce better results and may be counterproductive. A Saudi proverb warns, ‘Haste is of the devil,’ and many Saudis may believe that whether something happens quickly, slowly, or not at all is beyond their control as it depends on Allah’s will. On the other hand, do not be surprised if the pace suddenly changes from very slow to very fast – once your counterparts have made a positive decision, they may expect fast progress (John 1994).
When engaging in initial business negotiations in the country, it is often crucial to take a long-term perspective over many years. It is often advisable to accept an initial deal even when its return-on-investment does not look appealing. Much bigger profits tend to come once you manage to prove yourself a worthy partner.
Most Saudis prefer a very poly-chronic work style. They are used to pursuing multiple actions and goals in parallel. When negotiating, they often take a holistic approach or frequently jump from one topic to another rather than addressing them in sequential order. In multi-item negotiations, people may bargain and haggle over several aspects in parallel. It is common for them to re-open a discussion over items that had already been agreed upon. In addition, they may take phone calls or interrupt meetings at critical points in a negotiation. While they may be doing all this on purpose in order to distract or confuse the other side, there are usually no bad intentions. Negotiators from strongly mono-chronic cultures, such as Germany, the United Kingdom, or the United States, may find this style confusing, irritating, and even annoying. Surprisingly, Saudis themselves may expect their foreign visitors to stick to the subject of conversation unless there is a logical opportunity or invitation to change topics. In any case, do not show irritation or anger when encountering this behavior (John 1994). Instead, keep track of the bargaining progress at all times, often emphasizing areas where agreement already exists. Repeating your main points conveys seriousness and builds trust.
If your counterparts appear to be stalling the negotiation, assess carefully whether their slowing down the process indicates that they are evaluating alternatives or that they are not interested in doing business with you. In most cases, though, this behavior indicates an attempt to create time pressure in order to obtain concessions.
Bargaining
Saudi businesspeople are usually shrewd negotiators who should never be underestimated. Most of them thoroughly enjoy bargaining and haggling. They expect to do a lot of it during a negotiation and may be seriously offended if you refuse to play along. In addition, they may expect flexibility on your side, so avoid coming with overly narrow expectations of how a deal might be reached.
The bargaining stage of a negotiation can be very extensive. Prices often move more than 50 percent between initial offers and final agreement. Leave yourself a lot of room for concessions at many different stages. Ask the other side to reciprocate if you made one, but never make them look like the loser in the exchange. It is not advisable to make significant early concessions since your counterparts expect further compromises as the bargaining continues. You can use the fact that aspects can be re-visited to your advantage, for instance by offering further concessions under the condition that the Saudi side reciprocates in areas that had already been agreed upon.
Deceptive techniques are frequently used. Expect your Saudi counterparts to be masters at this game, playing it with many exaggerations and much enthusiasm (John 1994). They may occasionally play stupid or otherwise attempt to mislead you in order to obtain bargaining advantages. Do not take such tactics personally and realize that overt attempts to lie at or bluff your counterparts could backfire and might damage business relationships. Lies will be difficult to detect. It is advisable to verify information received from the local side through other channels. Similarly, they treat ‘outside’ information with caution. Saudis are usually too proud to claim or admit that they have only limited authority, even if it is true.
Final offers may come more than once and are rarely final. Do not use tactics such as applying time pressure, opening with your best offer, or making expiring offers, since Saudis could view these as signs that you are not willing to build a long-term relationship. They may choose to terminate the negotiation. Silence can be an effective way to signal rejection of a proposal.
Saudi negotiators avoid openly aggressive or adversarial techniques but may use more subtle versions. Making an extreme opening offer is a standard practice to start the bargaining process. Negotiators may also make indirect threats and warnings, or subtly display anger. Use these tactics with caution yourself since they may adversely affect the relationship if employed too aggressively (John 1994). Do not walk out or threaten to do so as your counterpart may take this as a personal insult.
Emotional negotiation techniques, such as attitudinal bargaining, sending dual messages, attempting to make you feel guilty, grimacing, or appealing to personal relationships, are frequent and can be effective. Be cautious not to cause loss of face when employing any of them yourself. Also, know that Saudis can become quite emotional during fierce bargaining. It is best to remain calm. Defensive tactics such as blocking, distracting or changing the subject, asking probing or very direct questions, or making promises may also be frequent.
Decision Making
Company hierarchies can be very rigid, and people expect to work within clearly established lines of authority. Although the pace of business is accelerating, decision making can be a slow and deliberate process in Saudi Arabia. Decision makers are usually individuals who consider the best interest of the group or organization and may consult with others in the organization. Final decision-making authority may be delegated down, but that can change quickly if subordinates fall out of favor. Consequently, it will be important to win the support of senior executives.
When making decisions, Saudi businesspeople may not rely much on rules or laws. They usually consider the specific situation rather than applying universal principles. Personal feelings and experiences weigh more strongly than empirical evidence and other objective facts do (John 1994). Saudis are often reluctant to take risks. If you expect them to support a risky decision, you may need to find ways for them to become comfortable with it first. You are much more likely to succeed if the relationship with your counterparts is strong and you managed to win their trust.
Agreements and Contracts
While these serve as tools to improve the communication and strengthen commitments, they should not be taken for final agreements. Any part of an agreement may still change significantly before both parties sign the final contract. Agreements are only final when the participants part. Until then, the Saudi side may unilaterally abrogate them, possibly even if they were already signed. Oral agreements are not binding under Saudi law.
Although business people in the country understand the role of contracts well, they may view them only as general guides for conducting business, expecting that both parties are willing to change terms if there is a change of conditions. Written contracts are usually kept high-level, capturing only the primary aspects, terms, and conditions of the agreement. Accordingly, do not propose an overly detailed contract since that may cause hurt feelings.
International contracts in the country usually include ‘offset’ requirements, which are spelled out by law. As compensation for the gains the foreign company expects to receive from the business deal, it is required to support efforts the local economy will benefit from, such as training local staff or transferring technological know-how. Saudi law also requires having a local representative on a continuous basis. However, do not bring your attorney to the negotiation table. Saudis may read it as a sign of mistrust if you do.
Since personal honor is highly valued in Saudi Arabia, contracts are usually dependable and your partners will strive to keep their commitments. However, business partners commonly expect the other side to remain somewhat flexible if conditions change, which may include agreeing to modify contract terms (John 1994).
Women in Business
Saudi Arabia remains a male-dominated society. Although some women are working, they still have very traditional roles and rarely attain positions of similar income and authority as men. The relative scarcity of women in Saudi business may make local men uncomfortable in dealing with Western women, who should not expect to be met with the same respect as men. Women find themselves subjected to many restrictions in the country. Displaying confidence and assertiveness can be counterproductive. Appearing overly bold and aggressive may create major issues and must be avoided under all circumstances (John 1994).
As a visiting businesswoman, emphasize your company’s importance and your role in it. A personal introduction or at least a letter of support from a senior executive within your company may also help. Even with these credentials, you may still not find sufficient attention, making it advisable to take a male colleague along for the trip and act ‘behind the scenes.’
Female business travelers should exercise great caution and act professionally in business and social situations. Women need to respect the local’s way of dressing and avoid ways dressing which exposes their body.
Male visitors should not speak to a Saudi woman unless the situation clearly requires it. In addition, avoid bringing up the subject of women with your male business partners. Do not even inquire about a wife’s or daughter’s health. Furthermore, while there may be intensive contact between men, it is vitally important not to stare at any woman you may meet.
Additionally, impeccable appearance is very important when doing business in any of the Gulf Arab states and many other Arab countries. Male business visitors should wear conservative suits on most occasions. Always cover your whole body. Make sure shoes and suit are in excellent condition.
Saudi hospitality is world-famous. You are not expected to reciprocate at similar levels.
Tea will be served at many occasions. It would be a mistake not to accept it, even when you are not thirsty. Punctuality is not a necessity in social events. Remember that alcohol is illegal in Saudi Arabia (John 1994).
Topics to avoid in discussions are Saudi Arabia’s internal conflicts with Islamic extremists as well as its political role in the Gulf and Iraq wars.
Alternative solutions as to how this problem can be alleviated
Problems faced by multinational companies are best covered by using risk management techniques which help prior identification and putting in place of measures to curd them. A combination of management techniques are often employed in evaluation of the best methods suited the risk faced by power and automation industries. The three aforementioned generic techniques are employed in risk management. These include risk reduction, retention of risk, and transfer of risk (Richardson, 2010: 23). In practice a particular risk will be addresses using one of the methods. It is however important to evaluate whether a specific solution addresses the different areas of risk interaction. For instance in implementing a power safety design change, it would be important to access whether the proposed solution might conflict with industrial safety regulations/procedures. Identifying appropriate risk management techniques therefore requires assessing of the interaction effects touching on a range of factors including safety, production procedures and operations, financial decisions and strategic decision making.
Risk reduction
Risk reduction takes a two dimensional perspective. This includes reducing the likelihood or frequency of events occurrence and reduction of the consequences that an event is expected to have in case it takes place (Pool 2002). Reducing of occurrence frequencies involves a range of techniques including engineering procedures, employee education programmes, and standards enforcement. Severity reduction on the other includes barring events progression from less sever episodes to more sever episodes and employment of measures that reduce economic impact of critical disruptions. Risks reduction measures may therefore involve pre-event measures, simultaneous measures that run in tandem with the events and post event actions (Pool 2002).
The other dimension involves increased understanding of the reduction and control tools and hence characterizes them in accordance with their focus on involved individuals behavior or the surrounding environment in which the physical assets and control system function. The common generic risk reduction techniques comprise of asset duplication and separation, salvaging techniques, system redundancies, subcontracting, leases, harmless hold agreements, and actions of indemnity (Pool 2002). Such actions aim to reduce uncertainty and hence increase certainty, alter high probability occurrences to low probability occurrences, improve system quality and hence reduce failure likelihood, enhance personnel training, reduce risk exposures by individuals, promote use of well defined and documented techniques/procedures and also encourage use of peer reviewed processes, techniques and procedures (Pool 2002).
Usage of smart instruments in power and automation industries is known to allow remote diagnostic capabilities which allow operators, industry management, and external experts to monitor equipment condition (Pool 2002). For instance such systems may easily identify imminent valve failures, faulty meter readings, monitor valve seat pressures and report general abnormalities in a given process. Such information help in identifying system areas that need overhauling in addition to offering integrated information which assist in development of preventive maintenance programs and hence optimal personnel/resources utilization.
Component inspection is also an important tool in risk reduction in power and automation plans. It is an aspect of inventory management that allows downtime reduction as a result of installed components failure. Database software is used in inspection and repair data organization in addition to provision of budgetary information that enhance outage planning and management of components (Pool 2002). Such software is a powerful tool applicable to multiple power station industries and provides the appropriate mechanism for reducing the frequency with which more than one power station may be off-line as a result of failure of a component (Pool 2002). An example of such software is the Component Assessment Management Software (CAMS). Other software applicable in management of risks include the monitoring and diagnostics software; combines data into intelligence and hence help reduce the magnitude and volatility associated with maintenance costs through provision of information on the best timing for maintenance operations e.g. electric motor PDM, document management systems which assist in recording of the industry’s configuration, processes and procedures. Such a system reduces the costs incurred by the industry and likewise time. The risk of delay or loss in production is hence minimized in addition to ease in records and operating procedures change. CIMAGE document management systems used in the UK facilitates licensing, personnel training, safety regulation and document maintenance/retrieval (Pool 2002).
Power and automation companies are increasingly faced with competition pressure to keep plants in line and minimize outages. Reducing outages requires least variability in financial performance. Careful planning of logistics for staging and lay down of parts and equipment on asset space is vital. A proper and appropriate arrangement of parts is essential in any power and automation industry. Likewise shift arrangement should be in such a way that efficiency is at maximum. Hengel asserts that careful planning and coordination can result into up to 15 day reduction of typical generator rewind cycle (Pool 2002).
Cyber risk on the other hand is reduced through building of security walls to guard the system against invasion. Preventing man-made attacks require strong electronic security parameters and cyber configurations within the control systems. Commonly used resources include the NIST’s Special Publication 800-82 v2, 18 Industrial Control Systems Security and the Cyber Security Procurement Language for Control Systems. A combination of computing cyber environment under internal networks controlled by a single authority/policy is used to reduce security threats significantly.
In general risk reduction is a common practice in power and automation industries in their focus to enhance efficiency while at the same keeping risks at minimal levels.
Transfer of Risk
Risk transfer involves obtaining of a substitute to the original party exposed to risk. The substitute bears the risk on behalf of the original party (Robert, 1989: 482). Such transfers are done through contracts and financial market instruments. The risk degree is at times reduced through transfer in instances where the party accepting the risk possesses portfolio effects e.g. insurance contracts which involve pooling of risks. In some instances the risk remains the same but is transferred to another party who is willing to accept the performance variability at a price (MENAFN 2010). Contractual agreements are the most commonly used risk transfer mechanism within the power and automation industry. In contractual agreements, the risk is shoved to the party who is able to control risk results, prevent the risk, mange it if it occurs or is best suited to absorb its impacts. The counter party is then liable to premiums for the risk transfer. Such mechanisms include hold-harmless agreements, financial and commodity markets hedging, lease agreements, late delivery penalties, warranties, and insurance contracts among others.
Insurance contracts allow power and automation industry operators to get compensation for losses they incur within the contract definition. Insurance policies applicable to power and automation industries include public liability, employee liability; damage/broken material, and loss of output/sales compensation (Pool 2002). Financial derivatives like hedging of risks are also used to transfer risks as a call option. Such agreements give the buyer a right to purchase a product at a given price. In instances where the market prices exceed the call prices, the buyer is allowed to get the commodity at a price lower than the market price. Swap contracts are also use in risk transfer. It involves scenarios where the counter party faces an opposite type of problem (Pool 2002). For instance a swap contract may be applied to protect against revenue losses as a result of a warmer than expected winter.
Multi-trigger insurance cover is an emerging risk transfer mechanism used in power and automation industries. It is a development of insurance industry in an effort to improve its ability to compete within the capital markets (Pool 2002). This method provides a competitive advantage to power plant operators as they use to hedge risks in the world markets producing electricity. Double trigger policy for instance, allows two uncorrelated actions specified if occurring simultaneously to trigger a payment e.g. explosion of steam line, damage by storm or compensation of workers risk. Figure below illustrates some of the multi-trigger insurance policies.
Table 1: Examples of Multi-Trigger Insurance Covers
Multi-trigger insurance associated costs are often lower compared to traditional insurance and derivative instruments. For instance, the derivative cost for a dual trigger policy is four to five times less the traditional insurance (Pool 2002). Generally, the lower the trigger correlation, the lesser the costs are (Pool 2002). They are just like other insurance policies, priced with regard to their occurrence probability.
Retention of Risks
Retention is perhaps the least familiar risk management technique in power and automation industries. This is given that such plants operate on a principle of keeping risks at negligible levels. The idea of deliberating on acceptable risk levels is unacceptable within the industry. However, financial risks with probability of high returns still remain present within the industry. In addition, no matter the effort some unintentional risks often by-passes risk management initiatives and the rational decision making process. Such risks are unintentionally or unconsciously retained within the industry. An example of some of the risks retained within the power industry includes usage of a risk informed tolerance flaws in design of less restrictive pressure-temperature limits (EPRI, 1997). EPRI study for instance revealed a possibility of increasing allowable pressure by up to 50Psi without increasing vessel failure risk (EPRI, 1997). Another example is the continued usage of a turbo generator that is already known to have flaws. This is done in consideration of the likely costs associated with [process disruption before the normal maintenance period, and likelihood of its complete failure if repair attempted. In general, despite attempts by power and automation companies to avoid retaining of risks, circumstances arise where the existing options are limited and the risk has to be retained.
Implementation and monitoring of risk management initiatives
Upon identification of the best possible risk management initiatives, the industry undertakes implementation actions simultaneously with the monitoring process to establish its successes and failures. Implementation may involve organizational management changes which are expected to impact on the cited risks, at implementation integrative decision support through software applications is employed. Normally though, insurance, financial, and physical risk databases are separated. Such endeavors are possible with the help of integrated risk management packages. Such software also assists in monitoring of the implementation procedure and the possible outcomes upon identification of emerging trends.
Implications for future use
The use of risk management by the company for future use is fundamental to its success. It offers possibility for early identification and management of possible problems that the company is likely to face in its operations in Saudi Arabia. This generally represents the scenario that many multinational companies find them-selves in.
Conclusion and recommendation
Multinationals companies operating in Saudi Arabia or intending to do so are largely influenced by the cultural background of the country (Hengel 2002). Previously under-developed, the finding of oil has spurred the company into economic stability which has seen it broaden its grip on various economic sectors. Working in the Saudi Arabia presents a number of differences uncommon with the normal uncommon withy most companies globally. Unlike most companies, Thursday and Friday are the official rest days with the rest being official work days. This tradition is in line with Muslim religion teaching, which is the major religion in the country. Often meetings are scheduled taking into consideration duration for possible delays i.e. some additional time is set aside for this purpose. Last minute cancellation of meeting is a common occurrence in Saudi Arabia (MENAFN 2010). People and relationships are given more importance compared to schedules and time. The general attitude of person towards work is more relaxed as compared to western cultures. However, most businesses are evolving towards the western culture. As earlier mentioned, most businesses are operated on hierarchical basis. Individual status is accorded lots of respect and is often recognized using appropriate titles e.g. sheikh for chiefs, Mohandas for engineers and ustadh for professors (MENAFN 2010). It is required of an individual to inquire about a person’s title prior to meeting the person. Usually age plays a critical role during meetings as the eldest person is often considered to be the most senior.
It is important to reiterate that most people in the Saudi Arabia prefer to personally do business. Relationships and mutual trust are considered paramount to the success of any business within the Saudi Arabia. Additionally, it is often recommended that an individual introduces one to business connections rather than attempting to go it alone. This is in consideration of the fact that Emirati people often prefer to engage in business with persons they know or through persons they know. Introduction by an already known individual can therefore do great benefit to future relationships with the Emirati people. Additionally, understanding and respecting their culture is important and patience is likewise necessary. For instance, an Emirati would easily cancel a pre-planned meeting some minutes before time in order to attend to some family matters.
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