Start-up Businesses in Saudi Arabia: Challenges of finding finance Proposal

Entrepreneurship in Saudi Arabia

Information on business venturing suggests that Saudi Arabia is increasingly becoming involved in this kind of business approach (National US-Arab Chamber of Commerce, 2010, p. 1). For the last few years, very many businesses have been established in the Arab region, but the rate of failure has always been proportional to the rate of venturing.

This suggests that there are great business opportunities which business people have identified in Saudi Arabia, but do not have the capacity to exploit them fully. The World Economic Forum (2011, p.9) notes that Saudi Arabia has a lower rate of entrepreneurial activities than United Arab Emirates, Jordan and Iran. One reason that has been put forward in regard to this trend is lack of adequate capital.

Therefore, the rationale of this study is to highlight the financing challenges that exist in Saudi Arabia for business startups. Additionally, it provides an opportunity to see its particular impact on new businesses. This in turn provides the opportunity to understand the reasons behind the successes and failures of business starters. Therefore, the aim of the study is to undertake an empirical approach to investigate the potential financing challenges that business starters face when venturing in Saudi Arabia. Three objectives will be considered:

  1. To investigate the sources of new business ventures finance in Saudi Arabia
  2. To examine the major financing challenges encountered by business starters in Saudi Arabia
  3. To assess how business starters can best respond to the financial opportunities and challenges they face in Saudi Arabia

The research questions will be:

  1. Where have the successful business starters in Saudi Arabia sort capital from?
  2. What challenges do business startups encounter when financing their ventures?
  3. What can business startups do to avoid failure when sourcing out capital for their ventures?

The failure of many new businesses may be due to the fact that the current approaches applied by business starters to get funds are not effective. This reason brings us to the first issue that the project intends to investigate. The approaches could not be convincing as it might be with respect to an integrated approach to business planning and the business financing opportunities that the starter intends to exploit.

It can be argued that many of them pursue business opportunities either without examining their viability within Saudi market or realizing the need to seek more capital when their ventures indicate failure. The development of a funding platform that provides business starters with accurate information may therefore help them to revise their strategies and attract more sources of funds.

It is apparent that these business people have not realized the problems they encounter in exploiting the funding opportunities of the Saudi market. Therefore, they need to find out these problems to succeed in their business endeavors which form the core focus of the study.

This project will evaluate the current funding approaches used by business starters to obtain funds and investigate further the available funding sources with a view of making recommendation on the most suitable and effective sourcing strategy.

The major emphasis will be to highlight the available funding opportunities and how business individuals can exploit them to lower the rate of failures noted earlier. It will also be important to evaluate the challenges that business starters encounter in Saudi market with regard to their funding activities. The expectation from this project is that the project report can become a roadmap for business people to maneuver the funding opportunities availed to them by the financing channels.

The proposed investigation will point that there are several problems in Saudi Arabia about financing new business ventures that have emerged in the recent years. Generally, business men fail to prosper for some common reasons including insufficient capital and poor market research among others.

The policy makers may also have the opportunity to ‘see’ the importance of involving new ventures when developing funding initiatives. This research is a response to the observation made by Nnadozie (2003) that business financing is particularly crucial in both developing and developed nations owing to the soaring levels of productivity efficiency.

However, one of the objectives of this project is to recommend on the existing financial opportunities and problems which business starters in Saudi Arabia face. The final outcome will tell clearly that the research does not represent consultancy.

It may offer pointers at what components of the approaches to adjust, but will not comprise of a total assessment of the approaches. With these provisions, the report will escape the idea of providing advice. As much as the report is important in driving new business ventures, so is the need to take proactive measures on other areas outside the funding context.

Methodology

The aim of the project is to provide recommendations giving information on the financial opportunities and problems that business starters face when venturing in Saudi Arabia. This will involve the identification of the main sources of finance and developing strategies on how to overcome the problems of accessing these sources. The literature review will consider the approaches by both successful and unsuccessful businessmen in sourcing out funds.

A variety of theories will be used in developing the literature review. As such, theories concerning the topic will be explored to identify contribution by different authors on the subject. There will also be an investigation on the ways that banks and financial institutions approach lending to business startups.

It is imperative to discuss the factors that these entities consider when giving financial assistance. The study will carry out business level research into the small-to-medium size businesses. This will respond to the fact that most people start their ventures as small or medium size businesses due to financial constraints (Çetindamar, 2003, p.150).

The intention to investigate the available opportunities and challenges faced by business starters in Saudi Arabia makes this research is purely qualitative, thus the philosophy of the project will be critical realism (Bhaskar & Hartwig, 2009, p.78). The project will be trying to find out the financial opportunities and challenges which will be attained by seeking the views on how the views and actions of finance agents impact on the granting or not granting loans for startups.

A deductive approach fits best for this type of research. Therefore, the study will employ deductive approach because of the huge body of literature on the major issues that affect financing of new business ventures. There will be an extensive use of secondary sources to obtain the overall picture of the sources of loans for startups and on the characteristics of such loans. This is what fits best within the available resources.

The same reason applies to the choice of using the double-method of study despite its drawbacks. The resources available for the research dictate that an interview is the most appropriate means of collecting data (Groves et al, 2011, p.149; Seidman, 2006, p. 12). The picture obtained from secondary sources will be used to provide information about the position of loans for startups and to triangulate the data that will be got from the interviews.

Several considerations inform the design and methods chosen for a study project. Design deals fundamentally with aims, intentions, uses, purpose, strategies, goals, plans and objectives within the limitations of resources (Mitchell and Jolley, 2012, p. 111). A library-based research will meet the needs for the literature review with the goal of exploring capital acquisition strategies and theories. It will also seek to determine the scope of research so far relating to new venture success in terms of adequate capital.

The researcher will go to Saudi Arabia for field trip and data collection and interviews. The interview questions will be circulated a week before the date set for the interview to ensure that the needs associated with the individualistic culture in Saudi Arabia are met. The respondents will be identified, and permission will be sought from all participants in the interview process. It can be argued that cooperation of the participants can be enhanced by providing the actual intention of the interview.

This is because the individualistic nature of the Saudis makes them very suspicious to surprises-a negative factor to the success of the project.

The interview questions will also be open-ended in order to get sufficient breadth and depth of replies to triangulate with the information gathered from secondary sources. Reliability of the interview data will be tested by comparing the variables under study with similar variables from previous studies while the validity will be tested by determining the extent to which the information concurs with global financing approaches.

The interview questions will be distributed through new emails established by the participants prior to the actual interview. The actual interviews will then be administered on a weekend, since this will make them available to the target group who do work on week days at the same time, and reduce the risk of outside interference, misinterpretations and unintended access to the information gathered.

The interview will be conducted individually to ensure its alignment with the individualistic nature of the Saudis. It will also be necessary to assure the participants of safe storage of information before the interview begins to encourage them to give genuine answers. The responses will be more favorable if the interview is conducted privately. This approach will mitigate accommodation costs, making the project more cost effective.

The sample to be interviewed will consist of Saudi business individuals who have succeeded or failed in their business ventures due to financial constraints.

The research intends to find out from these participants their means of acquiring capital and their relationship with the success or failure of their ventures. The study is targeting thirty people from the cities of Jeddah and Mecca. The limited number of participants is dictated by the resources available for the research. The sampling considers several factors as stipulated in the following conditions:

  1. The participant was or is a business person within the cities of Jeddah and Mecca
  2. The participant must have exclusively owned or is owning the venture
  3. The participant must have encountered financial problems and sort financial assistance
  4. The participant must have seen a business opportunity to exploit before venturing
  5. The participant must have developed a business plan before venturing
  6. The participant must be active in recording his/her business functions

This methodology exposes the participants to very many risks. The main risk the participants will encounter is if any of their answers that criticize the financial institutions leaks. This may have consequences on the attitude and opinion of the funding institutions towards them and can result in victimization.

To eliminate this risk, the responses will be kept in an anonymous location. This way, the only way to access the information will be through a procedure that involves the researcher. The project thus observes research ethics in sampling as well as during data collection process.

Each entrepreneur will fill a consent form before engaging in the interview. The role of the regional heads of the association will be to provide coordination for the study within the cities to ensure all entrepreneurs have the opportunity to participate. The entrepreneurs will not be allowed to participate after the number of participants reaches the intended thirty.

After collecting and analyzing data, the final report, together with recommendations will go to entrepreneurs and the owners of small-to-medium size businesses for possible implementation. Anderson (2004) notes that a research that is performed in a rigorous manner can lead to more effective practices than decisions with basis mainly on intuition, personal preferences, or common sense.

Preferably, a presentation of the findings will be carried out in a report meeting. Otherwise, an email will be enough for the dispatching of the report. The preferred study technique for this project will be cross sectional rather than longitudinal. The rationale for this approach is that time allocated for the study does not allow for a longitudinal research.

Secondly, the aim of the study which is to find funding opportunities and challenges does not call for a long-term research, but will try to identify the need for more researches in the same field. As the aim stands, the most appropriate way to achieve it is by cross sectional research, which calls for a manageable resource expenditure.

This means that the study will capture an overview of the success and failures of business starters related to funding issues. It will not try to follow trends overtime or to find out how they have changed. It will investigate the present procedures and their present influence. According to Swanson and Holton (1997), the product of study is new and useful. This stands to be the object of this study.

Data Sources

Primary Data

  • Interviews with business individuals

Secondary Data

  • Findings from other empirical studies

Literature Sources

  • Publications on new business ventures
  • Publications on Saudi Arabia financial institutions
  • Publications on business successes and failures in Saudi Arabia
  • Publications on Saudi business initiatives
  • Market reports on SMEs

Aspects of MBA Syllabus Used

The modules that will be applied in this project will involve various MBA aspects with a special emphasis on the core courses in finance and strategic management, Entrepreneurship, Management of change, and Business research Methods. This will meet the need to apply business knowledge in real life situations and make use of the aspects independently.

Reference List

Anderson, V 2004, Research methods in human resource management. Chattered Institute of Personnel Management Publishing, London.

Bhaskar, R & Hartwig, M 2009, The Formation of Critical Realism: A Personal Perspective. Taylor & Francis, London.

Çetindamar, D 2003, The Growth of Venture Capital: A Cross-Cultural Comparison. Greenwood Publishing Group, London.

Groves, R, Fowler, F, Couper, M, Lepkowski, E, Singer, J & Tourangeau, R 2011, Survey methodology. John Wiley & Sons, New York.

Mitchell, M & Jolley, J 2012, Research design explained. Cengage Learning, Florence.

National US-Arab Chamber of Commerce 2010, Incubating the Future: Entrepreneurship in Saudi Arabia. Web.

Nnadozie, E U 2003, African Economic Development. Emerald Group Publishing, London.

Seidman, I 2006, Interviewing as qualitative research: a guide for researchers in education and the social sciences. Teachers College Press, New York.

Smith, H 2010, Saudi Arabia investment guide. Web.

Swanson, R & Holton, E 1997, Human resource development research handbook: Linking Research and Practice. Berrett-Kholer Publishers, San Francisco.

World Economic Forum 2011, Accelerating entrepreneurship in the Arab world. Web.

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