Libmonster ID: UK-1274
Author(s) of the publication: K. P. DUDAREV

K. P. DUDAREV, Orientalist, entrepreneur

HOW DOES IT DIFFER FROM DOING BUSINESS IN OTHER ARAB COUNTRIES

Saudi Arabia Keywords:Arab market, oil industry-business negotiationscompetitive advantages

During the 2008-2009 financial crisis, some Russian companies that were experiencing financial difficulties in Russia were going to "find happiness" in the rich markets of the Persian Gulf countries, including the KSA. However, these attempts were doomed to failure in advance for a number of reasons. First of all, because entering the Saudi market is a rather long, complex and costly process.

KSA MARKET - A MARKET FOR THE STRONG

20-30 thousand dollars. it may be required at the very initial stage for commercial registration. This includes considerable expenses for translation of all statutory documents in Russia, first from Russian to English, and then in Saudi Arabia for translation from English to Arabic. To this, you need to add payment for the services of a firm or individual who will directly deal with all the procedures for obtaining the relevant documents, plus official fees, etc.

To participate in the tender, you must issue a tender guarantee, and then, if successful, a performance guarantee. Experience shows that companies experiencing financial difficulties may not be able to issue these bank guarantees. Over the past two years, several Russian firms have "gone out of their way", faced with the need to issue urgent bank guarantees. An advance payment, usually in the amount of 10-20% of the project cost, is also issued under a bank guarantee.

As soon as a foreign company appears in any Arab country, including Saudi Arabia, it becomes the object of attention from many local firms offering assistance in commercial registration, office rental, housing and even in obtaining projects. As a rule, most local companies are really interested in partnership, hoping to develop and grow in the course of further joint work. However, there are firms that seek only to capitalize on the ignorance of a foreign company about the process of entering the market. The correct choice of a local partner or agent (sponsor) is of fundamental importance, because it is not uncommon for entering the KSA market to end in a conflict and quarrel with an "unsuccessful" Saudi "assistant".

The difficulty is that the choice must be made soon after entering the country, when representatives of a foreign company still have a very remote understanding of Saudi Arabia and the conditions for doing business in it. Therefore, caution and the desire to analyze the business qualities and reliability of the future partner as deeply as possible are extremely necessary before making a final choice.

Some large foreign companies, including Russian ones, that have achieved success in other countries have an opinion that no one can prevent them from getting a project in any country. Therefore, they believe that they do not need the help of Saudi agents or partners. This is a serious misconception.

The experience of recent years shows that attempts to rely only "on their own strength", to ignore the peculiarities of doing business in the KSA usually end in frustration, loss of time and money. The practice of entering the Saudi market, including Russian firms, shows that if they do not have an influential local partner who could help them understand the specifics of the local market, warn them against violating local rules of the game, they can quickly "lose the race".

Such a case occurred with a really powerful Russian company that managed to get a large contract in Saudi Arabia, and which it soon lost due to the actions of a very strong local competitor. Working in the KSA without a reliable local agent or partner is like entering an unfamiliar port without the help of a local pilot.

Such problems are fully faced by any foreign company. And the advantage of, say, European or American companies over Russian ones is only that they have at their disposal a lot of books and manuals about doing business in Saudi Arabia, which they can read in advance.


Ending. For the beginning, see: Asia and Africa today. 2012. N 12.

page 25

Who can help Russian businessmen who want to work in Saudi Arabia

Foreign companies (including, of course, Russian ones) have the right to access the services of various regional and international programs and funds operating in Saudi Arabia. Among them::

-participates in projects and provides loans for the creation of manufacturing enterprises, as well as for projects for the production of industrial products. Works with any companies registered in the KSA, as well as with companies operating in Muslim countries and regions. These include the republics of the Russian Federation - Tatarstan, Bashkiria, the Chechen Republic and others;

(AFESD) - participates in the financing of social and economic projects in Arab countries;

(AMF) - promotes the development of trade and financial markets in Arab countries;

-provides medium - and long-term loans to organizations and individuals for trade development;

- Inter-Arab Investment Guarantee Corporation (Inter - Arab Investment Guarantee Corporation) - provides insurance coverage for inter-Arab investments against trade and non-trade risks, as well as provides export loans;

Saudi Industrial Development Fund -provides loans to companies that implement projects for the construction of industrial enterprises and production facilities;

Human Resources Development Fund -supports activities related to professional development, training and recruitment of Saudi workers.

Business entities are given the opportunity to use the results of research centers such as the King Abdallah University for Science and Technology (KAUST) and the King Abdul Aziz City of Science and Technology (KACST).

DON'T NEGLECT OUR HELP

The Russian Embassy in Riyadh can provide some assistance in choosing a Saudi partner and ways to enter the market, which, like all other Russian embassies, is designed (in accordance with the instructions of the President of the Russian Federation) to help strengthen the position of Russian business abroad. The Consulate General of Russia operates in Jeddah, which can also provide assistance at the initial stage of entering the KSA market for a Russian company. Please contact the Chambers of Commerce and Industry of Riyadh, Jeddah or the Chamber of Commerce and Industry of the Eastern Province, which recently received the new name "Al-Sharqiya" (Eastern), for information and advice. It should be borne in mind that the KSA Chambers of Commerce and Industry, whose membership is mandatory for any local and foreign company, play a more prominent role in coordinating the actions of local firms and providing them with assistance than in Russia.

In Moscow, you can apply for advice and assistance from the Russian-Saudi Business Council, which is part of the Russian-Arab Business Council (RABC). Both councils are headed by a well-known Russian entrepreneur V. N. Yevtushenkov.

Business councils with Arab countries are the brainchild of the Chambers of Commerce and Industry of Russia and the corresponding Arab countries. E. M. Primakov, who was the head of the Russian Chamber of Commerce and Industry in 2001 - 2011, played a major role in their creation. Due to his exceptionally high reputation in the Arab East, the process of establishing cooperation between the business circles of the Russian Federation and the Arab countries was quite intensive, despite numerous difficulties, mainly related to the difficult situation both in Russia and in the Arab countries, and in the entire Middle East and North Africa as a whole.

Over the past decade, RADS has gained many useful connections and accumulated considerable experience. Therefore, the first visit to Saudi Arabia can be carried out with the assistance of the Russian-Saudi Business Council, which periodically organizes meetings of Russian and Saudi businessmen in Russia and Arab capitals, publishes information and analytical materials, and provides advisory and other services.

FORGET ABOUT WHAT YOU LEARNED IN EUROPE

Businesses in Russia and Saudi Arabia should never be approached with common standards.These businesses differ fundamentally in many areas. For example, Russian construction companies, before making a decision to enter a particular market, seek to find out what specific project or projects they are doing this for. Hence the question: what is the point of registering if it is not known for what specific project, and whether there are any projects in this country at all in the near future?

This approach is quite justified for most countries, but not for Saudi Arabia. The fact is that all tenders of one of the world's largest customers for the construction of oil and gas facilities - the state - owned company Saudi Aramco-are closed. This Customer does not announce their upcoming projects at all. Information about them is available only to those potential contractors who were "prequalified" for osu-

page 26

projects of this type (construction of onshore or offshore pipelines, oil refineries or petrochemical plants, other on-site facilities, etc.) and received an invitation to participate in the tender. The relevant detailed documentation is sent to the potential bidder only after the bidder signs and sends the client a Confidentiality Agreement, in which the bidder undertakes to share the information received only with potential subcontractors and partners, and only after signing a similar Confidentiality Agreement with them. Contractors who are not invited to participate in this tender do not receive information about the project.

However, the lack of public information about upcoming tenders does not mean that the projects themselves are not available. Moreover, experience shows that every year this Customer conducts competitive bidding for dozens of large projects with a total value of $15-20 billion or more. per year. For example, the value of just one contract for the construction of the Saudi Aramco and Dow Chemical Joint Venture (Sadara) in Jubail, signed in March 2012, exceeds $16 billion. And the cost of a similar enterprise under construction in Yanbo reaches $8 billion.

Any company that has passed prequalification in Saudi Aramco can be sure that it will regularly receive invitations to participate in tenders of this Customer. As for other large customers, their future projects are not kept secret, but especially not advertised in the open press. In other words, a serious foreign company that has passed commercial registration and prequalification, whether in Saudi Aramco, SABIC (Saudi Basic Industries Corporation), the Royal Commission for Jubail and Yangbo, the Seawater Desalination Corporation, has a real chance to participate in tenders and receive contracts, and for many years.

Lists of tenders held by major government customers-ministries and state-owned companies (with the exception of Saudi Aramco) - are published in the Um al-Qura newspaper, published weekly in Mecca in Arabic since 1924. Information about smaller tenders is distributed in newspapers, and in electronic form-by several specialized agencies, for example, Al-Mirkaz, and others.

Thus, the lack of data on specific projects should not confuse potential contractors who provide, for example, construction services. We should start from the fact that, according to the Middle East Economic Digest magazine, published in London and Dubai, "...every resident of Saudi Arabia and other Gulf countries accounts for the largest volumes of construction work in the world." This, of course, does not mean that you should abandon market research altogether. They are necessary, although this work will also be associated with certain difficulties.

Another important point to keep in mind for companies intending to enter the Saudi civil and industrial construction market, which is considered one of the most capacious and dynamically developing in the world. Its special feature is the existence of a classification system for local construction companies. Depending on the value of previously executed contracts, companies are assigned one or another "class" - from the first to the third.

A "first class" company can participate in tenders for projects worth 200 million riyals (about $50 million) or more. A "secondary" company may carry out projects no more than 200 million riyals. A Saudi company that does not have a "classification" issued by the Ministry of Municipal and Rural Affairs is not eligible to participate in tenders held by government Customers. If a foreign company has a classification in its own country and is represented in the KSA by a branch, the requirements of "classification" do not apply to it. If it has created a joint venture with a local firm and has become a Saudi one, the classification is mandatory.

Obtaining a classification certificate is a time-consuming process that requires filling out a number of questionnaires, collecting and translating into Arabic the financial statements of companies for the last 3 years, as well as the texts of previously executed contracts translated into Arabic and written feedback from counterparties.

Taking into account the time spent on collecting, translating documents and performing other operations, the procedure for obtaining a classification certificate takes from 4 to 12 months or more. To reduce deadlines, it makes sense to use the services of local companies, usually existing at audit law firms that specialize in the classification procedure. The cost of these services starts from $30-40 thousand and sometimes reaches $100 thousand.

DON'T WAIT FOR THE "GOLD-EDGED SAUCER"

There is a widespread perception among Russian firms that they are "waiting" in the markets of Saudi Arabia, and that as soon as they appear, a "golden rain" will fall on them from the skies of the rich kingdom. This illusion is reinforced when, during their first visits, representatives of local businesses, ministries and government agencies kindly invite foreign companies to work in Saudi Arabia and promise to provide all possible assistance. Many Russian businessmen take this too literally: they expect that the project will be brought to them almost "on a silver platter". They get the impression that there is a "shortage" of foreign contractors in the kingdom, and they are only required to "come in"...

In fact, everything is different. Most of the largest companies from all over the world-American, Western European-have been present on the Saudi market for several decades.-

page 27

Russian, Japanese, Korean, Chinese, Turkish, Indian and other companies, as well as thousands of local firms, including quite large ones. This abundance of companies entails intense competition. At the same time, the arrival of new foreign companies with new technologies and experience is beneficial to the Saudi side, because it further increases the density of the competitive environment, and therefore leads to a decrease in the cost of projects. Therefore, Saudi representatives sincerely invite foreign firms to work in the KSA and are really ready to provide them, usually on a paid basis, with some assistance in registering, searching for partners, suppliers, etc. However, everything else - marketing research, adaptation to market conditions, and most importantly - participation in tenders, as well as the preparation of a calculated and competitive tender offer - should be provided by the companies themselves.

You can get a project in Saudi Arabia only by winning a tender. You can't circumvent the law. Even the king, the main proponent of introducing market principles and a fighter against corruption, cannot change the results of trading. Attempts to "go to the ladies", resorting to the help of monarchs, were also made by Russian companies, but they did not yield results. The experience of participating in numerous tenders of various state customers shows that it is almost impossible to win without submitting a competitive tender offer. Unfortunately, the author had to make sure of this from his own experience.

At the same time, there is also a groundless opinion spread among Russian businessmen who believe that the Saudi market "has long been monopolized" by the United States and other Western countries and that Russian companies have "nothing to do"there. The inconsistency of this opinion has also been proven in practice. One of the largest Russian companies that the author of these lines has represented has won several tenders of Saudi Aramco, and its work has received high marks from the management of this world's largest oil and gas company and an invitation to stay in Saudi Arabia "forever"... There are also examples of how the management of Saudi Aramco temporarily disqualified for certain violations such a world-famous American company as Bechtel, or the largest Italian company Saipem, which, nevertheless, is considered one of the best foreign companies operating in the KSA. Recognizing that they are highly reliable and attractive customers, Saudi state-owned companies impose almost equally stringent requirements on almost all contractors and partners. At the same time, they are equally friendly to those who have proven their worth and high professionalism.

Presence of Russian companies in KSA

As of the first half of 2012, the following Russian companies are present in Saudi Arabia or are in the process of entering the Saudi market::

Lukoil Oil Company as a partner of Saudi Aramco in the joint venture Luxar. The contract was signed in 2004 for 40 years;

Gazprom as a partner of a Joint investment Venture with the Saudi Group of Companies Al-Mu-Lehi (according to the Saudi newspaper Al-Hayat). In addition, Gazprom's Regional Representative Office, which recently opened in Qatar, extends its activities to Saudi Arabia as well;

JSC Stroytransgaz-represented by the branch;

KAMAZ, represented by a local dealer, opened a showroom in Dammam in 2005.;

Russian Railways (RZD) won the tender for the construction of the railway section, but the results of the tender were subsequently canceled;

Volzhsky Diesel created a joint venture with a local company AN AI-Ghamdi Est;

Kaspersky has established a partnership with the Saudi company AI-Juraisy;

Zakneftegaz-stroy-Prometey Company, represented by the branch, construction of pipeline systems. The branch is registered as a contractor of Saudi Aramco;

Promstroy-Group company represented by the branch;

Energostroy company from St. Petersburg. Created a joint venture with one of the Saudi firms;

The company " Management of initial works "(UNR-494), engaged in civil construction;

Russian-Austrian construction company AST Baugesellshaft represented by a subsidiary of AST Construction Saudi Arabia Co. Ltd. Engaged in civil engineering. Registered as a contractor of Saudi Aramco;

CJSC Globalstroy-Engineering-represented by a branch. Due to unsuccessful participation in tenders for four years, the branch was closed in April 2009.

WITHOUT ENGLISH - NOT A STEP

The official language of Saudi Arabia, as already mentioned, is Arabic. Government agencies, ministries, departments, agencies, and other government agencies use only Arabic in their document flow. Just like state-owned companies. With the exception of Saudi Aramco, which has been working in English since its creation in the 1930s.

The reason for this phenomenon is clear: the company was born as an American company, and all its employees, including representatives of dozens of countries around the world along with Saudis, have been speaking and speaking English at work for 75 years. All documentation - project, tender and any other-is also compiled in English. In addition, Aramco has thousands of foreign partners in a row-

page 28

customers and suppliers whose contacts are also supported in English. Saudi citizens who do not speak English are either not accepted or are required to take language courses at the company. Moreover, the management of Saudi Aramco may refuse to meet with representatives of foreign companies if these representatives do not speak English. "If a company claims to operate internationally," they say, " its managers and representatives must speak English... As for working through translators, we already have a sad experience of working with companies that blamed translators for any problems, and we don't want to repeat it again..."

Several other large state - owned companies operating in the oil and gas and petrochemical industries, such as SABIC, Royal Commission, SEC and SWCC, also use English extensively.

Unlike in countries like Syria, where CEOs must be spoken in their native language, Arabic, because they may not speak English, in Saudi Arabia, almost all local businessmen speak English. For business communication with them, knowledge of Arabic is not required. If you demonstrate it, it will immediately reduce the distance between you and the Saudi interlocutor. However, if a Russian businessman does not speak English, then it will be very difficult for him to establish contacts and even more so cooperate with local businesses.

As an illustration, I will give an interesting point. Accustomed for a long time to communicate with Americans, British and other foreigners from Europe and America in English, some Saudis simply could not believe it when they were told that the Russian representative... he doesn't speak English and doesn't even understand English. They couldn't wrap their heads around it. They couldn't understand what was going on? Are they being trifled with?

Another of the features, or rather difficulties, of communicating with Saudi businessmen from a distance is that the vast majority of them speak English quite well and fluently, but they are much worse at reading and even weaker at writing in English. For this reason, it can sometimes be difficult to get a personal email or SMS from them. They are simply too shy to write in English for fear of making a lot of spelling mistakes, especially if they don't have a secretary who is proficient in English.

In light of the above, I would like to warn against a common mistake that Russian companies make when selecting candidates for the position of head of their branch or joint venture in Saudi Arabia. As a prerequisite for the candidate, a good knowledge of the Arabic language is most often set. This is quite justified when it comes to countries such as Egypt, Libya, Syria, Jordan, Iraq and others. However, paradoxically, this approach is wrong for Saudi Arabia, the birthplace of the Arabic language, because the first foreign language that a candidate for a job in the KSA should have a good command of is not Arabic, but English.

Arabic and English are a common combination of foreign languages studied by students of MGIMO, the Institute of Asian and African Studies of Moscow State University, and the Moscow State Linguistic University (MSLU) (formerly the Moscow State Linguistic University). Moscow State Pedagogical Institute of Foreign Languages (MGPIII) named after M. Torez) and the Military Institute of Foreign Languages, as well as other Russian universities. However, this does not mean that their graduates are equally proficient in both these languages. The fact is that during their studies, Arabic is considered the first language, and English is considered the second language, which is often given less time and attention when training specialists in Oriental studies. For this reason, in most cases, a good Arabist with experience in Egypt or Syria can speak Arabic perfectly, but have a weak command of English, which he simply did not need while working in other Arab countries.

In Saudi Arabia, doing business requires, first of all, the English language in which documentation is prepared and business negotiations are conducted. Moreover, as mentioned above, the use of English is not a whim, but an objective necessity. Often, private companies in Saudi Arabia are run not by Saudis, but by Indians, Pakistanis, Filipinos, and Europeans who do not speak Arabic.

As already noted, the largest state customers - Saudi Aramco, SABIC, the Royal Commission for Jubail and Yangbo, the Seawater Desalination Corporation and others use English as their working language. Therefore, without a good knowledge of English, a representative of a Russian company in the KSA simply has nothing to do.

During meetings, representatives of Saudi Aramco pay special attention to how fluently the representative of a foreign company speaks English, and the level of knowledge of this language is often judged on the degree of readiness of this company to work in the Saudi market... By the way, even "ordinary" Saudi citizens and their wives are forced to learn English at least in order to communicate in food and other stores with sellers, mostly Indians, Filipinos and immigrants from other countries.

As for the Arabic language, its knowledge is very useful, as it causes respect and favor to a person, helps in the process of establishing contacts, but is not "vital". Thus, the ideal option that gives the maximum effect is a good command of both English and Arabic.

* * *

I sincerely hope that my advice, based entirely on a long stay and work in Saudi Arabia, will help Russian entrepreneurs successfully start and continue their business in this interesting and original country.


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