Learn about barriers to market entry and local requirements, i.e., things to be aware of when entering the market for this country.
Technical Standards and Regulations
Saudi Arabia continues to move toward adherence to a single standard, which is often based on International Organization for Standardization (ISO) or International Electrotechnical Commission (IEC) standards, in technical regulations to the exclusion of other international standards, such as those developed by U.S.-domiciled standards development organizations (SDOs). Saudi Arabia’s exclusion of these other international standards, which are often used by U.S. manufacturers, can create significant market access restrictions for industrial and consumer products exported from the United States.
Branding and Content
The Saudi market can be very sensitive to branding and materials content. U.S. companies are encouraged to familiarize themselves with Saudi traditions, customs, and strict observances of the Islamic faith to ensure that branding does not unintentionally offend local norms and practices.
Performance and Localization Requirements
Government-controlled enterprises in Saudi Arabia are increasingly introducing local content requirements for foreign firms. Aramco’s “In-Kingdom Total Value Added” (IKTVA) program, for example, strongly encourages the purchase of goods and services from a local supplier base and aims to double Aramco’s percentage of locally-manufactured energy-related goods and services to 70 percent by 2021. Saudi Arabia’s military is reforming its procurement processes and policies to incorporate new Saudi employment and localized production goals. SAG’s Vision 2030 program calls for 50 percent of defense materials to be produced and procured locally by 2030, and simultaneously seeks comparable increases in the number of Saudis employed in this sector.
The SAG is adopting progressively stricter quotas for hiring Saudi nationals. U.S. companies report increasing difficulties obtaining visas for expatriate professional employees, others have left the country due to the slowing of opportunities or not had their work visas renewed because of this law. Firms also may face challenges in finding enough qualified Saudi nationals to fill jobs.
Intellectual Property Rights Protection
Despite increased progress on IPR in recent years, enforcement is still lacking in several key sectors. Saudi Arabia was included on USTR’s Special 301 “Priority Watch List” in April 2019, following an increase in IP complaints in the Kingdom, particularly with respect to pharmaceuticals, software, digital and signal piracy, and counterfeit goods. The Saudi Authority for Intellectual Property signed a Memorandum of Understanding with the U.S. Patent Office in 2018, which could lead to further improvements of IPR enforcement in the coming years.
The government has shown improvements in combating the proliferation of counterfeit products in recent years with increased resources devoted to marketplace enforcement and stricter penalties for copyright and trademark violators. However, enforcement often remains uneven while copyright enforcement remains hampered by an insufficient number of inspectors. Moreover, manufacturers of consumer products and automobile spare parts are concerned about the availability of cheap counterfeit products in the market place. These products are often of Chinese origin.
Companies that have significant experience with government procurement in country report they have carried Saudi government receivables for years. Late payments by the SAG to American vendors are reportedly a cash-flow management tactic to reduce budget deficits. The country has struggled in recent years with a budget deficit linked to high spending on “giga” projects and declining oil prices. There is also a lack of due process to recover funds. U.S. companies should be sure to conduct all due diligence in protecting themselves from incurring non-payment issues through resources such as ExIm bank, letters of credit, or payment before shipment as well as vetting potential Saudi companies prior to making any deals. U.S. companies should contact the U.S. Commercial Service at the Embassy in Riyadh or Consulates in Dhahran or Jeddah if payment delays persist.
Unsolicited Contracts (Scam)
The U.S. Commercial Service in Saudi Arabia has noticed an increase in the number of U.S. firms receiving unsolicited but seemingly attractive business proposals from scam artists. Businesses should be particularly wary of unverified Saudi “companies” and/or government entities promising lucrative business deals and demanding staggered payments to progress through a non-existing procurement process. Perpetrators of sophisticated internet scams use Saudi Arabia’s wealth and admiration for American products and services to lure unsuspecting U.S. companies and citizens with “419” type scams (named for a Nigerian law aimed at combating financial crimes). U.S. businesses should verify the identity of any potential “partner” and the veracity of proposals before committing any resources.
Commercial Disputes Settlements
In 2016, the Saudi Center for Commercial Arbitration (SCCA) was established, with arbitration rules that conform to internationally recognized standards and principles. The SCCA offers comprehensive dispute-resolution services to both domestic and foreign firms. Some firms have already started incorporating the SCCA by reference in their contracts. SCCA arbitration awards can be enforced in local courts if they comply with Shari’a law. The enforcement of foreign arbitration awards for private-sector disputes has yet to be upheld in practice. SAG agencies are not allowed to agree to international arbitration without express approval from the Council of Ministers, which is rarely granted.
Saudi Arabia’s inflation rate averaged 2.4 percent from 2000, until 2018. During 2018, inflation was .2 percent, and has averaged about -2. 8percent in 2019. Costs went up faster for food and non-alcoholic beverages, transport, furnishings, and health. In addition, prices rebounded for miscellaneous goods and services, recreation, and culture, and fell for clothing and footwear. Sources: https://tradingeconomics.com/saudi-arabia/inflation-cpi and https://www.focus-economics.com/countries/saudi-arabia/news/inflation/inflation-moderates-in-may.