Saudi Arabia - Distribution and Sales ChannelsSaudi Arabia - Distribution

U.S. companies seeking sales of goods and services to the SAG are encouraged to appoint a reputable local agent or distributor with experience in the sector.  U.S. companies may consider signing up for the Commercial Service’s Gold Key Service to identify prescreened, trustworthy candidates.  There are three major regions in Saudi Arabia: The Western Region, anchored by the commercial city of Jeddah; the Central Region, where the capital city of Riyadh is located; and the Eastern Province, where the oil and gas industry are heavily concentrated.  Dammam is the capital city of the Eastern Province, and its metropolitan area includes the contiguous cities of Dhahran and Al-Khobar.  Each major city has a distinct business community and cultural flavor, and there are only a few truly “national” companies dominant in more than one region.

American exporters may find it advantageous to appoint different agents or distributors for each region.  Multiple agencies and distributors may also be appointed to handle diverse product lines or services, although this may have its own drawbacks.  U.S. firms, particularly in the franchise sector, often choose to appoint a master franchisor or distributor for countries of the Gulf region, which includes Saudi Arabia, Kuwait, Qatar, Bahrain, Oman, and the UAE.  While there is no statutory requirement that distributorships be granted on an exclusive basis, it is the policy of the Saudi Ministry of Commerce and Investment that all arrangements be exclusive with respect to either product line or geographic region.

Express Delivery
Federal Express, United Parcel Service (UPS), Deutsche Post’s DHL, and Aramex all serve the major communities in the Kingdom.

Selling Factors and Techniques
Expatriate managers have had a strong influence in introducing advanced selling techniques into a market that relied heavily on word-of-mouth and established buying patterns until recently. Saudi consumers are becoming more discerning and sophisticated.  Although preliminary contact and exchanges may be handled electronically, no serious commitment is likely to be made without a face-to-face encounter and negotiation.  Exchange of business cards, usually printed in English on one side and Arabic on the other, is customary in the first meetings.  American business visitors should bring a large supply of business cards to share with contacts during their visits. 

Saudis are gracious hosts and will try to put a visitor at ease, even during arduous business dealings.  Many upper and middle-class Saudis were educated in the United States or in Europe, are comfortable in English, and receptive to doing business with foreigners.
Financing and credit facilities may be offered as part of a sales proposal, usually after a solid relationship has been established.  The 2003 Capital Market Law (CML) created the Saudi Stock Exchange (Tadawul), as well as the Capital Market Authority (CMA).  The CMA is charged with overseeing and regulating the Saudi Stock Exchange and ensuring that markets operate fairly, transparently, and efficiently.  The CML also established a new regulatory framework designed to encourage greater participation in the financial market.  It also established Tadawul as the exclusive securities market.

The CML provided the basis for the establishment of two committees to settle securities disputes: The Committee for the Resolution of Securities Disputes (CRSD) and the Appeals Panel. The CRSD has jurisdiction over disputes falling under the provisions of the Capital Market Law, the rules and regulations issued by the CMA, and the Stock Exchange.  The Appeals Panel hears appeals against decisions issued by the CRSD. A decision issued by the CRSD may be appealed to the Appeal Panel within thirty days of the notification date. The CML also created the Securities Deposit Center (SDC), which is operated by Tadawul.  SDC oversees managing deposits, transfers, settlements, clearing, and registration of all Saudi securities on the exchange. Other entities created by the CML include the Department of Authorization and Inspection, the Corporate Finance, and Enforcement and Market Supervision Divisions.

The SAG liberalized the wholesale, retail, and franchise sectors in 2016, allowing full foreign ownership of retail and wholesale businesses by removing the former 25 percent local ownership requirement.  An increasing number of companies, including U.S. firms, are taking advantage of the new regulation.  All industrial enterprises are open to non-Saudis and investors can also trade in the products they manufacture.

Many Saudi companies handle numerous product lines (sometimes even competing product lines), making it difficult to promote all products effectively.  Saudi agents typically expect the foreign supplier to assume some of the market development costs, such as hiring dedicated sales staff (especially for high-tech or engineered products), setting up workshops, repair facilities, and funding local advertising.  Foreign suppliers often appoint a sales person to the Saudi distributor to provide marketing, training, and technical support. In the absence of such arrangements, American firms should expect to make periodic visits each year to support their Saudi distributor and maintain their “share of mind” with that distributor.

There are licensing restrictions limiting who may or may not offer certain professional services, including law, medicine, accounting and financial services, architecture, engineering, and other similar professions. In this case, having a Saudi joint-venture partner is a requirement for any entity or individual to practice the above-mentioned professional services.
eCommerce
The Saudi Communications and Information Technology Commission’s (CITC) 2018annual report revealed a notable growth in the eCommerce market, reaching $7.63 billion.  Around $8 million in purchases were made through electronic applications and websites in that same year with nearly 70 million website hits per month. User growth continues to expand at an estimated 9.3 percent per annum.  The report also shows that the rate of female users of the e-commerce market is higher than for males, with fashion constituting the largest segment of the market volume at $1.7 billion.  The apparel segment dominates Saudi Arabia’s fashion market with many international brands present online.  This is followed by personal care products and luxury goods with 44 percent of market share.

E-commerce faces several challenges.  Consumers favor cash payments on delivery rather than credit card payments at the point of sale on the Internet.  Saudi e-commerce business-to-consumer (b2c) websites must overcome this challenge in order to significantly increase their market share.  Payment gateways that encourage electronic payment are being developed to address this issue.  With Saudi Arabia being the second largest global market for spam e-mail, improved cyber security is necessary to create greater consumer trust in e-commerce transactions.

Almost half of all Saudi Internet users report purchasing products and services online. The SAG has passed several regulations to control and monitor electronic transactions to combat cybercrime.  Additionally, the government has allocated close to $800 million to implement an e-Government Initiative.  In order to drive the e-Government Initiative forward, the YESSER program (meaning “to facilitate” in Arabic) was launched by the government.  The initiative is expected to develop the first National e-Government Strategy and Action Plan within the next five years.  This program will enable the implementation of individual e-government services by ministries and agencies and provide best practices in implementing pilot services.

The SAG has undertaken several initiatives and strategies to further develop this market.  The main objective is to diversify the economy and boost GDP as these strategies will create jobs, strengthen local industry, generate investment, foster entrepreneurship, and spur innovation.  To achieve these objectives, the SAG needs to address the following challenges in the e-commerce system. These fall under two categories;

• Increase demand and adoption
  • Consumer awareness and confidence
  • Connectivity and broadband coverage
  • Card payments for online shopping
• Logistics ecosystem
  • Developing a supply side ecosystem
  • Retail industry transformation
  • E-payment ecosystem
  • Startup and funding ecosystem
  • Technology enablement

According to the CITC report, to make the most of this emerging opportunity, these aspects need to be advanced in order to encourage a paradigm shift in the retail sector.