International Business In Saudi Arabia Business Essay

This research paper attempts to find article in newspapers that pertain to Saudi Arabia and the relationships it has in international business. The newspaper articles are selected in accordance with the topic under research and the summary is provided. Saudi Arabia being a strategic partner in international business has been in the forefront to promote it by having in place political, legal, economic and social-cultural environment where such can thrive. In this respect, the paper analyses cases that have been reported in the media and which relate directly to the scope of international business.

1. What Is International Business

Cover page:

May 18th 2011

Global economic climate brightens again, ICC/Ifo survey reveals

Paris, 18 May 2011

Article Summary:

The article states that the global economic climate indicator stands at 107.7 points in April, 2011 which is far much higher in the last few years. The figure is derived from a survey of 1000 economists in over 120 countries in which they responded to positive global economic growth. There are however factors that could affect this optimism such as budget deficits, high inflation and unemployment. The ICC (International Chamber of Commerce) secretary attributed this as a sign of economic recovery. He urged governments to work together to encourage a multilateral trading system that facilitates global economic growth.

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Although interest rates are expected to rise, emerging economies are worried but this will not affect the consumer prices much. The only risks that are expected include excessive movements in international capital and potential oil price shocks due to tensions in supply. (Note: Saudi Arabia is an oil producing country). The overall economic growth in the world is expected to reach 3.2% in 2011.

Among the countries to benefit from this are the US in terms of employment and increased productivity. The Asian countries may fail to realize benefits in the short term since they expect growth in private consumption, capital expenditure and exports to weaken. In Europe, benefits will materialize especially after the Euro stabilizes. Perhaps the most interesting part is the observed improvements in Saudi Arabia amongst other neighboring nations.

Relevance:

International business involves all commercial transactions that occur between two or more countries or regions in a way that the political boundary is crossed. The business may be incorporated in areas such as private and government sectors, investments, logistics and transportation, and sales in various products. The reason for doing international business differs in regard to who is participating for instance private corporations do it for profit while governments seek profits and political gains. In general, economic resources get transacted across borders in form of skills, capital and people so that they enable production in banking, insurance, construction and finance sectors among others.

This article is relevant to international business because it recognizes the role individual countries play as well as the factors of economic growth. It is evident that as long as individual countries economies are doing well, such countries are bound to trade with each other. Saudi Arabia being an oil producing country has over the recent past been affected by the declining economic growths in many countries all over the world. But considering that international business involves trans-border transaction such as exporting oil, (a resource), Saudi Arabia will in the long run engage and derive profits at a higher scale.

Critique and Insight:

Despite the implication that world economies are in the verge of growth, Saudi Arabia may still have to wait a bit longer before it can fully enjoy the benefits. In this same article, the issue of currency values is mentioned albeit shallowly. Oil as it may originate from Saudi Arabia may meet a market in crisis in regard to disagreements over currency undervaluation. This in effect means that a country like Saudi Arabia in its search for international market must be aware of such issues as well as high interest rates and inflation. 

Attached Article:

http://www.zawya.com/story.cfm/sidZAWYA20110518133330

2. Globalization of Markets and the Internationalization of the Firm

Cover page:

Bottom of Form

MENASART FAIR

By ARAB NEWS: Published: Apr 27, 2011 18:22

Article Summary:

The boutique style exclusive exhibition is very famous amongst artists, collectors and art professionals from all parts of the world. The Middle East region is attracting these from as far as North Africa and South Asia. The interest people are showing towards long neglected art and contemporary art in this region has become a success story in the international arena. Art fair manager d’Hauteville in Beirut noted that there is need for an international event which recognizes the growing demand for art whose sales value is estimated as more than $200 million for the last three years.

This is why MENASART aims to provide a base in the region for art enthusiasts and collectors so that it can be done in a professional and cultural environment. Artists from Middle East and North Africa (MENA) are being encouraged to seek newer media which will drive the regional governments.  In addition it will provide a repository for global art and culture enabling them to become a world class destination. Cities in Qatar, Bahrain and Saudi Arabia are investing a lot in building museums with the most notable being Nabatt “A Sense of Being” which is contemporary art from Saudi Arabia.

This exhibition will enable Saudi contemporary art to experience international visibility. There also international auction houses in the region in the making and which are forecast to include all countries in the region. The Video Box has also been incorporated in which films and children arts are considered for display. But it is not art only that is being considered but also conferences for dealers, curators and collectors with an aim to address recent trends in South Asia.  They will discuss challenges that can oversee merging of all artists in these regions in the light of globalization. MENASART past fair attracted a number of visitors and they expect it to rise in later events.

Relevance:

Globalization of market s and internationalization of the firm both imply a situation where a business is opened up so that it can operate on an international arena. It means moving away from just considering local demand and supply but focusing on a wider area. International business as already discussed operates across borders.

This article is relevant in the issue of market globalization and internationalization of the firm since it states that contemporary had been long neglected. Prior to embracing boutique style exclusive exhibition it seem that MENASART was confined to local markets; it at all it even took place. But with the opening of such exhibitions, there is a greater chance that more collectors, dealers and curators are likely to take part in the process.

Considering too the interest people around the world have shown interest, it is clear that the market is opening up towards becoming global. In line with creating and building museums and trade fair the contemporary industry in fact moving from local settings to being run on an international scale. True to the article, Saudi Arabia especially will experience international visibility where their long forgotten and less traded art work will be done on an international arena.

Critique and Insight:

This article would have been more resourceful had they indicated some examples of art work that is associated with MENA regions.

Attached Article:

http://arabnews.com/lifestyle/art_culture/article374698.ece

3. Organizational Participants that Make International Business Happen

Cover page:

Foreign Policy

The Middle East Channel:

Need for a new social contract: Posted By Dag Detter, Steffen Hertog: Wednesday, May 4, 2011 – 11:00 AM

Article Summary:

There are reports that vast state assets have been misappropriated in the wake of recent uprising in the Middle East. The Arabic sector is fermented and numerous strikes are taking place for example in Misr Spinning and Weaving textile plant.  The crony capitalists who have enriched themselves through skewed privatizations deals have also been loosing support. The article points out that mismanaged public sectors have been a pivotal in the uneven growth and corruption.

The State Owned Enterprises (SOEs), in some MENA countries manufacturing sector have undermined competition thus reducing growth. Many companies are unable to be productive enough to allow reasonable wages and dignified work conditions. The state appointed management has been a crucial cause by allowing cannibalizing of state assets as well as denying workers their bonuses. One Ahmed Ezz has already acquired strategic bits of steel sector by manipulating political connections in Egypt.

In all other MENA countries corruption has contributed to companies ending up in looses.  In Saudi Arabia, the Saudi Basic Industries Corporation is usually run secretively though efficiently. The MENA authoritarian systems have employed political conditions such that monopolies seem to work but more institutionalized recipes by the government are required.

The Organization for Economic Cooperation and Development (OECD) has reached a consensus that centralized ownership function is the best way to manage SOEs while at the same time protecting them from political machinations.

Centralization allows conflicts between political and industrial imperatives to be dealt with and at the same time enable introduction of professional corporate governance skills to be utilized. The Board of Directors is strengthened in its endeavors such that the whole system runs accountably either in cases of success or failure.

In order to utilize commercial funds effectively, the incorporated commercial borrowing tool comes in handy. It must however be set in under professional management that can be subjected to checks and balances for example in accounting and auditing. Instead of back financing, credit rating and use of bond market will instill more discipline. The National Wealth Funds have been observed to produce value internationally if they are well managed and accept transparency as a core principle. Reforms as studies have shown are expected to take place especially in the public sector and the management of SOEs. They must also be accompanied by labor market policy that allows migration from public to private sectors and at the same time allowing social security.

Relevance:

This article is relevant to the topic at hand since it addresses the organizational participants that make international business happen. In the article introduction, it is shown how different companies in MENA region including Saudi Arabia are being run corruptly leading to their collapse. Since the topic is dealing with organizational participants the State Owned Enterprises are in this case appropriate examples as they too engage in international business. The public sector is composed of so many organizations that make it possible for international business to take place and if it fails, so does the whole system.

As noted in the article, SOEs including energy, telecoms, transport and real estates form an untapped resource fro driving economic growth and transforming the social contract. This in effect implies that it is organizations in these sectors that contribute to a country being able to engage in international business.  Their management is essential if it is done in an organized and structured manner as the benefits filter down to the economies in the region. This is the reason such concepts as decentralization, competitive policy and deregulation are noted as ones that will lead to sustainable profit and competitive prices to citizens. 

The government on the other head is noted as the player and referee or in other terms as a market participant as well as the regulator. This is in line with the topic which discuses organizational participant who eventually allows international business to take place. In this case the Saudi Basic Industries Corporation has been successful due to being run efficiently but important to note is that the company itself serves the whole region; which is a case of international business.

The OECD is another organization that set a platform for international business to take place and it has done so in the MENA region where Saudi Arabia is located. The article further proposes that if companies are run as incorporated commercial holding companies, they are more likely to perform in the international arena as Singapore’s Temasek which is a National Wealth Fund has done. Finally, both SOEs and the private sector are in real sense contributors to international business in a country.  If both are managed well, they become profitable and in turn will expand beyond the country’s borders so as to indulge in international business.

Critique and Insight:

In as much as the article traces the causes of the current events in the MENA region, it fails to give adequate examples of how each country is fairing. It would have been more appropriate to specify the rate of interaction among the MENA member countries in regard to how they actually do business. It seems that the article is only relying on the call for political reform in the running of the public sectors and dealing with corruption. However I tend to agree with the author when he asserts that a regional reform program is necessary especially in the SOEs.  Both the financial and social enterprises sectors need to be reformed so as to take a global relevance.  It is only through globalization that organizations which play a vital role in international business will be able to accomplish their goals.

Attached Article:

http://mideast.foreignpolicy.com/posts/2011/04/29/a_new_social_contract

4. Theories of International Trade and Investment

Cover page:

Colombo Page: Sri Lanka Internet Newspaper

Leading News from Sri Lanka

Saudi delegation to visit Sri Lanka to explore new areas of business cooperation

Fri, May 20, 2011, 10:07 am SL Time, Colombo Page News Desk, Sri Lanka.

Article Summary:

The Saudi Arabia’s Commerce and Industry Minister, a Mr. Abdulla Zainal Alizera noted that peace in Sri Lanka has made it possible for the Kingdom of Saudi Arabia to establish new trade relations. This was discussed during a visit by the Sri Lanka Minister of Industry and Commerce a Mr. Rishad Bathiudeen in Jeddah. The Saudi minister cited recent unrest in North and East Sri Lanka as having hindered trade but now is willing due to the peace that has been realized. The new chapter in trade will be initiated by a Saudi delegation to Sri Lanka with an aim of exploring new areas of cooperation between the two countries.

On the other hand, the Sri Lankan minister has already identified sectors which trade can take place.  These include; tourism, industry, garments, information technology, fruits and vegetable cultivation and gem and jewelry sectors. The Saudi government will too volunteer by sending a technical team to identify new areas in agriculture under the King Abdullah Initiative for Saudi Agricultural Investment Abroad.

The two countries have eventually agreed to form a Business Council to promote bilateral trade which currently stands at $ 246 million. But both countries are hoping to improve on this figure and especially the $ 43.8 million Sri Lanka’s export to Saudi Arabia. In a bid to initiate this trade, the Sri Lankan minister has already allowed garments export to Saudi and they be made according to Saudi businessmen specifications. He further is optimistic in that he encouraged trade which would soon yield attractive gains. The Sri Lankan minister also ventured in to other ministries in Saudi Arabia such as the Electricity and Finance ministry in pursuit of international business.

Relevance:

Theories in international trade and investment can be explained in two distinct ways. One of them concerns the national level and deals with questions like why nations trade and how they can enhance their competitive edge. The other level is firm oriented and seeks to give insight in to why firms institutionalize and how it helps in giving sustainable and competitive edge. The various theories covered here include; mercantilism, factor proportions, absolute advantage, new trade index to name a few.

This article fits well with theories of international trade and investment since the visits by the Sri Lankan minister seeks to initiate trade. The theory of mercantilism for instance is the basis for the visit because Sri Lanka realizes that their national prosperity is the result of a positive balance of trade. Both countries exercise mercantilism in regard to maximizing their exports and minimizing their imports. Under the theory of absolute advantage principle, it is evident that the proposal by the Sri Lankan minister that Saudi’s import garments if well founded.  Sri Lanka must be aware of the few resources it utilizes in production of garments and why it seeks Saudi businessmen to buy them.

In regard to the comparative advantage principle, even though Saudi Arabia has an upper hand in case it exports oil to Sri Lanka, which might be more expensive, the only cause for their wish to trade is in the cost of production of garments. This concept of specialization will eventually benefit both countries; Saudi Arabia in oil and Sri Lanka in garments and agricultural production. Both countries also

Critique and Insight:

This article provides an insight in to how international business is initiated.  It provides a clear glimpse that goes with trade delegations for a certain country visiting another.  For international business to take place, each participating county must be in a position to make deals that will last and be beneficial to both parties. Another notable fact is that peace is very important for trade to take place as is evidence by past failures between the two countries. In addition, countries must be guided by international trade and investment theories in order to make the most out of trade. Finally the article reveals the likelihood of business to occur if the initiating party has also something to offer in the course of bilateral trade. The importance of trader councils cannot also be underemphasized.

Attached Article:

http://www.colombopage.com/archive_11/May20_1305866256CH.php

5. The Cultural Environment of International Business

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Arab News.com

Saudi women ‘gaining ground after long struggle’

By ABDULHAI YOUSEF | ARAB NEWS

Published: May 12, 2011 01:03 Updated: May 12, 2011 01:03

RIYADH: The late introduction of women’s education in Saudi Arabia has not limited their ability to make considerable gains and rights.

Article Summary:

Saudi women have now been able to reach official decision making positions in Saudi Arabian government. In international arena they have had chances as high executives in international organizations but not at home front. So many stories have been circulating pertaining to Saudi women strive for legitimate rights in education and work as well as ability to make personal decisions in their affairs. Historically, it was impossible for them to realize education dreams whereby their culture considered it as an act of sedition and a source of corruption.

According to Islam, women were confined to their husband’s will until their death. King Saud however contributed a great deal by allowing for girls to attend schooling and over the years many of them took up the challenge. Currently, many of them have joined all sectors of investment, government ministries, medicine, and engineering and in business as well.

One Hallima Muzaffar is already an accomplished writer and literally critic but confesses the struggle is not over yet. She cites that she still cannot run her own business despite being knowledgeable. In addition, she laments that the society is ready to open up for everything but for women. Many other women in Saudi Arabia claim and endeavor to fight for their rights sometimes with little or no success.  Finally the article notes that a number of Saudi women are well placed locally and internationally for example Thuraya Obaid who is in the UNPF and Lubna Olayan, a renowned investor in the international financial markets.

Relevance:

The culture environment of international business is a very important that should not be overlooked.  It involves the understanding of various cultural elements in a country that one is willing to engage in business with. Such cultures may have diverse and unfamiliar languages, value systems, behavior and beliefs. In a cross border business, it is always necessary to have a clue of the lifestyles, consumption behavior and norms that are characteristic of the people a country intends to deal with. Culture comes about in the unique communication, symbols and ideas they express and if underestimated could pose certain risks.

The risks in international business associated with culture include country risk, commercial risk, and currency risk and cross-cultural risk. Failure to consider carefully each of these risks might result in the trade ties deterioration and eventual death of any business however successful it was. In international business such processes as developing products and services, communication and interaction, screening for foreign distributors, negotiating, advertising and exhibition all must be accompanied by detailed analysis of the culture in question.

This article is very relevant to the issue of cultural environment of international business considering Saudi Arabia has unique culture. It is evident that women in that country are treated differently when it comes to their involvement in business. The article points out the various struggles women undergo and their plight can be harmful to the international business in the long run. Considering for instance those women in other parts of the world can engage in business and run them profitably, it is ironical why such can not be practiced in Saudi Arabia.

But in essence it is important to understand different cultures as already discussed prior to initiating business with them.  In this case, an investor who prefers to engage in a business that involves women roles in America may be forced to change his mind while dealing with Saudi women. This is in line with understanding the cross cultural risk associated with international business and to counter it would entail leaving out any involvement with Saudi women.

Critique and Insight:

The article gives an insight in to how different cultures behave in regard to business. This is very helpful so that investors may seek information on cultural environment before engaging in business that may later pose risks once established. The article however fails to highlight what Saudi women are actually doing to promote international business in the light of globalization.

Attached Article:

http://arabnews.com/saudiarabia/article396218.ece

6. Political and Legal Systems in National Environments

Cover page:

Arab News .com

By DR. KHALID ALNOWAISER | ARAB NEWS

Human rights issues in Saudi Arabia

Existing sponsorship system no longer conforms to the life in the 21st century

Article Summary:

The article discusses human rights in Saudi Arabia in respect to women, youth and foreigners. However it is the political and civil rights part that pertains to political and legal systems in national environments. The author notes the fundamental worth of everybody to be free and safe. The right not to be arbitrarily arrested and freedom of expression in any business they engage in is emphasized.

Among all these rights, the writer notes that the Saudi citizens must be free to participate in management of public affairs either directly or through elected representatives. Individuals have a right to vote or run for office in fair elections as declared in the Covenant on Civil and Political Rights issued by the United Nations in 1966. The article concludes with a question of whether the Saudi government is ready and willing to make significant political decisions for its people so that they may participate in any business of their choice.

Relevance:

The political system involves institutions, political organizations and interest groups and their relationships and rules that govern them in a country. This may happen along individual or community settings where each has assigned rights and roles. It is very common for any country to operate along a certain political ideology such as democracy or a totalitarianism setting. Each of these systems is designed to improve standards of living, communication and economic progress.

But on the other hand, failure of any particular system may lead to risks especially in regard to international business. The risks can however be reduced substantially by stimulating local economy, offering national employment, and encouraging shared business ownership and engaging in activities that show political neutrality and civility. The legal system too is composed of civil, customary, theocratic and common laws which are meant to govern how people interact and dissolve disputes. In international business, the intellectual property rights are very important to understand as they define the right of benefit of any tangible property an individual may have invented.

This article is relevant in the way it emphasizes the need for political systems based on legal foundations that are recognized internationally. In such a system, international business thrives if conditions where human rights are upheld and this comes from the political and legal system that is in place.

Critique and Insight:

The article is well presented and has all the facts that are crucial for international business to take place.  A country that denies its own citizens basic human rights cannot enjoy benefits in international business.

Attached Article:

http://arabnews.com/opinion/columns/article408235.ece?comments=all

7. Government Intervention in International Business

Cover page:

PH rejects Saudi bid to cut Filipino maids’ pay

By Philip C. Tubeza

Philippine Daily Inquirer

6:18 am | Friday, May 20th, 2011

Article Summary:

The Philippines has rejected the request by Saudi Arabia for a pay cut for Filipino maids working in the Kingdom. According to Labor Secretary, the $400 minimum salary for maids working abroad will remain despite the Saudi government wish to have it reduced to $200. Because of the salary dispute, the Saudi government has suspended the deployment of Filipino maids to the Kingdom.  The matter has been referred to Geneva where bilateral trade is meant to be discussed and resolved.

Relevance:

The role of the government is very important in international business. Governments impose restriction in international business mainly due to political, cultural and economic reasons. In cases where the government wants its domestic business in exports to thrive, intervention is necessary. Another scenario is during difficult economic times so as to reduce imports and therefore shield its workforce from being laid off.

Political motives are may be cited by a government in international business if it wants to protect jobs, preserve national security, gain influence and to respond to unfair practices.  The economic motives involved may pertain to protecting incoming industries that are in the growth path or in order to pursue a strategic trade policy.  Culturally, the government may intervene in order to preserve its national identity. All these measure have a basic motive which is to secure jobs for its citizenry.

This article is relevant in that the Saudi government has intervened in the dispute so that its own maids may have better terms than those of foreigners. The economic motive is evident in the article because the Saudi government wants job security that could be threatened by the highly paid Filipino maids.

Critique and Insight:

The article is well presented and bears all facts that would call for a government to intervene in order to secure its citizens jobs.