Brit Saudi Direct Investment Motivations

Brit Saudi Direct Investment

Motivations and Barriers to the Direct Investment of British Firms in Saudi Arabia: A Qualitative Analysis

A qualitative research study consisting of questionnaires delivered to officers at British firms was conducted in order to determine the most commonly perceived motivational factors and barriers to direct investment of British firms in Saudi Arabia. Infrastructure concerns leading to restrained investment have been identified in the literature despite a rampant growth in the Saudi Arabian domestic market and level of infrastructure development and investment. This situation is discussed as a possibly false perception as the research identifies perceptions of infrastructure problems in Saudi Arabia as still presenting a primary barrier to direct investment, and further research ascertaining the cause for this perception is recommended.

Introduction

The increasing interconnectivity of the world economy, in addition to the recent global recession and its many ramifications, implications, and effects, have necessarily caused a reevaluation of foreign investment for firms around the world. The issue of direct investment in foreign countries -- through partnerships, franchise contracts, or acquisitions -- has also been reexamined, though it has remained more steady in recent years due a somewhat greater dependence on market forces rather than the direct availability of capital (Siddiqi 2009). This paper provides a preliminary examination of the perceived motivations and barriers to direct investment in Saudi Arabia among British firms.

Saudi Arabia has long focused its considerable oil wealth on the development of infrastructure and the expansion of the domestic market, which has caused investors of capital and potential direct investors alike to view the country quite favorably over the years (Siddiqi 2009; Siddiqi 2005). This does not mean that the path to direct investment in Saudi Arabia has been entirely cleared, however, and there are still several perceived barriers to direct investment in the country, as well as real issues within the country itself, that dissuade other potential direct investments by foreign firms from occurring (Siddiqi 2008; Bushnak 2001). The reality of the problems is not the focus of this study, but rather the perception of both the motivations and barriers to direct investment in Saudi Arabia, specifically by British firms, is addressed through a systematic and literature-supported qualitative analysis of current officers in a wide array of British enterprises.

Aims and Objectives

The primary aim of this study is to identify the primary motivations and barriers to direct investment in Saudi Arabia as they are perceived by officers of British firms. Ascertaining the nature of perceived barriers will allow for further research into the reality of these barriers and the degree of interference they cause in real-world attempts at direct investment, painting a more realistic and possibly a more favorable picture of direct investment realities than current perception allow for. The identification of the primary perceived motivational factors for direct investment will also suggest firm needs in direct investment opportunities.

In addition to the simple and direct identification of the primary motivational factors and barriers to direct investment in Saudi Arabia by British firms, this research attempts to determine the degree to which each barrier is seen as a primary and significant barrier to direct investment. Such qualitative ranking and assessment of motivational factors is also conducted, establishing a preliminary concept of the needs of diverse firms representing very different industries in their direct investment opportunities in foreign countries generally, and Saudi Arabia specifically. The purpose of these objectives is to provide an understanding of the overall needs and concerns of British firms when contemplating direct investment in Saudi Arabia, which will suggest avenues for future marketing and finance research, as well as possibly suggesting practical actions that can be taken in Saudi Arabia and in firms poised for direct investment abroad.

Research Questions

The primary research questions developed for and investigated in this study are relatively straightforward. The central research question is, what are the perceived motivational factors and barriers to direct investment in Saudi Arabia among officers in British firms? All data collected relates directly to this research question, and all performed analysis was also undertaken specifically and purposefully to this end. Identification of the perception rather than the reality of motivators and barriers to direct investment, in firms with and without investment in Saudi Arabia, was specifically sought.

This primary research question can also, of course, be broken down into many smaller constituent questions, with more specific and smaller-scope questions identified and utilized in the research tools. Identification of firm types and levels of investment in Saudi Arabia were ascertained in order to make a comparative analysis and multi-industry perspective more valid and meaningful, and also formed important research questions during the investigation. Research questions and analysis techniques were also designed to provide an assessment of the degree to which each identified threat and motivation to direct investment was perceived as a major influence in direct investments opportunities and decisions; though still qualitative in nature, the research attempted to semi-quantify the persistence of certain perceptions regarding -- and possibly issues within -- Saudi Arabia.

Rationale

A quantitative study could also serve, at least partially, to demonstrate the existence of the perception motivational factors and barriers to direct investment in Saudi Arabia -- and even to the realities of these motivators and barriers themselves -- through cost comparison analyses for different firms, taxation levels and infrastructure costs, and other dollar-valued figures. Other forms of qualitative analysis, including case study examinations of actual scenarios involving direct investment by a British firm in Saudi Arabia, could also be utilized to develop an understanding of the research questions. Each of these alternatives has certain inefficiencies and imprecisions that render the methods chosen more effective.

The sheer volume of details is one major problem with a quantitative analysis of the issue; the other and far more insurmountable issue with such analysis is the lack of the human factor. This study purposely addresses the perceptions of issues pertaining to direct investment, as it is form these perceptions -- and not necessarily form on-the-ground dollar realities -- that decisions are made. The other forms of qualitative analysis would provide much of this same information, but there is no more direct way to assess the perceptions of a certain problem -- or opportunity -- than to ask the pertinent parties what their perceptions on the issue are. Though interviews were hoped for, no affirmative responses to interview requests were forthcoming, but the return rate of the questionnaires was sufficient to lend the research preliminary validity and breadth of scope.

Literature Review

Significant issues serving as barriers to direct investment in Saudi Arabia have been prevalent previously, and it is quite possible that the perceptions of barriers today are based more on a persistence of an awareness of these problems rather than a persistence of the problems themselves (Bushnak 2001). There were significant infrastructure issues, specifically when it came to water supplies, in Saudi Arabia at the start of the previous decade, and while some of these issues have persisted in the desert country it is the persistence of perception rather than the problems themselves -- which have been largely addressed through called-for investment and privatization -- that pose barriers (Bushnak 2001).

By mid-decade, the continued private and government investment in infrastructure was paying large dividends, increasing the country's wealth dramatically and changing the perceptions of the company's opportunities for many individuals and firms (Siddiqi 2005). Specifically cited for a dramatic increase in the country's appeal to foreign investors was the passage of economic liberalization efforts, especially the capital market law that took effect in July of 2004 (Siddiqi 2005). The same time period saw a massive improvement in the nation's handling of direct investments, which became much more easily facilitated and profitable for foreign firms than had previously been the case (Siddiqi 2005). This is of especial interest to the research at hand, as it is clear form some responses that the changes to the real-world opportunities and systems have not registered with all British firms.

By 2006, in fact, foreign direct investment in Saudi Arabia reached a total of the equivalent of an estimated eighteen billion U.S. dollars, which represented a fifty-one percent increase over foreign investments in Saudi Arabia over the previous year (Smith 2008). An overemphasis on the country's oil wealth and petrochemical potentials has clouded the perceptions of many other firms, however; while many investors both of capital and of direct resources are taking advantage of Saudi Arabia's growing domestic market and infrastructure, others are stuck in an outdated view of the country and the opportunities it provides (Smith 2008). This research will ascertain exactly which of these perceptions have been the most lingering, and present the largest barriers to foreign investment in Saudi Arabia.

As Saudi Arabia entered the financial crisis with the rest of the world, businesses there continued to expand, and the global shrinking of capital availability did little to slow the rapid expansion of Saudi Arabia's economy, with a GDP that nearly doubled in the five-year period ending in the last quarter of 2008 (Siddiqi 2008). The nation also has an estimated budget surplus of over one-hundred billion dollars, making a continued expansion of infrastructure spending as well as stimulus money -- if needed -- and the provision of incentives to future domestic and foreign business development in the country highly likely (Siddiqi 2008). Oil money, though not the sole source of Saudi Arabia's significant wealth and stability, has played a major part in the country's ability to ride out this economic storm largely unscathed, with hardly a misstep in their march of progress (Siddiqi 2008).

A repetition of a similar analysis at the end of 2009 shows that the country has in fact taken a hit form the global economic downturn, which could hardly be avoided, but the picture is far from dire for Saudi Arabia (Siddiqi 2009). Infrastructure investment is still taking place, and a more in-depth analysis of Saudi Arabia's long-term spending and industries shows that the country's non-oil sectors have had a combined growth of more than five percent over the previous five years, with manufacturing, transportation, and telecommunications each increasing nearly ten percent over the same period (Siddiqi 2009). All of this points to a great deal of potential profitability and success through direct investment in the country, and such investment has continued despite the tightened capital available throughout the world (Siddiqi 2009). Despite this phenomenal and continued growth, however, the real motivational factors are often overshadowed by perceived barriers to investment.

Methodology

Two research tools were developed for use in this study, in accordance with the issues identified n relevant literature and according to validated and verified practice within the field. The primary research too, and the only instrument from which any data was ultimately gathered, was a questionnaire meant to ascertain certain details of the business -- the British firm -- to which the questionnaire had been sent, and the specific individual responding to the questionnaire. The central research questions were also addressed, and the respondents were asked to rank a set of ten motivational factors and ten barriers to direct investment in Saudi Arabia in order of their perceived importance. Questionnaires were distributed via email to individuals at over one hundred British firms representing a wide array of different industries and organizational models; the response rate of thirty-eight percent was lower than had been hoped for but still provided a large enough data population to allow for a preliminary statistical analysis with a substantial degree of confidence.

An interview was also developed in the hopes that the CEOs of several of the firms contacted might be able to devote some time to this research. The interview was to be conducted largely along the same lines as the questionnaires, but was kept more open ended and allowed for greater discussion and clarification of the perceived motivations and barriers to direct investment in Saudi Arabia. At the scheduled date for the conclusion of the data-gathering process, over a month after initial contact had been made, only a handful of apologetic refusals to interview requests had been received.