Corporate Social Responsibility in Saudi Arabia

Corporate Social Responsibility in Saudi Arabia

In this paper we are examining corporate social responsibility in Saudi Arabia. This is accomplished by conducting a literature review and focusing on why this is taking place. Once this occurs, is when we can see the underlying causes of these trends and how they impacting the Kingdom itself.

Over the last several decades, Saudi Arabia has been experience tremendous amounts of economic growth. Part of the reason for this, is because they have 20% of the world proven oil reserves. Yet, the sale of petroleum-based products is accounting for: 90% of Saudi Arabia's exports, 80% of their revenues and 45% of the nation's GDP growth. This is significant, because the marketing of crude-based products has improved the county's standard of living and it has caused the nation to experience consistent amounts of GDP growth. The below tables are illustrating how this is taking place by looking at the annual per capita income and the GDP rate over the last three years. (CIA World Fact Book 2011)

Table 1: Saudi Arabia's Annual Per Capita Income

Year

Amount

2008

$23,900

2009

$23,700

2010

$24,200

(CIA World Fact Book 2011)

Table 2: Saudi Arabia's GDP Growth Rate

Year

Rate

2008

4.2%

2009

.6%

2010

3.7%

(CIA World Fact Book 2011)

These figures are significant, because they are illustrating how the production and sale of crude-based products has increase the nation's wealth. As a result, a number of: private citizens, nonprofit organizations, governments and businesses have been focusing on social responsibility. To fully understand what has taken place requires conducting a literature reviews on this subject. Once this occurs, it will provide the greatest insights as to: how this is impacting the way that these entities are interacting with the general public and the role they are playing in local communities.

Literature Review

In this section, we are going to be reviewing various pieces of literature on the subject of corporate social responsibility in Saudi Arabia. This will be accomplished by studying numerous books, journals, websites and blogs. During the process, there will be a focus on select areas to include: providing a definition of corporate social responsibility (CSR), understanding the main drivers behind this phenomenon and how these concepts can be applied in a real world context. These different elements are important, because they will help our research to concentrate on select aspects of this area and the impact that it is having on society. Once this occurs, is when we will understand how this is influencing the way that businesses and other organizations are delivering various products to the general public.

A Definition of Corporate Social Responsibility

In the website that is titled Corporate Social Responsibility (2011), it is providing us with a basic definition of this concept. As this is an approach, that businesses are using to reach out to communities in an effort to address various social welfare needs. This is because, corporations are considered to have tremendous amounts of assets and they will hire employees who work in the community. At the same time, many of their managers have: family and friends that are directly tied to what happens in these areas. As a result, a number of businesses and private organizations are engaging in corporate social responsibility. This is significant, because it is providing us with a basic definition of corporate social responsibility and why a host of firms are choosing to become involved in these kinds of activities. (Corporate Social Responsibility, 2011)

Moreover, the literature that was written by Sims (2003) is providing another definition of corporate responsibility. He found that it is a continuing focus of firms, consistently engaging in moral behavior that is supportive of the community itself. The reason why, is because these companies have a stake in the well-being of cities where they have operations. To ensure that everyone is enjoying a better quality of life they will often work in conjunction with nonprofits and government officials to address a number of issues impacting the community. A few of the most notable include: supporting programs that will promote the general welfare, environment, education, quality of life and infrastructure needs. These different elements are important, because they are allowing firms to address the needs of various stakeholders and increase their bottom line result. Once this occurs, is when there are win -- win situations that are created which will benefit everyone. (Sims 2003, pp. 42 -- 46) The information from this source is useful, because it is providing us with a second basic definition of corporate social responsibility and why firms will become involved in these kinds of programs. This is the point that we can understand the impact that this will have on an organization and the various stakeholders that they are working with.

Furthermore, Hopkins (2006) found that CSR was mainly attributed to economic growth and development. This is because the definition of these concepts is continually evolving. What has been happening is since the 1960's, many economists and actuaries considered economic growth to occur when there are prolonged periods of: increases in the standard of living, income and GDP rates. The problem with this basic assumption is that everyone was taking a one size fits all approach when it comes to issues impacting society. This is because the effects of what is happening will have uneven results on different segments. Where, select groups will benefit from what is taking place, while other demographics will receive little to no benefit from what is happening. Over the course of time, this can create vast disparities in society. To deal with the challenges government based: entities, nonprofits and businesses will join together in addressing these lingering societal challenges. A few of the most notable include: unemployment, inequality in society, substance abuse, obesity and the lack of economic opportunity. This is important, because it is providing us with a basic definition of CSR and how it has changed based upon economic growth in comparison with the underlying societal effects. (Hopkins 2006, pp. 2 -- 4)

The Drivers behind Corporate Social Responsibility (Globally)

In the article that is written by Zain (2008), she is discussing how corporate social responsibility has been playing an important part in Saudi Arabia. This is because globalization has been placing pressure on firms to increase productivity as much as possible to remain competitive. One the best ways that firms can maintain a favorable image and help to build goodwill among employees is to have programs that will give something back to the community. (Zain, 2008)

In Saudi Arabia, Abdul Latif Jameel (ALJ) Group has been an example of how firms are becoming more involved in CSR related programs. The reason why they have focused so heavily on these areas is to give them a strategic advantage in local markets. As the company, sells a wide variety of products and services to customers throughout the Kingdom. A few of the most notable include: they are the largest Toyota dealership in the Middle East, the sale of electronics, consumer durables, real estate, logistics and financing. These different elements are important, because they are illustrating how Abdul Latif Jameel Group must be able to effectively reach out to a large demographic of consumers. This is because the products and services that they are selling will face increased amounts of competition from foreign-based firms. The best way that they can maintain these favorable images is to engage in various programs that will address the needs of employees and local communities. Over the course of time, this will help to make the company more responsive to the needs of customers and there will be higher levels of productivity. (Zain, 2008)

Evidence of this can be seen by looking no further than the company's efforts to address the high levels of unemployment in the Middle East and North Africa. Where, they have been using the Human Resources Development Fund to train and educate people about various aspects of marketing. These individuals are then hired by local and international employers to sell a variety of goods / services throughout the region. The basic idea behind this approach is that those who are unemployed can be able to learn a valuable skill and how market different products / services. Over the course of time, this improves the standard of living inside the community and it gives families a way of being able to earn a consistent income. This is important, because it is showing how corporate social responsibility is being utilized to address issues impacting communities and to improve the image of company. Once this occurs, is when they will be seen as a firm that will work with local residents. This is when they will continually utilize their products and services on a regular basis. The information from this source is useful, because it is showing how the drivers behind CSR related programs are the desire to: maintain market share, improve productivity, address the needs of communities and increase profit margins. (Zain, 2008)

In the article that is titled King Abdullah Calls for Corporate Social Responsibility (2009), it talks about how the King of Saudi Arabia is encouraging businesses and governmental entities to work together in addressing those issue impacting communities. As he believes, that when firms are collaborating with government officials, they are creating win -- win situations for everyone involved. This is significant, because it is showing how the government wants to see these kinds of programs implemented to improve the business environment and the standard of living in various regions of the country. Once this occurs, it means that Saudi Arabia will be the focus of increased amounts of foreign direct investment capital. This will help the nation to be able to adapt and adjust with transformations that are occurring in the global economy. The information from this source is useful, because it is showing how governments are pushing social responsibility initiatives to increase economic development. This is the point that their economy will realize the long-term benefits from these kinds of programs. (King Abdullah Call for Corporate Social Responsibility 2009)

The article that was written by Gravem (2010), is discussing how there has been an emphasis on corporate social responsibility inside the Kingdom itself. This is because the government has been aggressively promoting these kinds of programs going back almost five years. The reason why, is globalization has been causing a transformation in how various services are delivered to the general public. This meant that many functions that were performed by the government had to be changed.

Instead, the various agencies had to work in conjunction with private businesses to address a host of issues affecting a number of communities. To include: a lack of affordable housing, possible environmental damage from economic development and how to shift the nation away from primarily exporting crude oil. The combination of these factors meant there were actual tools created to measure which firms have the greatest amounts of social responsibility (a.k.a. The Saudi Arabian Responsible Competitive Index). This is an index that determines which firms are contributing the greatest amounts of human and social capital to Saudi Arabia. The company that makes the biggest impact will receive the King Khalid Responsible Competitiveness Award. This is a prize that is given from: Saudi Arabian General Investment Agency (SAGIA), two non- governmental organizations, the National King Khalid Foundation and Global Account Ability. (Gravem 2008) The information from this source is useful, because it is illustrating how the government is encouraging corporate social responsibility to ensure that the economy will see stable long-term growth. While at the same time, it is more effectively addressing the needs of communities. As a result, this is an indication of how globalization has been having an impact on how governments are working with businesses. (Gravem 2008)

In the article that is titled Corporate Social Responsibility in the Kingdom of Saudi Arabia (2009) it is talking about how NCB bank has been focused on different programs that address social issues impacting the community. The most notable include: creating job opportunities, encouraging entrepreneurship, anti-smoking initiatives, computer literacy, obesity prevention, women's programs and assisting the physically challenged. These different elements are important, because the combination of them is allowing NCB to create favorable images in the minds of customers. (Corporate Social Responsibility in the Kingdom of Saudi Arabia 2009)

Evidence of this can be seen by looking at the below results of a study that was conducted by the bank on: how corporate social responsibility is influencing their relationship with the customer. What they found was that, this gave them a number of benefits that help to increase the brand image and profit margins. As respondents from surveys were underscoring these views to include:

62% of respondents who believe that good CSR will lead to improved relations between workers and communities.

63% who make recommendations to friends and family about those firms that are actively involved in social responsibility.

56% of new investors who feel comfortable working with firms that are embracing these practices.

Commenting about what these findings is Abdul Kareem Abu Al Naser (the CEO of NCB Saudi Arabia) who said, "As an extension of our commitment to corporate social responsibility in the region, NCB is pleased to support efforts toward building CSR awareness and understanding in Saudi Arabia and across the region. With these objectives in mind, we have published this study to serve as a base from which positive corporate interest can emerge and proactive development as well as implementation of CSR initiatives will be championed in the Kingdom." (Corporate Social Responsibility in the Kingdom of Saudi Arabia 2009) These different figures are important, because they are showing how the bank is focusing on corporate social responsibility to improve the image of the firm and increase customer loyalty. The information from this source is useful, because it is illustrating how many private corporations will often engage in CSR related activities to improve their reputation and profit margins.

In the article that was written by Al Ashaikh (2009), he is discussing how in the past corporate social responsibility did not receive as much focus as it does today. A good example of this can be seen by looking at the below table that illustrates the total percentage of companies that were focused on CSR related initiatives in different regions of the world from 1990 to 2003.

Table 3: Total Number of Firms that are involved in CSR Activities by Region from 1990 to 2003

Area

% of Firms involved in CSR

Europe

58%

The Middle East

2%

The Americas

20%

Asia / Australia

20%

(Al Ashaikh 2009)

This is significant, because it is showing how CSR was often ignored in the Middle East. Then, a transformation occurred as many governments are working with private firms to address a host of social challenges impacting communities and entire regions. (Al Ashaikh 2009)

Evidence of this can be seen by looking at the below table with the implementation of the ISO 14000 Environmental Management System among Middle Eastern-based corporations. This is a series of procedures that businesses can use to dramatically reduce their carbon foot print and environmental impact.

Table 4: The Total Number of Middle Eastern Businesses that are using the ISO 14000

Country

ISO 14000 Certificates (in millions)

UAE

53.2

Saudi Arabia

1.4

Morocco

1.4

Jordan

7.0

Israel

51.3

Iran

7.8

Egypt

6.3

(Al Ashaikh 2009)

These different figures are significant, because they are showing how Saudi Arabia has been seeing the lowest amounts of CSR related activities. In the past, this has hurt the Kingdom's ability to attract foreign direct investment capital. As a result, there has been a transformation in how the government is addressing these issues through: having various programs that are encouraging businesses to do more. In the last five years, this has led to an increase in these kinds of initiatives with the government focusing on broad categories of CSR related activities. This is significant, because it is showing how the above figures are forcing government officials to start programs that will improve the competitiveness of the economy over the long-term. The information from this source is useful, as it is illustrating how globalization is causing governments and businesses to utilize CSR to standout against other firms in the market place. Once this occurs, is when they can maintain their competitive advantage inside the sector. (Al Ashaikh 2009)

In the piece of literature titled the Saudi Responsible Competitive Index (2008), it discusses how the implementation of any kind of CSR programs must take into account a number challenges that are facing the nation. This is because they have lower rankings in a number of areas that are important to foreign direct investors. The below table illustrates where the Kingdom ranks in comparison with the rest of the world for criteria that is of significance to multinational entities.

Table 5: Saudi Arabia vs. The Rest of the World in Favorable Investor and Business Categories

Category

Rank

Ethical Behavior of Firms

46th

Efficiency of Corporate Boards

55th

Protection of Minority Shareholders

71st

Staff Training

77th

WorkForce Diversification

130th

These figure are important, because they are showing how there are a number of areas where Saudi Arabia needs to improve upon to attract more foreign direct investment capital. As a result, the government, businesses, nonprofits and private citizens are becoming involved in a host of different projects to achieve these objectives. Over the course of time, this can have a positive impact on the standard of living and the quality of life inside Saudi Arabia. While at the same time, it is allowing businesses and the nation to receive additional working capital to keep up the tremendous amounts of growth. This is important, because it is showing why a host of organizations have become involved in CSR to help increase their competiveness and the favorability of select regions for foreign direct investors. The information from this source is useful, because it is illustrating how these programs are being actively promoted based upon pressure to become more competitive from increased amounts of globalization. (Saudi Responsible Competitive Index 2008)

Furthermore, the article titled Kingdom of Saudi Arabia (2008), is taking about how the nation is hosting its first CSR forum. This is a workshop, they are introducing the National Development Program. This is an ambitious effort by the Saudi government, to encourage businesses to invest in the economy and diversify them away from the production / sale of crude oil. At the heart of these efforts are encouraging everyone to become more actively involved in CSR related programs. Commenting about the event was the head of the Forum (Loay Hisham Nazer) with him saying," Corporate Social Responsibility today has become a catch phrase that many unfortunately do not understand. Many believe that it is merely donating funds to a charity of choice when on the contrary, it is truly about building a long-term and sustainable platform for various programs that address the needs of the society companies operate in." This is significant, because it is showing how there are efforts in Saudi Arabia to improve the effectiveness of the programs. The best way that they can do this, is to have a series of conferences that will: educate, train and encourage people to become a part of these kinds of initiatives. The information from this source is useful, because it is highlighting how there is an emphasis (among Saudi officials) to use CSR to help promote their economy to investors. (Kingdom of Saudi Arabia 2008)

The Application of CSR Related Programs

The piece of literature that was written by Peng (2011), the author is discussing how there is active and inactive CSR. Active corporate responsibility is when the government is working with businesses to address obvious societal problems or injustices that are occurring. While inactive CSR is when, there are half measures taken to address those issues that are impacting communities. In Saudi Arabia, they have both kinds of CSR taking place in conjunction with one another. Where, there are various traditions and principals are actively enforced such as: the subjugation of women (i.e. they cannot drive, vote or go to the same places as men). Yet, there are certain CSR programs that are working to address these issues. The challenge is making sure that each one of them is effective in dealing with them. At the same time, there needs to be an approach that the status quo will find accepting. As, they are willing to: embrace these changes and allow for them to occur over the course of many years. This is when CSR can be effective at dealing with challenges that are impacting society. The big issue is having programs that are active and willing to push the establishment to embrace these kinds of changes. This is significant, because it is showing how CSR can be applied from a practical standpoint of examining the effects that it is having on addressing these problems. (Peng 2011, pp. 576 -- 577) The information from this source is useful, because it is providing us with tactics that must utilized to have an effective CSR program. Once this occurs, is when the odds increase that there will be a positive transformation in society.