Cultural Analysis
I. INTRODUCTION
Because
of its unique location between Asia and Africa and its proximity to Europe, in
addition to its long coasts on the Red Sea and the Arabian Gulf, the Arabian Peninsula
acquired special importance in world trade thousands of years ago. Arab merchants played an important role in
trade exchange between Asia and Europe and many Arab cities flourished as
trad-centres for caravans carrying various goods to and from the two continents
via ports on the Arabian Gulf, the coast of Oman and the Mediterranean. [1]
Thus
owing to its unique geographical location, great importance to the Muslim world
and huge oil wealth the Kingdom today enjoys considerable international weight
and strategic importance in world politics. [1]
It is
a Founder member of the UN and Arab League, a member of the Non-aligned
Movement and of the, Gulf Cooperation Council, the Organization of Islamic
Conference and several Islamic regional and international organizations. [1]
Modern
Saudi Arabia today is internationally viewed as a major force of stability,
peace and progress in the world, and an ardent advocate of Arab and Muslim
solidarity and unity. [1]
II. HISTORY
The
kingdom of Saudi Arabia was founded on
September 23, 1932 by King Abdul Aziz Al-Saud, who united the whole of Arabia
under his leadership. King Abdul Aziz
commissioned a survey of the country’s natural resources, and in 1933 oil was
discovered. Commercial production of
this precious commodity, of which Saudi Arabia has the largest known reserves
(25 percent of the entire planet’s proven oil reserves, nearly one-third of the
free world’s) , began in 1938.
Facilitated by increasing oil revenues, the country began its successful
modernization, based on a series of five-year development plans. [2]
King
Abdul Aziz developed international relations with the world’s great powers.
Over the past 56 years, Saudi Arabia has developed a special relationship with
the United States, based on mutual respect and common interests. [2]
After
the death of King Abdul Aziz in 1953, his son, Saud, assumed leadership of the
Kingdom. During his 11 year reign, King
Saud created the country’s welfare structure and was noted for his generosity
to Islamic causes. In 1964, King Saud
was succeeded by his brother, Faisal.
It was during King Faisal’s rule that Saudi Arabia achieved a major
breakthrough in industrial growth. King
Faisal died in 1975 and was succeeded by his brother, King Khalid. Fahd Bin Abdul Aziz was named Crown Prince
and deputy prime minister. King Khalid
oversaw the implementation of the Second Five-Year Development (1975-1980) and
the creation of the Third Five-Year Development Plan (1980-1985). Saudi Arabia began to diversify its economic
base and edged toward completion of its infrastructure. Crown Prince Fahd became the leader of the
Kingdom in 1982 and his brother, Abdullah was named Crown Prince and deputy
prime minister, when King Khalid passed away.
Since then, King Fahd and Crown Prince Abdullah have made a strong
commitment to industrialization, agriculture and education, playing a major
role in promoting the welfare of all Saudi citizens. floral and abstract
designs and to calligraphy. [2]
III. GEOGRAPHICAL SETTING
A. LOCATION:
Located
in the Middle East, Saudi Arabia is bounded to the west by the Red Sea; to the
north by Jordan, Iraq and Kuwait; to the east by the Arabian Gulf and the
United Arab Emirates, Quatar and Oman; and to the south by the Yemen Arab
Republic and the People's Democratic Republic of Yemen. [3]
B. CLIMATE:
Saudi
Arabia is warm and dry. Variations of
climate occur between the coastal areas and the interior regions. The coastal areas are cooler, with
temperatures seldom going above 30? C, with high humidity. The interior regions are warm most of the
year with temperatures reaching 45-50? C at the height of the summer. Nights are usually cool throughout the
country most of the year. Saudi Arabia
receives erratic rainfall, with the exception of the Asir region which is
subject to periodic moonsoon rains.
Average annual rainfall is four inches. [3]
C. TOPOGRAPHY:
The
country has a varied topography besides the well-known deserts a green,
mountainous area in its south-western corner.
Despite appearances, there is considerable life in the desert,
especially after winter rains. Plants
such as desert camomile, scarlet pimpernel, heliotrope and wild iris are common
as well as small animals such as lizards, porcupines, hedgehogs and
rabbits. Saudi Arabia's terrain is
varied but on the whole it presents a barren and harsh appearance with salt
flats, gravel plains and sand dunes but few lakes or permanent streams. In the south of the country is the famous
Empty Quarter, the largest continuos sand desert in the world. It is linked to another sandy desert, the
Nafud, in the north of the country. In the south-west, there are mountains
rising to over 9,000 feet and rain is not uncommon here. [4]
D. MINERALS AND RESOURCES:
The
most important natural resource is petroleum.
Besides, there are natural gas, iron ore, gold and copper. [5]
E. SURFACE TRANSPORTATION:
1. Modes
By the help of railways, highways, ports,
harbours and airports, heliports.
2. Availability
Railways: Total: 1,390 km
Standard gauge: 1,390 km 1.435-m gauge (448 km double track)
(1992)
Highways: Total: 159,000 km
Paved: 67,893 km
Unpaved: 91,107 km
(1995 est.)
Airports:
Total : 174 ( 1996 est. )
Airports - with paved
runways :79
Airports - with
unpaved runways :95
Heliports: Total: 4 ( 1996 est.
) [5]
3. Usage
Rates
The
cities of Makkah and Madinah can be visited only by Muslims.
AIR:
Although
asphalt roads link most of the major towns, the best means of travel within the
country is by air. All domestic services are operated by Saudia Airlines. From Riyadh to Jeddah is a flight of just
over an hour; from Riyadh to Dhahran on the east coast is a flight of just
under an hour. There are about 24 domestic
airports in the Kingdom and charter flights are available for transportation to
some of the more remote desert sites.
Saudi
Arabia has three international airports:
King Khalid Internatinal
Airport in Riyadh
King Abdul Aziz International
Airport in Jeddah
King Fahd International
Airport in Dhahran
Besides
serving Saudia, these airports also serve a large number of international
airlines. From all main airports there
is a limousine service to traveller's destination.
There
is also a regular SAPTCO Public bus service from the airports to various hotels
and centre of town. [4]
BUSES:
SAPTCO (Saudi Arabian Transport Company)
operates bus services with most towns and between the larger cities. The buses are comfortable and the fares are
reasonable, generally lower than in the US or Europe. Each bus has a special section for women and children. [4]
RAIL:
A train service with first-class
air-conditioned carriages runs daily between Riyadh and Dammam on the east
coast. [4]
4. Ports
Ports and harbours: Total: 11
Ad Dammam, Al
Jubayl, Duba, Jeddahh, Jizan, Rabigh, Ra's al
Khafji, Al Mishab, Ras
Tanura, Yanbu' al Bahr, Yanbu' al
Sinaiyah
Merchant marine: Total: 79 ships (1,000 GRT
or over) totaling 998,503
GRT/1,417,265 DWT
Ships by type: bulk 1, cargo 12, chemical
tanker 7, container 3,
liquefied gas tanker 1,
livestock carrier 5, oil tanker
24, passenger 1, regrigerated
cargo 4, roll-on/roll-off
cargo 12, short-sea passenger
9 (1996 est.) [5]
F. COMMUNICATION SYSTEMS
1. Types
Telephones,
radio broadcast stations, television broadcast stations, telegraph, telex and
postal services are available.[4]
2. Availability
Telephone system: Modern system
·Domestic: extensive
microwave radio delay and coaxial and fiber
optic cable systems.
·International: microwave radio delay to Bahrain,
Jordan, Kuwait,
Quatar, UAE, Yemen, and Sudan; coaxial cable to Kuwait and
Jordan; submarine cable to Djibouti, Egypt and Bahrain; Satellite
earth stations 5 Intelsat ( 3
Atlantic Ocean and 2 Indian Ocean ),
1 Arabsat, and 1 Inmars ( Indian Ocean region ) [4]
Radio broadcast stations: AM 43, FM 13, shortwave 0 [4]
Television broadcast stations: 80
Saudi
Arabian Television has two channels: one solely in Arabic and the other in
English with a news bulletin in French.
Television transmissions reach every corner of the Kingdom and are often
received in neighbouring countries as well. [4]
Telegraph: There is a very efficient telegraph service for overseas, as well
as among towns within the Kingdom. [5]
Telex: Operative telex lines are
spread throughout the country. Telex
facilities are available in most towns and hotels. [5]
Post: Postal services have been considerably improved. Air mail letters take five to seven days to
reach Western Europe and about ten days to reach North America. Privately owned courier services are
available for international delivery.[5]
3. Usage
rates
Telephones: 1.46 million ( 1993 est. )
Radios: 5 million ( 1993 est. )
Televisions: 4.5 million ( 1993 est.
) [5]
IV. SOCIAL INSTITUTIONS
A. FAMILY
Social
welfare in Saudi Arabia is traditionally provided through the family or
tribe. Those with no family or tribal
ties have recourse to the traditional Islamic religions foundations or may
request government relief, which is supported by the collection of zakat.
Social insurance provides
health care, disability, death, old age pension, and survivor benefits for
workers and their families. Retirement
is allowed at age 60, and benefits are provided at 2% of average monthly earnings
times the number of years worked. This
system is founded by 5% payroll deductions from workers, and 8% of payroll
contributions for employers. The
government provides an annual subsidy to the program. This program is compulsory for employees of firms with 10 or more
workers, and is voluntary for smaller enterprises. A 1960 law requires employers to provide 100% of wages for two
month of sick leave and 75% of wages for two additional months. [6]
The
customs and regulations governing the behavior of women are strict even by the
standards of the Islamic world. Despite the shortage of Saudi labor the
government is unsympathetic to the role of women in the work place; in 1993
only 5% of the labor force was female.
Extreme modesty of dress is required.
Women wear the abaya, a long black garment and they must also cover
their face and head. Women are not
permitted to drive motor vehicles.
Women must enter public busses through a rear door, and sit in a
segregated area. Women may not travel
without the written permission of a male member of her family. The provision also applies to travel within
the country. [6]
Segregation
also occurs in the workplace, where women may only contact clients by telephone
or facsimile machine. In 1995, the Ministry
of Commerce announced that business licenses would no longer be issued for
women in fields that may require them to be in regular contact with government
officials or male clients. [6]
The
government does not recognize international standards on human rights. Corporal punishment, including amputation of
limbs, beheading, and stoning are used.
In 1995, executions were carried out for crimes including alcohol
trafficking, armed robbery, adultery and the practice of witch craft. Most of those executed were foreigners. [6]
B. EDUCATION
Until
the mid 1950s, Saudi Arabia’s educational system was primarily oriented toward
religious schooling that stressed knowledge of the Qur’an (Koran) and Hadith
(sayings of Muhammed and his companions).
Accept for basic arithmetic, reading, and writing, secular subjects were
not taught in the schools. There was a
highly developed oral culture, however. [7]
Nearly
all of the students were boys; education of girls was virtually nonexistent and
took place in the home, if at all. Of
those attending public schools, 96.2% were boys. The General Presidency for Girls’ Education administers girls’
schools and colleges. The first school
for girls was built in 1964, and now girls’ schools exist around the country. By the mid 1980s, above 43% of students were
female. [7]
As at
1985, attendance in primary school was required by law. Education is free at all levels, including
college and post-graduate study. The
literacy rate in the 1960s was 3%, by 1995 it was 62.8%. However, literacy among women remains
significantly lower than that of men.
In 1995, only 28.5% of men were unable to read and write, while 49.8% of
women were illiterate. [7]
By
1993 there were 11,244 primary schools, with 2,110,893 pupils and 153,556
teachers. Secondary schools had a total
enrolment of 1,198607 students and 108,820 teachers. [7]
Higher education was pursued in seven
universities and 83 colleges. The
Islamic University (1961) at Medina is one of three universities stressing
Islamic studies. Secular universities
include King Saud University (formerly Riyadh University, 1957), the King Fahd
University of Petroleum and Minerals (1963) at Dhahran, and King Abdul-Aziz
University (1967) in Jeddah. [8]
All
higher level institutions had 201,090 pupils and 14,394 lecturers in 1993. Women accounted for 45% of students in
higher education. [7]
C. POLITICAL SYSTEM
Saudi Arabia has a government system of “Monarchy”. Thus, there is no political party. Of all the agencies and organized bodies of
the government of Saudi Arabia, the Council of Ministers is most potent. It derives the power directly from the
King. Government of the Kingdom’s
region is the direct responsibility
of the Regional Governors. The reforms
in regional government had the precise purpose of enhancing the level of
administrative and developmental work in the regions of the Kingdom, while at
the same time preserving security and order and ensuring the rights of the
citizens and their freedom within the framework of the Islamic Shari’ah. [9]
D. LEGAL SYSTEM:
Its legal system
is based on Islamic law, several secular codes have been introduced; commercial
disputes handled by special committees. [5]
The Kingdom’s
legal system is based on the Islamic "Sharia" law and on Decrees promulgated by the Council of
Ministers. Sharia is based on the provisions of the Holy Qur’an, the
Sunnah (the teachings and deeds of the Prophet Muhammad), the consensus of the
"Ulema" (religious scholars), and legal analogy [10]
The Basic Law, which incorporates the arrangements for the Consultative Council and for regional government, established in written form both a description of the essential structure and organization of government and, in effect, a bill of rights for the citizen. [9]
The Saudi Arabia Standards Organization has responsibility for determining and enforcing approved standards of services, facilities, utilities and products within the Kingdom of Saudi Arabia. SASO is a member of the International Standards Organization and is an active member of the Arab Standards and Metrology Organization (ASMO). [11]
E. SOCIAL ORGANIZATIONS:
There is a Bedouin society. They are divided into tribes. A Saudi’s loyalty belongs first to the family, then to tribe, and only then to the state. In some ways Saudi Arabia can be considered as a male-dominant society. Women in Saudia Arabia do not have the right to interact with men (except relatives), drive a car, work outside the home except in a few occupations. [10
V. HUMAN AND THE UNIVERSE: PHILOSOPHY
AND RELIGION
Saudi Arabia is the home and the point of origin for Islam, which is the country’s official religion. The Saudi branch of Islam is a Sunni fundamentalist variant called Wahabi Islam. [10]
Wahabi Islam is even stricter and more fundamentalist than the Shiite Islam (there are small number of Shiite Muslims) practiced in Iran. It is enforced in public by the religious police, Matawain. They claim the right to enforce their religious precepts on everyone, including foreigners.[10]
There is no allowance for other religions. Islam influences family relationships, education, and many other aspects of life in Saudi Arabia; five daily prayers are performed. Other religious rituals include fasting during Ramadan, the ninth month in the Muslim calendar. Each year, more than one million Muslims from Saudi Arabia and other countries go to Makkah on religious pilgrimage. [12]
AESTHETICS:
The
nation’s cultural activity is dominated by strict adherence to Islam, although
influences from more liberal Arab countries are filtering in and Saudi students
who study abroad exposed to Western influences. Poetry, formal propose, and oratory have been among the highest
of arts since pre-Islamic days, and poets and peripatetic story-tellers
abound. Perhaps the most important
Saudi writer has been ‘Uthman ibn Bishr’
, a historical chronicler of the late
19th century. Literary works
now appear in newspapers and periodicals, though nomads and illiterate
villagers still have their own body of folk literature. Music and dance have always been part of
Saudi everyday life, though the strict Wahhabi code forbids their public
expression. Visual arts are limited to
geometric, floral and abstract designs and to calligraphy. [13]
VI. LIVING CONDITIONS
A. HOUSING:
Many of Saudi Arabia’s rural people live in farm villages or oasis settlements. Since the 1960’s, may nomadas have become settled farmers or have moved to urban areas in order to work in the oil industry. [12]
Government
gives loans for low-income people to build houses. There is a ministry,
“Ministry of Rural and Municipal Affairs” related with public utilities.
B. CLOTHING:
1. National
dress
The
religion and customs of Saudi Arabia dictate conservative dress for both men
and women. Foreigners are given some
leeway in the matter of dress, but they are expected to follow local customs,
particularly in public places. As a
general rule, foreign men should wear long trousers and shirts that cover the
upper torso. Foreign women should wear
loose fitting skirts and hemlines well below the knee. Sleeves should be at least elbow length and
the neckline modest. The best fashion
guideline is ' conceal rather than reveal '.
Teenagers are also required to dress modestly in public places. Jeans should not be tight fitting and low
necks and tank tops are not recommended.
Shorts and bathing suits should not be worn in public. [4]
2. Types
of clothing worn at work
Whatever
their job or social status, Saudi men wear traditional dresscalled a thobe. Wearing the thobe expresses quality and is
also perfectly suited to the hot Saudi climate. During warm and hot weather, white thobes are worn by Saudi men
and boys. During the cool weather, wool thobes in dark colours are not
uncommon. At special times, men often
wear a bisht or mislah over the thobe.
These are long white, brown or black cloaks trimmed in gold. A man's headdress consists of three things:
the tagia, a small white cap that keeps the gutra from slipping off the head;
the gutra itself, which is a large square of cloth; and the igal, a doubled
black cord that holds the gutra in place.
Some men may choose not to wear the igal. The gutra is usually made of cotton and traditionally Saudis wear
either a white one or a red and white checked. [4]
C. RECREATION AND OTHER LEISURE ACTIVITIES:
Citizens
like doing off-road by their 4x4 jeeps. They also give importance to go
hunting. Some of the most important
achievements in the field of sport and youth in the Kingdom are:
· The number of sports clubs in the Kingdom has
increased to 153 from 53 in ( 1395 H ),with a membership of more than 100,000.
The number of sports federations has increased to 21.
· In the cultural and literacy field, the number
of literacy clubs has increased to 12 with a membership of more than 3000.
· In the social field, the Saudi Arabian Society
for Youth Hostels supervises 19 youth hostels with a membership of about
57,000. Two permanent youth camps have been established in Taif and Hail. [14]
VII. LANGUAGE:
Almost all people of Saudi Arabia use Arabic, which is the official language of the country. English is taught in the intermediate and secondary schools and is widely used among educated Saudis in business dealings and international affairs. [12]
VIII.
EXECUTIVE SUMMARY:
The Kingdom of Saudi Arabia was founded on September 23, 932 by King Abdul Aziz Al-Saud. It is located in the Middle East. The country has a warm and dry climate and a variate topography. The most important natural resource is petroleum. The available transportations are: railways, highways, ports, harbours, airports and heliports. Types of communication systems are: telephones, radio broadcast stations, television broadcast stations, telegraph, telex and postal services.
Social welfare in Saudi Arabia is traditionally provided through the family or tribe. The customs and regulations governing the behavior of women are strict even by the standards of the Islamic world. Women are not allowed to drive cars. But during our project, government gave permission to them for driving cars.The government of Saudi Arabia does not recognize international standards on human rights. Segregation also occurs in the workplace, where women may only contact clients by telephone or facsimile machine.
Nearly all of the students were boys, education of girls was virtually nonexistent and took place in the home. Higher education was pursued in seven universities and 83 colleges.
Their political system is based on monarchy. There is no allowance for political activities. The Royal Family has a huge influence on government and citizens. Their judicial system is sharia law. Islam is the dominant religion.
The nation’s cultural activity is dominated by strict adherence to Islam, although influences from more liberal Arab countries are filtering in and Saudi students who study abroad exposed to Western influences.
Arabic is the official language
of Saudi Arabia. However, English is
also used by businessmen for business dealings. Saudi Arabia has a unique culture so in order to make business
there, businessmen should understand their culture.
Economic
Analysis
I. INTRODUCTION
The
economy is heavily depended on oil production, which provided over 90% of
export value and 75% of government revenues in 1995. The country has the
largest reserves of petroleum in the world (26% of the proved total). Rapidly increasing oil income during the
1970s was used to increase disposable income, economic development, and defense
expenditures. However, the contribution
of the oil sector to GDP has fluctuated.
Because of the diversification effort during the second and third
development plans and the precipitous decline of oil prices, the contribution
of the oil sector (crude oil and refined products) to GDP declined from 70% in
1980 to 35% in 1995. [1]
II. POPULATION
A. TOTAL
The
preliminary results of the September 1992 census recorded the population as
16,929,294. The estimate for 1996 was 19,409,000. A population of 22,426,000
was projected for the year 2000, assuming a crude birthrate of 37.2 per 1,000
population, a crude death rate of 4.7, and a net natural increase of 32.5
during 1996-2000. In 1974, the last previous census year, the population stood
at 7,012,642, of whom 4.9 million (73%) were settled and 1.8 million (27%) were
nomads; it is estimated that proportion of nomads had fallen to about 5% by
1987. [1]
B. DISTRIBUTION OF POPULATION
1.
Age:
Under age 15 |
41.9% |
Age 15-29 |
24.5% |
Age 30-44 |
19.7% |
Age 45-59 |
9.5% |
Age 60-74 |
3.6% |
Age 75+ |
0.8% |
Life
expectancy: 65 years male; 68 years female (1990) [2]
2. Sex:
At
birth: 1.05 male(s) / female
Under
15 years: 1.03 male(s) / female
15-64
years: 1.49 male(s) / female
65
years and over: 1.08 male(s) / female [3]
3. Geographic Areas: Urbanization has proceeded swiftly. In 1960, about 30% of the population lived
in urban areas; by 1995 it had risen to 80%. The estimated population density
in 1996 was 8.9 persons per sq km.
Estimates of the population of major metropolitan areas in 1995 were:
Riyadh, the capital, 2,619,000; Jeddahh, the principal port, 1,492,000; and
Mecca, 777,000.[1]
Distribution
of total population [4]
(population more than 100,000) |
(Percent) |
% Living in
metropolitan centers |
… 42 |
% Living in
small towns |
… 12 |
% Living in
rural areas |
… 46 |
4. Immigration:
Emigration is
limited. Immigration of professionals,
technicians, and others from the surrounding Arab states and growing numbers
from outside the region has been spurred by the development of oil industry and
by the lack of adequately trained and educated Saudi personnel. Palestinian Arabs, displaced by the
establishment of the state of Israel, are the chief immigrant group. In the early 1990s there were significant
numbers of expatriate workers from the US, European countries, Turkey, Jordan,
Syria, Jordan, Kuwait, Yemen, the Republic of Korea, Pakistan, India, Sri
Lanka, and the Philippines. In 1990
when Iraq invaded Kuwait, Saudi Arabia reacted by expelling workers from
Jordan, Yemen and Palestinians, for their countries’ support of Iraq. The foreign population was 4,624,459 in 1992
(27% of total population). After the
Gulf War, 93,000 Iraqis were granted temporary asylum. Since then, 60,000 Iraqis were returned
under the POW exchange. By April 1997,
20,800 had resettled in 33 different countries, 3,010 had voluntarily
repatriated, and 9,000 are still in camps in Saudi Arabia. In 1996, the net migration was 1.55 migrants
per 1,000 population.
III. ECONOMIC STATISTICS AND ACTIVITY
A. GNP AND GDP OF SAUDI ARABIA
According
to World Bank estimates, in 1995 Saudi Arabia had a GNP of 133.5 billion
resulting in a per capita GNP of $7,040.
For the ten year period 1985 to 1995, the average annual real growth
rate per capita GNP was -1.9%. During
that same period, the average annual inflation rate was 2.7%.
According
to CIA estimates, the purchasing power parity of GDP inn1995 was $189.3 billion
or $10,100 per capita. The CIA
estimates that in 1995 the inflation rate for consumer prices was 5% and that
real growth rate of GDP was 0%.
B. PRINCIPAL INDUSTRIES
1. GDP- composition
by sector: [3]
2. Private and
Publicly- Owned Industries:
The government
has tried to diversify the economy by development of industries utilizing
petroleum, including steel and petrochemical manufacture, in the massive Jubail
and Yanbu’al Bahr industrial complexes, which were largely completed by 1989. The economy is generally open to private
investors, but there is a large government sector and the government plays a
significant role in influencing resource allocation within the economy. It was
estimated that in 1996, the private sector accounted for 37% of GDP. The government is considering privatizing
the national airline, petrochemical industries, the telecommunication sector,
and electricity companies to foster diversification, but no firm plans have
emerged. The government encourages
growth in agriculture as a means to reduce Saudi Arabia’s reliance on food
imports, but dramatic reductions in farm subsidies resulted in a continuing
decline in agricultural output in 1996. [1]
3.
Automative Parts & Service Equipment:
While
Saudi per capita spending on automobiles is among the highest in the world,
sales of new automobiles have taken a plunge in recent years. [5]
The
trend will likely persist till 1996 when, according to some estimates, the
Saudi economy is expected to recover following a slight increase in world oil
prices. [5]
On
average, the Saudi market for automotive parts continued to grow by 5 percent
annually, reaching $2,340 million by 1996.
Imports which represent 82 percent of the market, increased by an
average 6 percent annually, from $1,730 million in 1994 to $1,850 million in
1995, reaching an estimated $1,940 million in 1996. Local production consists mainly of fast-moving items, but is
expected to become more varied as more licensing arrangements are being
formulated. Local production increased more
than two percent, from $411 million in 1994 to $420 million in 1995, and will
continue at that level in 1996. By the
same token, exports from local facilities will also remain flat at $20 million
during 1995 and 1996, a slight increase from 1994. [5]
C. FOREIGN INVESTMENT
The
Saudi government generally encourages direct foreign investment. This is particularly true of foreign
investment in joint ventures with Saudi partners, though Saudi Arabia allows
wholly foreign-owned firms to operate.
The government and the private sector actively promote investment
oppurtunities in Saudi Arabia. The
government hopes to attract investment in infrastructure, but has yet to make
such investments financially attractive.
The foreign capital investment code specifies three conditions for
foreign investments:
·The undertaking
must be a development project.
·The investment
must generate technology transfer.
·Saudi partner
should own a minimum of 25% equity(though this can be waived)
Foreign
investors are denied national treatment in the following sectors: catering,
cleaning, maintenance and operations of facilities, power generation, trading,
transportation, and business that affect national security. [2]
Wholly
foreign-owned firms are guaranteed the same protection accorded Saudi nationals
in the Foreign Capital Investment Code. They are also eligible for a wide range
of investment incentives, including advantageous utility rates, land in
industrial estates of nominal rents, treatment as domestic producers for
government procurement contracts, and custom duty exemptions on capital goods
and raw materials. One of the leading
obstacles for foreign investors are restrictive Saudi visa requirements. Investors or potential investors wishing to visit Saudi Arabia must have a
Saudi sponsor to obtain the necessary business visa. [2]
Total
direct investment in Saudi Arabia was estimated at $13.3 billion in 1995; up
from $11.3 billion in 1994 and $7.1 billion in 1993. Principal foreign investors include the US (41% of the total),
Japan, the UK, Switzerland, France and Germany. [1]
D. INTERNATIONAL TRADE STATISTICS
Oil and oil products predominate Saudi Arabia’s exports. [6]
Year |
Value |
%Change over previous year |
1975 |
104,411.7 |
|
1976 |
135,1563.5 |
+29.4 |
1977 |
153,208.6 |
+13.4 |
1978 |
138,242.0 |
-9.8 |
1979 |
213,183.4 |
+54.2 |
1980 |
362,885.7 |
+70.2 |
1981 |
405,480.9 |
+11.7 |
1982 |
271,090.1 |
-33.1 |
1983 |
158,443.9 |
-41.6 |
1984 |
132,220.3 |
-16.6 |
1985 |
99,535.9 |
-24.7 |
1986 |
74,376.8 |
-25.3 |
1992 |
50,220.0 |
-32.4 |
1993 |
42,338.6 |
-15.6 |
1994 |
42,557.3 |
+0.5 |
1995 |
49,974.1 |
+17.4 |
1996 |
60,647.4 |
+21.3 |
Table is completed from Us-Saudi Business Web
Pages and [6]
Except from 1978 the SA’s exports expanded continuously. Due to drop in petroleum exports and prices, Saudi exports took a downtrend.
When we analyze Imports of the Saudi Arabia
Year |
Value |
%Change over previous year |
1975 |
14,823.1 |
|
1976 |
30,690.7 |
+107.0 |
1977 |
51,661.9 |
+68.3 |
1978 |
69,179.7 |
+33.9 |
1979 |
82,223.3 |
+18.9 |
1980 |
100,349.6 |
+22.0 |
1981 |
119,297.7 |
+18.9 |
1982 |
139,335.1 |
+16.8 |
1983 |
135,417.2 |
-2.8 |
1984 |
118,736.7 |
-12.3 |
1985 |
85,563.6 |
-27.9 |
1986 |
70,779.9 |
-27.9 |
1992 |
33,228.2 |
-53.0 |
1993 |
28,164.2 |
-15.2 |
1994 |
23,319.7 |
-17.2 |
1995 |
28,049.8 |
+20.2 |
1996 |
27,728.0 |
-1.1 |
Table is completed from [6]
The fall in imports is attributable to a number of factors, the most important of which are reduced government expenditure and competition of infrastructure projects whose implementation had required substantial quantities of imported materials. Other factors contributing to lower imports include the growth in import substituting industries and agriculture, the continuous draw down of merchandise stocks accumulated in previous years, increase in the cost of foreign products, and the rise in exchange rates of major foreign currencies against the Saudi Riyal. [6]
Balance of Payment:
Due to the fall in the Kingdom's oil export revenues in response to an over supply in the international oil markets, Saudi Arabia has been faced with the problem of a current account deficit since the mid 1980s. The balance of payments’ current account deficit during the period 1986-1989 were SR-43 billion (U.S. $11.5 billion), SR-36.6 billion (U.S. $9.8 billion), SR-27.5 billion (U.S. $7.3 billion), and SR-35.7 billion (U.S. $9.5 billion) respectively. [7]
The
Desert Storm war, coming at the start of the fifth development plan
(1990-1994), had contradictory effects on the Kingdom’s foreign trade and
balance of payments. The sharp increase in the value of oil exports at the
start of the fifth plan period resulted in an average annual trade balance
surplus of SR75.1 billion (about U.S. $20.00 billion) during the period from
1990 to 1993 (see table 11). On the other hand, The substantial cost of the war
and the immense outflow of related payments had a substantial negative impact
on the overall balance of payments' position. Thus, the average annual current
account deficits during the years 1990 to 1993 were SR15,6 billion (U.S. $4.2
billion), SR103.3 billion (U.S.27.5 billion), SR78.1 billion (U.S. $20.8 billion)
and SR54.7 billion (U.S. $14.6 billion) respectively. [7]
Exchange Rates:
Saudi Arabia currently uses a fixed exchange rate. 1 US dollar is fixed to 3.75 Riyals. It is fixed since June 1986.
E. TRADE RESTRICTIONS
Only Saudi
nationals are permitted to engage in trading activities. All industrial enterprises are open to
non-Saudis, and they can also trade in the products they manufacture. The Saudi Arabian Monetary Agency, the Saudi
central bank, regulates and controls the banking sector. Saudi Arabia has a different set of trade
barriers, mainly regulatory and bureaucratic practices, which restrict the
level of trade. Among these are:
· Commercial Disputes Settlements: Saudi Arabia has
signed the New York Convention on the Arbitration of Commercial Disputes. [8]
· Business Visas: All visitors to Saudi
Arabia must have a Saudi sponsor in order to obtain a business visa to enter
Saudi Arabia. [8]
· Delayed Payments: Lengthy payment delays,
especially from government ministries and agencies have delayed payments from 6
to 15 months. [8]
· Intellectual Property Protection: The Saudi legal
system protects and facilitates acquisition and disposition of all property
rights, including intellectual property. [8]
· Arab League Boycott: The primary
boycott against Israeli companies and products still applies. [8]
· Protective Tariffs and Non-Tariff Trade Barriers: A number of
Saudi infant industries now enjoy 20 percent tariff protection as opposed to
the general rate of 12 percent. [8]
· Import Licenses: The importation of certain
articles is either prohibited or requires special approval from competent
authorities. In addition, import of the
following products requires special approval by Saudi authorities: agricultural
seeds, books, chemicals, alcohol etc. [8]
· Customs Duties: Most of the consumer's
basic products are duty free. Customs duties imposed on some imported
commodities for the purpose of the protection of national industries are
20%. Import duty on other items is 12%
ad valorem on the C.I.F. A limited
number of items are subject to customs duties calculated on the basis of metric
weight or capacity rather than ad
valorem. [6]
F. EXTENT OF ECONOMIC ACTIVITY NOT INCLUDED
IN CASH INCOME ACTIVITIES
Foreign
Aid Received
? Saudi Arabian relations with the United States of America: The inter relationship between oil supplies,
military sales and the extensive banking activities between the two countries
has served to cement mutual interests over an extended period of time. [9]
? Saudi Arabian relations with Western Europe: Britain, amongst a number of other
developed nations, supplied a large
number of skilled expatriate workers to assist the Kingdom in the
implementation of its development plans. [9]
? Saudi Arabian relations with the EU : Just as the
Kingdom is able to supply the Union with much needed oil, so the Kingdom has
been able to call on the expertise and advanced technology of Europe to help it
achieve its development goals.[9]
G. LABOR SUPPLY
1.Size:
5
million by occupation with government 34%, industry and oil %28, services 22%
and agriculture %16. [3]
2.
Unemployment Rates: 6.5 %
(1992 est.) [3]
H. INFLATION RATES
The
inflation is 5%. [3]
IV. DEVELOPMENTS IN SCIENCE AND TECHNOLOGY
King Abd Al-Aziz City of Science and
Technology:
It is
an independent scientific establishment administered by the Council of
Ministers. It was established in Riyadh under the royal decree ( no.60/M ). It
is run by a higher committee chaired by the Custodian of the two Holy Mosques,
the Prime Minister with H.R.H the Crown Prince and the Deputy Premier and a
number of Ministers and Scholars are Members of the Committee. The goals of the
establishment are:
1)To
propose the national policy for advancing sciences and technology. And to forge
strategy and the necessary plan to execute it.
2)To
implement scientific and applied research programs to promote the development
in the Kingdom.
3)To
support the private sector in developing industrial and agricultural products
research.
4)To
promote joint research programs between the Kingdom and international
scientific institutions to keep up with international scientific progress
either through scholarships or joint research.
5)To
offer scientific and training scholarships to qualify the individuals needed to
prepare and execute scientific research programs. Also to provide scholarships
for individuals and scientific institutions to carry out applied scientific
research.
6)To
coordinate with government organs, scientific institutions and research centers
in the Kingdom in the field of research and exchange of data.
The
city includes a number of research institutes and scientific centers. [10].
IV. CHANNELS OF DISTRIBUTION
There
are three major marketing regions in Saudi Arabia: the Western Region with the
commercial center of Jeddah; the Central Region where the capital city Riyadh
is located; and the Eastern Province where the oil and gas industry is most
heavily concentrated. Each has a distinct business community and cultural
flavor, and there are few truly "national" companies dominant in more
than one region. [11]
Many companies import goods solely for their own use or for direct sale to end-users, making the number and geographical pattern of retail outlets a factor of potential significance. U.S. exporters may find it advantageous to appoint different agents or distributors for each region having significant market potential. Multiple agencies and distributorships may also be appointed to handle diverse product lines or services.[11]
Many Saudi companies handle numerous product lines making it difficult to promote all products effectively. Saudi agents typically expect the foreign supplier to assume many of the market development costs, such as hiring of dedicated sales staff. [11]
Foreign
suppliers often detail a sales person to the Saudi distributor to provide
marketing, training, and technical support. Absent such an arrangement, firms
should expect to make at least four visits per year to support their Saudi
distributor. [11]
Direct
marketing is not widely used in Saudi Arabia. Personal relations between
vendors and customers play a more important role than in the West; furthermore,
many forms of direct marketing practiced in the United States are unacceptable
due to Islamic precepts regarding gender segregation and privacy in the home.
Limitations in the Saudi postal system are also a constraint: No home delivery
or postal insurance is available; only post office boxes are used. [11]
Direct marketing has been conducted on a very limited basis using unsolicited mail campaigns and fax, catalog sales (with local pick-up or delivery arranged), and commercials on satellite television providing consumers in many nations (including Saudi Arabia) with a local telephone number to arrange delivery. [11]
V. MEDIA
Postal,
telephone, cable and wireless services are regulated by the Ministry of
Communications. Saudi Arabia is
directly connected by radiotelephone with the US, other Arab countries, and Western
Europe, and automatic internal lines connect most of the major cities. The telephone system was greatly expanded in
the late 1970s, and in 1995 some 1,615,000 telephones were in use. Broadcasting emanates from the
government-owned Saudi Arabian Broadcasting Service, Saudi ARAMCO FM stations,
Saudi-Arabian TV, and an ARAMCO channel in Dhahran. The number of radios was estimated at 4.8 million and the number
of television sets at 4.3 million in 1995. [1]
The
first newspaper in what is now Saudi Arabia was Al-Qiblah, the official
publication of King Hussein of Hijaz, founded in 1915. With the end of the short-lived Hijaz
kingdom in 1925, a Saudi- sponsored paper, called Umm al-Qura (The Mother of
Towns, Mecca), was established.
Newspapers are privately owned; criticisms of fundamental principles of
Islam and of basic national institutions, including the royal family, is not
permitted. The largest arabic daily
papers (with 1995 circulations) are Asharq Al-Awsat (175,000); Al-Jazirah
(90,000); and Al-Bilad (75,000). Leading English language dailies are the Arab
News (50,000). [1]
The
government is said to severely limit freedom of speech and the press, punishing
any criticism of Islam, the ruling family, or the government with detention and
arrest. [1]
As of
1996, there were 438,000 personal computers and over 260 internet hosts in
Saudi Arabia. [1]
VI. EXECUTIVE SUMMARY:
For
Saudi Arabia, estimated 2000 year population was 22,426,000. Very little proportion of Saudi population
is 65 years and older. Immigration of
professionals, technicians and others from the surrounding Arab states and growing numbers from outside
the region has been spurred by the development of oil industry and by the lack
of adequately trained and Saudi personnel.
According
to World Bank estimates in 1995 Saudi Arabia had a GNP of 133.5 billion
resulting in a per capita GNP of $7,040.
The CIA estimates that in 1995 the inflation rate for consumer prices
was 5% and that real growth rate of GDP was 0%.
The
economy is generally open to private investors, but there is a large government
sectorand the government plays a significant roe in influenceing resource
allocation within the economy. The
Saudi government generally encourages direct foreign investment. Total direct investment in Saudi Arabia was
estimated at $13.3 billion in 1995.
The
major exports of Saudi Arabia is oil and oil related products. However, export value of Saudi Arabia is
declining through years; due to the reductions in oil prices. But also, their imports are declining
because of government’s cost cut and efficiency increasing plans. They use flexible exchange rate system which
gives the international firms a stable environment. The firms are not affected from fluctuations in exchange
rates.
Only
Saudi nationals are permitted to engage in trading activities. All industrial enterprises are opened to
non-Saudis and they can trade in the products they manufature. The Saudi Arabian Monetary Agency (SAMA),
the Saudi Central Bank regulates and controls the banking system. In terms of foreign aid received, Saudi
Arabia has relations with USA, Western Europe, EU.
Unemployment
rate for 1992 was 6.5%. King Abd
Al-Aziz City of Science and Technology is important for the development of
science and technology.
There
are three major marketing regions in Saudi Arabia, each has a distinct business
and cultural flavor. Most of the
companies use direct sales to their customers by using retailers. However, direct marketing is not used in
Saudi Arabia. Personal relations with
firms and customers play a more important role than in the West.
There
are limitations in Saudi postal system.
No home or postal insurance is available. Usage of mail campaigns, fax, catalog is limited.
The
largest arabic daily papers are Asharq Al-Awsat; Al-Jazirah; and Al-Bilad. Leading English language dailies are the
Arab news.
Market Audit And
Competitive Market Analysis:
I. INTRODUCTION
ACO -GOODYEAR TIRE DISTRIBUTION COMPANY
The
firm is founded by Aylin B. Kula, Ceren Arslan and Onur Baser. In order to operate in Saudi Arabia among
the candidate firms, we chose to make business with a Saudi Arabian man who is
so close with the royal family.
For
making business in Saudi Arabia, we first have to give advertisement to a
governmental periodical that indicates “our demand to export Goodyear Tires
from Turkey to Saudi Arabia”. After it
was published, we took lots of invitations.
As you can guess our main motive is proactive. According to commercial
laws, AOC gave 51% of the shares to Arabian partner, so we established an
export sales subsidiary in Jeddah. Also
we gave 5% shares to Goodyear.
II. THE PRODUCT
Goodyear brand name has a loyalty due to its global structure. When we enter Saudi Arabian market we have some advantages compared with our competitors. First of all GT2 is produced by the latest technology (which USA holds the leadership of innovation of tires). In addition to these supporting services of this product such as warranty is more advanced when compared with other products.
Saudi
Arabia people likes American and Japan automobiles. Goodyear GT2 is designed for these cars. It will have a high compatibility with them.
There
is no complexity in our product. Its
label related to the size is written on it.
Moreover the customer do not bother with the details, because when the
customer comes to retailer, the service stuff will suggest the best-fit tire to
the customer. Having no complexity will
increase our diffusion into the Saudi automobile market.
Although
people may not be able to trial GT2, we can use promotion mix to compensate the
weakness in this situation. Especially
publicity and word-of-mouth can balance the effects of unavailability of
trialability.
We
use lots of stands in the show rooms for displaying tires, so people can
observe the tires and can be sure about its quality. Flexibility and softness are very important for a tire. Thus, they can understand the quality of our
tires by checking these two features.
There
is not really a major problem or resistance to product acceptance. Because tire is a must for automobile
market. Therefore, there’ll be always a
demand for the product.
III. THE MARKET
A. THE MARKETS IN WHICH THE PRODUCT IS TO BE SOLD:
1. Geographical
Regions
The
three primary regions of the country- Western, Central and Eastern Provinces-
exhibit strikingly different characteristics. The most populous of the three
market segments, the Western Province, is the traditional center of commercial
activities in the Kingdom. [1]
The
strong aspects of the Central Province is its political affluence. Riyadh, the
capital city of Saudi Arabia, is situated in this geographic market , and all
of the government's foreign embassies have completed their relocation from
Jeddah to Riyadh. As the government is a major buyer of goods and services,
having sales representatives in the proximity of Riyadh is important exporters
targeting the government market. [1]
The
Province is characterized by the large numbers of expatriates living in and
around Dhahran, Al-Khobar, Arabian American Oil Company facilities, and Jubail
industrial complex. Saudis located in this geographic market segment exhibit
the most liberal tendencies. In addition television plays a bigger role in this
market since transmissions from at least fourteen different television stations
are received from around the Arabian Gulf countries. [1]
2. Forms of
Transportation and Communication Available In Saudi Arabia
Transportation: Since the mid 1960’s Saudi
Arabia has expanded its transportation and communication networks. [2]
An
excellent network of 41,651 kms asphalted roads and 80,965 kms of agricultural
roads now links the various parts of the country. The country had no asphalt roads in 1951. [2]
The
Saudi Public Transport Company (Saptco) a public-private joint venture operates
the Kingdom’s inter-city and urban bus services. [2]
A
modern railways system links the capital Riyadh to the port city of Damman on
the Arabian Gulf. The Saudi Railways
Organization operates passenger and freight trains on this double-track line.
[2]
The
government owns and operates Saudi Arabian Airlines(Saudia). The country has three international
airports-King Khaled International Airport in Riyadh, King Abdul Aziz
International Airport in Jeddah and Dhahran’s International Airport in addition
to a number of airports in several towns for domestic air transport. [2]
Regarding
marine transport, the Saudi Ports Authority operates Jeddah’s islamic port,
Yanbu Port on the Red Sea and King Abdul Aziz Port of Damman, as Tanura Oil sea
terminal which handles most of the Kingdom’s oil exports on the Arabian Gulf,
in addition to a number of smaller ports. [2]
Communication: Saudi Arabia’s
telecommunications network ranks among the most advanced in the world. It has
managed to achieve this remarkable progress by implementing transmission,
national microwave network, and partaking in international telecommunications
projects such as King Fahad Satellite Communications city, The Arab
Telecommunications Satellite Programme (Arabsat) and the continental Singapore-Marsailles
Sea-Cable Project. [2]
The
country today has a total of about 1.5 million telephone lines, more than
15,577 car telephones, 6,521 coin telephones, 8,156 telephone booths for direct
international calls and direct telephone links with more than 703 countries in
the world. [2]
Efficient
telegraph, telex and facsimile services are available round-the-clock in 322
centres. While ordinary, express,
domestic and international mail services are provided by about 700 post offices
in the country. [2]
2.
Consumer Buying Habits
A
combination of two factors, cultural and climate, necessitate that products
exported to Saudi Arabia and intended for the Saudi or the Muslim market segments
be adapted. One cultural aspect that effects consumers' product choice is
religious belief. Any product having traces of alcohol or pork cannot sell in
the Kingdom. All meat products exported to Saudi Arabia must contain meat that
was slaughtered according to Islamic rules. As the religion calls women to
cover themselves including their arms and leg, the miniskirt was never popular
in Saudi Arabia. Ladies fashions exported to the Saudi market should have long
sleeves and floor-length hemlines. The market for statues and paintings of
human forms are very limited because they would not be used as decorative
pieces in Moslem households. Religious beliefs also limit the place of music,
especially Western music, in a Moslem household. [1]
There are other traits of the Saudi
consumers that are culture related and will affect their product choices. For
example, it could be observed that Saudis prefer white, black and red colors.
As it reflects the sun's heat better than other colors, white is the color of
choice for cars. The extended family structure of the Saudi household where the
family unit might contain parents and close relatives of both the wife and the
husband will also influence product decisions. The large size of the extended
family requires larger size packaging. For this reason, the spaciousness of US
cars has always been a distinct advantage in the Saudi market. [1]
The climate in Saudi Arabia influences
product decisions also. During certain times of the year, humidity could reach
100% in many coastal areas. For this reason air conditioning is a vital part of
life in Saudi Arabia. [1]
Packaging should protect the product in the
harsh Saudi climate. This would mean a more liberal use of air space and
polystyrene plastic in packaging. Package labels must be written in the Arabic
language. As Saudi Arabia uses the metric system, all label information
pertaining to weight and volume should use this system. [1]
Product innovation, specifically for the
Muslim market, is the ultimate product strategy that wins loyal customers.
Experiences of some innovators support the fact that this could be a rewarding
strategy. [1]
Saudi consumers have developed a
sophistication in their selection of products. Awareness for service warranty
has grown rapidly along with the demand for after-sale service. Guarantees and
warranties have also become important incentives in today's Saudi market. The
pilgrims and other expatriates who come to Saudi Arabia for short durations
carefully search for products that provide worldwide guarantees. [1]
3. Distribution of
the Product
The
distribution system in the Saudi market exhibits a number of characteristics
which should be considered. First,
marketing intermediaries in Saudi Arabia do not specialize in one aspect of
channel functions such as wholesaling or retailing. These firms are complex organizations that can function as
importers, wholesalers, exclusive distributors, retailers et al. Larger ones also operate in other fields
including construction, manufacturing.
Because of their size and economic influence, these marketing
intermediaries play major roles in the channel of distribution. Many times they function as channel captains
by organizing and leading their channels.
Therefore, signing up with the proper conglomerate or the channel
captain is imperative for successful distribution in the Saudi market. [1]
Second,
the extent of market coverage by even the largest marketing intermediaries is
limited. There are no wholesalers who
can profess Kingdom-wide market coverage.
There are some chain stores, but the largest chain will have less than
ten stores. Under these circumstances,
exporters seeking extensive and intensive market coverage should appoint
separate distributors in each of the Kingdom’s three provinces. These distributors should be given exclusive
sales rights within their respective territories. [1]
Finally,
Saudis warm up to business relationships slowly. First meetings rarely produce orders. They use the initial occasions to test suppliers’ commitment and
to develop personal friendships. Even
after a supplier-distributor connection is established, the continuity of the
business relationship will depend on the continuity of the personal
relationship and trust. Saudi middlemen
also prefer to deal face-to-face with their suppliers. Left alone, they will rarely take the
initiative to place orders. For all of
these reasons, it is imperative to maintain a permanent sales office in Saudi
Arabia. An order-getter by nature, the
exporter’s salesman in this office would continue the personal contacts in
order to keep the friendship and the trust ties alive. In addition, the permanent representative of
the exporter should use a liberal dose of trade promotion to motivate the
distributors to push exporter’s products through the marketing channels towards
customers. [1]
5. Advertising and Promotion
Improved
sophistication of the marketing communication channels and the supporting
industry have led to an increasingly significant role for advertising in Saudi
Arabia. In most cases, the advertising
practices exporters were accustomed to in their home markets will require
adaptation to the cultural requirements of the Saudi market. Comparative advertising is not
approved. Also, exporters must plan
their advertising message with utmost care so that they will not clash with the
moral and social values and beliefs.
Any allusion to sex, nudity, propaganda of their religions, or alcohol
drinking is not permitted. [1]
Derogatory
scenes of Saudi Arabia or any insult of the Arab character will have
devastating effects on the exporters’ posture in Saudi Arabia. It happened
in the past that some exporters were compelled to take full-page ads in
the local and foreign newspapers to apologize for the bad message choices. For example, a tire company has
dismissed its campaign agency and publicly apologized for an advertisement that
angered the Arab World. The
advertisement depicted an ugly Arab holding a knife to the company’s tire,
apparently enraged by its fuel-saving qualities. A motor company published apologies for picturing an Arab kicking
one of its smaller models for fuel economy and lamenting the fact that such
savings would adversely affect his extravagant lifestyle. [1]
Messages
should use simple and directly expressed ideas. As all non-Saudis speak the English language, the messages should
be in English if they are targeted for this market segment. However, simple translation of messages
prepared in English into Arabic will not be effective for the Saudi market
segment. Also, taking commercials
prepared for American or British audiences and dubbing them over in Arabic will
fall short of the level of commitment required to be successful exporters to
Saudi Arabia. [1]
Media
outlets can be split into three categories: print media, outdoor media, and
audio-video media. [1]
There
are four different types of print media: handbills, yellow pages, newspapers
and magazines. Handbills, including
brochures, pamphlets. This medium is
used to announces special promotions such
as contests and games, and to describe recipes for food products that are new
to Saudi customers. [3]
As an
advertising medium, the yellow pages of the telephone directories are useful
for advertising company information including company addresses and telephone
numbers. [3]
Because
of the limited use for handbills and the yellow pages of telephone directories,
print media in Saudi Arabia consist primarily of newspapers and magazines. It is estimated that around 80% of
advertising expenditure for print media go to newspapers and the remaining 20%
to magazines. In addition, about 80% of
the expenditure for print media is for advertisements that are placed in Arabic
language print media and the remaining 20% goes to English language print
media(Shehadi, 1984). [3]
There
are a number of serious problems with Saudi newspapers and magazines as an
important media alternative for international advertisers. Considering the fact that the cultural and
traditional character of Saudi society does not permit the use of several media
for advertising (ie. cinema, radio and video), several problems in the print
media make media selection a more difficult decision for advertisers. The problems will be presented in four
general categories. These are
circulation, distribution, readership, and cost issues. [3]
1) Circulation: The top-selling
newspaper can muster a circulation of only about 260,000. The most popular
magazine sells around 185,000 copies.
For a country thought to have a
population of 13 million people, the print media are estimated to reach less
than 5% of the adult population.
2) Distribution: In many rural
areas of the Kingdom, newspapers and magazines are difficult to find or they
are not available at all. Some of the
distribution problems can be tied to size of the country.
3) Readership: Advertisers have
no access to reliable readership profiles for the newspapers and magazines in
which they advertise. Most publishers
do not bother to study their readers to find out about their geographic,
demographic, psychographic, and behavioral characteristics.
4) Costs: It must be
pointed out that the cost of reaching 1,000 readers through advertising in
newspapers and magazines published in Saudi Arabia is substantially higher than
the similar cost advertisers would accrue in Western markets.
Ideal
climatic conditions give excellent visibility to outdoor media. Outdoor advertising is available through
lamp-pole signs, sport stadium displays, billboards, highway “unipole” signs,
bus panels, three-dimensional street posters, and “rota-signs”. Low cost and high repeat exposure make
outdoor media ideal to create awareness for products that are recent entrees
into the Saudi market. [1]
The
audio-video medium is a relative newcomer to the advertising scene in Saudi
Arabia. In the past, television
advertising was possible using television broadcasts of Arabic Gulf countries
which could be picked up in the Eastern Province and Egyptian television which
could reach certain areas of the Western Province. Recently, exporters to Saudi Arabia were given access to channels
1 and 2 of the Saudi television for limited advertising spots. Availability of television advertising
presents an additional opportunity for the media planners of exporters or their
advertising agencies. Video advertising
has been available as an additional vehicle for the last few years. As most
Saudi households own at least one video set -separation of women’s living areas
necessitate multiple numbers of equipment gadgets such as video sets- this
advertising vehicle is very effective to achieve quality exposure for
persuasive advertisement. [1]
Finally,
the tribal nature of the Saudi society and the strong communication bonds
within the different nationality segments of the expatriate society make
word-of-mouth a major factor in Saudi market.
Products satisfying the needs and wants of the initial buyers will soon
get many customers as their reputation spreads within the different market
segments. [1]
6. Pricing
Strategy
The
Saudi market is a buyers market where exporters need to scramble hard to find
enough buyers to make profits. The
price element has emerged as an important factor influencing the purchase
decision. There are a number of factors
in support of this contention. First,
Saudi Arabia is tax free. There are no
taxes on the sale or on the purchase of products conducted within the
country. Second, the distribution
channels in Saudi Arabia tend to be vertical marketing systems. The typical importer-wholesaler also
operates at the retail level. This
system keeps the retail prices lower than the normally detached distribution
channel where separate ownership at wholesale and retail levels exists. Third, Saudi importers prefer to import
directly from the manufacturer, thus bypassing foreign exporters. Fourth, Saudi middlemen keep tight control
on their operating costs. Finally, the
import duties are very low. On most
imported items, the import duties will vary between 4 -7% ad valorem. [1]
There
are two other factors that will influence pricing decisions. One is the beginning of credit use in Saudi
Arabia for certain durable goods including cars and furniture. A typical installment plan would require a
30% down payment followed by up to 15 monthly payments. Another factor is the level of inflation,
which has registered a moderate 3% deflation during 1986[1]
The
laws regarding price reductions are within the domain of the Ministry of
Commerce and the application of these laws are supervised by the Chamber of Commerce. By law, every company is allowed to conduct
price deals for their products no more than twice a year. In the same manner,
companies are authorized to give seasonal discounts also twice a year: one
starting during the
middle of March
and the other during the middle of September. For both periods, the duration of
the price promotion campaign cannot exceed 45 days. [4]
For
the holy cities of Makkah and Madinah,
the period for seasonal discounts is six months covering the pilgrimage season
which varies according to the Arabic calendar.[4]
B. COMPETITORS
When
we search the tire companies web page about their operations in Saudi Arabia
there is no manufacturing plant of the manufacturing companies.(http://dir.yahoo.com/Business_and_Economy/Companies/Automotive/Parts/Tires/Brands/)
Existing
products have no differences with GT2 in terms of packaging. Michelin, Firestone, Yokohoma, Bridgestone
and other non global tire brands (Syrian brands) exist in the Arabian market.
The
prices are similar, prices are determined in the market.
C. MARKET SIZE
1. Industry
Sales
In '
The Automobile Market in Saudi Arabia ' article, Secil Tuncalp indicated that
‘In Saudi Arabia the ownership of car is 21 per 100 people. After taking
population into consideration (14, 435, 000), we estimated that 3, 031, 350
cars were used in Saudi Arabia. As a result, every car has four tires, we
multiply car number with four, we came to market size of 12, 125, 400.’ [5]
2.
Estimate Sales
Goodyear's
sales manager Mr. Ibrahim Goknar, suggested that target sales of 15% is
appropraite as we enter the market for the first time. 1, 818, 810 is estimated
to be the maximum possible sales.
D. GOVERNMENT PARTICIPATION IN MARKET PLACE
1. Agencies
that can help
* Ministry of Commerce: Foodstuff quality control,
consumer protection, companies and commercial agents' registration, labeling
regulations and standards.
* Customs Department: Custom duties
* Ministry of Interior: Traffic department
* Ministry of Communications: Coordination of
surface transport including railroads and bus system.
* Directorate General of Zakat and Income Tax: Tax collection
* Jeddah Seaport, (Jeddah Islamic Port): Port
development, port stevedoring, regulations & documents.
* Saudi Arabian Standards Organization (SASO): Development,
publishing and distribution of standards ( for a change )
* Saudi Arabian Monetary Agency ( SAMA ): Central Bank [6]
2. Regulations
Import regulations and procedures:
*Commodities
imported under Chapters Two and Three of the Brussels Tariff Nomenclature ( BTN
) are exempt from duty. Moreover, imports or machinery, spare parts, and raw
materials by approved industrial enterprises ( both foreign and domestic ) are
exempted from custom duties.
*Import duty on
most other items is three per cent ad valorem on the c.i.f. ( cost, insurance
and freight ) value.
*A limited number
of items are subject to custom duties calculated on the basis of metric weight
or capacity, rather than ad valorem. However, the rates for these items are
fairly low.
*Members of the Arab
League who are signatories to the Agreement to Facilitate Trade and Exchange
and to Organize Transit between the Arab League States are granted special
concessions.
*Imports from the
Arab states with which Saudi Arabia has bilateral trade agreements are entitled
to further reductions of duty.
Shipping Documents
* Five copies of
the commercial invoice must be submitted.
* Certificates of
origin are also required.
* The bill of
lading should list the gross weight, volume, measurement, identification marks,
and name and address of the consignee in Arabic.
* A packing list
should be submitted with the bill of entry.
* The insurance
certificate, when required, must be authorized in duplicate by the Saudi
Consulate in the exporting country.[7]
IV. EXECUTIVE
SUMMARY:
On the
product side, we have opportunities when we compare with the market. Having Goodyear brand name gives a relative
advantage, because Goodyear perceived as a qualified American brand. Moreover, most of the Saudis use American
cars, this’ll bring a proximity to US based products. Saudi Arabia’s telecommunications network ranks among the most
advanced in the world.
There
are three primary regions of the country :Western; Central and Eastern
Provinces, which exhibit different characteristics. An excellent network of 41,651 kms asphalted roads and 80, 965
kms of agricultural roads now links the various parts of the country.
The
distribution system in the Saudi market exhibits a number of characteristics
which should be considered. First,
marketing intermediaries in Saudi Arabia do not specialize in one aspect of
channel functions, such as wholesaling or retailing. Second, the extent of market coverage even the largest market
intermediaries are limited.
Improved
sophistication of the marketing communication channels and supporting industry
have led to an increasingly significant role for advertising in Saudi
Arabia. Media outlets can be split into
three categories: print media, outdoor media, and audio-video media. There are four different types of four media:
handbills, yellow pages, newspapers and magazines.
The
Saudi market is the buyers market where exporters need to scramble hard to find
enough buyers to make profits. The laws
regarding price reductions are within the domain of the Ministry of Commerce
and application of those laws are supervised by the Chamber of Commerce..
Marketing Plan
I. THE MARKETING PLAN:
A. MARKETING OBJECTIVES
Target
market is chosen according to geographic regions. As Saudi Arabia is divided
into three geographic regions, which are Western, Central and Eastern
Provinces, Western Province is the best alternative for establishing permanent
sales offices for exporters to Saudi Arabia. Because the Western Province is
the traditional center of the commercial activity in the Kingdom.
After
considering industry and company sales, expected sales for 1999 is estimated to
be 1,818,810 tires, in dollars $138,229,560
(list price of GT2 is $76).
Expected
gross profit for 1999 is estimated to be $27,645,912. Because our objective
profit margin is 20% of sales.
As
the market is very heterogeneous and disjointed, the Saudi market is difficult
to penetrate. We believe that targeting one segment should be considered as the
initial entry strategy, so concentrated marketing strategy is chosen. Also in
case of failure, because of conservative nature of this strategy, our losses
will be relatively low.
B. PRODUCT ADAPTATION
GT2
is the core product. It is standard summer tire. GT2 is for dry and hot
climates which is extensively used in hot regions of Turkey, so adaptation or
modification isn't necessary. Because packaging is not needed ( tires don't
need to be packaged because it's not like food or car. However, for storage
purposes we should protect them from direct sunlight ), on the tire there are
information about features of GT2 such as the size of the tire, suggested air
pressure (psi) and weight capacity (kg), max. speed limit (‘T’ for 180 km/hr,
‘H’ for 200 km/hr), safety warning and the origin of manufacturing. Finally, the brand level of the tire.
ACO
uses warranties for supporting services.
Warranties are the most important component of after sales
services. ACO gives one year full
warranty to all of the tires that exported from Goodyear. These warranty includes the manufacturing and
labor-related defects. The procedure is
when the customer goes to our retailers in Saudi Arabia, the customer should
leave the tire to the retailer and complete a warranty form. Every month a tire defect expertise visits
our retailers inspect the defective tires with their attached complaint
forms. The result of these inspections
are sent via mail to the customers. If
the defect is our fault, we refund it by 100%, however, we don’t pay in
cash. Instead customer can buy the new
tire from our retailer again.
For
increasing the service quality of our retailers, ACO will train employees of
our retailers, ACO will train employees of our retailers, encourage them to
purchase new and highest technology service equipment or meet some percent of
the cost when they are buying equipment.
C. PROMOTION
In
order to create brand awareness and highlight our products quality relative to
other competitors in Saudi Arabia, we should use extensive advertising
activities.
1.
Advertising:
Three
categories of media are available in Saudi Arabia; print media, outdoor and
audio-video media.
Print media is preferred by
exporters because of its high quality and professional services. There are four
different types of print media; handbills, yellow-pages, newspapers and
magazines. Among these, ACO chooses to use newspapers and magazines. Since handbills are used to announce special
promotions like contests and games. In
addition, yellow pages are useful for advertising company information. As a result, these two are not considered.
In
Newspaper Advertising Practice in an Arabian Gulf Country, Secil Tuncalp
claimed ‘There is not a single newpaper which can provide advertisers with an
intensive market coverage and give them an ability to reach most of the members
of their target markets with their advertising appeals. All of the fourteen dailies published in
Saudi Arabia have limited circulations and regional distribution
qualities. This condition requires
advertisers to scramble the newspapers they use with their advertising
activities in order to maximize the reach of their ads.’ [1]. In the light of this information, ACO choses
to give advertisements according to the newspapers’ estimated circulation. We give advertisements to Asharq Al Awsat which has the highest
estimated circulation (260,000) and Al
Muslimoon which has the highest estimated circulation (135,000).
Newspaper |
Language |
Region of pub. |
City of pub. |
Estimated Circulation |
||
Asharq
Al Awsat |
Arabic |
Western |
Jeddah |
260,000 |
|
|
Al
Madina |
Arabic |
Western |
Jeddah |
46,000 |
|
|
Okaz |
Arabic |
Western |
Jeddah |
75,000 |
|
|
Al
Bilad |
Arabic |
Western |
Jeddah |
30,000 |
|
|
Al
Muslimoon |
Arabic |
Western |
Jeddah |
135,000 |
|
|
Arriyadiyah |
Arabic |
Western |
Jeddah |
63,000 |
|
|
Ad
Dahira |
Arabic |
Western |
Jeddah |
50,000 |
|
|
Al
Nadhaw |
Arabic |
Western |
Makkah |
35,000 |
|
|
Saudi
Gazette |
English |
Western |
Jeddah |
18,000 |
|
|
Arab
News |
English |
Western |
Jeddah |
68,000 |
|
|
Al
Jazirah |
Arabic |
Central |
Riyadh |
90,000 |
|
|
Al
Riyadh |
Arabic |
Central |
Riyadh |
140,000 |
|
|
Al
Massaeyah |
Arabic |
Central |
Riyadh |
50,000 |
|
|
Riyadh
Daily |
English |
Central |
Riyadh |
15,000 |
|
|
Al
Youm |
Arabic |
Eastern |
Damman |
25,000 |
|
|
Source: The Middle East and North Africa 1991
(1990), 37th eds, Europa Publications, London, pp. 763-4
After observing this table, as our target market is Western Province of Saudi Arabia; Al Jazirah, Al Riyadh, Al Massaeyah, Riyadh Daily and Al Youm are not taken under consideration. For the other newspapers we made the following analysis:
As
can be seen from the chart above, Asharq Al Awsat and Al Muslimoon have the highest
circulations in Western Province of Saudi Arabia.
Moreover,
ACO selects two magazines for advertising again according to the estimated
circulation and their editorial climate.
First choice is Asharq Al Awsat, its editorial climate is general interest,
which has the highest circulation of 184,000.
Our second choice is Al Majalla, its editorial climate is
social/political, which has the second highest circulation of 172,000. ACO prefers to choose Arabic language
magazines and newspapers because only non-Saudis can speak English.
Magazine |
Location of pub. |
Estimated Circulation |
|
Iqraa |
Jeddah |
32,000 |
|
Al
Yamamah |
Riyadh |
35,000 |
|
Al
Majalla |
Jeddah |
172,000 |
|
Sayidaty |
Jeddah |
154,000 |
|
Asharq
Al Awsat |
Jeddah,
Riyadh |
184,000 |
|
Basim |
Jeddah,
Riyadh |
35,000 |
|
Al
Faisal |
Riyadh |
70,000 |
|
Saudi
Economic Survey |
Jeddah |
30,000 |
|
Source: The Middle East and North Africa 1991
(1990), 37th eds, Europa Publications, London, pp. 763-4
By taking
these circulations under consideration the following chart is observed:
So it can be observed from the above chart
that Asharq Al Awsat and Al Muslimoon have the highest circulations in Werstern
Province.
On
the other hand, there are some problems with print media. Firtly, distribution of newspapers isn’t so
efficient because of the country’s size.
In addition, there can be large distances between population
centers. Another problem is
readership. This is mainly because of
the publishers’ lack of information about their readers. Third problem is their costs.
Taking
these disadvantages under consideration, ACO decides to include outdoor meida
to support our media mix. As mentioned
before, Saudi Arabia has ideal climates for outdoor media. ACO gives advertisements through lamp pole
signs, sport stadium displays, billboards, highway “unipole” signs.
Message: Our motto
(slogan) is “We promise… you’ll reach where you want”. As Saudis prefer white, black and red
colours, we decided to use these colours in our advertising message. Same advertising message is used in print
media and outdoor. Our message consists
of a man driving a black Chevrolet on the dessert with a smiling face, and a self confident manner, because he is
sure of his tire, it’ll never let him down.
Cost: For newpaper ads, in Asharq
Al Awsat and Al Muslimoon the colour ads are not available. The cost of inside full-page ad (riyals) is
35,000 riyals for advertising in Asharq Al Awsat. The same type of ad is 17,000 riyals for Al Muslimoon. Once a week, ACO gave advertisements to
these newspapers because instead of giving advertisements daily through one
month, we advertise once a week through a year. As a result, ACO will achieve cost efficiency and create more
brand awareness, in addition it has a long run effect of memorizing.
|
Costs of inside |
|
Newspaper |
full-page ad(riyals) |
|
Asharq
Al Awsat |
35,000 |
|
Al
Madina |
21,600 |
|
Okaz |
21,600 |
|
Al
Bilad |
21,600 |
|
Al
Muslimoon |
17,000 |
|
Arriyadiyah |
18,000 |
|
Ad
Dahira |
13,000 |
|
Al
Nadhaw |
12,960 |
|
Saudi
Gazette |
18,720 |
|
Arab
News |
24,000 |
|
Al
Jazirah |
19,440 |
|
Source: The Middle East and North Africa 1991
(1990), 37th eds, Europa Publications, London, pp. 763-4
For
magazine ads, we choose Asharq Al Awsat and Al Majalla. These two are weekly published
magazines. Again ACO gave full-page
colour ad. The cost of iy in riyals for
Asharq Al Awsat is 17,500 riyals and for Al Majalla is 21,500 riyals. ACO gives advertisements to these magazines
once a week.
|
Costs of inside |
|
Magazine |
full-page ad(riyals) |
|
Iqraa |
7,000 |
|
Al
Yamamah |
6,000 |
|
Al
Majalla |
21,500 |
|
Sayidaty |
18,750 |
|
Asharq
Al Awsat |
17,500 |
|
Basim |
8,000 |
|
Al
Faisal |
11,000 |
|
Saudi
Economic Survey |
1,800 |
|
Source: The Middle East and North Africa 1991
(1990), 37th eds, Europa Publications, London, pp. 763-4
Low cost
and high repeat exposure make outdoor media ideal to create awareness. ACO
estimated its cost to be 20,000 riyals.
2.
Sales Promotion:
To
speed up our entrance and to gain attention of the Saudis, we use sales
promotion. For sales promotion our sales
slogan is “Buy four tires pay for three.”
This is actually equal to 25% discount. ACO use this sales promotion
mainly because of the Saudis’ shopping habits.
While shopping free gifts encourage them to buy.
Publicity: Because we are
partners with a loyal Arabian , all of the newspapers, televisions, magazines,
in short all media talked about our firm and our product in our favour. Publicity is free advertisement and
customers’ trust to our product and services increase with the help of
publicity.
D. DISTRIBUTION
1.
Mode of Selection
|
Advantages |
Disadvantages |
Railroads |
·
Cheap |
·
Weak railroad network connects Eastern Province to Riyadh |
Air Carriers |
·
Fastest |
·
Very expensive |
Motor Carriers |
·
Cheap |
·
Motor vehicles have to pass at least three countries(Syria, Jordan,
Iraq) so delays and extra custom duties |
Ocean Carriers |
·
Relatively cheap ·
Jeddah is a port city ·
Ease of transportation |
·
May take long |
When we
analyze the pros and cons each type of transportation, we selected ocean
carriers.
2. Port
Selection
Origin
port is Adapazari. Destination port is Jeddah, because of its high volume of
commercial activites and its proximity to our sales subsidiary. ACO's
transportation firm is Tekkar Sea and Land
Transport Inc. [ Appendix G-12 ]
3. Packing:
As
mentioned before, ACO will use containers to carry tires. But for labelling
Arabic alphabet is required.
4. Insurance Claims
In
the agreement, we used C&F ( Cost and Freight), so insurance is not
included. ACO firm has to pay for
damages. [ Appendix G14 ]
5. Documentation
Required
When
mother company ( Goodyear ) takes the order from ACO, Jeddah the first thing is
to have an acceptance from SASO ( Saudi Arabian Standards Organization ).
When
Goodyear apply SASO for ensuring GT2 has qualified standards of Saudi Arabia,
they give a reference number, as can be seen in [Appendix G3A]. After receiving order confirmation by using
reference number, Goodyear is ready to load. Tekkar Company loads tires
to trucks and carry them Adapazari Plant
to Adapazari port by trucks. Tekkar
receives ' Sevk Irsaliyesi ' from Goodyear that indicates the number of tires
[Appendix G4]. Then Tekkar Company
loads GT2 to pallets of the container [Appendix G5]. This is the end of the loading process. The export documentation that Goodyear includes are; invoice of
the product [Appendix G6], packing and weight list[Appendix G7], certificate of
origin [Appendix G8], and the business order documents that is given to customs
of Turkey [Appendix G9] and another required custom document [Appendix G9]
Goodyear
pays a 7% commission to 'Uludag Ihracat Birligi' which Goodyear is a
member. The other document is about
shipment details. [Appendix G12]
Bill
of lading presents the ownership of the exported good. Goodyear sends a copy of bill of lading to
ACO. Without having this document we
can not receive tires from Jeddah Port [Appendix G13]. Finally, ACO received the invoice[Appendix G14]. Invoice includes payment terms, delivery terms (CFR), freight
costs.
Our
trucks go to Jeddah Port and unload the containers and pay the custom
duties. Then load them to our trucks and carry them to ACO's
warehouse.
6. Retailer Distribution:
In
Jeddah, ACO has a headquarter and a warehouse for storing tires. ACO wil use
direct exporting channel as follows:
Domestic & Domestic Domestic ACO Importing Firm
Consumers GOODYEAR Retailers (DMI)
International
ACO will not use wholesalers.
We will directly sell to retailers. In order to establish a retailer there must
be a showroom and service place, which will provide necessary servicing. ACO
provides sign which indicates name of the firm and Goodyear logo, stands for
holding tires in the show-room, stickers and brochures. Furthermore, ACO gives
financial aid for purchasing service equipment and computers.
Before
establishing retailers in all the possible locations, ACO will open a big
showroom in Jeddah which we have a 100% ownership. Then ACO will expand its
sales by opening new retailers in Makkah, Medina, Yanbu, Taif and Baha.
The
profit margin of retailers in Turkey is 15%, on the list price. In addition to
this, we’ll use discount system and give discounts to retailers according to
the number of retailer’s purchase. By this way, they will able to increase
their profit margins.
E. PRICE:
Cost of shipment of GT2 is
as follows (for 1330 tires) [Appendix G-14];
Inland freight (from
Adapazarý Plant to Adapazarý Port) |
$694.00 |
Freight Charge (C&F) |
$1,779.80 |
Outland freight (from
Jeddah Port to ACO Warehouse) – estimated |
$700.00 |
Insurance Costs |
$300.00 |
Import Duties
($50*1330*0,05[1]) |
$3,325 |
|
|
TOTAL |
$6,798.80 |
We
use 1,330 tires in our calculation, because the invoice [Appendix G-14] taken
from Goodyear includes 1,330 items. And
also according to our contract with Goodyear (they are currently owning 5% of
ACO), we will also meet shipment costs.
Thus
6,798.80/1330= $5.11. This is the total cost of shipment from Adapazarý to
Jeddah per tire. ACO purchase GT2 at a cost of $50. We have a cost of $5.11.
So, the total cost of GT2 is $55.11. We have set a profit margin of 20%, which
results $11. Our retailers have a profit margin of 15%, so the retail price of
GT2 in Saudi Arabia is $76.
Cost of GT2 |
$50.00 |
Cost of shipment |
$5.11 |
Profit Margin |
$11.00 |
Retailers’ Margin |
$9.91 |
RETAIL PRICE OF GT2 |
$76.02 |
F. TERMS OF SALE
Our method
is CRF. It was the most suitable method of transportation. If we choose other
methods such as EX WORKS, FOB, FAS, CIF, they'll be either on behalf of
exporter or importer. By choosing C&F, we give responsibility to Goodyear
until the point of shipment from Adapazari. Then the transportation company
Tekkar takes responsibility from the point of shipment to Jeddah Port. After
responsibility transfers to AOC.
G. METHODS OF PAYMENT
If AOC uses cash in advance as a method of
payment, the buyer nay think we don't trust them. In addition, consignment
business, in many countries, can be dangerous for three reasons: first, the
laws are not always clear on the ownership of the consigned merchandise;
second, it is difficult for the seller to keep a watchful eye on the consigned
merchandise when it is physically in a far country; and third, exchange
controls may preclude payment by the consignee. Consignment, open account, and
sight draft, D/A involve the extension of credit by the seller to the buyer.
With any of these three the seller loses complete control of the merchandise
and places it in the custody of the buyer.Using sight draft, D/A, the seller
does not lose possession or control of
the merchandise because the buyer must pay for it before taking possession. At
a conclusion, letter of credit seems to be the best method of payment. [2]
In
International Marketing and Export Management book, letter of credit is defined
as an instrument, usually issued by a bank, at the request and for the account
of its client, which indicates that the bank agrees to pay to the named
beneficiary a sum of money upon the transportation of certain documents or
written representations as stipulated in the letter of credit.
In
the letter of credit, a sales contact between Goodyear and ACO is
required. Secondly, ACO makes
application for exporting GT2 to Saudi Arabia to our bank Saudi Credit Bank for the letter of credit.
Letter of credit is forwarded to Kocbank, which is Goodyear's bank, who
verifies it and informed Goodyear of its arrival. If Goodyear can comply with letter of credit, Goodyear ships the
goods. Goodyear draws a draft and
presents it along with other required documents to Kocbank. After all the letter of credit conditions
are met, Kocbank seeks reimbursement from Saudi Credit Bank. When reimbursement in received by Kocbank,
they'll pay to Goodyear. Kocbank forwards negotiated documents to Saudi Credit Bank. Then, Saudi Credit Bank releases title documents to ACO upon
receiving payment from us. Finally,
with these documents we can go to port and take our tires.[2]
II. PROFORMA FINANCIAL STATEMENTS AND
BUDGET:
A. MARKETING BUDGET
Advertising &
Promotion expense ……………………$1,261,860/year
Product Cost
($55.11*1,818,810) ………...………$100,234,619/year
B. PROFORMA ANNUAL PROFIT AND LOSS STATEMENT
For the 1st Year
Revenue
(1,818,810*$76)
$145,504,800/year
Profit (before
costs, 20% of revenue)
$27,645,912/year
Advertising and
promotion costs:
($1,261,860/year)
Other Costs:
Labor & Personnel ($420,000/year)
Retailer supporting costs ($50,000*6) ($300,000/year)
----------------------------------------------------------------------
NET PROFIT for
December 31,1999 $25,664,052/year
For the 5th Year
In the fifth year our target
is capturing 30% of the market. So our sales should be 2,728,215. But we expect
an increase in labor costs by 15%, and retailer supporting costs by 45%,
because after operating five years the competition will increase so much that
we need to increase quality of our retailers to capture the market.
After considering 5%
inflation rate we calculated fifth year’s price (cumulative) will be 91.4
Revenue
(2,728,215*$91.4)
$249,358,851/year
Profit (before
costs, 20% of revenue)
$49,871,770/year
Advertising and
promotion costs:
($1,261,860/year)
Other Costs:
Labor & Personnel ($483,000/year)
Retailer supporting costs ($435,000/year)
($50,000*6*45%)
----------------------------------------------------------------------
NET PROFIT for
December 31, 2004 $48,827,584/year
III. RESOURCE REQUIREMENTS
Finances:
The
Saudi Credit Bank was established in 1391H. It has 24 branches throughout the
kingdom. We need $150 Million credit, which our Saudi partner provided $80
Million of it. The rest of $70 Million was financed by ACO ($30 Million) and Saudi Credit Bank ($40 Million).
IV. EXECUTIVE
SUMMARY
Our
target market is Western Province. Our
expected sales for 1999 is $1,818,810 and our profit expectations for the same
year is $27,645,912. We use concentrated marketing strategy to
penetrate our target market.
ACO’s
core component is GT2. We don’t need an
adaptation for packaging. As a support
services component, we give importance to warranties. Our warranties are for one year.
For
our media mix we choose Asharq Al Awsat, Al Muslimoon for newspaper ads, Asharq
Al Awsat, Al Majalla for magazine ads.
Also, Saudi Arabia has ideal climate for outdoor media. So ACO gave ads to billboards and highways
‘unipole’. For sales promotion our sales slogan is “Buy four tires pay for
three.”
ACO
chose ocean carriers as the distribution method because of its relative
advantages, and our origin port is Adapazari, destination port is Jeddah
port. For packaging we don’t do any
adaptation, but in terms of labelling we used Arabian alphabet. ACO has one warehouse in Jeddah and 6 retailers
in Western Province.
For
terms of sales ACO uses C&F, and for methods of payment letter of credit is
used. For the first year expected
profit will be $25,664,052 and for the fifth year expected profit will be
$48,827,584.