- 2.1.1 Multi-national Corporations
Multi-national corporations’ global strategy focuses on establishing worldwide brand images that are uniform in all countries in which these companies sells their products. The companies employ the same competitive strategy in all nations despite the variance in local market conditions. The companies sell their products at similar prices and quality in all of their markets. The world-wide system of organization helps the companies ignore minor competition in local areas and instead focus on competing with other international companies. By ignoring minor preferences in specific countries, the companies divert their efforts towards the establishment of uniform brands that are known and accepted all over the world (Randall, 2005).
The distribution of similar products world-wide helps create a market base of loyal customers who are more comfortable buying these products as they can trust the products’ quality. In addition, customers easily identify with popular products and brands. Consequently, multinational companies end up reaping huge profits. In developing countries, multi-national corporations focus their efforts on marketing and distributing the same products available to traditional consumers in developed countries where the companies have firmly established markets. Rather than focus on local customer needs, multi-national corporations view the world as one large market with homogeneous customers. Therefore, they seek to achieve high level of economies of scale, by focusing on production of standardized products and services. The centralized system directs and influences the production, marketing and distribution of products in the entire world-wide market. This strategy is based on the notion that if a product performs well in the home market, it is bound to perform well in another place on earth.
2.1.2 Multi-national Companies in Saudi Arabia
Since the discovery of oil deposits in Arabia, (Oil was first discovered in the Gulf region in 1908) the number of multi-national companies have increased tremendously. Since then, Western oil companies have continually flooded the area and completely dominated the market by establishing fully owned subsidiaries. However it was not until 1930 that oil companies took the opportunity provided by Arabian leader Abdul-Aziz Al Saud to fully establish their activities in Arabia.
The role of multi-national corporations in Saudi Arabia has long dominated the debate on the need to stabilize the country’s economy. The public has long believed in major misconceptions and misguided information concerning multi-national corporations. One such notion is that the companies are tools used by developed nations to exploit poor nations and maximize profits as well as other benefits. The Arabian public has, for a long time, believed that developed nations have the intention of enslaving third-world nations by making these nations fully dependent them. Saudi Arabia is among the increasing number of states in the Middle East that are realizing the need to increase trade with multi-nationals. Although it has taken decades to eventually acknowledge and accept the reasonable and liberal laws of the foreign based companies, the nation has obviously benefited from interacting with the multi-nationals.
In his speech, a senior Saudi government official said that the country needed foreigners so as to benefit from their superior technologies and skills. He however, stated that the country cannot allow itself to fall victim of influence by foreign traditions, morals and cultures. Solid conditions put in place by the government prove the determination of the Saudi government to protect its citizens from the liberal western culture which it considers harmful. However, at times, the government is forced to realize that compromises have to be made in order to secure economic benefits. Over the recent years, both the societies’ and the State’s attitudes towards foreign investors have shifted by great margins, from negativity to positivity and support.
2.1.3 Impacts of Foreign Companies on Saudi Arabia
In recent years, the Saudi government has increasingly supported the private sector and multi-national investment in the nation. Addressing the nation in 2007, King Abdullah clarified the government’s position asserting that it recognizes the efforts of these companies and is committed to support them so as to ensure economic development. The country benefits from these companies through foreign exchange earnings and creation of local employment opportunities for the citizens of Saudi Arabia. In the same year, the king, through the ministry of Commerce and Industry, proceeded to revise rules and regulations governing foreign investments (United Nations, 2012). Howard (2011) stated that in 2006, the Saudi Arabia General Investment Authority (SAGIA) revealed that the Kingdom’s economy was losing over 15 billion US dollars and over 100,000 jobs annually, mainly due to bureaucratic practices. According Economic Freedom Index, the heritage foundation ranked Saudi Arabia 85th among the nations with free economies. In 2009, the foundation ranked the kingdom 16th out of 181 nations ranked according to the ease of engaging in international business. Encouraging foreign investment is seen as a potential solution to these problems.
The judiciary enacted Nitaqat laws that limited foreign workers to a minority in order to achieve higher employment rates for the Arabians. Initially, the Nitaqat regulations sought to protect the citizens of Saudi Arabia from foreign competition by forcing foreign companies to increase the number of locals in their work-forces. However, the regulations were also tailored to provide the foreign transnational companies with the opportunity to save money in visas, travel and relocation so as to maintain competitiveness against local companies. These restrictions affect manufacturing companies more than others such as pharmaceutical, media and educational companies. The new rules also required multi-nationals to efficiently and thoroughly train local workers to be relevant in their jobs and help them attain managerial positions.
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- 2.1.4 Related Research
Shoult (2006) stated that 50% of the Saudi respondents asserted that the western multi-national companies negatively affected the country’s traditional ethical standards. They felt that the western personnel presence had undesirable effects on their culture. 31% of the respondents acknowledged that fact that the transnational companies had improved the country’s economy. 42% were of the contrary opinion insisting that the multi-national corporations did not help the Saudi Arabian economic development in any way. Another 30% of the respondents said that most American companies affected the Saudi Arabia kingdom’s religious values.
In this study, it was revealed that 61% of Saudi Arabians felt that the American companies were unfair in their training programs by providing low level training to locals as opposed to American citizens. 67% of the respondents claimed that the companies should replace the foreign workers (mostly American) with local women despite the existence of a law which prohibited this.
2.2 Research Objectives
1. To determine the clauses in the Saudi Arabian constitution that affect multi-national corporations based in the country.
2. To determine ways in which multinational companies have contributed to constitutional amendments in Saudi Arabia.
3. To find out the extent of damages caused by misunderstandings and disagreements between the Saudi government and trans-national companies over labor and trade laws.
4. To reveal the impact of Saudi Arabian laws on individuals and families of both foreign and Saudi employees working in the multi-national corporations.
5. To determine the Saudi government’s policy on foreign investment.
6. To suggest appropriate amendments to the Saudi Arabian constitution that will enable the country to develop better trade agreements and interaction with the multi-national corporations that are of great benefit to the country’s economy.