The Effect of Social and Cultural Factors of e-business Transactions in Saudi Arabia
Saudi Arabia stands out among the Middle East Islamic countries due to its large government and a wide range of private business practices, all which adhere to traditions and values unique to the country. The country is a hereditary monarchy, whose significant executive, legislative and judicial powers lay in the ruling family. In 2001, the Kingdom was ranked as the largest economy among the Arabic countries, a rank it acquired due to the high volumes of oil exports. The country was also ranked as the least globalize among the same category of countries (foreign policy magazine 2003 p 18). Unlike democratic countries where rules, laws, merits, performance and liberal authorities govern business practices, the Saudi business transactions are governed by their cultures and ideals, most of which are based on the Hanbali branch of Islamic Sharia Law(Wells 2003p206).
The business governance structures in Saudi Arabia are akin to the traditional authority structures as described by Weber (cited by Khalid and Jones 1993 p8). Weber pointed out that the Arabic business environment is influenced by Islam, Colonial legacies, tribal traditions, government intervention, and western influences.
Social and cultural factors affecting business in general in Saudi Arabia
The business workforce in Saudi Arabia is organised, just like other workforces throughout the world. This means that offices and departments exist both in the public and private enterprises. However, the management practices reveal the traditional authority and values that are characteristic of the Saudi Arabian culture. As such, the Saudi nationals expect their government and business managers in the private enterprises to operate in adherence to set cultural and social principles (Khalid & Jones 1998 p10).
Among the notable positive attributes of this kind of approach in business management is that there is less bureaucracy in government and private offices. This however varies between private and public offices, with private offices, which are more likely to be affected by western trends suffering more bureaucracy than the government offices. This mainly stems from the fact that managers in private businesses are more alert about efficiency and profits. Additionally, some of the private business men in the country have embraced business partnerships with players from other countries. The management practices for the former therefore infiltrate the traditional cultural and social aspects of the Saudis.
Despite this, an observation into Saudi’s businesses activities reveals that the values of the country are still imminent in most businesses. In a study comparing the business environments in Saudi Arabia, Khalid & Jones (2001 p21) noted that Saudi managers applied less rules in the workplace. They were also less bureaucratic and used non-merit criteria more when making personnel decisions. Additionally, nepotism was higher in Saudi Arabia than it was in America. Even when the Saudi private businessmen partnered with businessmen from other countries, the cultural and social principles remained the same albeit being less terse. The study attributed this to a deliberate effort by the Saudi businessmen to uphold the country’s cultural and societal values. Another study carried by Dr. Mohamed I. comparing Saudi Arabian and American negotiators, managers and purchasing agents revealed that Saudi managers were less paternalistic as a result of more involvement in foreign trade. The study also observed that Saudi negotiators either took competitive or collaborative approaches, aspects that are deeply rooted in the culture (Harris & Moran 2004 p533).
The government presence is also heavy on the Saudi Arabian business environment especially because this affects business ownership. The republic plays a central role in economic development and societal issues (Roy & Sideras 2006 p332). This means that no amount of business liberalization can happen without the direct consent of the government, which is structured around the Royal Family.
In the Saudi Arabian concept, the Arabian culture values loyalty, justice and friendship form the moral basis through which the businesses are founded. One of the notable characteristic of the Saudi nationals is the fact that they have great emotions and sentiments which are at times viewed as extremes of human emotions to people from other cultures (Harris& Moran 2004 p533). Business behaviours that go against these principles may leave the Saudis indignant and outraged. Stereotypes regarding the Saudi Business men suggest that they are either very honest and trustworthy or very sly and dishonest. The Saudi business men however lay their emphasis on being honourable, which is a concept based on the teachings of the Qu’ran. To them, shame should be avoided, protected form public exposure by all followers of Allah.
Any decisions, acts or business behaviour have an impact not only on the person negotiating the business deal but also their families, tribe, clan and the larger society. Any act of shame from a member means a loss of power or influence for the family and other social alliances.
Trade and Business are two aspects of commerce that are highly respected by the Saudis (Harris & Moran 2004 p534). As such business relationships are first established on rapport, trust and mutual respect developed between two people. To excel in business therefore, most business men rely on establishing networks and connections between people they can trust and respect. Socialization, invitations, social gestures and courtesies are among the prominent methods that Saudis use to expand their business networks. Business deals are however not sealed on socializing meetings. Traditionally, women are exempted from such gatherings except when they are accompanied by their husbands, brother or father. Decision making was also a male affair. Nowadays however, women are gaining some rights to manage businesses although communication between them and males must be carried out through male guardians. As part of the Saudi culture, bargaining is an acceptable and a common place thing. Haggling is so wide spread to the extent that it is seen as an art in the country. The culture also demands that decision making be by a person. This means that even in a corporate setting, the organisation would have to have a suitably ranked person to make the decision, handle correspondence and make the final seal the deal. Unlike the western culture where time is specific and delay in business deals are perceived as alack of commitment, time is handling flexibly in Saudi Arabia (Harris & Moran 2004 p534). This stems from the an Islamic Concept that spells out human nature’s pattern of fatalism that states that plans for the future can only be realised if Allah wills.
Marketing in Saudi Arabia is specifically targeted to customer-client segments. This means that the middle men do not exist in this country. This is especially true because the Saudi Arabian government is the principle purchaser of the most products. As Wells notes (2003 p208), business and Politics in Saudi Arabia are intertwined. This means that knowing high-ranking government officials can easily land a business person a lucrative government contract.
Business communication is Saudi Arabia is complex and is based on a combination of verbal and non-verbal communication. Arabic is the common language for use in this country and the citizens understand it better than any other language. Outsiders are expected to follow the lead provided by their host and should be in harmony and agreement with what the host tries. The Arabic language is laced with raised voices, hyperbole, facial expressions, physical gestures among others things. A notable characteristic of this culture is that the Saudi’s sometimes can use ‘yes’ to mean ‘maybe’, this is especially because saying ‘No’ is considered impolite (p535).
The business environment in Saudi Arabia is linked to the principles of Islam. Because of this, the Saudi economy remains among the most open in the world, while the country’s family enterprises ranks as the most hand-offs management style in the world. The country has a School of Islamic law which propagates governance theories on economic and commercial matters in the country (Kaslow, F 2006 p251).
Attitudes on wealth
The Saudi’s believe that God (Allah) is the source of both spiritual and material wealth. As such, they believe that no person should be guilty of accruing as much wealth as the individual can since God has blessed their country. Saudi women, though denied other basic rights like travelling alone or driving, are also allowed to own and eve n inherit property (p 251).
Islam forbids its adherents against Riba – charging interest. Riba is banned by Sharia Law as it is considered usury. Instead of charging interest, the Saudi banks charges fees or engage their clients in profit participation schemes.
Business succession in Saudi Arabia is based more on entitlement principles rather than competency. Family business and their responsibilities are passed to family members regardless if their age or experience because the culture demands so. In such situations, the person vested with the responsibilities learns on the job. The success probability of handing the management of businesses to inexperienced family members is deemed to carry little significance as compared to cultural entitlement. There are guiding principles that are applied by the family businesses in Saudi Arabia. Such includes the recognition of the differences between family dynamics and business requirements. To ensure that this works out right, most family businesses create processes and structures that reflect the roles. On the same, family members develops a shared vision and trust issues for accountability issues. Some family businesses in the country even apply international business practices (Kaslow, F 2006 p256).
Practices that may be viewed as outright corruption by business people from the western countries are acceptable under the Saudi culture. Influence peddling, bribery and other corruption practices are among the unique prominent ways that the Saudi do business. To the nationals of the Kingdom, providing personal connections is a valid and legitimate service for which payment is expected. In the past, these kinds of payments were unregulated and the agents could get huge sums of money for necessitating value contacts. This trend has however changed considerably in the past as the Saudi government reacted to western cries on corruption allegations and has since set regulations on the amount of fees that agents can receive (p207). Knowing the right person is especially cited as the basis of doing business in the country. So strong is the personal connection culture that the success of a foreign investor relies mainly on the strengths of the connections that he has. To visit Saudi Arabia whether as a tourist or on business, one needs a Saudi national to take responsibility for the person’s actions when in the country. This makes the requirement for personal connections even more important since no visas are offered to people from other countries.
Foreign business people are required to take up Saudi business partners who can act as the official cover for the business. He can also take up the sponsoring roles of the foreign businessman and could even act as an important contact to influential Saudis. The Marketing rules are redundant in Saudi Arabia if one does not have the right contacts. This means that despite having a superior product, one may not gain substantial market share if they do not have the right connections. Having the right connection and an inferior product may help one make the sales regardless of the product quality (Wells 2003 p 207)
In view of globalization and the increased entrant of foreign investors in the country, the Saudi government has taken several positive steps towards becoming a more competitive country
The Saudi government, just like other countries in the Arab world has been slow in responding to global business trends. This is because of the central role that culture plays in the Saudi society. The need to execute reforms however came hot on the heels of increased oil revenues. This made the ruling monarchy jittery about its position in power. According to a 2007 World Bank report cited by (Ali 2008 p24), the Saudi Arabia may have resolved to involve his country in the global economy whilst adopting market responsive techniques in order to serve his political interest. The ruling family in Saudi Arabia also reacted to calls of privatization although most of the privatized government enterprises just ended up with members of the ruling family.
Economic reforms also took the form of stock market development. Since 1995, a significant number of new companies have been registered in the stock market (Ali 2008 p24). This has served to increase investor confidence and the economic stability of the country. Another positive development in the country is the involvement of the Saudi government in bilateral trade agreements. Saudi Arabia joined the World Trade Organisation in 2000 thus opening its borders for more open trade practices, competition and liberalization. Besides the WTO, the country also belongs to the common market of Arabic countries, which was initiated in the 1960.
Low Female Participation in the Workforce
According to a United Nations Development Programme’s 2002 report (cited Rojewski 2004p 129), only 10 percent of the Saudi women population is employed. They are employed in the education sector, the health-related jobs, finance, banking and government ministries. Since the job choices restrict the education choices that women in the country can take up, most Saudi women cognizant of the fact that their career prospects are minimal take up careers in the same fields while some choose not to acquire the basic skills.
Women have a low standing in the Saudi culture. It is assumed that their high fertility rate impedes their ability to work. For this, they experience job segregation in the workplace even in some jobs which are viewed as feminine jobs in the western world. Good examples of such jobs include secretarial job in big companies, the services sector (sales assistants or air hostesses) and cannot even queue in production lines of big countries. The fact that Islamic values demand obedience from both men and women, however, the rules applied in Saudi Arabia makes the Saudi woman less liberated than other women in the Islamic countries.
Islamic law and Government business relations
Islamic law is based on Prophet Mohammed’s recorded teachings –Sunnah and the Koran. This is further strengthened by the Islamic Sharia law, which is the traditional Islamic law. The Saudi government seeks to safeguard, confirm and disseminate the Islamic values throughout its governance structures. This conception rejects any body or collective initiatives that contradict the Islamic law and the business sector is no different. To the Saudi Government, the Koran and the different Islamic interpretations are the decisive legal authority in the country. Islam is therefore given the role of recommending and opposing activities in both the government business sectors and the private business sector. The intensity of this matter is reinforced by the fact that the Saudi King is perceived as the ‘protector of the Islamic faith’ (Soufi &Mayer 1991p7). This means that whatever business activities he engages in or approves on behalf of the business have to be in line with Islamic teachings. The King is also vested with the responsibility of ensuring that the strictures of the Islamic faith are supported and maintained. Saudi Arabia is not an absolute monarchy, partly because the powers of the King are inhibited by the Sharia Law. The Sharia functions like a constitution in this country and therefore puts checks and balances on the Kings authority. The result of the Sharia law on the business environment in Saudi Arabia is much more like what the western countries have. This is because the law encourages more cooperation between the business sector, the administrative apparatus and the government administration. The only difference between how authorities and government deal with business matters in the west and Saudi Arabia is that while as the latter have set regulations and principles clearly stated, Saudi Arabia’s cases are handled according to the different interpretations that authorities have. There is no standard interpretation of the Sharia law and this means that similar cases may be handled differently because of the different interpretations. Since there is no one vested with the authority to interpret different sharia laws, the interpretations are mainly based on group discussions, mostly made up religious scholars.
As the main business enterprise, the government of Saudi Arabia has the biggest stake in the production of crude oil. It is from the revenues collected from such ventures that the Saudi Government took up measures that would accelerate development and initiate modernization. This was however done in such a way that the fundamental beliefs of the Saudi Society were still intact (Soufi & Mayer1991p10)
Traditionally government is further perceived as a servant to the people in addition to being a guardian of the Islamic Principles and Values. Because of this, it dominates major sectors of the economy and is the sole provider for most of the vital public services. The telephone company, telegraph, television stations and radio stations operating in Saudi Arabia are all owned by the government. The health sector is also predominantly managed and financed by the government as does the education system, which includes elementary, secondary and universities. Saudi has a single airline, which is also operated and owned by the government. Through the heavy presence in the business sector, the Saudi Government is able continuously reinforce its roles as an overseer of the society. This is especially important to the Saudi nationals because despite Islam lacking specific instructions on the business activities that adherents should engage in, the religion specifies the role of the head of government. The roles of the king as interpreted by the Saudi Islamic Scholars is to guard against anti-islamic activities by either the government or the business sectors from being carried out in the country (Soufi & Mayer 1991p10). Unlike western countries, most which separate religion from the state, Saudi Arabia is governed by religion.
Saudi believes in free enterprise (p11). However, the government sometimes encourage private monopolies instead of competing entities in order to guard against wasteful use of scarce national resources. It is assumed that even monopolies price their products and services fairly in line with the Islamic teachings that warn the adherents of making excessive profits at the expense of fellow citizens.
Historically, the Saudi Citizens communicate with the King and his ministers through the ‘rulers of public audience’. Through the same channel, government plans and guidance on business activities is passed to the general populace in a unique form of Saudi bureaucracy (Harris & Moran 2004 p534).
Despite the different ways of doing business which sprouts from Saudi’s unique social and cultural factors, the country has become one of the best trading partners of western countries in the Middle East( Soufi & Mayer 1991p15). This is especially because of its wealth in oil, a commodity that most countries in the west do not have. Whatever trade agreements that Saudi Arabia gets into however, has to be approved by the religious authority as fit for the domestic economy non-threatening to the Islamic faith.
How social and Cultural Factors affects e-business in Saudi Arabia
E-business is defined as the “complex fusion of business applications, enterprise applications and organisational structure in order to create a high performing business model” (Sarmento 2005 p.114). Adopting e-business requires companies to go through various transforming changes. This may mean that the company will re-evaluate its value chain, re-examine its core competencies and even collaborate with industrial players. E-business includes the marketing, selling, buying, delivering, servicing, and payments information, products and services through the internet (p114). Transiting to e-business, companies undergo structural transformations which are integral in the disaggregating and re-aggregating the value chain. This makes the difference between successful or failed transition. While disaggregating the value chain, a company needs to identify its main competency, partners and resources, which are vital for continued profitability. Re-aggregation on the other hand determines how well the company is able to collaborate with the important industry partners and players in the supply chain in order to optimize joint competitiveness (p114).
Saudi Arabia lags behind in adopting the internet as a means of marketing and purchasing goods or services. The proceeding of e-business in this country is cautious of cultural and social factors, which consequently affect how the government and the general populations adopt technology. For example, despite wide adoption in other parts of the world, the internet was introduced in the Kingdom in 1999. This was after wide consultations among the authorities and religious leaders (Soufi & Mayer 1991p22). Upon introduction of internet in the Kingdom, a filtering system was setup by the American company contracted to establish internet connections in the Kingdom. The filter was stationed in Riyadh and was meant to guard against the infiltration of undesirable content into the Kingdom. Such includes pornography andante-Islamic sentiments (Soufi & Mayer 1991p17. Despite these challenges, Saudi Arabia has made significant changes to make e-business part of the country’s strong business points. Although e-business is still a young market in the country, the rate at which people are adopting technology gives one the impression that the country will soon catch up with other modernised economies in e-business.
However, Saudi Arabia is not to be compared to other countries due to its unique social and cultural characteristics. As mentioned elsewhere in this paper, the Saudi women are exempt from most jobs which are seen as a reserve for the men. This perception has a basis in the Sharia Law. This means that quite a significant number of women spend their time indoors. When such women finish up with their domestic chores, they take up shopping as a hobby. A significant number of men too have too much time in their hands meaning. The fact that women are forbidden to drive means that a man chauffer or guardian has to be at hand to take women wherever they want. This is especially so because the country has no public transport system. Because shopping takes a huge part of their free time, e-business may not be taken up by as many people as other societies would do. In Saudi Arabia, people do not go shopping out of necessity, but because they have no better way of spending their time.
The banking system is also a major hindrance in the propagation of e-business in Saudi Arabia. Because the business are yet to develop good banking systems that would allow the e-trade to check a clients credit before proceeding with a transaction, then most people are yet to adopt e-business(Wilson et al, 2004p193)
The Number of Internet users in the Kingdom is also an inhibiting factor. Coupled with the fact that not many businessmen are open to the e-business idea, this becomes an added challenge. Only a limited number of people have access to internet in the Kingdom, and even a significant number of those who can access it have no interest in e-business. Even those who can transact market or purchase product through the internet still have reservations on the security levels in the internet connections in the Kingdom. According to Franda (2002 p241, the Saudi worries over the internet ranges from Israel’s dominance of the Internet, theft and destruction of data by internet hackers and installations of malicious coded keys by hackers among other things. Many internet users in the Kingdom therefore fear posting sensitive details on the internet for fear of falling prey to hackers and identity thieves. Internet security has also been a key concern for the government since internet was introduced in the country. For this reason, it introduced policies, which restrained the usage of encryption software in the country (p241). On the cultural front, Saudi Arabia is among the Middle East countries who believe that the wide use of internet will spread the cultural, political and economic dominance of American and Europeans countries. Notable especially is the spread of secularism, which is a major concern to the Saudi religious scholars. Despite this however, the Saudi authorities have and are still searching for a middle ground, which should balance the preservation of their culture and the need to embrace advanced technological ways of doing business.
Because of the low internet use in the Kingdom, not many companies are interested in implementing e-business strategies. This has affected sectors like advertising as not many established businesses perceive online advertisements as having the same effect on the traditional forms of advertisements. Instead, business would rather advertise on flyers, TV or posters, which are the main advertising channels in the Kingdom.
The Saudi also believe that establishing and maintaining an e-business strategy is needlessly expensive. This is especially so because upgrading the computers and updating websites are critical in maintaining a profitable e-business. The Saudi companies are however not ready to spend huge amounts of money on such ventures; instead, they prefer their old system of doing business. Matters are complicated by the fact that the mailing system in Saudi Arabia is not only slow but unreliable too. This further erodes the business community’s confidence in the e-business. Technical problems also make e-business hard and expensive to manage.
The lack of a developed shipping and letter mailing infrastructure impacts negatively on e-business. Most people in the Kingdom have no faith in the mailing network. Reports of lost letter and packages makes people question whether things bought through the internet would indeed get to them through the major shipping companies. The fact that many houses in Saudi Arabia do not have identifying addresses makes it even harder for people to order goods online.
Drivers of e-business worldwide are improved communication networks, Ubiquitous networking, high capacity computers (storage and speed), competition, products with short life-cycles, speed to the market and the need to cost cut. E-business is also successful in organisations that need cut down on the paper and those that have products with low market visibilities (Wilsom 2004p81).
Most of these requirements of e-business success are not available in Saudi Arabia. In market visibility for example, the government based on the Islamic belief that monopolies have the religious duty to price their products fairly, sees no need to authorise competing firms in the market. This in turn means that the single products that the monopolies need not be marketed since it are the only product that circulates through out the Kingdom. Where as the increased product choices brought by e-business would be welcomed by a majority of Saudi nationals, their ignorance or lack of interest of e-business constrains this potential.
Statistics (e-consultancy 2008p1) show that there were 200,000 internet users in Saudi Arabia in 2000 representing 0.9 percent of the entire population, in 2003, this figure improved almost seven fold to stand at 1,500,000 users representing 6.9 percent of the population, two years later in 2005, the number of internet users in the democracy had gone up to hit the 2.5 million mark. In 2007, the number had hit 4.7 million users. According to these statistics, it is evident that the Saudi populace is taking an interest to internet usage. The 2007 statistics are still low considering that they represent 19.5 percent of the population only. As of 2007, the Saudi population was at 24, 069, 943 people. As Bidgoli (2004p806) notes, cultural and social sensitivities play critical roles in the success or failure of electronic international business. Understanding the Saudi Arabia culture is thus an important consideration for any foreign business person wishing to conduct business electronically with the Saudi nationals. For example, the Saudi’s main language is Arabic. An online business targeting them would therefore need to be written in Arabic. The lack of regulations and appropriate security measures in the Kingdom also limit the use of e-business.
The fact that women can go to school under the direct authorization of their guardians further complicate issues for the implementation of e-business especially because majority of women make the choices of what to buy (Bidgoli, 2004 p807). Computer illiteracy among the Saudi women not only affects the consumerism patterns but also means that foreigners setting up businesses in the Kingdom can only use male labour. Men in this country take more complex courses meaning there are even fewer men willing to take up jobs in IT related fields (p899).
Oil being the main product is also an e-business limiting factor since the government is the only trader in the commodity.
Trust: since trust is such a vital thing for the Saudi’s many of them wonder how two people can communicate through the internet, without seeing each other. As discussed earlier in this paper, the Saudis believe that a deal can only hold if the two agreeing parties are present. For the same reason, contracts signed on paper are deemed as less genuine than the word of mouth. The first meeting between the two business associates is also perceived as of much importance. For this reason, the Saudis have a hard time adopting e-business, where all business related activities happen online. Further on trust, the Saudis have a hard time deciphering if the internet can be relied to deliver messages without intercepting them. Other questions floated by the Saudis regarding trust in e-business include
How can one verify that the website that he or she is using is indeed the right one?
How does the website know that the person carrying out the transaction is indeed true identity of who he or she claims to be? This question arises because Saudis culture demands that initial business meetings be done on a one-to-one basis in order for the prospective business partners to acquaint themselves with each other. The question also sprouts from the fact that the Saudis are used to doing business on an intensely personal environment, from where they base future business relationships. E-business therefore threatens the traditional nature of initiating and conducting business in the Kingdom.
How are contracts signed online? – This too is a legitimate question for a population that adopted internet use only in the 1999 (Verisign 2007 p5). Because the government had initially shown reservations about adopting internet use, even private players are still not yet convinced that doing business online is the best option. For the same reasons, the government employed the services of Public Key Infrastructure (PKI), which is a system that builds a trust environment for the Saudi masses. PKI has been used elsewhere in the world and develops a framework that allows transactions to be carried out over public networks (verisign 2007p6). This is done by the issuance of certificates which settles the confidentiality, integrity, authentication, non-repudiation, access control, digital signatures and the creation of internet documents among others. The bad thing about PKI worldwide is that its infrastructure is not only expensive to implement, but also difficult (verisign 2007 p7). This means that only the well performing companies can afford to procure, install and maintain it. Even for those who can afford to install such, the challenge still remains since the one company may have the PKI while its business associate partner lacks the same.
How the brokers (they are an important part of connecting foreign investors with influential Saudi locals) can prevent the investor from carrying on the transaction?
How does one ensure that clients receive online messages? The culture of trust also affects how people send and receive messages online. While using the credit cards for example, the Saudis may not only rest with the knowledge that their credit card information is secure if transferred through secure http’s, but may also need to have trust on whoever they are doing business with (verisign 2007 p5). The fact that in most e-business, people deal with entities rather than individuals makes the matter even worse for the Saudis.
How does one prove that they actually sent a message or transacted business on the internet? Like many other people transacting business over the internet, the Saudis are also concerned about risks such as fraud, theft and corrupt practices over the internet. Viruses and other malicious software are also a major cause of concern for the Saudi (verisign 2007 p6). These are issues that affect internet users throughout the world (Aldridge et al1997p9). In Saudi Arabia however, the issues have more weight because of the cultural and social orientation of the populace. To ward off these concerns the Saudi government has to find ways of securing e-business such that the company users, individual users and even government business
How does one verify that internet documents are original and that they can be trusted?
To cater for concerns raised in the above questions and others, the Saudi government employed the services of PKI, which together with other government stakeholders developed the electronic transactions act, the digital-signature law, and the certification policy and government e-procurement strategy. This combined with creating awareness programs through conferences and training the Saudi nationals on the positive aspects of e-business are steps in the right direction (Aldridge et al1997p9). Since the Saudi nationals hold their government in high regard, adopting e-business and e-business in government sectors creates the right example for the private sector to emulate.
Enjoyment: This mainly stems from the fact that Saudis are motivated to work not by the pay only, but by status and good relationships in the workplace (Idris 2007p45). E-business would therefore have to assure the Saudis that there are good relations between the involved parties. A 1986 study cited by (Idris 2007p45), states those since there are many job vacancies in the Kingdom, there are a high turnover in most businesses. Managers have a hard time reviewing employee performance since any damage to the self-esteem of the employees could end up costing them a sizeable number of the workforce. E-business would therefore pose a number of challenges to the Saudi, on either side of the e-transactions (Idris 2007p45). The same need of recognition exhibited in the physical business premises is most likely to be present in the e-business circles. This means that the Saudis would have little patience for their e-business partners, e-marketers and even the e-marketers. This is especially critical considering that by 2002 the kingdom still suffered from an acute shortage of trained IT personnel.
For e-business to succeed in Saudi Arabia, the government as well as the private players need to show unwavering commitment to ensuring internet security to uphold
1. Authenticity: This is especially applicable to documents and electronic signatures that may be required during the e-business processes.
2. Integrity: This is important for detection of malicious or unintentional alterations of signed documents. As earlier discussed in this paper, the Saudis lay more emphasis on verbal deals-especially when both parties are present- than they do signed documents. The fact that many signature disputes arise over the integrity of e-documents therefore poses an extra challenge not so much to the Saudis, but to the people who transact business with them. According to Verisign (2007 p4), most disputes happen because people refute that the document in contention are not the original documents they appended the e-signatures on.
3. non-repudiation: this is a regulation necessary for upholding honesty between two parties. As such, the receivers or senders of a business document cannot refute the fact that they did indeed sign the document. Non-repudiation is applicable to time-sensitive documents. Such include stock-analysts reports and online bargains among others.
4. Security persistence: This consideration would ensure that document security is maintained throughout business processes. In other parts of the world, security persistence allows the parties involved in e-business to retrieve past signature in order to verify present transactions (Verisign 2007 p4).
5. Easy to use: this is a consideration in every technology that handles business transactions. In e-business, this makes it easy to send and receive secure documents. It also means that the digital signature can be verified easily.
6. Confidentiality: This refers to the protection of the contents of a document against unauthorized access. As such only the intended recipients get the documents.
Some of the documents that may need to be exchanged in volumes by the Saudis as more of them embrace e-banking are banking and financial documents that involve high value transactions (Idris 2007p46). Legal documents, mostly concerning arbitration agreements made in the course of e-business transactions. Real-estate documents such as leases, rental agreements and deeds among others are among the other vital documents that the Saudis will eventually have to learn to trust the internet documents if business between them and other countries through the internet will prosper.
The Saudi Government on its part has a huge role to play in creating the perfect example of embracing e-business. As discussed in the first paper of this paper, the Saudi masses look upon their government to provide leadership not only politically, but also through upholding the country’s culture and societal values (Idris 2007p40). Embracing new values is best done by the government since an entire process of vetting will have to be carried by the religious leaders who advice the government on whether the values are acceptable under the Sharia law, and if so, how best to implement the same in the Saudi context.
Some of the e-business practices that the government may have to adopt include:
Patenting and issuance of trademarks
Issuance of copyright forms
Inviting, receiving, approving or rejecting grant proposals
Receiving tax returns
Issuing government blue prints
Issuance of compliance or accreditation certificates, among others.
By doing this, (and it has set good examples in Saudi Aramco already), the government would open up its market for more competition and more integrated form of doing business. American and European countries are attracted to Saudi Arabia due to the kingdom’s economies of scales (oxford business group 2008 p170) and by adopting strategies that would make the country more accessible through e-business would be an added advantage. The oxford business group (2008 p173) further notes that the Saudi business environment is experiencing less censorship from the government. This environment is ideal for foreign investors hoping to set-up e-businesses in the country.
Saudi Aramco was founded in 1933 as a venture among several prominent oil companies. Originally, the company was named Arabian American Oil Company or Aramco. Starting 1973, the Saudi government commenced a share-acquisition process in the company and by 1980; the company was fully owned by the Saudi government. In 1988, the company changed its name to Saudi Aramco and today ranks as the biggest oil company in the world (Idris 2007 p54). Saudi Aramco controls all of the Kingdom’s oil fields, their production and oversees the exports which neared 3.4 billion barrels in 2006 averaging 8 million barrels daily. The company also produces and exports natural gas liquids, and other oil refined products.
Analyzing the Saudi Aramco e-business tool (Website)
With a growing number of contractors, customers, vendors, purchasers, salesman and marketers in Saudi Arabia and in other countries, the company found a ready solution of handling its business effectively through e-business. In its well detailed website (saudiaramco.com), Saudi Aramco has customer portal, which is meant to handle communication between the company and its customers. It also has the vendor’s portal, which handles the communication, business deals and payment communication between the company and its vendors. Additionally, different portals are provided for the contractors and the purchasing department in the same website. In the e-business strategy set out by the company, Saudi Aramco can conduct online sales and auctions, while marketing, supply and marketing is done through the same. Jobs and careers in the company are also advertised and sourced through the same website. A perfect example of how the company executes its e-business is provided by the Electronic Contracting Network (ECN), through which Saudi Aramco interacts with its contractors. Through ECN, the company is able to procure and interact with its contractors online through a comprehensive and easy to use web system. To uphold the trust culture, which is dominant in Saudi Arabia, the company provides contractors who have registered with the company a section, where they post their profiles. Registering as a contractor with Saudi Aramco is done after the person applying for the position has posted their legal information, contacts and other relevant information. Their request is reviewed against the information they provide by an Aramco employee who then decides whether they qualify or not. The contactor profile section requires the potential contractor to fill in his qualifications and other work-related information. It also enables the contractors to update their profiles without having to re-send the information to Saudi Aramco.
The contract room is another feature of the website under the contractor’s category that allows for real-time interaction between employees of Saudi Aramco and the company’s contractors. It is a virtual workplace complete with a comprehensive automation of functions and activities that happen when the company is engaged in the procurement process. The contract room acts as the main business avenue for both the host company and the contractors.
ECN benefits both Saudi Aramco and contractors because this system is not only intuitive, but also user-friendly. It also translates to faster and easier contract procurement, processes that are achieved at greater convenience. E-business and especially in the contracting issue enables the company to identify the best qualified and well-suited contractors to handle the company’s processes. Since all contractors are given an equal chance to state their qualifications, capabilities and capacities, the best contractors always stand the best chance to be awarded contracts by Saudi Aramco. Through this system, the contractor owners are also able to monitor how their companies interact with Saudi Aramco.
Saudi Aramco has a section named ‘New Business’, where it posts details of new business development. Through this e-business section, the company also posted its own strong points in a bid to capture more business people to do business with the company. It has also stated its major achievements in the same section. For businesses that might be interested in manufacturing equipment or servicing the same for the company, the opportunities are also posted in the website. Opportunities for the conversion industries are also posted as does the contactors ‘Saudization’. There is also a webpage set aside for updating the media on what Saudi Aramco is undertaking, news about the company and updating them on upcoming events. Separately, the news media is given special attention whereby news, speeches, publications, press kits, company profile, annual review, the company’s facts and figures, photos among other details are provided.
The company also provides its corporate story, values and calendars in their corporate business. The website also provides information about the company’s workforce and their joint values as enforced by their employer as well as revealing that is behind the management of the company.
Since the website is the backbone of its e-business strategy, the company states what it does to ensure reliable supply of oil to its customers. The website also has details about the company’s exhibit and what it has done in the past in order to make history. Analyzing this section of the website gives one the impression that the company has put extra effort in ensuring that people gains as much trust in the company. This is in line with the trust social and cultural characteristic of the Saudi people.
In the ‘our business’ webpage, there details about the company’s operations are divided into various categories, which include the company’s operation’s map, its exploration activities, oil and gas operations as well as the refining and distribution activities. Another category addresses the company’s international operations as well as projects that the company is utilising technology and innovation. The ‘our business’ also addresses the company’s activities in relation to environment conservation and the safety measures that the company is putting in place in order to ensure that there is minimal effect to the environment by the oil exploration activities. Additionally, the webpage provides details about research and development projects that the company is undertaking. Here, the company is quick to state that the centre given the role to coordinate research is a reflection of the company’s continuing commitment to petroleum research and future development of petroleum production in the Saudi Arabia Kingdom.
Lessons from Saudi Aramco’s e-business
In a country where internet adoption was taken much later compared to other countries, Saudi Aramco is a force to reckon with in Saudi Arabia. Taking up e-business and executing a well mapped strategy to execute its business processes is therefore bound to affect other companies in the country to take up the same approach. Since Saudi Aramco is government owned, the company stands a perfect chance inspiring confidence in e-business especially considering that most Saudis look upon their governance for guidance and inspiration either in business or social affairs (Soufi & Mayer 1991p55).
Saudi Aramco has an excess of one million products in its catalogue and keeps on encouraging its suppliers to join the Business-to-Business (B2B) exchanges in order to get them hooked to the e-business concept (Shoult et al 2006 p431). In 2006, Saudi Aramco had 900 agreements with its partners coming short of its 1,200 target. Although this was on an e-commerce platform, it is through the same that the company advanced to adopt the e-business concept (p431). Through embracing e-commerce first, the company was able to realise the benefits of handling all aspects of its businesses online.
In 2007, a statement by SAP ERP- a German company that handles the software and e-business portals for Saudi Aramco- said that the Company’s main challenge is handling a wide range of activities in all its operation areas, while ensuring that all the concerned parties are attended to convincingly (sap 2007p1).
In Saudi Arabia the B2B and Business-to-Consumer (B2C) commerce are common strategies used by the commerce people to cater for both the supply and demand of Saudi goods. However, the e-business commerce is the latest entrants that gained ground in the Kingdom in 2004 (Wilsom 2004 p87). The maturing of the internet market in the Kingdom has is partially responsible for increasing e-commerce as does government adoption of internet based processes. Among companies that have adopted e-business however, Saudi Aramco ranks as the biggest example of the e-business success. Other companies that have adopted e-business include the Saudi Arabian Airlines, which launched its e-business centre in 2004 and the Saudi Arabian Basic industries Corporation (SABIC). These companies are among the few Saudi companies that require the suppliers to interact with them through the virtue offices, and keeps on encouraging their clients to take advantage of the convenience provided by online shopping. While targeting more clients rather than the traditional ones, the companies have also taken up to online marketing strategies (p431)
Some of the lessons that businesses can learn from Aramco about the adoption of Saudi Aramco include:
Logistic management and ensuring that profit targets are met.
Acquiring the appropriate technological components
The transfer of knowledge and competencies
Processes and methods of operating e-business
Planning for start-up (Saudi Aramco, 2008 p1)
Scope definition, and
Despite having established itself as a formidable company even before embracing e-business, Saudi Aramco just like others companies going a similar course had to face the reality of strengthening and even redesigning its logistics and infrastructure. This is because strong-based logistics and a well-grounded infrastructure system moves the business processes hence supporting online commerce and keep the company afloat (Reynolds 2001p284).
Based on Reynolds (2001 p285) summary of the goals on logistics, one can conclusively state that Saudi Aramco had a clear understanding of the business processes, applications, systems, and the value-chain partners. This is because e-business success is determined by a company’s understanding of the different logistics involved in the company and its how the logistics will be integrated.
As evidenced through the various issues addressed in Saudi Aramco’s website (www.saudiaramco.com), one gets the impression that the company has an effective e-strategy team that attends not only to the interaction requirements required for Aramco’s business processes to continue unabated, but also one that attends to the technological solutions necessary for the successful implementation of e-business.
In addition, it is clear through the Saudi Aramco website that the company had taken time to review the customer requirements and therefore provided webpage channels through which such issues are addressed. One good example is the contractor’s room discussed elsewhere in this paper.
Considering that Saudi Aramco has business interests beyond the Kingdom borders, the company has also done a good job integrating processed orders, transport, shipping, delivery, quality control, customer satisfaction and after-sales services (Al-hoymany 2002p1). As such, it would serve as a perfect example for local companies willing to venture in e-business especially if they have international markets.
Other factors which are not apparent in Saudi Aramco(partly because of the nature of its product) are multi-level distribution channels like retailers, wholesalers, third-party distributors and franchises. This may be applicable to other forms of consumer products therefore the need to take note. Some consumer goods may also need to b e tracked as they move from the producing company to the customer (Reynolds 2001p288).
By excelling in e-business as it is doing, Saudi Aramco inspires other companies to take up e-business since, being government owned, private entities now can now confidently adopt the same assuming that the government has set the necessary regulatory and legal framework needed to encourage the growth of e-business. E-business has its own measure of issues that only the government can address. Top among them is the e-business legislation that sets the rules on which e-business practices are valid and which are not. Such include electronic signatures and electronic documents.
The Saudi Arabia government approved the telecommunications liberalizing bill in 2001 thus allowing foreign investors to venture in the country and invest in the sector (Shoult et al 2006 p432). In 2003, the Saudi Telecommunications and Information Commission (STITC) were formed with its main mandate being the regulation of internet services, telephone services and other communication media. Since the government was a main beneficiary of the liberalized market, which stood more chances of succeeding under the e-business, it issued new by-laws through STIT (Al-hoymany 2002p1C. The laws covered standards of equipment that should be used for telecommunications in the kingdom, anti-trust regulations, interconnectivity, tariffs and licensing. The government also sought to liberalize the data and GSM sectors by 2005. By tendering the VSAT, GSM and data licenses, the government hoped that it would introduce competition in the country thus making internet and other forms of communication more affordable (Al-hoymany 2002p1).
Through out its e-business operations, Saudi Aramco has prided itself of having smooth operations, which span across different businesses that the company engages in. Top on the list of these activities include exploration of hydrocarbons, production of the same, refining, marketing and shipping the products to both local and international markets (Sap, 2007 p1). The unique position of Saudi Aramco as one of the biggest government and profitable companies makes it very conspicuous not only to other business practices, but also to the ordinary Saudis. The employees of the company alone stood at 52,000 according to 2007 statistics (sap2007p1). With such a huge workforce, the company has to address non-core activities such as staff healthcare, telecommunications and other business. Most of these are covered through the different e-business portals available on its official website. Across the board, Saudi Aramco had 52,000 virtual users of its website daily in 2007 (p2).
Through the e-business interactions, the company is not only able to cut communication costs that were previously accrued from other forms of communication. It is also able to support future growth through improved interactions and new functions of all its stakeholders. Through e-business, the company is able to bring business processes, people and information together thus supporting critical portal-based developments and collaborations.
Being a global business, Saudi Aramco transacts business in most parts of the world. This involves moving products to the respective markets and executing the arising transactions.
Overall, Saudi Aramco has demonstrated that a company can still uphold some of the most upheld cultural and social factors in the Kingdom, while still employing new technology and innovations. It therefore acts as a good model for other businesses to follow. However, e-business in other sectors may fair differently. Most times, Saudi Aramco’s business is cushioned from the economic and regulatory effects that may affect other sectors. This is so because the demand for oil is ever increasing in the world. As the single biggest holder of oil reserves and mines, Saudi Aramco is well able to balance market fluctuations in demand.
According to Bidgoli (2006 p806), the economic conditions in the different countries affect how e-business performs. Such conditions include infrastructure, economic trends and income levels. The integrity and position of a business in the market also affects the performance of a company should it decide to take up e-business. The market needs to have confidence in the performance of a firm. To gain confidence in a firm which has taken up e-business, the consumer, suppliers and people in the value-addition chain need to have trustworthy payment methods and also needs to prove that they have abided in the rule-of –law as set out in their respective countries.
As more Saudi companies open up for internet based solutions to settle their business challenges in a bid to emulate Saudi Aramco, the demand for an IT workforce will Increase. Invariably, the IT skills portfolio would still keep on changing to accommodate the changing demands. Just like other places in the world, the trends shaping e-business in Saudi Arabia will be no different.
Although Saudi Arabia was among the countries that adopted Internet in the late 1990’s, the e-business concept has gained much acceptance in the country in the past decade. However, the combination of social and cultural aspects of the Saudi people has had some noticeable draw backs against the adoption of internet as a tool for conducting business. First was the suspicion that the internet would infiltrate the Saudi culture with anti-Islamic content. Second, there was suspicion that the internet was not a secure place to conduct business.
With the advent of e-commerce and later on e-business, the slow rate at which banks in the Kingdom upgraded their technology to allow for e-transactions became a major hindrance to the adoption of the two in the country. The popularity of e-business although seen as a time saver elsewhere in the world was a major past-time snatcher, which was not welcome by most Saudis who view shopping as a good way of spending the much time that they have in their hands. This is especially so for women who suffer multiple inequalities from the society.
The fact that Saudi Aramco has taken up e-business and so far seems to be making good returns is good enough reason why businesses in Saudi Arabia should test the waters too. The company has proven that no amount of culture or social inhibitors should prevent businesses from adopting new technology and thus can be referred to as a model of societal and economic reforms in the Kingdom.
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