Companies are moving to more direct models in Saudi Arabia to capitalize on increasing public expenditure in priority sectors like education, healthcare, housing, and related infrastructure.
A local presence allows MNCs to be closer to customers and to leverage partners more effectively.
Drivers
Companies know their products better than distributors: Visiting local partners on an infrequent basis is not enough to imbue expertise in your product offering. There will always be a gap between realized and actual market potential without this knowledge.
Closer oversight of partners: Establishing a more direct presence allows companies to manage local partners closely and take advantage of special treatment due to the government’s mandate to prioritize companies with a local presence.
Business climate stability amid regional uncertainty: The Saudi market is growing in regional importance as companies de-prioritize business in less stable markets such as Egypt, Iran, Lebanon, Syria, and Tunisia.
Recognition of rising MNC competition: MNCs must get closer to customers due to the rapid expansion of foreign MNCs and regional conglomerates into the Saudi market.
Frontier Strategy Group View
Companies should no longer expect to capture the full potential of the Saudi market if they are based elsewhere in the Gulf region.
MNCs are finding it easier and more necessary than ever to go direct or form joint ventures in Saudi Arabia. The commercial infrastructure improved significantly over the past decade, exemplified by Saudi Arabia’s #12 global ranking in the World Bank’s Ease of Doing Business Index.
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