An Evaluation of the Saudi Arabian Government Approach and Support of SMEs - Research Proposal Example

Submitted Dr. Mohammed Khafaji Submitted by: AlAnoud Al-Qahtani Halah Al-Shathry Nouf Al-Towairgi Table of Contents Executive Summary 3 Objectives 4 Methodology Scope and limitation………………………………………………..………….. 5 1. 1. The governmental- semi governmental companies samples………..………….7 2. 2.The SMEs sample……………………………………………………………….…7 2.1 Sample 1………………………………………………………………..……………..8 2.1.1 Sample 2………………………………………………………………….…………8 2.1.1.1 Sample 3…………………………………………………………………………..8 Literature review…………………………………………………………………………9 Time Frame ….12 Outcomes ..12 References...……….……………………..………………….…………………………………………………14 Executive summary: The policy of Saudi Arabia in recent years has shifted in that its economic domestic policy is moving away from oil to a more balanced and diverse one (Looney, 2005). Termed Saudization, the Saudi Export Program division of the Saudi Fund for Development (2009) was formed to aid in increasing internal small and medium sized business development as well as increasing exports. Globally, SME’s account for 93% of all business enterprises and 25% of all employment (Looney, 2005). The changing dynamics of the country and its finite oil supplies means that Saudi Arabia needs to develop its economy to be less dependent on oil as a revenue source in the future as this path is no longer sustainable. This is due to rising population numbers and the need for internal infrastructure and trade outside the realm of oil to prepare the country for the future. The boom in the population and the increased move of citizens to cities represents another dynamic fueling this need for change. This proposal will seek to examine and understand the efforts of the Saudi government in developing programs to aid and support small and medium sized enterprises in the country to develop this sector in keeping with Saudiization plans. In terms of understanding . “Small and medium sized enterprise industry sector (SME) with businesses that employ between 10 and 100 people. The Kingdom of Saudi Arabia recently perceives SMEs as a highly valuable industry by both the government and private financing sectors. In Saudi Arabia, small and medium enterprises are identified mostly the enterprises which its annual sales does not exceed SAR 30, 0000,000.(Aleqi, 2011). SMEs are often perceived globally as significant drivers of economic growth, yet there are clear guidelines in kingdom of Saudi Arabia to support it. However, in recent years many promising initiatives by the Saudi Arabian government to support this crucial sector and plan to create a framework for SMEs support and growth. Private financing institutions are recently more concerned about the SMEs financing conditions, therefore; there are several initiatives by this sector created to increase its pace in funding and financing SMEs in Saudi Arab after recognizing its clear role in sustainable development. Objectives The overview of the research is to evaluate the small and medium enterprises challenges in light of the governments new framework of support. There are various challenges, however; in this paper we will research on the most difficult challenges SMEs encounter in two major areas, which are the financial and administration challenges and whether parallel with the framework planned by the government and banks plan of support. Thus, the following are the objectives of the research: 1. To identify framework plan by the Saudi government agencies and financial institutions to support small and medium enterprises. 2. Identify the financial conditions constrained by the financial institutions in Saudi Arabia. 3. Identify the administrative challenges experienced by entrepreneurs. 4. To identify the SMEs most difficult challenges they encounter Analyze and measure the gap, if there is to be, between both the framework and the challenges. 5. Identify the reasons of the gap whether it exists from governments agencies or the entrepreneurs. 6. Examine the effectiveness of current regulations and programs in support to SMEs to minimize their financial and administrate challenges. 7. Present our recommendations to minimize the gap to overcome the financial and administrative challenges that prevent SMEs from capitalizing on the governments programs and integrating with the framework. 8.  Highlight how SMEs in other developing countries integrate into the Saudi government’s vision and future plan. Methodology The small and medium enterprises in Saudi Arabia on general have witness a noticeable growth in the last few years. The finance minister has informed on an forum that the number of SMEs has increased from 121.5 thousand establishment on year 1426H to 218.4 thousand establishment on year 1430H, an increase of average %16 annually. Statistically, according to the finance minister, most of the establishments are a sole ownership, which reflects around 93.1 % of total industrial small and medium establishments in the Kingdom of Saudi Arabia.The minister has also announced that the small enterprises of less than five employees participated in 54.4 % of total job employment in this industry. On the other hand, the medium establishments of number of employees between five and fifty nine, provides 42 % of total job opportunities in the SMEs industry. Finally, establishments with more than 60 employees participate with 3.6 % only of total job employment in the industries sector. Therefore, this reflects the important of the SMEs and its major role in providing jobs opportunities and increase employment. As the means to delve into the subject, both primary and secondary research sources will be used in that the latter provides a broad scale approach using n=books, journals and the Internet. Primary research will consist of interviews as outlined in the following segment Scope and Limitation The first study will focus on the Saudi government’s framework plan in support for SMEs growth and overcoming their challenges. The second study will identify the SMEs’ challenges in Saudi Arabia and that require government’s support. The scope/design of will be looking into approaching both the framework by the Saudi Arabian government agencies and the SMEs financing and technical challenges The methods will examine both genders, males and females Entrepreneurs. After identifying the framework and challenges, a comparison will be made between the results of both parties of the specific challenges mentioned earlier as a means to determine their differences in views and opinions. This will lead into assesses the gaps between both sides to identify the applicability of the framework against the financing and technical challenges of the SMEs. The study is limited to two specific areas motioned and the form of data will depend on the existing literature as background support. This two-phase research approach is conducted by three researchers using qualitative followed by quantitative research methods. A primary and secondary data sources will be used to collect data. The primary sources are unstructured in-depth interviews as well as mailed questionnaire. The secondary sources are previous documents (printed and/or electronic), this may include government and semi-government publications, earlier researches, journals and books published in both Arabic and English languages. In the first phase, researchers apply interviews that are personal in nature and conducted on one-to-one basis using both closed and open-ended questions in order to collect information on Saudi SMEs supportive system and governmental guidelines.Interviews are very useful to compile deep information from a limited number of respondents who are scattered over a limited geographical area (which is the case in this research). We have selected major samples of both governmental and SMEs, whom we will approach and meet their managers in order to implement our collecting data methods. In the first part of our data collection will consist of departments concerned with SMEs issues and the samples are: The Ministry of Labor, Saudi Arabian Monetary Agency (SAMA), SIMAH, The Centennial Fund, Chamber of Commerce and Industry, Saudi Industrial Development Fund, and Saudi Credit & Saving Bank. The second part, we will approach the private financing institutions that have initiatives toward supporting Saudi SMEs, and they are, Inma Bank and Abdul Latif Jameel Company. The following are two sample examples of three SMEs whom we will approach for methodology implementations and data collection: 1. The SMEs sample: 2.1 First Sample: The first sample is a recently established company having up to 5 years of experience, working in the manufacturing industry, with the name TheSaudi Heritage Manufacture, which is established by Saudi female entrepreneur. The reason this business was selected is due to the fact that its all run by Saudi females who have opened many opportunities for unemployed Saudi women to work and participate in Saudi economy. 2.1.1 Second Sample: The second sample is a company with 5 to 10 years of experience in the food industry named “Jave Time”, which is established by a Saudi male entrepreneur. It was chosen due to the increasing number of coffee shops by Saudi entrepreneurs who are ambitious to growth their business in such a highly competitive target market. 2.1.1.1 Third Sample: The third sample is a company with 10 years of experience is a construction company, of the name AlRasheed Co. The sampling rate is selected carefully to insure that era rate is below 5%. Researchers will distribute questionnaire to owners and selective managers. The questionnaire may be followed by interviews to get further information. In both two phases, participants will be informed about the purpose of the research and will be asked for their permission to record the interview. Consent forms will be used for this purpose. All collected data will be transcribed, edited and then a thematic analysis will be applied in order to cluster them. Finally, findings will be described and conclusion will be provided. Literature Review This aspect of the research shall utilise the aforementioned secondary sources of which the following represents a sampling selection that shall be added to: 1. Agosin, M. (2007) Export Diversification and Growth in Emerging Economies. Working Paper No. 233. Department of Economics. University of Chile 2. Arab News (2009) The economic impact of rapid population growth in Saudi Arabia. 17 February. Arab News 3. Bell, B. (2005) Saudi Arabia’s job market rethink. 10 August. BBC News 4. Bleanery, M., Greenaway, D. (2001) The Impact of Terms of Trade and Real Exchange Volatility on Investment and Growth in Sub-Saharan Africa. Vol. 65. Journal of Development Economics 5. Bourland, B. (2006) Saudi Arabia’s 2005 Budget, 2004 Performance. 11 December. Saudi American Bank. New York, N.Y., United States 6. Bourland, B. (2007) The Saudi Economy’s Golden Era. Jadwa Investment. Riyadh, Saudi Arabia 7. Bronson, R. (2006) Thicker Than Oil: Americas Uneasy Partnership with Saudi Arabia. Oxford University Press. Oxford, United Kingdom 8. Clarke, K. (2007) A Modernization Paradox: Saudi Arabias Divided Society. Vol. 29. Harvard International Review 9. Cordesman, A. (2003) Saudi Arabia Enters the Twenty-First Century: The Political, Foreign Policy, Economic, and Energy Dimensions. Praeger. Westport, CT, United States 10. Easterby-Smith, M., Thorpe, R., Lowe, A. (2002) Management Research: An Introduction. Sage Publications. London, United Kingdom 11. Grinnell, R., Williams, M. (2008) Research Methods for BSW Students. Pair Bond Publishing 12. Hackley, C. (2003) Doing Research Projects in Marketing, Management and Consumer Research. Routledge. London, United Kingdom 13. Hesse, H. (2008) Export Diversification and Economic Growth. Working Paper No. 21. Commission on Growth and Development. Washington, D.C., United States 14. Ho, P. (2008) Arguing for Policy Space to Promote Development: Prebisch, Myrdal, and Singer. Vol. 42. Journal of Economic Issues 15. Imbs, J., Wacziarg, R. (2003) Stages of Diversification. Vol. 93, No. 1. American Economic Review 16. Klein, M., Schuh, S., Triest, R., (2003) Job Creation, Job Destruction and International Competition. W.E. Upjohn Institute for Employment Research 17. Klinger, B., Lederman, D. (2006) Diversification, Innovation and Imitation inside the Global Technological Frontier. Policy Paper 3872. World Bank, Washington, D.C., United States 18. Lederman, D., Maloney, W. (2007) Trade Structure and Growth. In Lederman, D., Maloney, W. Natural Resources: Neither Curse nor Destiny. Stanford University Press. Stanford, CA, United States 19. Looney, R. (2005) Development Strategies for Saudi Arabia: Escaping the Renter State Syndrome. Vol. 3, No. 3. Strategic Insights 20. Myburgh, C., Poggenpoet, M. (2005) Obstacles in Qualitative Research: Possible Solutions. Vol. 126. Education 21. Newman, I., Benz, C. (1998) Qualitative-Quantitative Research Method: Exploring the Interactive Continuum. Carbondale, IL, United States, Illinois University Press. 22. Patzer, G. (1995) Using Secondary Research in Marketing Research: United States and Worldwide. Quorum Books, Westport, CT, United States 23. Powell, T. (1991) Despite Myths, Secondary Research is a Value Tool. 21 September 1991. Marketing News 24. Prachowny, M. (1994) The Goals of Macroeconomic Policy. Routledge. London, United Kingdom. 25. Remenyi, D., Money, A., Twite, A. (1998) A Guide to Measuring and Managing IT Benefits. Blackwell Publishing. Oxford, United Kingdom 26. Saudi Arabia Ministry of Commerce and Industry (2008) The Law of Trademarks. Saudi Arabia Ministry of Commerce and Industry 27. Saudi British Bank (2006) Saudi Arabia: Economics. Saudi British Bank 28. Saudi Fund for Development (2007) Saudi Export Program. Saudi Fund for Development 29. Shaikh, H. (2008) Saudi private sector sees more growth now than during previous oil booms. 13 January. Available from http://www.khaleejtimes.com/DisplayArticleNew.asp?xfile=data/business/2008/January/business_January289.xml§ion=business&col= As mentioned, the preceding represent initial secondary sources that will be expanded upon with some of the preceding retained or deleted depending on its applicability to the final study. Time Frame: To be completed in months Tasks Sep Oct Nov Dec Jan12 Feb12 Mar12 April12 May12 Proposal writing -- Literature review ---------- Instrument collection -------- Data collection ------------ Data analysis ------------- Reporting 1 ---------- Formal report --------- Presentation ------- Outcome It is expected that if the government sets out a thorough framework to support SM growth and integration in Saudi Arabia’s economy, it will result in many tangible returns for the country. The number of employment among males and females will increase and the return on investments will enrich Saudi’s economy. We expect to identify the gap between both the government’s framework along with private sector initiate and the SMEs unmet challenges. References Aleqi.com (2010) Ýí ÍÝá ÊßÑíã ÇáÈäæß ÇáãÔÇÑßÉ Ýí ÈÑäÇãÌ ßÝÇáÉ áÊãæíá ÇáãäÔÂÊ الصغيرة Retrieved on 1 October 2011 from http://www.aleqt.com/2011/03/27/article_519510.html Al- Hegelam, A., Palmer, M. 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