Business Expansion Policies in Saudi Arabia - Research Proposal Example

Research Proposal: A Review of Mergers and Acquisitions in the Saudi Arabian Business Industry –Thorough Study of its various Impacts on Organizational Growth, Productivity and Competitive Advantage

Research Abstract

This is a research proposal which aims to study the overall business scenario in Saudi Arabia, especially the market responses to foreign business entities. This research work attempts to provide an insight into the business activities and practices followed by Saudi Arabian business industry and how far it impacts the capital market movements in the country. This proposed research work strives to find out the recent trends in business expansion in Saudi Arabia. This research will identify the various legal, political and socio-cultural barriers faced by business units from other nations in entering the Saudi Market. Several questions that come to the minds of academicians, students, businessmen and business enterprises will be answered by this research report. This research work will provide answer to questions regarding the present state of Mergers and Acquisitions in Saudi Arabia and how it affects the business entities of the country, what are the constraints to this sort of business expansion in this nation, etc. This research work has immense significance to the students, academicians, future researchers, economists and business enterprises. It promises to help in gaining knowledge about business expansion policies in Saudi Arabia. This will perhaps help the business units to formulate decisions regarding business expansion in this country. Furthermore, it will provide assistance to the economists by guiding them about the market economy of Saudi Arabia. Lastly, the academicians and students will be benefitted to a great extent, since this research report will provide vast and authentic knowledge about the Saudi market and its business trends and will give an idea of the overall business strategies that are followed by business entities across the world.

• Table of Contents

2

Table of Contents4

1.0 Introduction5

2.0 Research Aims and Research Objectives5

3.0 Research Questions6

4.0 Hypothesis7

5.0 Literature Review7

6.0 Research Techniques9

7.0 Methodology10

8.0 Timeline13

9.0 Conclusion14

10.0 Reference List16

• 1.0 Introduction

Mergers and Acquisitions (M&A) have become two very common phenomena in the business world during the past few decades and Saudi Arabia is not an exception to this. The common forms of business combinations in Saudi Arabia are private acquisition of underlying assets and shares of the target company and acquisition of Public companies. The two prominent legal forms of corporate entity in the country are Joint-Stock Companies and Limited Liability Companies (Alsabhan & Alajaji Law Firm, 2016). There are no tax regulations in cross-border M&A in Saudi Arabia. However, Saudi Companies Regulations and Saudi Capital Market Authority have formulated rules and imposed guidelines for M&A by Saudi-Listed Companies (KPMG International, 2014). The main driving forces for M&A in Saudi Arabia are favorable rates of interest and inflation. Investment Banks have experienced a significant growth in the MENA markets in 2012, which implies good scopes for M&A in the banking sector of Saudi Arabia. It has also established a Bond Market for trading debt-securities (Financier Worldwide, 2013).

This paper is a Research Proposal for a vivid analysis of M&A by Saudi Companies and its impacts on the growth, productivity and competitive advantage of Saudi companies. The proposed time span for this research work is four years.

• 2.0 Research Aims and Research Objectives

This research proposal aims to study and analyze the modes of M&A in the Saudi Arabian business industry and their possible effects on growth, productivity and competitive advantage. It will facilitate research works on the tax laws in force and legal and regulatory framework in practice in the country. However, there is no tax in Saudi Arabia, it’s only Zakah. It is a compulsory contribution made by Saudi citizens once in a year out of their annual savings at the rate of 2.5% (GSalam, 2016). It also aims to identify the problems faced in business combination with a Saudi company.

Its main objectives are:

• To understand the behavior of business firms in Saudi Arabia when it comes to business expansion through M&A and to analyze its trends and impacts on the growth, productivity and prosperity of business organizations and the market economy as a whole.
• To investigate into the legal and regulatory barriers existing in the country which are applicable to foreign business units.
• To assist foreign companies in penetrating the Saudi market by providing them with ready-made research report and suggest possible ways of business combinations with Saudi firms.
• To assist academicians, students and educational institutes which might require data for conducting industry-based seminars on global M&A and to keep them updated about the latest trends in the business world.
• To bridge the gap between previous findings and present findings that will come up after the completion of this proposed research and suggest scope for further research.
• 3.0 Research Questions

This research will answer the following questions:

• What is the present state of M&A in Saudi Arabia?
• What are the effects of M&A on the overall growth, productivity and competitive advantage of Saudi companies?
• What are the possible ways of materializing M&A plans in Saudi Arabia?
• What are the barriers to M&A in Saudi Arabia?

The above questions are the prime areas of concern to this research proposal. The research work which will be concluded in the coming four years will have academic and practical importance. This research will throw light on the present M&A strategies followed in Saudi Arabia and the extent to which these strategies help organizations to increase productivity and grow on the global front. This research will cater to academic needs of the students of finance by providing them better knowledge about the business environment. Business entities may also benefit from this research since it will provide assistance in materializing business combination plans in Saudi Arabia, thus saving the Research and Development costs.

• 4.0 Hypothesis

Null Hypothesis: M&A in Saudi Arabia do not have any influence on organizational growth, productivity and competitive advantage.

Alternative Hypothesis: M&A in Saudi Arabia have influence on organizational growth, productivity and competitive advantage.

• 5.0 Literature Review

According to US – Saudi Arabian Business Council, 2015, industry experts have estimated that, Saudi Arabia will hopefully rank 9th in terms of growth-level for M&A and Initial Public Offering activities within 2020. Kumar opines, 60% of the total oil production needed by the world by 2030 is yet to be developed or produced. He also says, Saudi Arabia has one of the largest oil deposit reserves (Kumar, 2012). In this context, merging with public sector enterprises in Saudi Arabia which deals with oil reserves would be a good idea for the nations which have comparatively lower reserves of oil and petroleum. This is again subject to the trade laws applicable in Saudi Arabia related to cross-border M&A. The Oxford Business Group asserts that, Saudi Arabia stands 19th in the world in terms of investment flows and has 16% of the world’s oil reserves and has developed strong credit ratings and FDI support in the Gulf. Moreover, it has abundance of mineral resources apart from oil reserves and energy resources (Oxford Business Group, 2014). Saudi Arabia offers a large potential market for the smaller GCC states, which indicates that the business environment in UAE can be considered much inviting (Rutledge, 2009). These are the key motivating factors in materializing a Merger plan in Saudi Arabia.

However, it has not been pointed out that, Saudi Arabia being the place of Prophet Mohammad strongly holds Islamic views. This might create religious and cultural obstacles for the business units merging with or acquiring a Saudi firm. Foreign investments are often challenged in Saudi Arabia. Moreover, the national language of the country is Arabic. Therefore, in order to grab the customers in this nation, foreign business entities will face language problem since most of the global business deals are finalized in English which is not a widely spoken language in the Arab countries. This will create problems in reaching out to Saudi customers because they might not understand the various instructions that come up on the package of a product. The foreign investors were not allowed to purchase shares in the Saudi Arabian stock market until 2015 (Folsom, 2016). Thus, there are several legal obstacles that might come in the way of M&A in Saudi Arabia.

A portion of this research work is to be conducted based on the existing ideas and findings on the trends in M&A activities in Saudi Arabia. The existing theories and concepts will be greatly involved in the progress of the proposed research work, since these will be referred to while analyzing the market scenario of Saudi Arabia and preparing the final report. These findings will be of great value in understanding the economic aspects of the country. However, the research will also involve analysis of several relevant cases and is expected to provide insights on barriers to entry in Saudi market, which was hardly addressed to in the previous findings. This research has the potential to make contribution to the concept of the new form of business expansion and internationalization i.e. M&A. The research work is expected to come up with new ideas and thoughts pertaining to the business world and M&A activities relating the same to the situation in Saudi Arabia and will address several unaddressed facts.

The previous key findings by eminent scholars and authentic sources reveal that Saudi Arabia is a good place to invest in since it has the world’s largest oil reserves and mineral resources. Enormous scopes for M&A with Saudi companies have been discussed intricately. However, there are also certain legal, political, social, religious and cultural problems which might derail the due progress of business collaboration with the companies of Saudi Arabia. These are language problems, cultural transitions, political interferences, religious conflicts with the non-Islamic states and other legal and regulatory barriers applicable to foreign investors. These are serious issues which largely impact the business expansion plans in a different nation. These aspects have hardly been discussed in the previous findings. Further, the previous findings lack a critical evaluation of the scopes for M&A in the Arab countries and are devoid of proper analysis of the problems in M&A implementation in Saudi Arabia. On the other hand, this research proposal will address to these problems and suggest ways to overcome these barriers.

Therefore, this research proposal paves a way for further research related to the trends in M&A in Saudi Arabia and will definitely fill the gap left in the previous findings. This research proposal comes up with the idea of not only investigating the positive ends of the event but also addressing the probable problems in actual implementation of merger plans in this country.

• 6.0 Research Techniques

The research techniques that need to be followed in conducting this research are crucial to the materialization of this research proposal. These techniques need to be chosen very carefully, since these will help in collecting data, based on which the research is to be conducted. If these techniques are not at par with the research motives, then there will be deviation in the data collected.

The Research Techniques to be applied are:

• The basic relevant data are to be collected from the internet and from economic journals or by consulting with academicians such as Professors. These data pertain to the economic structure, investment flow and investment avenues in Saudi Arabia.
• Information regarding Foreign Direct Investments (FDI) policies and regulations on business collaboration in the country will be studied from internet as well as business journals and business magazines.
• Interviews are to be conducted in order to extract data about the past business deals made by the country with foreign nations and its present business policies. These interviews are to be conducted with business delegates of big business houses of the country.
• The Government officials of Saudi Arabia can also be interviewed for getting information about relevant laws in force applicable to foreign investors.
• Case Studies will prove to be beneficial for collecting data about the research topic. These case studies will provide an insight into the actual trends in M&A and business expansion policies in the country.
• Appropriate business models will be developed to track the financial state of the country and its financial policies.
• 7.0 Methodology

Methodology depicts the ways in which the above mentioned research techniques can be executed so as to collect the required data in an effective manner and produce the research report. The methodology has been designed in such a way that it is relative to the motives of the research and relevant to the research techniques.

The main motive of this research work is to analyze the investor’s response in Saudi Arabia to the dynamism in the Saudi Arabian Capital Market and the effects of the financial policies on investors’ decision-making process. The financial decisions of individuals are greatly affected by their cultural background. Similarly, investment decisions of the Saudi Investors are highly influenced by religious biasness and cultural factors prevalent in their country.

The hypothesis will be proved with the help of previous findings and analysis, concepts and theories, emphasizing on the impact of behavioral finance on Saudi Capital Market. Behavioral Finance is the study of the impacts of social, psychological, cultural and behavioral aspects on the decision-making process of an individual (Bahl and Singh, 2015). The research will be focused on the analysis of investment opportunities in Saudi Arabia and its dependence on Islamic Finance. The main responsibility of the researcher would be to answer the research questions for which a research model is to be developed, consisting of various steps viz. research philosophy, research approach and research strategies, data collection, sampling and analysis and framing a timeline of a proposed timetable for conducting the research work efficiently. The research philosophy can be of three kinds, viz. Positivism, Realism and Constructionism. Positivism means the research techniques that can be relied upon in conducting the research. Realism refers to the fact that, reality can differ from the researcher’s assumptions or perceptions and the research report can have variations from the actual scenario, since the research is to be conducted on a sample of data collected as gathering all the practical information is not feasible. The interviews and case studies that are to be conducted are not exhaustive and are subject to further research. Constructionism refers to the variation between reality and individual human perception. In this research, the positivism aspect is to be implemented since, it is better to rely on the already researched facts and evidences rather than depending on the researcher’s perceptions.

Two approaches that can be made to this research work are Deductive and Inductive approach. Deductive Approach refers to the approach where past findings and existing research tasks are referred to for conducting a secondary research. Inductive Approach refers to drawing an inference to a research work and framing a research report by conducting primary research where, the researcher is required to construct a theory by observing the various relevant cases and analyzing the unaddressed facts.

In this research, both the approaches are to be undertaken. Deductive approach will include analysis and examination of existing concepts and findings whereas, Inductive approach will encompass the series of case-studies and opinion-shopping that needs to be conducted, since these will be effective for this research. In order to carry out the inductive approach, several case-studies are to be conducted where a comparison between cases is to be done, since this will help in understanding the capital market movements and changes in the financial market. Data will be collected from investors in Saudi market. Interviews and market survey should be done by providing questionnaires to the investors, from which the view-points of different investors can be analyzed and trends in M&A in Saudi Arabia can be studied. These questionnaires will include at least 40 structured and unstructured questions related to financial data, behavioral finance, investment-habits like amount invested, duration of investment and risks associated with investments in Saudi Arabia. These findings will guide the business entities regarding entering into M&A with a Saudi firm and provide assistance to the academicians as well.

Data Analysis and Testing of Hypothesis will be done through Predictive Data Test Model with the help of SPSS Software for percentage analysis, factor analysis and multiple-correspondence analysis. The analyst report is to be prepared and presented in graphs and charts so as to help the researcher frame a precise and relevant research report.

• 8.0 Timeline

Table 1: Proposed Timetable of Research Activities

Semester (II)2016

Semester (I)2017

Semester (II)2017

Semester (I)2018

Semester (II)2018

Semester (I)2019

Semester (II)2019

Semester (I)2020

Result

First Year: Confirmation of Candidature

Literature Review

Data collection and Sampling

Data Analysis

Empirical Analysis

Mid-Candidature

Report Drafting

Drafting the Final Report

Seminar Completion and Report Submission

(Source: Author’s creation)

• 9.0 Conclusion

M&A have become a new way of international expansion by the business units in Saudi Arabia. Its economic structure provides assurance for exciting levels of synergy in M&A. Its abundant oil reserves are greatly inviting collaboration in business with entities from other countries. Business industries merging with Saudi companies will have a value-addition in their business growth and overall productivity, since it is the best place to invest in, if oil refineries and oil reserves are to be acquired. However, there are several barriers to these events such as legal, cultural, etc., some of which have already been discussed in this proposal.

The above research proposal is to be completed in the coming four years and the final research report will be delivered within the specified time limit. The proposal depicts that there are lots of competitive advantages that can be gained through M&A in the Saudi Arabian business industry. The other core problem areas of M&A in the Saudi business industry will be discussed in the final research report. The literature review provided in this proposal is a brief review of the previous findings and this is subject to further elaboration in the main research report. This research report will definitely be of great help to the academicians as well as to several business entities. However, the contribution of this research proposal is greatly appreciated since it provides a structure for the proceedings of the research works and gives an overview of the research task.

• 10.0 Reference List

Alsabhan & Alajaji Law Firm, 2016. Mergers and Acquisitions Attorneys. [online] Available at: <http://www.alsabhanalajaji.com/our-practices/mergers-acquisitions> [Accessed 07 July 2016]

Bahl, S. and Singh, S., 2015. Behavioural Finance, pp. 3. New Delhi: Vikas Publishing House Pvt. Ltd.

Financier Worldwide, 2013. Annual Review: Mergers and Acquisitions – Saudi Arabia. [online] Available at: <http://www.squirepattonboggs.com/~/media/files/insights/publications/2013/04/annual-review--mergers--acquisitions-saudi-arabia/files/annualreviewmergersacquisitionssaudiarabia/fileattachment/annualreviewmergersacquisitionssaudiarabia.pdf> [Accessed 09 July 2016]

Folsom, R. H., 2016. Foreign Investment in a Nutshell, pp. 4. USA: West Academic Publishing

GSalam, 2016. A Look into Zakah: From a Different Perspective. [online] Available at: <http://www.gsalam.net/a-look-into-zakat-from-a-different-perspective/> [Accessed 09 July 2016]

KPMG International, 2014. Taxation of Cross-Border Mergers and Acquisitions: Saudi Arabia. [PDF] Available at: <https://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/cross-border-mergers-acquisitions/Documents/2014/saudi-arabia-2014.pdf> [Accessed 07 July 2016]

Kumar, B. R., 2012. Mega Mergers and Acquisitions: Case Studies from Key Industries, pp. 167. London: Palgrave MacMillan

Oxford Business Group, 2014. The Report: Saudi Arabia 2014, pp. 9 – 11. London: Oxford

Rutledge, E. J., 2009. Monetary Union in the Gulf: Prospects for a Single Currency in the Arabian Peninsula, pp. 99. London: Routledge

US – Saudi Arabian Business Council, 2015. Saudi Arabia Ranks 9th Globally in Projected M&A and IPO Activity. [online] Available at: <https://www.us-sabc.org/custom/news/details.cfm?id=1698> [Accessed 07 July 2016]