Saudi Solar
Solar Solutions does not presently have much international experience. In order to succeed in a foreign market like Saudi Arabia, it will need to significantly upgrade its international management capabilities. The company will need to not only ensure that its principals have international business skills, but that the company has a plan to help bring its product overseas. Initially, the overseas expansion is likely to rely on exporting, necessitating only a foreign partner, but eventually the company will want to have its own representation in the Gulf region, given how lucrative that market is expected to be.
There are many techniques for building the international capabilities within the organization. Recruiting is the easiest shortcut. Doing business in Saudi Arabia is challenging — this is not an overseas assignment for the first-timer, unless that first-timer is an Arab person well familiar with the business culture there. However, in addition to recruiting the senior management team will need to build its own international business skills before venturing into these foreign markets. Figueiredo and Mauri (2012) notes that cross-cultural exchanges are a good way to build such experience. The principals can, for example, gain experience while still in school by engaging in visits to the region, or even by hosting Arab students. The company after it is formed can engage Arab interns in order to help build the cultural capabilities of the senior management team prior to attempting foreign market entry.
It will also be necessary to form an alliance with a company that has the required skills to work in the Saudi environment. There is no requirement that a foreign firm must have a Saudi partner in order to operate in the country, but there are specific financial incentives that are provided by the Saudi government for investment that are only available to firms where there is at least 25% Saudi ownership (Saudi British Bank, no date). Moreover, having a local partner is critical for success in countries where the business practices are vastly different from those in America and where business culture emphasizes relationships (Hofstede, 2013).
The path to foreign market entry is expected to be gradual. The home market of Solar Solutions is Arizona, which is a great market for solar technology. The surrounding states — Nevada, New Mexico, California, for example — are all great solar markets as well. Thus, there is no immediate need to expand internationally. International growth, therefore, will come more organically, when growth in these vital domestic markets begins to slow. At first, exporting is the likely way to enter the Saudi market. This method is relatively low risk, and will provide us with important feedback about the likelihood of success in the different markets of the Arabian Peninsula and Persian Gulf region.
Once management of Solar Solutions has been in the Saudi market for a year or two, it will have a better sense not only of the market’s potential but also of how to operate in the market. It is not uncommon for a company to enter a market with the help of a foreign partner only to fly solo once market expertise has been acquired — Starbucks has done this with China, for example (Anderlini, 2013). The company will therefore transition from an exporting model to a joint venture model, and eventually will seek out the position of having a wholly-owned subsidiary in the Kingdom (QuickMBA, 2013). It is felt that this trajectory will allow the company to maximize economic opportunity in Saudi Arabia while leaving it the option of taking control of its operations at a later date, especially once its international competence has been well-established.
It is believed that once the company sets up its foreign subsidiary in Saudi Arabia that it will pursue a polycentric staffing strategy. A polycentric staffing strategy is one where the company hires management from the foreign country. By contrast, an ethnocentric staffing strategy is one where the company hires primarily from the home country (Johnston, 2013). The type of strategy that is optimal is dependent on the type of business. The polycentric strategy is predicated on the assumption that local talent knows how to do business in the local market. When the company is primarily in a sales function, this is especially true, because locals know how to sell to locals (Padala, 2010). An American, knowing little of Saudi culture, traditions, business norms or even of Arabic, would have no chance of succeeding in the Saudi market. Local Saudis are going to be the strongest sales representatives. Given that the company’s operations in Saudi Arabia are expected to be primarily sales even when there is a wholly-owned subsidiary there, it is critical that local sales talent is utilized.
In order to succeed with a polycentric strategy, two things must happen from the staffing end. First, when the company goes overseas with a joint venture, the Saudi partner needs to supply almost all of the managerial talent and must supply all of the sales talent. This is necessary because Solar Solutions will at that point have little knowledge of the local market conditions. Over time, however, the local Saudi company may be bought out. When this occurs, Solar Solutions will need to have a plan for bringing in top executive talent into this organization. To do this will require fostering strong relationships in the country during the previous years of doing business there. It is important that there is a managerial talent pipeline, whether it arrives from the joint venture partner or whether Solar Solutions has used some of its time in the country to recruit this talent. Most likely, though, the recruitment of this top executive talent is likely to be in-house, as the creation of the wholly-owned subsidiary will derive mainly from the purchase of the joint venture entity.
There is likely to be an executive from the U.S. working on the Saudi project at all times. This is going to present an interesting challenge. On one hand, such an opportunity is tremendous because it will be one of the best opportunities in the country. However, working in Saudi Arabia is substantially different than working in the U.S. While other Arab countries have some access to Western life, Westerners in Saudi Arabia must live in enclaves, and only there can they have some semblance of normal life. Even in the wealthiest cities, life for an expat American can be a challenge (Einhorn, 2013). The challenge of working there should be coupled with a significant executive reward for someone who goes there to build the business and make that sort of contribution to the betterment of the company. Eventually, it will have to be considered that developing Saudi talent is going to yield positive results, so a program should be in place to take good Saudi candidates to the U.S. In order to help them build their careers within the company, eventually grooming them for a top position in their homeland.
Building the skills of workers is another element of challenge. Working at the sales level, it is important to understand that many key positions in the Saudi economy are actually held by expatriate workers from the Indian subcontinent, who account for 20% of the total population (, 2013). These workers may therefore relate better to subcontinental talent than they would to Saudi talent; the reverse is true for Saudi customers. There is in Saudi Arabia, even among college graduates (Al-Mulhim, 2013). They only thing missing, apparently, is the work ethic. That is what must be fostered, but at least the government will be supportive of any effort to create good quality jobs for Saudis.
The local leaders of the firm will likely adopt an autocratic leadership style. There are two reasons for this. The first is that Saudi culture is a high power distance culture (Hofstede, 2013). Because of this, Saudis expect their bosses to be bosses, and respect hierarchy. In addition, the sales team members work with a high degree of independence so when they do interact with their managers, the managers need to be authoritative in nature. There is no need for collaboration on sales, although the managers should be available to help work out problems that the members of the sales force might have.
The organizational structure of the international organization will begin with an exporting agreement, but when we officially move over to the Saudi market it will be via joint venture. Even at this stage, it is important that Solar Solutions holds controlling interest in the subsidiary. This will allow decisions to be made in a centralized manner. That said, decision-making for the Saudi market should be centralized in Saudi Arabia, rather than in the U.S. The American leadership team will want to contribute a little bit, but must allow the Saudi operation to have some degree of independence in order to maximize the skills and experience of the Saudi management. The structure will otherwise be flat. It is important that the sales organization focus on a structure that has only three or four levels at most, emphasizing that the leaders and the sales people are the most important, but after that there should be no needless bureaucracy.
As noted, the international operations will be controlled locally. The local partner will have significant input. Even when Solar Solutions has controlling interest, it is likely that a Saudi from the joint venture partner will run the subsidiary. The U.S. office is likely only to provide oversight. It is expected, however, that the U.S. will lend control techniques to the Saudi operation. The United States has robust accounting, auditing and control management techniques that can add value to the organization. In particular, managerial accounting techniques such as budgets and variance analysis will be utilized as control mechanisms for the subsidiary in Saudi Arabia.
The company will need to develop a cross-national ethics and social responsibility code. These are values that will transcend borders and be an integral part of the culture of Solar Solutions. Thus, they need to apply to all of the company’s operations. There is the risk that an ethics or values statement, or a social responsibility guideline, might seem strange to a Saudi person, but when working for an American company, it should be expected that at least some American values will be used in the running of the company. The company’s policies should emphasize things that are especially related to sales, such as honesty, fair dealing, not having any biases about race or gender, and other such policies. In general, Arabs are ethical people, but the fine print of the company ethics policy and social responsibility program might require some additional training. It is important to remember that reputation is just as important there as it is in the U.S., so it will not be a tough sell to institute the U.S. ethics program in Saudi Arabia.
Culture is important to an international organization. One of the key elements is that the corporate culture must be strong enough that, when necessary, it supersedes the national cultures at work. In this case, the corporate culture is going to predominantly reflect American values, and this needs to be crafted and fostered in such a way that it remains valuable to international business and compatible with cultures like that of Saudi Arabia that might be very different. The company needs to have a clear sense of what it wants from its culture and how it will ensure that cultural values are upheld by the company’s managers and employees. It is also worth noting that there are unique cultural elements to joint ventures, being that two different companies are each contributing their own cultures to the joint venture. From that perspective, the two companies have to consider when they begin the venture what that culture will look like and how it will borrow from each partner. As well, individual cultures matter when there are significant cultural differences among employees and managers. Each manager needs to be sensitive to what these differences are, how they might manifest in the workplace and how such differences can best be resolved.
IT plays an important role in management and control especially. In an organization like this, it networks provide the ability for all in the organization to work together on issues and to communicate with each other. Further, the it network will help mangers to monitor their workers, and the performance of the organization as a whole. Thus, for this sales organization, the it function is largely one that seeks to provide information and manage its flow throughout the organization. To a lesser extent, it will be involved in the research and development process, as the company will seek to compete by developing new technologies.
The role that it plays with respect to culture can also be important. It systems, because they foster communication, can be used to disseminate cultural norms, legend and icons, and also can exposure employees in foreign locations to American training and to the corporate culture that is expected of the organization.
Works Cited:
Al-Mulhim, a. (2013). Saudi youth, the issue of unemployment and work ethic. Arab News. Retrieved April 15, 2013 from http://www.arabnews.com/columns/saudi-youth-issue-unemployment-and-work-ethic
Anderlini, J. (2013). Starbucks buys out northern Chinese operator. South China Morning Post. Retrieved April 15, 2013 from http://www.scmp.com/node/568949
CIA World Factbook. (2013). Saudi Arabia. Central Intelligence Agency. Retrieved April 15, 2013 from https://www.cia.gov/library/publications/the-world-factbook/geos/sa.html
Einhorn, B. (2013). Worst places to work. Business Week. Retrieved April 15, 2013 from http://excelle.monster.com/benefits/articles/2982-the-worlds-20-worst-places-to-work?page=4
Figueiredo, J. & Mauri, a. (2012). Developing international managerial skills through cross-cultural assignment: Experiential learning by matching U.S.-based and international students. Journal of Management Education.
Hofstede, G. (2013). Saudi Arabia. The Hofstede Centre. Retrieved April 15, 2013 from http://geert-hofstede..html
Johnston, K. (2013). When is it appropriate to use ethnocentric staffing? Houston Chronicle. Retrieved April 15, 2013 from http://smallbusiness.chron..html
Padala, S. (2010). Approaches to international human resource management. Articles Base. Retrieved April 15, 2013 from http://www.articlesbase..html
QuickMBA. (2013). Foreign market entry modes. QuickMBA.com. Retrieved April 15, 2013 from http://www.quickmba.com/strategy/global/marketentry/
Saudi British Bank. (no date). How to obtain an industrial license for joint venture operations. Saudi British Bank. Retrieved April 15, 2013 from http://www.qcc.org.sa/qcc_files/doc_man/a_guide_to_business_procedures_in_saudi_arabia.pdf
