SpenglerFox Expands Services on Saudi Market
Executive search firm looks to help local and international clients navigate new regulatory changes on acquiring talent and developing human capital.
The following paper is a brief text that SpenglerFox Executive Search has put together to provide background on doing business in Saudi Arabia and how it, as an executive search consultancy, can help clients succeed on the Saudi market. The paper provides readers a quick overview of i) the current business environment in the country; ii) key profiles for highly-sought-after GMs and top executive talent in the country; and iii) how SpenglerFox services can help you launch, grow and sustain your business.
The top five facts to take away from this paper include:
- The country holds opportunities for GMs to lead projects for investment in public works.
- There is a need to bridge talent gaps in light of new efforts (as of April 2015) to Saudi-ize corporate management structures.
- Rapid population growth among younger generations will put a strain on demand for energy resources and thus revenues available to support education and public works projects.
- Planned infrastructure projects present an opportunity to diversify workforces and attract foreign investment and know-how.
- The country relies very heavily on revenues from oil sales: continued stagnation of global oil prices could limit funds available for growth-focused infrastructure projects
Insights on the Saudi Market
Saudi Arabia is the largest economy among the Gulf States. With a total GDP of 778 billion USD in 2014, the Saudis accounted for 40% of the cumulative GDP of all the Gulf countries. The country’s GDP per capita figures at just over 24,000 USD. The Saudi economy grew at a rate of 5.1% in 2014, while inflation levels remained just below 4%. GDP growth is expected to slow to 4.5% in 2015, with an overall figure of 776 billion USD.
Saudi Arabia has the second-largest volume of world oil reserves after Venezuela and is the second-largest oil producer after Russia. The country’s economy is highly dependent on revenues from oil exports, with almost 88% of all export revenues going to the State coffers. In coming years though, dependence on oil money is expected to become a problem for the country: the country’s population is growing rapidly and domestic energy consumption will eat into supplies normally available for export. Lower exports will generate less oil revenue and thus limit the scope of funds available future government-financed public works projects.
In recent years the government has pursued an expansionist policy on investment into public works projects. Public expenditure outlays have grown by 12.7% since 2006. Overall larger public works projects do most to support the diversification of the Saudi economy. Recent activities have sought to generate revenues from privatisation of State-owned shares in the mining and the petrochemical sectors. The Saudi banking sector is also quite strong, with the majority of banks owned by local shareholders and a smaller number with stakes owned by foreign bank shareholders. There are only 8 foreign banks (with one branch each) in the country.
The country’s primary trading partners include the US and China (together representing 27% of all imports), followed by South Korea and Germany. The market has lots of potential for importers of consumer goods: the country has significant urban populations (66% of Saudis live in or around five major centres: Riyadh – 5.3 million; Jeddah – 3.4 million; Mecca – 1.6 million; Dammam – 903,000 and Khobar – 578,000) with an appetite for consumption of consumer goods and trendy articles from the West. The average Saudi spent 64% of his/her salary on credit-based consumption in 2013.
The current government faces a number of challenges; with youth unemployment being a key, problematic issue for the Saudi economy. Over 58% of the Saudi population is aged below 25 and the country produces more than 200,000 university graduates each year. However, almost 87% of private sector jobs are held by expatriates, while local unemployment rates (for Saudi job seekers) hover just under 12%.
Saudi Arabia has started to pursue interesting policies in economic diversity; specifically a programme focused on “economic cities.” This is an idea championed by the late King Abdullah that looks to develop new industries and wean the country, to a degree, from its dependency on oil. The project is also meant to provide new employment opportunities for the 13 million Saudis aged less than 25 years old. The new “cities” projects also look to promote reform and reduce existing bureaucracy.
Key changes include a) foreign ownership of companies, b) shorter turnaround time on visa issuance and customs procedures, c) greater rights for women and d) greater cultural diversity. The logic of the city set-up is that these new economic/trade areas will serve as islands for controlled change and reform but not impact the whole of the country. Each city will also have a specific business focus; for example, a site in Jazan (near the Yemen border) will concentrate on raw materials and manufacturing, while another one outside Medina will host “knowledge-based” companies in the fields of biotechnologies and higher education. Should these city projects take off and succeed, the OECD predicts they could lead to Saudi GDP growth of 50% by 2020.
However, King Salman’s new government appears to be focused on stability. Since his ascension to the throne in January 2015, the new king has left key ministers (for finance, oil and foreign affairs) in place, despite a number of cabinet shuffles and new appointments to head regional governorships. Current concerns among outside observers centre on how far and how fast King Salman pushes reforms and how the Saudi government will work to push for calm in a region of unstable neighbours.
Who is a GM on the Saudi market?
This question will become more difficult to answer in coming months as changes to labour market regulation enter into force. In recent years the executive talent pool consisted primarily of long-term expats (i.e. persons having lived in the country for 20 years or more and very often Lebanese nationals) along with expats who arrived to complete shorter work terms of 3-4 years.
This labour market status quo has led to a number of problems/concerns relating to performance quality, i.e. a constant battle with practical impacts: experience yet stale ideas vs. younger generations with a mind toward innovation yet unwilling to commit for longer stays in the country. This creates a major talent gap, because companies on the market lack access to a mid-level pool of executive talent and senior managers, who embody both experience and innovation or enthusiasm toward their work assignments.
At the same time, companies seeking the right GM for their business also now have to work within stricter regulatory frameworks on preferred employment of Saudis over foreign nationals. We call this the Saudization of upper-level or senior management positions, which now affects 58 industry sectors in the country.
This process carries with it a number of issues and potential pitfalls that companies must look out for. These range from mismanaging the “sell” to attract and lock in top executive talent (i.e. persuading them to leave their current job) to unexpected, perhaps excessive, demands from candidates during negotiations on salary packages: in various cases we have monitored over the years, salary bumps have involved increases anywhere between 15-50%. Additionally, we also see local companies suffering from their wanting too much. This means that companies sometimes miss out on opportunities to secure potentially strong executive talent by unrealistically benchmarking against standards in more developed markets.
Generally, Saudization efforts are a government response to high levels of youth or post-university unemployment. But said efforts put companies in a dilemma: does young Saudi talent have the skills sets and experience needed to succeed in managerial positions. If we look at a typical, talented, young Saudi, they usually have studied abroad; have 3-5 years of work experience along with fluency in English and possibly another language like French. They tend to have an appetite for progress and improvement; both in the workplace and in society.
Bearing this situation in mind, we recommend that our clients and partners take a pragmatic approach to the executive recruitment process. Our first piece of advice is that companies sell themselves. Even if sought-after candidates do not immediately see a fit for themselves with your company during the first meeting, persuasive communications about your business and brand will likely stick with them. It’s also very likely that they may come knocking on your door when the labour market tightens.
Then prepare for the worst to settle for the best. Ultimately, you may find that you are paying a very high salary for someone with very low qualifications. This situation is, of course, not optimal, but when working on a market with limited executive talent resources, the recruitment process is more about managing expectations than always securing the best candidate. That said, by using this approach based on “low expectation” extremes, it is more likely you will find a candidate the fits nicely somewhere in the middle between the skills sets you were looking for and the price you wanted to pay. Finally, we recommend that you treat the executive search process strategically, i.e. pretend it’s a game of chess. This means that you can take a longer view of the search process and mix and match where to make Saudi placements vs. using expats. A classic example we dealt with involved a search for a Saudi CFO. Ultimately, we found that the best, most economical solution was to hire an expat CFO in tandem with a Saudi Risk Manager: the client still hit its target for employment of Saudi nationals.
Over time it will become important to assess whether government efforts to enforce employment quotas will achieve their desired effect. Both foreign companies/investors and expatriate talent benefit from the option of transferability to other regional markets. This means that should employment quotas make it harder to find and employ the right talent to run successful businesses on the Saudi market, foreign companies or multinationals can relocate to less regulated regional markets (i.e. Oman, Qatar and the United Arab Emirates (UAE)).
One small glimmer of hope, however, that runs contrary to current trends to regulate labour markets involves small steps to boost the role of women in Saudi business. Women currently make up only 13% of the Saudi workforce. Yet a new study by the Al-Sayedah Khadijah Bint Khawilid Centre of the Jeddah Chamber of Commerce and Industry and Strategy & (formerly Booz & Company) reports that increasingly family-owned businesses in Saudi Arabia offer opportunities for women to play a greater role in business management and development. This includes learning skills in the fields of financial management and personnel management. This evolution stems from the fact that family businesses often wish to keep their operations “in the family” and involving female family members has proven of late to be a more cost affordable option for doing so. In the process though, this is providing Saudi women access to new skills and access to decision-making roles. Additionally, businesses are also involving female family members in succession planning processes. Although it may be strategically emporary, i.e. until another male family member can fill a departed patriarch’s spot, again it does help women learn about business. So it truly seems that there are small islands of labour openness in a market that is generally perceived as comparatively restrictive.
GE engages Saudi universities to support female employment
GE recently announced that it is in discussions to build partnerships with Saudi universities. Of particular interest are its negotiations with the Princess Nora Bint Abdulrahman University (PNU). GE currently employs a number of Saudi women at its GE Manufacturing Technology Centre in Dammam. It also has a business process centre (exclusively for women) that it runs in cooperation with Saudi Aramco and Tata Consulting Services (TCS). The centre employs around 400 Saudi women and also provides them work training. Employees there work on back-office activities including accounts reconciliation and payables and they support GE’s business both locally and in 37 countries around the globe.
GE vice chairman, John Rice, recently told the Arab News server that efforts to support employment of women go hand in hand with GE’s larger focus on supporting the Kingdom of Saudi Arabia in enhancing energy sector efficiency and promoting localization. GE has had a commercial presence in Saudi Arabia for nearly eight decades now.
Key areas of business that GE focuses on in the Saudi Kingdom include
- Industrial internet along with big data and analytics solutions
- Renewable energy
- Oil and gas
- Power generation
SpenglerFox services and how our opening of Saudi offices will benefit our clients
SpenglerFox has had been active in the region since 2003 with over 350 projects implemented on this market. In February this year, we decided to expand our operations to Jeddah. This expansion allows us to offer our core consultancy services to a broader market. These services include:
This is all about SpenglerFox using its vast experience, access to critical networks and industry expertise to help clients and partners find the executive talent they need. Our executive search process is people-facing and we are committed to customer satisfaction; working hard to maintain a 90% client retention rate. We thrive on business challenges and thus work to find the right executive talent matches in both developed and emerging markets. Moreover, we have a top-level team of 40 researchers that informs the complete talent search and management process. These researchers, together with our executive search principals, work from a network of 19 hub offices around the globe. This ensures that we can recruit executive talent from the broadest pool possible and with qualified assessments provided by the leaders of our global Practice Groups (Consumer and Retail, Life Sciences, Human Capital Solutions, Industrial & Manufacturing and Business Services).
Executive Search in Saudi Consumer Goods Sector:
Commercial Director, FMCG
An international company operating in the entertainment industry intended to take greater control of its business in Saudi Arabia. After more than a decade of remotely managing the business through a single distributor, they felt the model would not continue to generate sustainable growth. So they gave SpenglerFox a mandate to scout out qualified potential candidates for a newly created Commercial Director role. The search came up with 73 potential candidates based primarily in Saudi Arabia. Given that the client operates in a niche industry, less than 4 candidates proved to have direct experience in their field of business. SpenglerFox had to source candidates from companies with comparable industry segments and corporate cultures; and with similar distribution channels.
Executive Search in the Saudi Pharma Sector: Plant Manager, Multinational Pharmaceutical Concern A major multinational pharmaceutical company needed to replace a production manager. At the same time it needed to evolve the role into a Plant Manager position. The current production manager (of Western nationality) had been with the company to complete a one-year assignment: to boost professionalism at the high-tech plant and put in place higher work standards overall. The company is looking for an Arabic-speaking candidate with strong leadership skills. Its long-term goal is to groom the candidate for the local GM position.
The search strategy looked to identify and source talent from the region: we thoroughly mapped markets such as Egypt, Jordan and Saudi Arabia. Meanwhile, we also engaged with Arab nationals abroad – typically in Europe, Canada and the US. Given that it can often be difficult to attract talent to the Saudi market, we used the position’s high level and prestige, the company reputation and career development opportunities to attract the best possible candidates. After 5 weeks of intensive search we had a strong shortlist for the position. An Arab national, with more than 10 years of experience in the US pharmaceutical production environment and with a wish to return to his roots, was offered the position.
Executive Search in Saudi Industrial Sector:
Full Management Team Replacement
An industrial multinational corporation that bought an asset in Saudi Arabia’s Eastern Province needed to replace its management team completely. A key role that SpenglerFox had to find a suitable candidate for was that of HR Manager, which needed (per the client’s request) to be a Saudi national. After a tough search and review to identify the ideal candidate, we managed to find a talented female Saudi national (an extremely rare profile for the industry sector), who worked well with the company and its top management.
Interim Management Solutions
SpenglerFox focuses on finding the most talented senior executives and/or specialists to provide immediate, flexible, short-term injections of management skills, which in the long-term add value to your business. SpenglerFox operates internationally with all industry sector and functions areas. Interim Managers can be an excellent solution for businesses dealing with challenges, leading change or fulfilling a gap. Key tasks that Interim Managers can oversee include line function management, leading transition, M&A process management, start-up operations, filling an executive personnel gap and crisis management (i.e. helping turn around businesses in trouble).
Human Capital Solutions (HCS)
Our Human Capital Solutions (HCS) services draw from our passion for developing and nurturing talent. They include a comprehensive range of HR consultancy services that can be implemented individually or be used to complement our Executive Search work; these include namely counsel on leadership development, career transitioning, competitor benchmarking and brand diagnostics. Each of our Human Capital Solutions is designed specifically to address the challenges that you face in your organisation. The SpenglerFox team of consultants has wide-ranging and varied experience in multiple geographies and industry sectors. We provide analytical and advisory services in three key areas:
Leadership Assessment and Development:
This focuses on running diagnostic tests and evaluations to identify strengths and weaknesses in individuals’ leadership skills. Evaluation results are then used to set up special personal development programs to improve executives’ skills and make them better leaders in their corporate teams. In this area SpenglerFox collaborates with the best partners offering assessment solutions: Saville Consulting and A&DC.
Other services in this area include set up and running of development centres, succession planning and 360° feedback programmes.
Career Transition Services:
in this area SpenglerFox offers support to companies that need to do corporate reorganisation or restructuring or who find they are facing employee redundancies. SpenglerFox consultants work with partners to help company teams transition into new jobs, identify career opportunities in different companies or industries and to provide executive counselling support to persons managing restructuring processes.
Competitor Benchmarking / Employer
Branding Diagnostic Enhancement: this service helps companies understand how their teams and talent are performing in comparison with industry competitors. Key evaluations and diagnostics include peer benchmarking, review of benefits and compensation packages, one-to-one industry comparisons and employer branding.