1.

Introduction
Saudi Arabia has a very conservative business and cultural environment.
Discerning readiness, and a fundamental knowledge of the Saudi culture, will determined
the success or failure of the business. On the contrary it is vital to remember that a wealth
of Saudi executives and government officials are familiar with international culture and
customs. Therefore they are comfortable with the Easts approach to business, provided
respect is shown both ways. For example, body language, the attention put on
relationships, and proper attire are all fundamental components of Saudi etiquette.

2.0

Enhancing Business in Saudi Arabia

2.1
Business Opportunities
Saudi Arabia is pursuing few policies such as economic diversification, free
market enterprise, structural shift from building the infrastructure to the
production of goods and services and the following increasing dependence on the
private sector as the major economic force. Therefore, Saudi Arabia invites
foreign companies to participate in the following industries which are important
to its current and future economic growth.

Joint ventures on import and export oriented goods.

Contribution of projects in technological progress the Saudi and improvement of

production methods and minimization costs of product through the development
of established factories.

Projects that are directly related to the current economic development in the Saudi
which include, but are not limited to, the following:

a) Industries utilising locally generous raw materials from petrochemical or

petroleum products.
b) Food industries utilising locally generous agricultural products.
c) Specialised industries in maintenance and the manufacturing of spare parts and
equipment.

Almost all industrial joint ventures, the management, technical expertise, and part
of equity resources are supplied by the foreign partners, if they desired, depending
on the arrangement of the collaboration. On the Saudis part, they will provide
local skilled and unskilled labor, local supervision, and handling local business
contacts, apart from taking part in the equity resources.
The niche market in Saudi Arabia, has numerous business opportunities for:

Companies catering labor-saving equipment and services.

Training services directly delivered or as part of a product package.
Administration services either directly delivered or as part of a product
package.

Most of the areas of health, personnel, and services.

The following list of major growth areas in Saudi Arabian economy provides tips on
potential commercial opportunities in the Kingdom:

Industry: Most industrial activities in Saudi Arabia are carried out by the aggressive
Saudi private sector. Saudi Arabian industrial sector structure is composed of three
apparent sub-sectors which are oil refining, petrochemicals, and other manufacturing. The
main objectives of the Saudis industrialization are:
a) To decrease the Kingdoms reliance on the export of crude oil as the major source
of income
b) To increase Saudi Arabian private sector partnership in the economic development
of the country
c) To create new job opportunities.
d) To create an advanced industrial and technological base.

Foreign investors are welcome to join Saudi Arabias private sector to invest in industries
that utilize modern technology, and to broaden investment in import substitution and
export-oriented industries.

2.2

The Saudi Arabian Market

Although Saudi Arabia is a country full of actual and potential business and
investment opportunities, it should be recognised that the Saudi Arabian market is
highly competitive and business transactions take place on the basis of quality and
cost.
The following factors expedite foreign investments in Saudi Arabia:

Aggressive private sector, respect for private ownership and free entrepreneurial
enthusiasm.

Capital availability, , convertibility of the Saudi Riyal to hard currencies with

stability of exchange rates.

Trade marks, patents and copy rights protection.

No controls on capital movement and reinstatement of profits.
Advanced and excellent banking system availability
A liberal tax system called zakat.
2.3

Establishing Business Contact

Foreign individuals or firms intend doing business in or wanting to export their
products to Saudi Arabia are required to look for a Saudi Arabian partner, an
import agent or local representative in close adjacency to the Saudi Arabian
market. This is the key to business success in Saudi Arabia and when a company
intends to do business there, potential investors are recommended to use the
following channels of business contacts:
3

The Saudi Chambers of Commerce and Industry located in the major urban
centers of the Kingdom should be contacted, as a matter of priority, to find a
representative, distributor, partner or agent in Saudi Arabia. Names of various
products and Saudi importers of those products could also be obtained directly
from these Chambers. Credibility reports about prospective Saudi business
partners are often available at these Chambers. A list of Saudi Chambers of
Commerce and Industry with their addresses and telephone numbers is supplied.

The Saudi Chambers of Commerce and Industry publish trade directories of their
respective business communities. These can be obtained by contacting the
appropriate Chamber directly.

Various advertising agencies, newspapers and internet marketing services

providers in the Kingdom should be contacted to utilize their services for
advertising export products. Additionally, some of the major Chambers of
Commerce and Industry, located in important urban centers, have their own
periodicals and may publish, upon request and for a fee, information relating to
commercial offers, "Wanted" advertisements and others. all of these services
could be arranged for your company trough our own company by emailing our
marketing department with your specific requests also you are welcome to use
our Business Opportunity section and our Classifieds section.

In addition to its role as a part of the Kingdom's diplomatic mission to any

foreign country, the Commercial Office of the Royal Embassy of Saudi Arabia in
your country, provides the business community with information about Saudi
business regulations and procedures, and means of doing business in the
Kingdom. It also facilitates commercial contacts, sponsors Saudi business shows,
exhibits and trade missions to the foreign countries, participates in seminars,
meetings, conferences, etc., that promote Foreign-Saudi business and trade, and
mediates commercial disputes between Foreign and Saudi companies, if both
parties are willing to cooperate in order to reach an out-of-court amicable
solution.

Foreign firms are encouraged to take advantage of the opportunity to attend

trade shows or to participate in Foreign trade missions to Saudi Arabia. for
4

American companies The Office of the Near East, at the U.S. Department of
Commerce (14th Street and Constitution Ave., N.W., Washington, D.C. 20230, Tel:
(202)482-870) offers market information, identifies trade leads and promotes
trade shows and U.S. trade missions to Saudi Arabia. Information regarding U.S.
trade with Saudi Arabia and related Department of Commerce services is
available via the automated Flash Fax hot line, which may be accessed by
dialing (202)482-1064. In addition, the Department's District Offices provide a
number of export promotion services, including the Agent/Distributor Service,
which identifies Saudi Arabian agents/distributors who are capable of handling
your business matters in the Kingdom, and the World Traders Data Report, which
evaluates potential trading partners overseas.
It is advisable to personally visit the Kingdom to establish direct contacts with the
Saudi business community. In order to obtain a short visit business visa, normally
valid for one to three months, the nearest Saudi Arabian Royal Embassy or
Consulate should be contacted. (A list of Saudi Arabian Embassy or Consulate
Offices in the U.S. is provided, and a list of Saudi Diplomatic Missions in the rest
of the world is provided.
(Source: www.saudia-online.com)
2.4

Penetrating market in Saudi Arabia

Food exporters from Malaysia have variety of ways in promoting their products in
Saudi Arabia depending types and nature of business and the duration involve:
2.4.1

Distribution Channel
Saudi Arabia has a common and straightforward distribution structure.
They import products from foreign companies and sell it in wholesale
through souqs (traditional market) to retailers or consumer directly. It is
important to visits the market personally to evaluate the full scope and
opportunities, to know the end-user and shortlist potential local
representative.
Futhermore, in tradition, a large portion of food and beverages retail sales
have been made through these thousands of small grocery outlets
networking.

Purchased are made through major wholesalers, local

manufacturers or importers/distributors.
5

There are some supermarkets

imported their requirements direct. Importers usually have their own storage
facilities and handle all distribution, servicing the three major trading and
business cities, Jeddah, Riyadh and Dammam.

With Jeddah as the headquarters for most of Saudis large importers and
distributors, 80 per cent of the foods come through the Jeddah Islamic
Port.
There are several ways where Malaysian Halal food companies can
distribute their food items:
a) Commercial Agent
This is the simplest way where Malaysian can promote their food
to the Saudi Market. With a local agent to sell the food, marketing
will become more effective and some transaction in the business
may require a local presence.
Malaysian food companies may consider this type of distribution
as all wholesale and retail is reserved exclusively and entities
wholly owned (100 per cent) by Saudi nationals. Moreover, only
Saudi companies can obtain an import license.

Companies that import goods or practice as commercial agencies

must be registered with the Ministry of Commerce (MOC) and one
of the Saudi Chambers of Commerce and Industry.
Malaysian companies may consider giving exclusive agency
agreement to a Saudi agent. A Saudi agent may only be given right
of distributorship to cover certain regions or provinces in Saudi
Arabia for instance central (Riyadh), western (Jeddah) and eastern
(Dammam).
However, Malaysian companies should be careful when appointing
commercial or trading agent in Saudi Arabia as local law provides
6

considerable protection to Saudi agents in the event of a dispute

and the process would be very lengthy. The choice of a local agent
should be approached carefully as terminating or changing agents
could be a difficult process.
Any termination or change of a commercial agent to a new one
must be fair to the old agent. Under some circumstances, the
failure to renew an agent may be considered a form of termination.
Wrongfully terminating an agent may expose a company to
liability and may make it more difficult to obtain Saudi
government approval of a replacement agency agreement. As a
result, the termination section of any agency agreement must be
carefully spelled out and should generally provide for fair
treatment of all parties upon termination.
Moreover, Malaysian companies have to note that every Saudi
commercial agent is required to register their commercial agency
agreements with the MOC, failing which can result in a fine. Saudi
Arabia has an extensive set of legislation that governs the terms
and conditions of agency agreements. Commercial agents can be
an agent and/or distributor or franchisee.
b. Franchises
Malaysian Halal food exporters could also consider engaging
Saudi franchisees to promote their halal food products to Saudi
Arabia. Franchising has become an increasingly popular form of
doing business in Saudi Arabia as it offers greater flexibility than
commercial agency agreements and does not require huge
resources compared to opening own branch office or making joint
venture.
To establish a franchise in Saudi Arabia, Malaysian Halal food
franchisor must select a franchisee and register the franchise with
the MOC. The franchisor must be the original franchisor and may

not be a third-country subfranchise. The parties may negotiate their

own franchise agreement.
The franchise law has only been effective since 1992. Because
commercial agency law also applies to franchises, many of the
same concerns may arise regarding the potential wrongful
termination of a franchisee. In order to avoid later difficulties,
Malaysian companies should consult an attorney familiar with
Saudi franchise law before entering into a franchise agreement or
terminating a franchisee.
Issues such as intellectual property registration and protection also
need to be addressed by Malaysian Halal food franchisor.
c. Joint Ventures
The least way for Malaysian Halal food companies to consider
marketing their products to Saudi Arabia is through joint ventures
with Saudi partners in Halal food production. Joint-venture in food
production involves larger commitments for Malaysian companies
particularly in capital investment, but over the long-term, it
qualifies for favorable tax treatment or other economic incentives
from the Saudi Government.
b) Jjf

c)
2.4.2

kxzjc

Joint ventures may take two forms. Under a contractual joint venture, a
Malaysian firm simply signs a contract with a Saudi company and obtain an
operating license from the Saudi Government (MOC).
Alternatively, Malaysian company may create a new limited liability company
in Saudi Arabia. Most foreign firms prefer to use this form of joint venture to
establish a presence in Saudi Arabia as it allows them to engage in business
activities.
However, to form a limited liability company, it is essential to involve Saudi
citizens. While Saudi participation is not a legal requirement, the government
strongly favours a company in which Saudi investors participate. Companies
with majority Saudi equity percentage would qualify for certain tax breaks and
other investment incentives.
Pricing
Pricing products competitively is of utmost important and it also applies to
food items. Saudi agents tend to request for the lowest possible price from
their exporters, so they could set for the highest possible profit margin. In the
past, Saudi dealers/retailers used to take a very high profit margin when
pricing their products, ranging from 120-150%. But now due to stiffer
competition in the market especially of competing food products from many
other countries, they have lowered their mark up to only 50-80%.
Malaysian Halal food companies may take note that the Saudi government
has no control over pricing of products by local supermarket and retailers.
Therefore, we could see much difference in prices for one product from one
retailer to another in the market.

Saudi Halal Food Standards And Import Regulation

Saudi Arabian Standards Organization (SASO) is the authority which determines standards
and labelling requirement for all types of food and food products imported into Saudi Arabia.
The requirements are different from one type of food to another, like beef and buffalo (fresh,
chilled and frozen), luncheon meat, canned corned beef and mutton, canned sausage etc.
Each product has its own specification issued by SASO.
Export and Shipping Documentation
All food and food products imported to Saudi Arabia must have the following documents:
Certificate of origin.
Commercial invoice stating the country of origin, name of the carrier, brand/trademark
and number of goods, along with a description including HS code, weight and value.
Packing list.
Bill of lading (for sea freight) or Airway bill (for air freight).
Steamship certificate (a document appended to bill of lading or airway bill)
Insurance documents (if shipments are sent CIF or insured by exporter).
Special documents (if applicable).

Some special documents which usually are required for food products include:
1. Ingredients Certificate: This certificate should include a comprehensive description of the
exported food products (contents inclusive of animal fats and percentage of each
ingredient), chemical data, microbiological standards, storage, and life of product (date of
manufacture and date of expiry). This certificate must be obtained from a local health
department and must be signed by the authority.
2. Consumer Protection Certificate: This certificate confirms the healthiness of the various
ingredients of the exported food products to Saudi Arabia, and their safety and fitness for
human consumption. This certificate is similar to HACCP certificate and can be obtainable
from the Ministry of Agriculture.
3. "Halal" Certificate: This certificate indicates that slaughtering has taken place in an
officially licensed slaughterhouse according to Islamic procedures. The "Halal" meat
certificate should be legalized by a recognized Islamic Center (for Malaysia is JAKIM) in the
exporting country.
4. Health Certificate for Meat: This certificate should indicate the date of slaughter, kind of
animal and average age, in each shipment. The Health Certificate is required for all exports
to Saudi Arabia of all kinds of meats, (including poultry and seafood), meat products,
livestock, vegetables, fruits, and human blood, attesting to the fact that they are free from
pests and/or disease.
5. Health Certificate for Vegetable and Fruit: This certificate must accompany all shipments
of vegetables and fruits to Saudi Arabia certifying that such exports are free from pests,
insects, and other agricultural diseases, and that they have not been exposed to ionizing
radiation (but can be treated with aluminum phosphide). This certificate usually can be
obtained from the Ministry of Agriculture.
6. Phytosanitary Certificate: This certificate verifies that the seeds or grains to be exported
to the Kingdom of Saudi Arabia are free from agricultural diseases. It is also obtainable from
the Ministry of Agriculture. This certificate is required to accompany all shipments of flour,
rice, grains, agricultural seeds, lumber, plants, and plant material.
Food Import Inspection
Although Malaysian exporters are able to submit all the required documents as in order,
Saudi Arabia will still impose food sampling and lab testing on every shipment arrives at
their Quality Control Department to ensure that the foods are fit for human consumption.
Those documents serve mainly to ease the inspection by the Department.
Usually, all meat and poultry products entering Saudi Arabia are examined for Salmonellae
for poultry, volatile nitrogen which should be less 20mg/100gm for beef and less than 50%
gm/100gm for poultry.

10

Species identification tests for pork are routinely run on meat-based products. All meat and
meat-based that their ingredient contains genetically engineered animal products is banned
from entering Saudi Arabia
Import Clearance
Malaysian exporters could advise their importers to provide the Arabic translated documents
to customs agent in order to start the clearing process. Containers are normally cleared in
few days time provided all documents are in order and imported products meet Saudi
standards and specifications.
In the event a food product is rejected by the Quality Control Laboratory at the port of entry,
the importer can submit an appeal to call for a re-test. The appeal must be submitted in
writing to the Director General of the Quality Control and Inspections Department of the
Ministry of Commerce. If an appeal is accepted, the Director General orders a re-test by
another laboratory usually King Faisal Specialist Hospital Laboratory. If the second test
verifies initial result, the importer is ordered to re-export or destroy the product.
Malaysian exporters could kindly contact the Saudi agencies as shown in Annex II for
further information on food import standards and labeling requirement.
Documents Authentication
Malaysian exporters also need to note that additional documents may be required,
depending on the type of goods being shipped, on certain requests from the Saudi importer
or specified in the letter of credit (L/C), or a contract.
The exporter is responsible for authenticating the certificate of origin, the commercial
invoice, and any special documents. Those documents must be certified in the following
sequence:
(i) Notarized by a Notary Public and certified by a local exporting country Chamber of
Commerce.
(ii) Certified by the Exporting country-Saudi Arabian Business Council (if available). In case
of Malaysia, it is certified by the consular office of the Ministry of Foreign Affairs)
(iii) Legalized by the Saudi Embassy or any Saudi Consulate in the Exporting country.
(Saudi Embassy in Kuala Lumpur)

1.1

All documents (original or copies) should bear the handwritten

signature of the person issuing the document. Facsimile signatures

1.2

are not accepted.

Important Business Regulations and Procedures
Saudi Arabia seek a liberal trade policy with no quantitative or price limitation for

importers. However, there are a number of regulations and procedures

administrating business and trade in the Kingdom and devotion thereto could be
very helpful for those intending to do business in Saudi Arabia.
1.3

Leading Industries for Investment

Saudi Arabia looks for attractive capital-intensive and highly automated industries
and

projects

that

are

incorporate

technology

transfer,

importsubstitution, and transfer of management expertise.

Top Ten Leading Industries for Investment
11

1. Electrical Power Systems

2. Water Resources Equipment
3. Oil and Gas Equipment and Services
4. Security and Safety Equipment
5. Chemical Production Machinery
6. Medical Equipment
7. Telecommunications Equipment and Services
8. Education and Training Services
9. Auto Parts and Service Equipment
10. Insurance Services Analysis on Foreign Investment in Saudi Arabia
1.4

PESTLE Analysis
The effect of the Saudi politics on the food and beverages industry
Since their establishment, Saudi Arabia is ruled by the family of Al Saud by the
Islamic Law. The family also upholds their support in economic growth and
development of the nations. It is very challenging because the idea of
globalization does not appeal the Muslims fundamentalist, hence this laid a fair
political risk of the regime. On the other hand, this political situation affects the
food and beverages industry positively because this industry remains the major
unconcealed method of entertainment among Saudis. Furthermore, the Kingdom
of Saudi Arabia is recognized as the leader of the Muslim world, because Makkah
is the pilgrimage place for Muslim.
Saudis political situation is the main strength of the food and beverages
industry whereeating out becomes the main source of entertainment for most of
the population when there are no cinemas or night clubs. This will give a good
effect on bottled drinks.
The effect of the Saudi law and Regulation on the food and beverages
industry
Saudis has taken a major step in reforming where they had apply for
membership of the World Trade Organisation (WTO) and consistently making
legal changes in meeting its requirements, but still have doubts from the private
12

sectors toward the government due to the unnecessary bureaucratic practices and
inappropriate regulations. For example, a company must give a proof that they
have significant fund to invest not less that US$ 10,000 and it will take almost six
months to register a company.
On the other hand, the consistent changes made have proved to be most
beneficiaries to those Saudi companies which are pursuing to grow through
alliances with foreign investors. However, Saudis law requires foreign investors
to have a majority of control over the business with a Saudi partner and the Saudi
partner, individual or company. Basically, it is very complex and financially risky
whether to open a small business or a major enterprise. Saudis government
should enhance these processes to encourage foreign investments.
Saudi economics on the food and beverages industry
Saudi has experience increase growth due to oil price spikes between the years
1999 to 2005. Associating this with the fact that the Kingdom has one of the
world's fastest growing populations (3.5% per year) and investors faced with an
expanding market with good disposable income levels.
Saudi Arabia, being the fact that its a third world country; it depends on imported
goods and technology, the commitments from the government to the economic
expansion creates job opportunities for professional trained foreigners and depend
on them to fulfill the country's ambitious development strategies. HSBC Bank has
classified Saudi Arabia as the second in the wealth of professional trained
foreigners and is ranked twenty two among other countries in the tourism sector.
Moreover, with over five millions pilgrims yearly from all over the world coming
for Hajj and Ummrah the food and beverages industry is one of the major
Beneficiaries from such advantage.Therefore, in the mid-2008, a package of new
flexible visa rules were released allowing many groups from Europe to visit Saudi
Arabia with a group tourist visa, which years before was unheard of. This policy
has created a new segment for the Saudi food and beverages industry.
In addition, the large number of foreigners, coming as workers or as tourist and
pilgrims, with their ethnic background are considered the back bone for the food
and beverages industry.
13

The effect the social characteristics on the food and beverages industry
As restaurant industry booming in Saudi Arabia, the food and beverages have a lot
to offer. As dining out became a habit among all social classes in Saudi Arabia
with the lack of other entertainment venues due to religious issues. This social
characteristic has bloom and flourishes effect on the food and beverages industry
in Saudi Arabia.
Technology and the environment effect of the food and beverages industry
These are the last of the two macro marketing environment forces:
In Saudi Arabia Technology in the food & beverages industry is not limited to
basic kitchen appliances and tools especially in manufacturing area.
In Saudi Arabia there is no compelling awareness from the government or most of
the population to the environmental issues.
Saudis practice recycling and green energy are mostly internationally franchise
applying their own corporate policy as part of their responsibility
1.5

SWOT Analysis Food Industries

Strengths Saudi Arabia boasts the Gulf regions largest dairy industry.

2.0
3.0
4.0

With a youthful population of more than 28mn, which is increasingly susceptible to

Western
consumer trends, Saudi Arabia is a good regional point of entry for investors seeking
longterm
volume growth.
Like the rest of its Gulf peers, Saudi Arabia is home to a vast expatriate population able
to
consume high-value packaged and processed foods.
Saudi Arabia is a member of the Gulf Cooperation Council common market and
provides a
lower-cost export base than some neighbouring countries.
The Middle East and North Africa political crisis has possibly made Saudi Arabia seem
more secure as an investment destination relative to some other countries in the region.
Weaknesses Saudi consumers are more price conscious than those in the UAE, Kuwait
or Qatar.
Saudi Arabia has a saturated dairy industry with little room for new dairy manufacturers
to
enter.
The private sectors dependence on expatriate labour is a burden for potential investors.
Food manufacturers are highly dependent on imports for ingredients due to the
countrys
severe agricultural shortcomings.
Opportunities Demand for processed and packaged goods among Saudi consumers is
set to continue
increasing as tastes and preferences evolve and lifestyles become busier.
Long-term opportunities for premiumisation remain across all segments of the food
industry.

14

5.0
6.0
7.0
8.0
9.0
10.0

11.0

Rising health consciousness has significantly increased opportunities for food producers
that are able to introduce healthy or light options.
Demand for organic foods is steadily increasing.
Threats Demand for higher-value foods fell in 2009, and, despite recent improvements,
consumer
confidence remains way off pre-2009 highs.
Poverty levels remain quite high despite the countrys oil wealth and generous government
handouts.

11.1 Porter's 5 Forces Analysis

Threat of New Entrants.
The food and beverages industry is the easiest to enter basically as barriers to enter this
industry are mainly in the bureaucratic regulation that might take time but this is not
considered a serious barrier.
Power of Suppliers.
Saudi still depend on imported drinks because manufacturing has not been fully utilized.
The import of food and beverages are estimated to exceed $7 billion annually and the
Saudis remains the leading market in the region excluding dates and milk. There a large
numbers of suppliers and prices are controlled by the government.
Power of Buyers.
Saudi buyers are always looking for the best quality and price. Drinking water is essential
and people are always ready to new products in the market. There arevariety of products
to choose from mineral water to canned drinks with intense competition lead buyers
seeks lower prices and better services.
Availability of Substitutes.
Substitutes for the food and beverages industry in general include alternative form of
entertainment like cinemas or night club. Most mineral water and canned drinks are
showing positive growth and are ever present in the food and beverages sector.
Competitive Rivalry.
Even though there are no figures revealing the size of this critical market, a high industry
growth rate is aggravating the competitive rivalry the presence of so many available
substitutes are a particularly challenging situation for some firms
Conclusion and recommendation:
After carrying the above analysis we concluded with the following findings and
recommendations to Clear Mineral WaterSdn. Bhd. considering entering the food and
beverages industry in Saudi Arabia.

15

The strength of the food and beverages industry lies on its ability to attract huge capital
and labor with it openness to the world market. The industry is showing compelling
growth faster than anywhere in the world.
The political, economic and low labour market plus other socio-cultural factors have
contributed to this fast growth industry.
The economical and political outlook for food and beverages industry in Saudi Arabia is
very promising, government shows guarantee and support to economic growth which is
reflected in its double-digit increase in government consumptions on many aspects that
are related to the restaurant business.
Furthermore, currently, the government economic plan affirms in strengthening the
growing private sector business opportunities with focus on increasing the national and
foreign investments.
One of the most promising aspects for the food and beverages industry is the social
changes in Saudi Arabia. For example, Saudis female role has dramatically changing in
the social and economic life. Saudis women are now allowed to work and this has huge
impact on the purchasing power and certainly a change in womens lifestyle that is
favorable to the food and beverages industry.
On the other hand, the legal process in Saudi is quite complex and financially risky
whether you are opening a small business or a major enterprise. Saudis government
should modify these processes to encourage further foreign investments. Also, the Saudi
food and beverages industry is weak in economies of scale and labor productivity.
12.0

Setting Up Clear Mineral WaterSdn. Bhd. Branch at Saudi Arabia

Clean drinking water is among the most outstanding natural resources in the
world. Its value is distinguished by the laws of supply and demand, which are effected by
economic, geography and social. From our research and development findings, the Clear
Mineral WaterSdn. Bhd. has decided to undertake a direct foreign investment in Saudi
Arabia.
This project will pursue the profitable opportunities in developing and implementing a
desalination plant in Dubai,Saudi Arabia, which is located next to the Persian Gulf.

16

12.1

Company Background
For the purpose of this assignment, the company background of Malee Mineral
Water Sdn. Bhd. has been chosen as the sample.
CLEAR MINERAL WATER SDN. BHD. was established in 2007 with a goal to
provide pure natural mineral water together with efficient and prompt services to
our consumers. We work hard to guarantee our product quality and to ensure our
customers enjoy the best services and products they can have. We are passionate
about bringing pure and fresh water to the consumers and the public.
The company is situated in the middle of the tropical rainforest in Mersing
District of Johor, surrounded by the great nature. The production facility is 10
kilometers away from the nearest town hence it is virtually free from pollutions
and contaminations from the urban jungle. Due to our strategic location, our
reliable sources of water are of the purest. Our area spans across a region of 100
acres approximately, 90% of which is reserved for underground water extraction.
In our effort to protect our water sources, the land is well preserved and free from
any industrial activity.
We began our business with the production of pure drinking water using the
Reverse Osmosis method. With the aids of advanced technology and skilled
workforce, we are able to produce clean and crystal clear drinking water while
maintaining the highest standards. In 2011, the company then ventured into
natural mineral water after obtaining the mineral water production licence
approved by the Ministry of Health Malaysia. Henceforth we have been focusing
our productions on drinking water and more importantly, pure natural mineral
water.
CLEAR MINERAL WATER is growing at a remarkable rate since its start-up.
From our origin as a small drinking water provider in 2008, in just a few years
time we have grown from strength to strength and now supplying both types of
water in the local as well as overseas markets. We continue to seek ways to
progress forward and aim to become one of the leading bottled water
manufacturers in Malaysia.
17

Our production plant is closely situated at our water sources, which is why we
have easy access to the freshest water from deep below the underground. Our
production plant comprises a treatment facility, plastic production facility, a
bottling plant and a storage hub.
Started with one production line in 2008, we have been introducing an extra
production line every year in the following 3 years in our bottling plant. Each
bottle that comes out from the bottling plant is examined and closely screened by
our well-trained quality control team.
Water Treatment Facility
Our water treatment division utilizes advance filtration systems imported from
abroad. We use reverse osmosis system to produce pure drinking water. The water
goes through intense and complex filtration before being transferred to the filling
and bottling machines for production.
As for our natural mineral water, raw water is extracted from our well-preserved
water sources and is treated through different stages of the purification system.
The quality of water is well maintained and supervised from time to time. We
place countless amounts of efforts in assuring good quality of water.
Plastic Division
We have heavily invested in the plastic division, which manufactures our own
preforms and water bottles. All bottles and preforms produced are strictly
inspected by our qualified engineers. We have taken every precaution in the
production of our PET bottles to ensure that they do not affect the taste of water
when filled.
Bottling Plant
Our advance bottling and filling machines are imported from abroad and fully
operational. Each machine has a designated operator to over watch the entire
18

functions of the machine. We improve our productivity by continuously searching

and investing in new technology to meet the ever-increasing demand in the
market.
(Source: http://www.malee.com.my/)
12.2

Clear Mineral Water Business Plan in Saudi Arabia

The plant will be called MySaudi desalination plant and will provide the highest

quality bottled drinking water to the Eastern and Central Provinces. In order to avoid any
complication in implementing the MySaudiproject,Clear Mineral WaterSdn. Bhd. will
enter into a joint venture with Amex Distributing Company. In entering into a joint
venture, Clear Mineral WaterSdn. Bhd. agrees to give up 30% share ownership in the
MySaudi project.
The decision to enter into a direct foreign investment was made on the basis that
Clear Mineral WaterSdn. Bhd. wanted to maintain its control over operations, avoiding
transport costs and trade limitations. This also will allow for a long-term investment that
would obtain fixed assets such as equipment, land and buildings.
Most importantly, current water supplies are not meeting consumer standard. This
is critical because Saudi Arabia consumers have strong buying power and are considered
as being a young booming population with 60 %of its population under the age of 25.
Another important aspect of Saudi Arabia is that it has a modern infrastructure and has
been a secure and stable market for the last 15 years.
In order to accomplish this task with approval and support from Saudi Arabian
government, a joint venture with Amex was necessarily the best avenue.

Saudi

government tends to favourably look upon a joint venture with Saudi companies because
it creates jobs and attract additional foreign investment. Saudi Arabias government has
granted some incentive for foreign investors such as exemption on custom tax, low price
of utilities and natural resources, duty free capital equipment and most importantly
government support in obtaining information and statistical data needed for this project.
Furthermore, the Saudi government is readily to support a joint venture with a no
tariff and low cost financing. Another advantage is there will be no personal income tax
or limitations on movement of finds which is essential in currencies converting. Although
Clear Mineral WaterSdn. Bhd. gave up 30% share interest in the MySaudi project, it gains the
support of the Saudi Government and incentives that are crucial for a swift beginning.
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After an in-depth research on which corporation to establish a joint venture, Amex

Distribution Co. was ideally chosen due to its reputable establishment for 18 years. Amex
Distribution Co. has a solid group of management staff, which has achieve in generating $100

million in sales in year 2013. A joint venture is vital for Clear Mineral WaterSdn. Bhd.
because it not only lightens the burden of distribution cost and concerns but also acquires
the knowledge and expertise in host country business practices. The knowledge and
expertise shall prove priceless in developing and maintaining market shares.
The marketing department of Clear Mineral Water and Amex has decided that at
the first stage the target market will be the Central Regions which make up a third of Saui
Arabia. Cities at Central Province are located near the Persian Gulf where
MySaudidesalination plant will be built. The Central Province has an established modern
infrastructure capable of handling the demands of the MySAudi project. In enhancing the
distribution networks, there are over 10% industrilised business which are centrally
located with many railroad are being build.
Clear Mineral Water has decided to packagethe drinks in sizes of 16oz, 20oz, and
1 gallon plastic bottles. Saudi Arabia marketing research has shown that the public is
very approachable to bright labels and Arab and English language. Therefore Clear
Mineral Waters bottles will contain desalinated water and will display the mission
statement, brand name and nutritional data. Clear Mineral Water plastic bottles will have
a bluish tint with a sky blue label. Clear Mineral Water marketing team has assuredthat
this is the most appealing color to Saudi consumers.
The marketing media in Saudi Arabia that will be used are printing such as
newspaper and magazines, electronic such as billboards, television and radio, online such
as website and exhibit centers. However, the majority of the advertising will be in
newspaper such as Al-Shark and Al-Hajat, with circulation of about 70,000 to 100,000.
Advertising in television is becoming popular and mostly done by CNN, Orbit
Communications and the Middle East Broadcasting Corporation (MBC). MySAudi will
launch a website, www.mysaudiwater.com which can be used as our marketing and
information center.
In deciding of the price, Clear Mineral Water has come up with a price that will
attract the price sensitive consumers in Saudi. An introductory price of 10% less that the
average price from our competitors (refer Table 1) will be offered. For those stores that
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carry Clear Mineral Water bottled water will be offered vendor discounts. However, price
will be raise gradually which will not scare the customers as Saudis customers are very
price sensitive and not brand loyal.
Amex, our partner will be handling all distribution of the bottled water which will
be packed in 50 and 100 according to size. Amex has fleet consist of trucks, trains, and
boats that will deliver our water to various cities. Amex will also offer individual
customers door to door delivery of gallons of bottled water.
There are several issues that needed to be addressed when it comes to legal terms
for this joint venture. Saudi Arabia has strict guidelines to follow on labour force
including the percentage of Clear Mineral Water company must have to break ground
there. The employment must consist of 75% Saudi Nationals or if unavailable, there must
be at least 5% of total employment. Clear Mineral Water would require license for
twenty-five years with protected trademark for up to 10 years. As per labour force,
Islamic Law is the overall rule when it comes to the hiring and length of time of
employment. Firing an employee for a wrong reason may result in employee suing the
company.
Being a Malaysia and a Muslim country, Clear Mineral Water understands the
social concern in Saudi Arabia. There are some similar practices when doing business in
Saudi Arabia such as in Saudi custom, it is normal for a Saudi to walk into a room and
individually greet and shake hands with every person. The same way with Malaysian, a
Saudi addresses another is by their title and first name. Traditionally, Arabs use their
right hand for all public functions such as shaking hands, eating, drinking, and passing
objects to another person.

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Table 1: The established food and drinks company in Saudi Arabia

13.0

Conclusion
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Insufficiency of water threatens economic development, viable human livelihoods and

environmental quality in countries and regions around the world. Over the last 20-30
years, most of the edible water demands have been met through desalinised water. Saudi
Arabia has become the forerunners in desalination technology producing over 24 million
cubic meters (MCM) of water per day (Lee 2010). In February 2013, Saline Water
Conversion Corp. (SWCC) announced its $6.4 billion to build the worlds largest water
desalination plant in Rabigh on Saudi Arabias Red Sea coast (Bloomberg 2013). This is
the latest initiative in Saudi Arabia to enlarge its water desalination capacity using hightech green technology.

The Clear Water project will constitutes an important part of the major ongoing
effort to decrease oil use in water production in this oil-rich nation. According to Lee
(2010) until recently, 90 percent of all the water desalination plants in Saudi Arabia ran
on

oil

or

natural

gas

as

the

source

of

energy, which

is

economically

unsound.Furthermore, around half the operating cost of a desalination plant comes from
energy use, and on current trends Saudi Arabia and many other countries in the region
would consume most of the oil they produce on desalination by 2050 (Yapp 2012).

The new Clear Water plant will be develop by the Saudi government agency
responsible for making seawater edible in Saudis Kingdom. The project is expected to be
completed by 2019. It will be the one of the largest desalinated water in Saudi Arabia.
Moreover, the Clear Water Sdn. Bhd. and the Amex Corp signed a commercial agreement
for research collaboration evaluating the innovative desalination technologies
performance in the Gulf's unique environment, including their capability in effectively
handling factors such as high salinity and high temperatures. In addition, Clear Water
SdnBhd will enterinto a comprehensive R&D collaboration agreement with an initial
focus on water and water treatment technologies.
With Saudi Arabia population set to rise to over 60 million by 2050 and people
incomes expected to increase, the food and beverages sector faces great opportunities to
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feed this growth. Furthermore, given the large use of drinking water and other beverages
these forces challenge the management of the Saudis resources: sustainable food and
water for over 60 million people. The investment in drinking water productions will need
to undergo remarkable transformation, surrounding both the development of systems for
advanced technologies as well as consolidating the balance between domestic and
international collaboration, in a continuous and economically viable way.

Reference:
1- A-M. M. Abdel-Rahman, The Determinants of Foreign Direct Investment
in the Kingdom of Saudi Arabia , September 2002. Department of
Economics, King Saud University,
2- http://www.foodnavigator.com/Regions/Middle-East/Saudi-food-andbeverage-consumption-to-grow-by-5-in-2014
3- Jones Langasalle, www.AMEinfo.com, ParitoshKashyapPage 5

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4- (2015, 02). Saudi Arabia Furniture Market Analysis. StudyMode.com.

Retrieved , 3rd February 2015, from
http://www.studymode.com/essays/Saudi-Arabia-Furniture-MarketAnalysis-769491.html
5- Saudi Arabia Food and Drink Report www.businessmonitor.com
6- www.malee.com.my
7- www.saudi-online.com

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