AstroLabs: Challenges, Opportunities of Businesses in Saudi

Business expansion activity in Saudi Arabia has grown 4-fold since 2018, according to AstroLabs 2023 Saudi Market Entry Report. The report, which examines the challenges and opportunities that companies face when entering the Saudi market, collects insights from 660 high-growth companies from 50+ countries across 37 sectors. Respondents included companies that are considering entering the Saudi market as well as companies with an established presence there. ^[1]

Saudi Arabia intends to increase the share of the private sector from 40% in 2016 to 65% by 2030 as part of a push to diversify its economy. In line with Vision 2030, the kingdom aims to expand its economy to $1.7 trillion by 2030.

In December, the kingdom announced tax breaks for companies moving their regional HQs to Saudi. And in January, tech giants Google, Microsoft, and Apple announced plans to establish regional HQs in Riyadh in compliance with the government's new rules for state contracts.

The report comes as companies from the region and beyond leverage the rapid growth of the Saudi market to tap into the kingdom's wealth. The report found that 75% of companies expanding into Saudi generate less than $50 million annually in revenue, 10% generate $50-100 million, while 15% of high-growth businesses generate an annual revenue of $100 million to over $1 billion.  

AstroLabs is a Dubai-based business expansion platform and tech hub with offices and coworking spaces in Riyadh and Beirut. 

The report's key findings include:

• Companies expanding into Saudi have an average of 4 global offices. 
• Almost 90% of companies lacked or had limited knowledge of Saudi's Special Economic Zones (SEZ), with only 12.6% of companies showing a strong understanding of the kingdom's SEZs. 
• 41% of businesses looking to expand into any market cited "increase in revenue" as their key driver. 
• 29% of companies cited the sizable market and promising potential as reasons for their expansion into the market.
• IT and software, construction, and business consultancy were the top 3 sectors eyeing expansion into Saudi. 
• 48% of businesses considering tapping into the Saudi Arabian market intend to apply for a commercial license within the next 3 to 6 months, slashing time to market from 8 to 12 months in 2018, according to the report.
• Half of all companies looking to expand into Saudi Arabia are based outside of MENA, with 43% of them coming from Asia, Europe, and the US. 
• In 2023, 47.8% of the companies operating in the kingdom hired local talent within less than a month of their entry, and 43.5% hired Saudi nationals within 2 to 4 months.
• 50% of the foreign businesses operating in the kingdom plan to purchase a private office in less than a year, while 18% are looking to move to a private office in the next 3 to 6 months. 

Challenges for Businesses Expanding in Saudi: 

According to businesses operating in the kingdom, the most difficult step in setting up a business is opening a bank account. Other challenges include incomplete knowledge of the business expansion process and securing residential real estate for the team.

Post-setup, the biggest challenge facing companies is building a local team. 

Family relocation was another big challenge for businesses, with 65% of companies citing family relocation as challenging. Many businesses cited the need for a third party to facilitate a smooth transition for families.   

Another key challenge that companies face when expanding in Saudi is finding clients and partners. 78% of respondents identified finding a business setup partner as their priority when expanding into Saudi. 

Recommendations: 

The report concludes with actional insights to support business expansion into Saudi. These include establishing support networks to bridge local and international companies in Saudi to facilitate knowledge sharing, ease navigation of the business landscape, and address client acquisition and market insights.

Other recommendations include:

• Enhancing cultural integration and family relocation plans, including prioritizing residential real estate for teams.
• Improving knowledge of the kingdom's legal, economic, and cultural business ecosystem through workshops, seminars, and online resources.
• Improving access to funds through venture capital, government grants, banking loans, and alternative investment opportunities. 
• Increasing office space through the development of new commercial real estate, including grade-A offices, and coworking spaces.