Small Business and Entrepreneurs in Saudi Arabia

How Small Businesses Can Overcome Challenges in the Market

Small businesses play a critical role in the Saudi Arabian economy. According to Burton (2014), thousands of young adults in the country are employed directly or indirectly in small businesses. They pay taxes and provide for their families. As such, it is in the interest of the government and other relevant players to ensure that these entities survive. In the section above, major challenges that threaten the survival of these firms have been identified. It is necessary to develop an effective strategy that can be used to overcome these challenges. The survival of these small businesses will help the country to diversify its economy and reduce its reliance on oil and gas exportation.

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Financial Challenges

Financial challenges relating to obtaining funds for starting and operating a company were identified as one of the major issues that these institutions face. Fadaak and Roberts (2019) explain that large financial institutions are reluctant to extend a loan to small start-ups because they are more likely to default on loans compared with established large firms. In fact, some of them collapse within the first or second year of operation, making it difficult for banks to trust them with large loans. This problem can be addressed in several ways. One of the ways of addressing this problem is to insure these loans.

The government, through the Ministry of Commerce and Investment, can develop a policy that would allow banks to take out insurance on these loans in case recipients default (Todorov & Smallbone, 2014). This strategy would ensure that small start-ups could easily access loans from banks, which would facilitate their operations. Burton (2014) warns that when this strategy is used, lenders should be given the responsibility of ensuring that recipients have the capacity to pay. They need to assess the viability of the business and its ability to generate income that can be used to repay the loan. It would not be prudent to extend a loan of SR 400,000 without a clear plan on how the money will be repaid.

The Ministry of Commerce and Investment should come up with a revolving fund meant for the youth who are interested in starting small businesses. Burton (2014) argues that the majority of small business owners are ambitious youths who have graduated from college and are interested in transforming the country’s economy. Instead of seeking employment, they believe they can be job creators. Under the revolving fund, these entrepreneurs will be expected to start their small businesses using personal funds from savings and donations from friends and family. Once they start and sustain their operations for one year, they should qualify for grants from the revolving funds. The initial grant should be relatively small as the borrower establishes creditworthiness with the lender. Once the borrower settles the debt within the stipulated period, they would qualify for larger grants. As their business continues to grow and their financial needs exceed the capacity of the revolving funds, they will be recommended for bank loans based on the creditworthiness they have created. The revolving fund will motivate youths in this country to venture into businesses to benefit from the interest-free loan from the government.

Inadequate Knowledge

The study shows that inadequate knowledge of business and management processes among potential entrepreneurs is another major problem that makes it difficult for these firms to achieve success. The problem can be addressed through training forums that can be sponsored by the government or non-governmental entities. Burton (2014) notes that most young people consider starting a business because of what they hear from family and friends and believe that experience has no role in defining their success. As such, they make a mistake of starting businesses that they have limited knowledge about hoping to achieve success anyway. Such entrepreneurs might not know where to access cheap raw materials to help them have their products priced competitively. Others may not know how to sell their products. They struggle with the production only to find that there is no ready market for their products.

The government should initiate entrepreneurial programs where youths can share their ideas with industry experts before starting their operations. For example, if an individual is planning to venture into the cosmetic business, he or she should understand tastes and preferences of customers, the prevailing market price for these products, technology used in production, how to lower their cost of operations, and marketing strategies that they need to employ. The mentorship program would help them to identify weaknesses in their business plan and strategies they can use to overcome them. Such programs can reduce the failure rate among small start-ups. Burton (2014) notes that it is advisable for an individual to invest their resources and time in projects that are viable based on market forces.

Training will also be appropriate for owners of small firms, which have been in operations for three or more years. According to Todorov and Smallbone (2014), the primary goal of any business venture is to grow and become a dominant player in a given industry. However, most of the small start-ups that manage to survive market forces often remain small entities that cannot employ more than ten workers. It reaches a moment when the owner becomes comfortable as long as the business can help them pay their bills. Burton (2014) warns that a firm that cannot register consistent growth risks being forced out the market when new and more aggressive competitors emerge. Training these entrepreneurs can help them overcome the perception that their companies cannot grow. They will understand specific factors that limit expansion and how to overcome them. For instance, Fadaak and Roberts (2019) argue that it is advisable for owners of small businesses to avoid cases where they over-rely on the proceeds of the business to support their expensive lifestyles. They need to understand the need to reinvest the profits and to find alternative means of increasing revenues. They can also learn how to diversify their businesses as a way of increasing the revenue stream.

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Competition

Competition is another major threat that not only affects small start-ups but also large established businesses. According to Fadaak and Roberts (2019), small businesses are often able to navigate competition in the market through different strategies. Flexibility is the greatest weapon that these firms can use against their large market rivals. Instead of offering general products, a small firm can identify a niche in the market that the existing companies have failed to address. In the cosmetics industry, a small company can identify skincare products for minority groups such as Blacks who are forced to use alternatives available in the market. When the product is capable of meeting the unique needs of customers in this niche, the company will avoid direct competition against some of the established companies. It can experience rapid growth in the market within the period that other rivals do not consider to produce similar products.

Burton (2014) warns that when a firm realizes success when offering products to a specific market niche, it should not forget to expand its market share as a way of dealing with the expected competition. When rivals realize that the niche has potential, they are likely to develop similar products, hence in the long term, the niche may no longer offer the competitive advantage to the firm. Todorov and Smallbone (2014) argue that the government can also develop policies that can protect small and medium enterprises (SMEs) in the country. It is necessary to limit the importation of cheap products, especially from China, if they can be manufactured locally. Liberalizing the borders of the country may have devastating consequences on small businesses. A complete ban or heavy taxation can help limit the importation of such products. It will lower the level of competition that these local start-ups face in the local economy.

Gender Inequality

Gender inequality, according to Fadaak and Roberts (2019), is probably one of the greatest issues that owners of small start-ups face in the Kingdom of Saudi Arabia. The perception that women should not play major roles in the socio-economic environment in the country is still widespread despite the massive steps that have been made in ensuring that women are academically empowered. When seeking financial support for their businesses, young women are less likely to be taken seriously compared with their male counterparts. Affirmative action would be needed to support women in business within the country. A special fund should be set aside to support women who are in business. The government should also have a policy that requires government entities and large companies trading with the government to set aside specific projects for women. They can be given an opportunity to supply materials or any other contract that can be done by women within the country. Having 5-10% of all government contracts set aside for women would be a positive step towards empowering women. They will realize that they have a role to play in promoting the economic growth of the country.

Promoting Innovation among Young Entrepreneurs

Bill Gates, Mark Zuckerberg, and Kylie Jenner share one factor, which is they both became billionaires at a tender age. In fact, Kylie Jenner became a billionaire at the tender age of only 21 years (Fadaak & Roberts, 2019). The three also share the fact that they gained their billions through innovative products that focus on solving social problems in their immediate environment. Mark Zuckerberg was only keen on developing a social networking application that would be used among students at Harvard University (Todorov & Smallbone, 2014). However, he was able to turn it into a small business venture and it is currently only of the largest multinational corporations in the world, and Mark is one of the top ten richest men in the world. The other two billionaires, Bill Gates and Kylie Jenner, share the same story. They started small businesses after identifying market gaps and developed unique products that were able to meet customer needs. Their companies did not stagnate or disappear after a short period. Local entrepreneurs should embrace the same attitude. They should believe that with the right determination, focus, and hard work, they could transform their small companies into major corporations operating in the global market.

Innovation is the most important concept that they should embrace, to enable them to realize the level of success they desire. Burton (2014) explains that small firms are more flexible than large entities, and as such, they can embrace innovation with ease. When a small business focuses on offering cosmetic products to customers, it should find ways of making their products unique compared to that of their rivals. According to Todorov and Smallbone (2014), customers are becoming sensitive about skincare products. They want cosmetics that have medicinal properties in their skin instead of those, which may have a negative impact. A small firm can afford to redefine ingredients of its products to include medicinal herbs that will be of benefit to their customers. Fadaak and Roberts (2019) contend that such additional ingredients may sometimes increase the overall cost of the product, making its price relatively higher than the market average. The firm can select a segment that would be willing to pay the additional price. In its promotional campaigns, the firm should explain to its customers the unique quality of the product that makes their product more expensive.

Business incubation centers would also be of great value in promoting the growth of small businesses and eliminating challenges they face. The United States has the largest and most advanced business incubators in the world (Todorov & Smallbone, 2014). It explains why numerous start-ups in the country often grow rapidly to become large corporations operating in the global market. The government of Saudi Arabia, working closely with local institutions of higher learning and successful entrepreneurs, should consider empowering youths through these incubation centers. Some of these entrepreneurs may be recent college graduate who lack the experience needed to succeed in the competitive business environment. Through these incubation centers, they will understand what is expected of them in the market, how they can identify problems at the earliest stage possible, and strategies that they need to employ. They should also learn how to embrace technology and changes associated with it when they start their own companies.

Methodology

Data Collection Method

One of the most important steps when conducting research is data collection. According to Zoogah (2014), one can collect data from primary and secondary sources. It was desirable to collect primary data from a sample of respondents, especially individual entrepreneurs in major cities within the country such as Riyadh and Mecca. These respondents would help in explaining the specific challenges they face in their operations and how they believe government and other stakeholders can help them overcome the problems. However, primary data collection is a time-consuming process. One has to start with the sampling respondents, preparing a questionnaire to be used in data collection, and meeting the participants for the interview. Although the collection of primary data is the most effective way of addressing the knowledge gap in a given field of study, the time available could not allow for primary data collection. As such, the study relied on data collection from secondary sources.

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Secondary data that informed the conclusion and recommendations made in this study was obtained from relevant books, journal articles, and reliable online sources. The school library was instrumental because the researcher was able to get books that focus on challenges faced by small and medium enterprises in Saudi Arabia, the Middle East and North Africa (MENA) region, and in other parts of the world. Online journal articles were also important in this research. Digital databases such as Jstor made it easy to have access to reliable journals. Google Scholar was also another online platform that made it possible to locate relevant journals. Key words such and phrases as the business environment in Saudi Arabia, small and medium enterprises and business challenges in Saudi Arabia made it possible to locate materials needed for the study. Information obtained from these secondary sources of data enabled the researcher to understand the local environment in Saudi Arabia and challenges that small companies have to deal with in their normal operations.

Analysis of Data

When data has been collected, the next step is to conduct an analysis. Achari (2014) explains that information collected from various sources should be interpreted to ensure that they are meaningful in a given context. The focus of this study was to investigate the challenges that small firms in Saudi Arabia face in their normal operations and determine strategies that can be used to overcome them. Given that data was primarily collected from books and journal articles, the researcher had to ensure that the research aim was achieved. Qualitative analysis was considered appropriate in this study. This approach of analyzing data involves providing a detailed explanation of a phenomenon as opposed to the quantitative approach that involves mathematical analysis (Achari, 2014).

Qualitative analysis tries to answer the question of why a given phenomenon happened in a given way by providing information on specific events that lead to a given outcome. In this context, the analysis would focus on explaining the specific factors in the environment and their effect on small businesses in the country. For instance, when gender inequality was identified as a factor that affects small business environment, analysis had to explain the affected gender and reasons why they find the business environment unfavorable. Instead of explaining the magnitude of the problem or the magnitude of causative agents, qualitative analysis explains why a given issue has specific characteristics. This approach was considered appropriate in explaining the challenges of small business in Saudi Arabia and steps that can be taken by relevant authorities to help them.

Ethical Considerations

When conducting academic research, Zoogah (2014) explains that it is important to observe ethical concerns. In this study, the researcher was keen on observing the rules and regulations set by the school. One of the most important ethical requirements observed was to ensure that all forms of plagiarism were avoided. Achari (2014) warns that presenting works, which others have presented as one’s own is an academic fraud. As such, the researcher ensured that the research was conducted from scratch. As explained above, the researcher relied on information available in books and journal articles. In this study, the American Psychological Association (APA) referencing method was used whenever information from other authors was paraphrased in this project. A list of all sources used in this study was provided at the end of the document in the references section. The researcher also had to ensure that the project was completed within the time set by the school. The project was handed in within the right time as stipulated in the timetable.

References

Achari, A.P. (2014). Research methodology: A guide to ongoing research scholars in management. Traverse City, MI: Horizon Books.

Burton, E. (2014). Business and entrepreneurship in Saudi Arabia: Opportunities for partnering and investing in emerging businesses. New York, NY: Wiley.

Fadaak, T.H., & Roberts, K. (2019). Youth in Saudi Arabia. Cham, Switzerland: Palgrave Macmillan.

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Todorov, K., & Smallbone, D. (2014). Handbook of research on strategic management in small and medium enterprises. Derry Township, PA: The Hershey Company.

Zoogah, D.B. (2014). Advancing research methodology in the African context. Bingley, UK: Emerald Group Publishing Limited.

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