Market Analysis: Macro Level

PESTLE Analysis

POLITICAL

+ Stable government and policies (in place since 1932)

+ Beginning of reforms to increase women’s rights (right to vote and run in 2015 municipal elections, the possibility to be appointed to the king’s advising council)

- Lack of democracy (only one political party)

- Freedom of speech, belief, and assembly are prohibited (complete censorship of media, discrimination of Shias)

- Potential threats to internal security (extremists and oil facilities)

ECONOMIC

+ Well-performing economy (avg. GDP growth rate 4.3% from 2003 to 2011 and 6.8% in 2011, account surplus was 27.4% of GDP in 2011)

+ Strong export position (one of the largest oil exporters in the world, growing oil prices)

+ Emphasis on infrastructure development (2012 budget allocated $9.4 billion for transport)

- Increasing unemployment (2011 9% unemployment, income inequalities)

- Strong dependence on oil revenues (leading to less-developed manufacturing and service sectors)

SOCIAL

+ The strict religious rules followed by Muslims can be an advantage for Veen Waters. In Saudia Arabia, alcohol is forbidden, eliminating one segment of the beverage industry to compete with

+ Effective social security system (small old-age pensions, plot of land and home loan provided for all citizens)

+ A young society (2012 median age of 25.7 years, large workforce)

- Poor performance in Human Development Index (ranked 56^th out of the 187 nations listed)

- Difficulty for migrant workers (more than 8 million/more than half of national workforce, suffer from abuses and labor exploitation, employer holds power through residency permit)

TECHNOLOGICAL

+ Strong financial position allows high investments in technological development:

Development in country’s technical manpower, grants for research projects at universities and national research centers.

+ Seminar on innovation:

Organized by King Abdulaziz City for Science and Technology in collaboration with Stanford Research Institute. The main aim of the workshop was to educate the participants (heads of department, officials, and entrepreneurs) on the importance of innovation and its effect on economy.

+ Growing emphasis on R&D:

Encourage research in science, medicine, pharmacology, computer science, engineering, and education. Priority is given to higher education in order to develop its own R&D personnel base.

+ GITEX Saudi Arabia 2013:

This exhibition is a platform for the latest innovations and innovative businessmen. Creating a business friendly environment, GITEX gives the opportunity for networking and relationship building.

- Poor technological education system:

Education laws are based on Islamic principles and focus on traditional subjects resulting in unskilled students who cannot meet the challenges of the growing knowledge-based economy. Therefore, firms have to rely on expatriates.

- Weak implementation of IPR laws:

In 2011, the International Intellectual Property Alliance recommended that Saudi Arabia should be placed in the Watch List.

LEGAL

+ Approval of the mortgage law, which encourages more lending by the banks

+ Regulations for increasing foreign investments:

Foreign companies able to access the market without local partners in most sectors

No minimal capital requirements for establishing business in most cases

+/- 74^th freest economy in the world with high levels of fiscal – and business freedom with low rates of tax but lower levels of financial – and investment freedom.

- Foreign companies are obligated to pay a 20 % business tax on corporate profits while domestic ones are exempted and pay only 2.5 % on their net current assets

- Stricter import tariff for mineral water (20%) in contrast to general tariff of 5-12 %

-  Presence of traditional judicial norms:

Despite the economic growth, the Saudi Arabian judicial system has remained traditional, and the king maintains control. The judicial system is not up to international legal standards. Religious leaders also play an important role in judicial matters. The punishments include sentence of death, amputation and stoning. Although they have decreased, they are still carried out.

-  Anti-terror law under criticism

Limitations on freedom of expression

 ENVIRONMENTAL

+ Adequate environmental legislative framework based on Islam principles

+ Commitment to international environmental pacts

Saudi Arabia has joined several intl’ and regional agreements such as The United Nations Framework Convention on Climate Change.

+ Establishment of a center for environmental research:

Deals with environmental issues and aims to provide solutions for these issues. Has initiated renewable research projects, for instance

-  Poor performance on the Environmental Performance Index (EPI):

Ranked 82^nd out of 132 countries

Main problems deal with air and marine pollution 

Implications for Veen  

The wealthy economy with large upper-class is an attractive environment for this luxury product. The well-developed and improving infrastructure makes transportation easily accessible when distributing the product. As we have mentioned in the SWOT analysis, the religious aspect of the country creates a significant advantage for the Veen. As alcohol is prohibited in Saudi Arabia, there is larger beverage market share potential for water.  The young population and therefore large workforce means that there are many business people, which is one of Veen's main target groups. Doing business in Saudi Arabia is made easier by the fact that foreign companies are not obliged to work with a local partner. Since Saudi Arabia has been found to have relatively poor environmental health, Finland's pure environment is a large contrast and an advantage for Veen.