Spring

09

Best Buy Saudi Arabia

ERGUL, Ahmet Furkan

GHAMRAWI, Yahya
MUTKEKAR, Niranjan

[Type the company address]

Table of Contents

I. Executive Summary
II. The Macro Environment
a. Legal and political environment
i. Regulations and Legal Framework
1. Restrictions on Business Ownership and Activities
2. Prohibitions and Licensing
ii. Labor And Human Resource Management
1. Major Labor and Human Resource Factors
2. Education
3. Unemployment
b. The economic environment
i. Main Economic Indicators
ii. Trade Agreements
iii. Current Account and the Balance of Payments
iv. Government Debt and Currency Stability
c. The socio-cultural environment
i. The Location
ii. Cultural Characteristics
iii. Holidays in Saudi Arabia
III. The Industry Environment
a. Competitor analysis
i. Main Competitors
ii. Potential New entrants
iii. Substitute Products and Services
b. Supplier analysis
c. Customer analysis
IV. Business Proposal
a. Proposed Location
b. Proposed Business Structure
c. Proposed Organizational structure

Best Buy Saudi Arabia

 d. Proposed Supply Chain and Operations
e. Marketing
i. Product Marketing
ii. Pricing Strategy
iii. Promotion Strategy
iv. Public Relations
v. Service
vi. Keys to Success
V. Conclusion
a. Proposed Time Frame and Management Expertise
b. Threats During Entry
c. Risks
VI. Bibliography

Best Buy Saudi Arabia

I. Executive Summary
Governments are pursuing regulatory reforms to attract Foreign Direct Investments all over the world.
The positive developmental impacts of FDI inflows are related to high levels of human capital and on the
existence of good infrastructure in recipient countries. In the following paper, we will study the market
entry of Best Buy to Saudi Arabia. Related to that we will study the legal, social and economic
infrastructure of Saudi Arabia including; regulations in FDI, restrictions, licensing and prohibition,
political stability, major human resource factors, main economic indicators, balance of payments, socio
cultural environment, the business and organizational structure of Best Buy Saudi Arabia, implementation
of marketing plan and possible market entry threats.

This study investigates the determinants of foreign direct investment entry mode choice between a wholly
owned subsidiary and a joint venture. We argue that the entry mode choice of Best Buy Saudi Arabia is
primarily influenced by FDI regulations and the firm's strategic fit to the recipient country. We argue that
market entry of Best Buy to Saudi Arabia with a joint venture is more of a choice, which will have
positive impact on perception related to nationalism issue, except being a regulatory obligation. We will
do joint Venture with Jarir Bookstore in Saudi Arabia. The country lies in the hearth of Middle East. It is
one of the most economically and politically stable country throughout the region. The unemployment
rate is a challenge for the country and also the inflation rate, however the government debt is decreasing.

The market has high competition. German Mediamarkt, French Darty, U.S origin Target and Circuit City
are currently planning to enter Saudi Arabia market. Extra and Carrefour are the existing strong
competitors within the market. The market structure works as an oligopoly presently. However it is
expected that as the threat of new entrants increase, a price war is likely to occur. Online retailers such as
Amazon and Ebay also are important substitutes of brick retailers. The barriers to entry is moderate to
high

Our initial market entry will be in Capital City, Riyadh. We plan to open 2 more stores following 2 years
in Dammam and Jeddah. Our marketing strategy is based on price leadership, which will help us to
develop the highest market share. Our initial target is reaching the highest market share. Due to the high
level of local competitors, we will pursue price penetration. We foresee that other players in the market
will respond to the price change by cutting down prices, thus we believe that supply chain management
plays an important role to work more on cost efficient basis in Saudi Arabia market.

Best Buy Saudi Arabia

II. Macro Environment

a. Legal and Political Environment

i. Regulations and Legal Framework

1. Restrictions on Business Ownership and Activities

As the Saudi Arabian General Investment Authority (SAGIA) mentioned in their official annual issue, in
order to qualify for a business license In Saudi Arabia (S.A.), the activity of that business should not be
mentioned in the list of the prohibited activities, which are mostly related to religions honoring, safety,
and morality—The prohibited activities will be discussed in depth later in this report. The product
standards and production processes must be in accordance with the prevailing laws in the S.A. However,
SAGIA stated that in case there is no standard specification stated in the prevailing laws in the S.A, the
laws of the European Union or the United States will be activated instead.

It had been required that an international investor must form a partnership with a local Saudi investor in
which the local investor own at least 25 percent of the company. However, since 2005 it is possible to
form a fully owned foreign investment, which can be eligible for all the benefits offered by the Saudi
government, which will be addressed in detail in the following chapters. We are planning to establish a
joint venture with a local investor, Jarir Bookstores, in the future. At this stage, we are aiming to utilize
Jarir’s local market expertise and further take advantage of strong strategic fits.

2. Prohibitions and Licensing

In Saudi Arabia, the importation of certain goods is either prohibited or requires special approval from the
government. Specifically, "the importation of alcohol, firearms, pork products, and used clothing is
prohibited. Imports of certain products, including agriculture seeds, live animals, books, periodicals,
audio or visual media, religious materials that do not adhere to the state-sanctioned version of Islam or
that relate to a religion other than Islam, chemicals and hazardous materials, pharmaceutical products,
wireless equipment, horses, radio-controlled model airplanes, products containing alcohol, natural
asphalt, and archaeological artifacts, require special approval. (Office of the US Trade Reprisntitive)
"Importation of some media products is subject to censorship. In addition, in order to obtain business
licenses, foreign investors should not have been previously convicted of financial or commercial

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violations in any country. Also “The grant of a license shall not result in the breach of any international or
regional agreement to which the Kingdom is a party” (SAGIA Web Site)

Also, as mentioned earlier, in order to qualify for a business license, the activity of a business should not
be mentioned in the list of the prohibited activities. We can say that the list of these activities does not
have much limitation to electronic consumer goods. But as we mentioned earlier, religions play an
influential role in the business environment in Saudi Arabia as well as the rest of the Middle East. The
products mix of Saudi Best Buy should not include any of these listed products.

•Products such as (music/CDs/DVDs/movies/books/video games) that offense any religion or any

religious characteristic or sample of Islam, Christianity, Judaism or any other religion.

•Products such as (DVDs/movies/books/video games) that include pornography.

•Products such as (music/CDs/DVDs/movies/books/video games) that conflict with the Government in a

destructive manner. Meaning any product that present the policies of Saudi Arabia as an enemy or as
community deceiver will not be allowed into the country.

All multimedia products should be examined by the Ministry of Culture and Information. Again, these
policies are not expected to negatively affect the company's operations, but they should be along with the
other stated policies being aware of. Regarding the Standards, all other electronic products should be
examined by the Saudi Arabian Standards Organization (SASO) to obtain entry approvals. The standards
are generally the same as those used in the United States and the European Union.

ii. Labor and Human Resource Management

1. Major labor and human resource management factors

Although Saudi Arabia has done lots of activities that intend to reform its economy, some recent policies
took place to solve other internal problems such as the unemployment. The most relevant policy is what
so called the “Saudization” program, which restrict the percentage of foreign employees in regional and
international business. The percentage of Saudis should be at least 25 and reach 75 depending on the
sector. In our case, we might be entitled to employ as much as 35 percent foreign labor. The program
focuses on decreasing the Saudi unemployment rate, which is estimated by CIA to be at least 8.8 percent.
The Saudization program aims also to reduce and reverse over-reliance on foreign workers and to
decrease international remittances which were estimated to sum to $200.4 billion in the past 10 years.
(Saudi Arabian Ministry of Economy and Planning)

Best Buy Saudi Arabia

We believe that this program will not have a serious effect on the performance of Best Buy— at least in
the close future. Still, the company should be aware that such a policy might restrict the company's
operations or increase the spending on salaries as Saudi labor usually cost at least 30 percent more than
foreign labor.

SAGIA website says that employees’ salaries in Saudi Arabia vary according to the employee's status,
position, and experience of the employee as elsewhere in the world. 18 percent General Organization for
Social Insurance (GOSI) contribution for annuities is payable--9 percent by the employer and 9 Percent
by the employee-- for Saudis employed and 2 percent for occupational hazards: health insurance,
transportation or compensation in lieu of cars for more senior personnel, return tickets to the country of
origin and an end of service bonus payment to non Saudis." SAGIA

The following table shows the rank of Saudi Arabia in terms of the ease of employment issue vs. the
average rank of the top ten nations.

2. Education

According to SAGIA, an increase in school funding, coupled with schools building, led to a significant
increase in literacy rates--from 33 percent in 1970 to 83 percent in 2008. Saudi Arabia has also strongly
improved its enrollment rates at the secondary and tertiary levels. Currently, the number of women in
tertiary education now outweighs the number of men. In 2007, the government announced King Abdullah
Project for the Development of Public Education. This project will distribute [approximately] $4 billion in
the next five years as part of a new education improvement plan covering four areas: improvement to the
public education environment, teacher training, curriculum development, and extracurricular activities.

According to a report from SAGIA, the activity is not limited to primary and secondary education. The
establishment of King Abdullah University of Science and Technology (KAUST), which is a research

Best Buy Saudi Arabia

institution expected to be completed in 2009, with a total capacity of 13,000 students, will help ensure
that Saudi Arabia can train the next generation of scientists and engineers. KAUST along with the other
research institutions are expected to play a crucial role in the Kingdom's future competitiveness, and their
success is anticipated to yield long-term, significant improvements in Saudi Arabia's ability to furnish
companies with a high-quality skilled labor force.” This development has been associated with an
increase of investment spending on the construction of facilities necessary for instructional purposes and
the recurrent expenditure such as wages, salaries, and academic services expenditure, as well as
maintenance of such facilities. Currently, the Kingdom has 19 universities, 102 girls' colleges, 34
technological colleges for boys, 4 technical institutes and 52 vocational training centers, 4,516 secondary
schools, 7,503 inter-mediate schools and 13,454 primary schools.

According to CIA reports , as of 2004, the country spends 6 percent of its GDP on building elementary,
secondary and high schools and supporting improvement programs in the Saudi Universities in order to
fulfill the increasing desire for highly trained professionals in the Saudi market. This is further expected
to assist the country implementing the S.A. economy reformation plans. In the past 3 years, Saudi Arabia
also focused on higher education by increasing the budgets of the major seven universities by as much as
30 percent.

According to the Ministry of

Planning, “The number of
schools falling under
government educational
institutions increased from
3098 in 1970 to 32,119 in
2007. The number of boys'
schools went up from 2602 in
1970 to 14,790 in 2007 while
girls' schools increased from
496 to 17,329 over the same
period. The intensive attention which was given to girls' education resulted in the growth of the number of
girls' schools faster than boys' schools. The average annual growth rate of girls' schools reached 10.1%
compared to 4.8 % for boys' schools.”

Best Buy Saudi Arabia

“Technical training indicators show
the significant attention paid to this
type of education in order to meet
the economic development needs in
various production and service
sectors. The enrollment at higher
technical training institutions in the
government sector, increased from
840 students in 1969 to 54.7
thousand students in 2007, or by
more than 65 folds over the same period. Also, The number of graduates of higher technical training
institutions in the government sector reached 12.43 thousand in 2007.” Saudi Ministry of Planning

3. Unemployment Rate

The Saudi unemployment rate has been increasing. An unofficial study estimated the unemployment rate
to reach 30 percent of the Saudis eligible to work. Saudi Arabia's population tolls 25 million (including 7
million foreigners). CIA estimates the unemployment rate to be 13 percent as of 2007. And the official
reports of Saudi Arabia say it is in the neighborhood of 6 percent. The following table is an official
breakdown of the labor force by sex and nationality in 2007 showing the unemployment rate in each
segment.

13% among Saudi Males only (local bank estimate--some estimates Range as high as 25 to 30 percent) (2004 est.)
Source : CIA

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Regard less of the data above, experts estimate the Saudi unemployment rate to be as high as 30 percent.
The pressure for change is growing rapidly, with unemployment for the 20-24 age groups (the new
graduates) at around 27% and 33% for Saudi males and Saudi females, respectively. “Saudi women
account for only 7.1 % of the workforce. Unemployment among women is reckoned at 16% - more than
double the 6.8 % unemployment rate for Saudi males.” Saudi-American-forum.org

Source: SAGIA

b. The Economic Environment

i. Main Economic Indicators

Preliminary data of the Central Department of Statistics and Information (CDSI) indicate that GDP at
current prices (including import duties) recorded a growth rate of 7.1 percent to SR 1,430.5 billion in
2007 (1 US$= SR3.75). The non-oil sector GDP grew by 4.5 percent to SR840.4 billion, constituting 45.6
percent of total GDP. The non-oil private sector GDP went up by 8.0 percent to SR403.8 billion, and that
of the government sector by 4.2 percent to SR228.9 billion. The oil sector GDP grew by 8.0 percent to
SR778.4 billion, constituting 54.4 percent of GDP at current prices.

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The general cost of living index for all cities (1999=100) registered an increase of 4.1 percent in 2007.
The wholesale price index recorded an increase of 5.7 percent in the same year. Non-oil GDP deflator
registered a rise of 1.2 percent.

According to Saudi Arabian Monetary Agency (SAMA), “The average inflation rate [measured by annual
changes in the cost of living indices during 2008] rose by 9.9 percent while the average inflation rate
during the preceding five years was 1.6 percent. The group of renovation, rent, fuel, water, housing and
appurtenances rose by 17.5 percent, the group of food and beverages rose by 14.1 percent, the group of
goods and other services rose by 10.7 percent, the group of medical care rose 5.1 percent; the group of
home furniture by 7.6 percent; and the group of education and entertainment by 2.1 percent.

Best Buy Saudi Arabia

In order to alleviating the impact of the rising cost of living in Saudi Arabia, in 2008, the government
exempted wheat, wheat flour, and other grains from import duties and reduced duties on 75 other
foodstuffs to 5 percent. According to the Global Agriculture Information Network, the major foodstuffs
that benefited from the reduced 5 percent import tariff included: chilled and frozen poultry and their
products, eggs, cheese, cheese cream, vegetable oils, pasta, canned meat, fruit and vegetable, mineral and
ordinary water, long life milk, corn flakes, peas, beans, peanut butter, yeast, and baking powder (GAIN,
2008). The government will review the list in April 2011 (Saudi Arabian Monetary Agency (SAMA)).

ii. Trade Agreements

Saudi Arabia is a key player in the international trade life around the world. By signing agreements with
several trade organizations and many European and Asian countries, Saudi Arabia has created a strong
cooperation with the world economy. Saudi Arabia became a full member of the World Trade
Organization (WTO) in 2005. Also, Saudi Arabia is among the OPEC 11-members. In addition, Saudi
Arabia is a member of the Gulf Cooperation Council (GCC). GCC trade agreement includes the United
Arab Emirates, the Kingdom of Bahrain, Saudi Arabia, the Sultanate of Oman, Qatar and the State of
Kuwait.

In addition, Saudi Arabia has signed Investment Promotion & Protection Agreements with eight
countries: Italy, Germany, Belgium, Taiwan, China, United States, United Kingdom, France, Malaysia,
and Austria. In addition, Saudi Arabia has Economic, and Technical agreements with Argentina,
Australia, Azerbaijan, Greece, India, Iraq, Italy, and Japan. Furthermore, the country has singed
investment and technical agreements with many developed and developing countries, such as Japan,
China, and India, in addition to two industrial agreements with Germany, and Denmark. Recently, In
2007, Saudi Arabia signed economic, trade, investment, and technical agreements with China.

iii. Current Account and the Balance of Payments

The U.S. goods trade deficit with Saudi Arabia was $42.3 billion in 2008, an increase of $17.1 billion
from $25.2 billion in 2007. U.S. goods exports in 2008 were $12.5 billion, up 20.0 percent from the
previous year. Corresponding U.S. imports from Saudi Arabia were $54.8 billion, up 53.8 percent. Saudi
Arabia is currently the 23rd largest export market for U.S. goods.

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U.S. exports of private commercial services (excluding military and government) to Saudi Arabia were
$3.3 billion in 2007 (latest data available), and U.S. imports were $509 million. Sales of services in Saudi
Arabia by majority U.S.-owned affiliates were $537 million in 2004 (latest data available), while sales of
services in the United States by majority Saudi Arabia-owned firms were $2.8 billion in 2006.
Preliminary estimates of the Kingdom’s balance of payments indicate a current account surplus of
SR356.3 billion (US$95.01 billion) in 2007. The surplus in the current accent was due to an increase of
2.9 percent in the balance of trade surplus to SR565.6 billion (US$150.82 billion) in 2007 compared to
SR549.9 billion (US$ 146.64 billion) in the preceding year as a result of an increase in oil exports and
other exports.

iv. Government Debt and Currency Stability

Government debt, all of which is domestic, has been reduced to SR 366 billion ($97.6 billion) from SR
475 billion ($126.7 billion) at the end of 2005. The repayment of debt combined with robust economic
growth has allowed a substantial improvement in the government’s debt position; debt now stands at 28
percent of GDP compared to a peak of 119 percent of GDP in 1999. SAMA data shows that commercial
bank holdings of government debt declined by SR 8.7 billion (US$2.32 billion, 7 percent) over the first
10 months of the year, around 8 percent of the total debt retired. Most of the remaining debt repaid was
held by the two large pension funds: GOSI and the Public Pension Agency. The continued repayment of
government debt is sharply contracting the government bond market. Nonetheless, SAMA has indicated
that it would like to buy back all outstanding government debt held by commercial banks.

Best Buy Saudi Arabia

The Saudi Arabian Riyal has been tied to the USD since 1986 at an exchange rate of US$1 to SR3.75.
Monetary policy is centered on maintaining the SAR peg against the USD, thereby restricting inflation
and fostering financial stability. The Saudi Riyal (SAR or SR) has remained stable against the US$ at a
rate of US$ 1: SAR 3.75 for around 19 years.

Interest rates on domestic inter-bank deposits declined substantially during 2007-2008. The three-month
inter-bank interest rate (SIBOR) came down from 4.79 percent at the end of the fourth quarter of 2007 to
2.03 percent at the end of the first quarter of 2008. The differential between the Riyal and the US$
deposits for a three-month period was still high in favor of the dollar the differential amounted to 64 basis
points at the end of the first quarter of 200 against 43 basis points at the end of the 4th quarter of 2007.
(SAMA)

In the first quarter of 2008, SAMA entered into foreign exchange swaps with domestic banks, for several
periods, amounting to SR4.750 million to absorb excess Riyal liquidity and provide required US$
liquidity to the banking system.

In the domestic public debt market, the issue of new government bonds was reduced by 50 percent in the
first quarter of 2008 from SR1,000 million (US$266.66 million) to SR500 million (US$133.33 million)
on a quarterly basis as of early 2008. (SAMA)
Since the Saudi currency is pegged with the US dollar, we believe that there is no significant transaction
risk the company is taking when doing business in Saudi Arabia.

Riyal against Major Currencies (Apr 25, 2009)

Currency Against S.R. Buy Sell

US Dollar 3.7500 3.7505

Euro 4.969 4.9724

Sterling Pound 5.5031 5.5057

Japanese Yen 0.03858 0.03861

Swiss Franc 3.2909 3.29280

Source: SAMA.gov.sa

Best Buy Saudi Arabia

c. The Socio-Cultural Environment
i. The Location

Saudi Arabia occupies

2,250,000 square kilometers
(868,730 square miles). Saudi
Arabia is bounded on the west
by the Red Sea, and on the east
by the Arabian (Persian) Gulf,
to the south by Yemen, and
Oman; southeast by the United
Arab Emirates (UAE), and
Qatar, and to the north and
northeast by Kuwait Jordan,
Kuwait and Iraq. The major
cities are: Riyadh – the capital,
Jeddah (the chief seaport), and
Dammam – where most of the
Saudi oil reserves and where
the major Saudi petrochemical,
company, Saudi Armco, exists.

ii. Cultural characteristics

The cultural environment in Saudi Arabia is considered highly conservative. Officially all Saudi citizens
(a total population of 21 million) are Muslims and almost 50 percent of the immigrants, a total population
of 7 million, are non-Muslims (Saudi Ministry of Planning).

Islam includes five pillars: belief in the oneness of God and the finality of the prophet hood of
Muhammad; the establishment of the daily prayers; concern for and alms giving to the needy; self-
purification through fasting; the pilgrimage to Makah (Mecca) for those who are able. The major
everyday rituals are the daily five prayers. Those who pray face Mecca, ideally in mosques or individually

Best Buy Saudi Arabia

or as a group if possible. For that, all businesses close four times every day for almost 30 minutes. The
hajj (pilgrimage), the fifth pillar of Islam, should be performed, if possible, at least once in one's life.
Every year more than 4 million Muslims come from all over the world to do their pilgrimage duty in
Makah. Also, the visitors come to visit Makah the year long. Surveys indicate that Makah is the most
attractive domestic tourism region, attracting almost of 10.9 million tourism (SAGIA).

"In Saudi Arabia, social interaction is marked by strong gender segregation and respect for age
differentials" (everyculture.com). Male-female interaction in a commercial shop is generally formal and is
limited to the process of buying and selling. Females don't drive. We estimate that 85 percent of families
that include over 3 members have their own drivers. Saudis tend to remain in close physical contact
during normal social interaction. For example, walking arm-in-arm or holding hands while talking is
normal and common, especially among persons of the same gender who know each other well. Gazing
and staring at strangers is generally rude.

Social visiting within such contexts is common and occurs on both daily basis and for special events and
occasions. In business meeting and a personal visiting, a guest, upon arrival, should greet the host and the
others present by shaking hands or, if well-known to each other and of like age, by kissing on the cheeks
three times. The person being greeted should also stand. The guest should be offered refreshments of
Arabic coffee or black tea. An invitation to lunch or dinner is usually expected from the host of the
meeting.

iii. Holidays in Saudi Arabia

Saudi Arabia has two main holidays: Eid Al Adha, comes after hajj (pilgrimage)season, and Eid al-Fitr
(the breakfast holyday)comes after the month of Ramadan, the ninth moth in the Arabic calendar, which
Muslims fast from sunrise to sunset for almost 30 days. During the month of Ramadan, businesses must
shorten the required working hours and make the operations start slightly later than usual—around 10 am.
The festival of Eid al-Fitr in Saudi Arabia is widely popular. For many businesses, Both holidays are
major shopping seasons, especially, Eid al-Fitr “the breakfast holyday.” So, it is a perfect opportunity for
our company to conduct promotional campaign in those holydays—Jarir, our business partner is usually a
strong player in such seasons. In both holidays, banks and government services stop for around 4 days
while other businesses like, apparel retailers, car dealers, and electronic retailers compete with each other
by introducing their major annual promotional activities.

Best Buy Saudi Arabia

III. The Industry Environment
a. Competitor analysis
i. Main Competitors

Extra, established in 2003, has almost 25 percent market share of the consumer electronic goods market in
Saudi Arabia. Also according to our analysis Extra ranked number one in terms of its competitive
strength. In the past 5 years, Extra opened 11 stores among them is the biggest electronic store in the
Middle East. The company owns stores in competitive locations. The number of stores will come to 15 by
the end of 2009. Among the current stores are stores in cities other than Riyadh, Jeddah and Al Dammam,
where the market is less competitive.

Jarir bookstore, the proposed business partner, was established in 1979 with a small store located in
Riyadh. This single store specialized in supply of office and school products to meet customers' demand
and to provide high level of satisfaction.

Today, Jarir Bookstore is well reputed and highly respected among its customers and among the business
community. The company is led by a strong management team with effective leadership skills and which
respects individual initiative and provides opportunities for personal growth to employees. The company
currently operates 21 stores in Saudi Arabia in addition to three stores in UAE, Qatar, and Kuwait.
Through its stores, Jarir sells computers and laptops; video games and computer software; Movies;
computer supplies; English and Arabic books, magazines and newspapers; arts and engineering supplies;
and office Supplies.

Best Buy Saudi Arabia

 Competitors Analysis

Industry Key Success

Weight Competitors
Factors

Extra Jarir Banda Supermarkets Carrefour Average Small retailers

Economies of scale 0.35 2.8 2.45 2.1 2.45 1.75

Brand Equity 0.15 1.2 1.35 1.35 1.35 1.35

Stores & distribution 0.35 2.45 2.65 2.45 1.75 1.75

Products and Promotions
0.15 1.35 1.35 1.05 1.2 0.9
innovation

Totals 1 7.8 7.8 6.95 6.75 5.75

Market share 25% 17% 8% 3% 47%

ii. Potential New Entrants

Our industry within Saudi Arabia is growing at an increasing speed, which may attract many global
competitors such as German Mediamarkt and French Darty, U.S origin Target and Circuit City. However,
the expansion strategy of stores, such as Extra, and Carrefour, which plans to open 15 new stores in the
next 5 years, is a huge threat to our company. For that, a strong and fast expansion strategy is a perfect
way to compete with the other companies in the next years in order to sustain a performance that meets
the expectations of the shareholders and the management of Best Buy and Jarir. (The conclusion,
specifically, in the Risks section, will further discuss this issue more in depth)

iii. Substitute Products and Services

There are number of substitutes present for Best-Buy. All the sellers of consumer electronic goods can be
considered as the substitutes. Extra – chain in electronic retailing, Modern Electronics, eBay, Amazon,
other websites selling consumer electronic goods and other small-medium electronic shops all pose as
substitutes for Best-Buy. Because so many competitors are present in the market, they bring down the
prices and decrease the profit margins. We need to refine our pricing strategy to compete in such

Best Buy Saudi Arabia

environment. eBay, which is an online marketplace, will pose a big threat to Best-Buys strategy. eBay has
an advantage of being an online peer-to-peer operator with no inventory and other fixed costs. Still, there
are many electronic items which customers need to see, feel, touch and use before they decide to buy the
item(s). Extra – retail brand will pose the maximum threat to Best-Buy as it is a direct competitor. Extra
has been in electronics retailing business since 2003, so it has experience advantage, it has big shopping
floor space, detailed customer service plan which includes anytime and anywhere maintenance service,
highly advanced store design etc. “In 2009, Customer traffic is expected to exceed 8 million shoppers
with a total shop floor space of over 57,400 square meters”. 1

b. Supplier analysis
Primary suppliers for Best-Buy are major electronics manufacturers, which are located throughout the
whole world. There is an intense competition between suppliers. Many new manufacturers are competing
with huge conglomerates in price and quality. Major suppliers are in consumer electronics, appliances,
books, DVDs, cellular and mobile electronics segments. The hardware market is the key segment for Best
Buy, dominated by IBM, HP and Dell, and Japanese conglomerates, such as Toshiba and NEC. Those
vendors have shown an ability to innovate and lead the market in new directions, giving them key
importance for Best Buy. IBM and Intel's innovations, Dell's continuing price reductions, HP’s efforts to
keep their market leadership with innovative marketing strategies and sales channels make them key
suppliers for Best Buy.

The continually changing dynamics of the sector increases the importance of the segment in Best Buy’s
product line. Moreover consumer electronics vendors, such as Sony, Siemens, Philips and Panasonic has
a great importance especially in LCD and Plasma technology market for Best Buy, even though they
generate a large proportion of their income from other industrial activities. Furthermore in mobile phone
market Nokia remains the top supplier for Best Buy with the highest market share in Q1 2009. Samsung,
which has unseated Motorola from its second position, LG Electronics and Blackberry are other key
suppliers for Best Buy. Best Buy has a wide variety of products, thus there are many other suppliers to
list, we should note that Best Buy has a moderate power on its suppliers due to the high competition and
the number of firms.

1
http://www.ameinfo.com/189249.html

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c. Customer analysis
Best Buy and Jarir will offer almost everything that is related to electronics. For that, the products and
services provided by Best Buy and Jarir target a huge percentage of the residents of Saudi Arabia.
Students, professionals, and stay-at-home mothers, are all among our target market. The needs of male
and female consumers should be considered in our strategies.

Prices play an important role in the performance of electronic goods retailers and it is one of the major
key success factors; so, sustaining competitive prices is expected to give the company the ability to
penetrate the market, to achieve excellent performance and to expand even faster and easier. After sale
services is also a most to achieve the company’s long-term goals. Our estimate of the buying power is that
residents of Riyadh have the strongest buying power among the three major cities. Residents of Riyadh
spend in average of $1500 on electronics, while the Residents of Jeddah and Dammam spend $1000, and
$800, respectively.

The market annual growth rate is almost 4 percent. Extra, one of the biggest electronics retailers in Saudi
Arabia estimates the consumer electronics market in S.A. to worth almost 8 billion U.S. dollars. Extra, a
5-years old retailer dominating the market with almost 25% market share (Extra). Other superstores have
around 30 percent, small retailers have almost 47 percent market share. Almost 100 percent of Saudi
families have T.V. and satellite receiver. And it is estimated that 80 percent of the Saudi Families have
access to internet and the number is increasing. Almost 100 percent of the residents of Saudi Arabia have
at least one cell phone (SAGIA). According to Extra, in 2007-2008, cell phone sales accounted for 40
percent of the total market.

According to CIA fact book, Saudi’s population include 38% of the population, or (10.8) million
under 14-years-old. We will exclude 90% of this segment since their buying power and decision power is
usually weak at this stage. But the situation will differ in and will make the target market increase in a
rapid phase in the next 6 years. So the company should continually track the changes in the country's
population characteristics. 10 percent of 10.8 equal 1.8 million target market in the segment of 14 years-
old and under.
The population Saudi Arabian population includes 5,576,076 non-nationals (CIA, July 2009). From
this segment we will exclude 20 percent who are conceded low-income (under $400 monthly income)
(insufficient data). Then we will include all Saudis who are older than 14-year-old (17.08) (male
9,608,032/female 7,473,543) million. So, the total market population is (19.45) million

Best Buy Saudi Arabia

 Most of the population is concentrated in the major cities: Riyadh (population around 6.7 million),
Jeddah (population 3.7 million), Dammam (population: 1.3 million), Medina, Tabuk (population: 0.5
million), Abha(population: 0.4 million), and Ta'if. According to Saudi Arabia CIA fact book, the Saudi
GDP/Capital equals to $20,700 (PPP) (est.2008).

Potential Customers by Segments

Saudies under 14
years-old
(male+female), 1.8
million
foreigners, 4.4
million

Saudies over 14
years-old (Male),
9.6 million

Saudies over 14yo

(Female), 7.47
million

Best Buy Saudi Arabia

IV. Business Proposal
a. Proposed Location
Best Buy will be launched in three cities in a three stage-expanding plan, which consists of opening a new
store in every 2 years. The initial launch will be in Riyadh. Riyadh, the capital city of Saudi Arabia, is the
largest and fastest growing market of Middle East. The city is the center of it all economic and political
activities. Not only home to the kingdom's government, the city has all the key institutions, embassies,
diplomatic missions, trade centers making it the legitimate control center of the country. Thus launching
our first store in Riyadh will allow us to be close to the decision-making area of the country. It will also
increase our brand recognition. Riyadh provides opportunities in all key economic sectors offering an
ideal platform to participate in Saudi Arabia’s economy. The oil resources have transformed the
infrastructure of the city and have been attracting large number of population. Considering that the oil and
petroleum products account for more than 90% of the city income, the purchasing power of the
population in well above minimum levels for our products. In addition to oil and petroleum products, the
capital is also rich in iron & steel, processed foodstuffs, cement and electrical equipment, which are other
signs showing the high income level of the population. The city is also important for hosting many
international trade shows and expos such as Riyadh Motor Show, Saudi Petrochem and Saudi Stone along
with numerous events making the city a frequent destination for international investors. Riyadh
Exhibitions Center is the leading exhibit Center in Middle East hosting about dozen exhibitions annually
in key economic sectors and attracting business people from over 40 countries from Eastern Europe, Far
East and Gulf Region. We see that a strategic advantage to increase our brand recognition in those regions
for future expansion in those markets. We believe that business relations made in those platforms may
help us expand to other countries in the region.

Saudi Arabia Stock Exchange Market is also in Riyadh. We also believe that opening our first store and
locating our headquarters in Riyadh, where Stock Market is located, will help us to follow market
conditions closely. The city is also one of the biggest shopping places in Middle East, such as Olaya
District and Salahuddin District with many others. Olaya District is one of Riyadh's finest and major
business & commercial centers, surrounded by various deluxe shopping centers. It also has the main
Computer Market of the city. The district is packed with big local companies, ministry offices, banks,
hospitals and exhibition centers, making it the true heart of commerce in Riyadh. Thus locating our store
near or/and in the district has strategic importance. Moreover Salahuddin District is another important
commercial site in Riyadh with numerous shops, world-class restaurants and huge malls. The district is

Best Buy Saudi Arabia

usually packed with tourists all over the world, mostly from Eastern Europe, Far Asia, Northern America
and Gulf Region. We believe that tourist, who are visiting Salahuddin District are in our target market and
are potential customers. The biggest manufacturing area – Shifa Area – is also in Riyadh, thus close
proximity to where most suppliers are, will help us to decrease transportation costs.

We plan to open our second store in Jeddah. Jeddah has gained its importance from its important location
on the Red Sea on caravan routes and proximity to Makkah. Jeddah was used by muslims along the
eastern coast of the Red Sea on ships to continue their trip to Makkah for Hajj and to Medinah to visit
Prophet Muhammad's Mosque. Thus the city was and is still a gate to the Muslim holy places. Jeddah lies
halfway between the northern and southern ends of the eastern coast of the Red Sea. Being a coastal city
gives a boost to international trade. The importance of Jeddah as a major trade area rose after opening the
Suez Canal in 1869, when ships began to reach it from the south and north of the Red Sea, making the
city the main route for shipments along the country. Jeddah is a passage through which huge quantities of
imports and imports move. Due to its proximity to shipment routes, we believe that we can manage to
decrease our shipping costs. Jeddah is considered to be a big, busy and vital center of business. There are
a lot of banks, shopping centers and malls, where all kinds of locally-made and imported goods are
available. Jeddah having the biggest seaport and airports of the country, results with an endless flow of
people coming for both commercial and tourism purposes. The city became the heart of shopping in the
country after the opening of the finest shopping centers such as Al-Hijaz, Hiraa', Al-Mahmal, Al-
Basateen, Al-Corniche, Al-Jamjoom, Sairafi Mall and Jeddah Mall.

We will open our third store in Dammam City, which is in northwestern Saudi Arabia with the population
over 750 000. It is the capital of the Eastern Province with 3.3 million inhabitants. Dammam is the
combination of Dammam city, Khobar, Qatif and Dhahran cities and form a large metropolitan and
industrial area at the shore of Persian Gulf. The population of the Dammam area is over 2 million.
Dammam is a major seaport and has a high export and import volumes. It is the centre for petroleum,
natural gas and all commerce activities in the eastern province of the kingdom. Dhahran area within the
city has big trade connections with other urban centers of Saudi Arabia and Bahrain. Dammam City is an
important Saudi port on the Arab Gulf and is far the largest city in the eastern region. The city was
strategically placed for the requirements of the oil industry, the continuous development of Riyadh and
the major provincial cities in the Eastern and Central Provinces.

b. Proposed Business Structure

The Kingdom of Saudi Arabia initiated number of economic reforms to attract foreign direct investment
to Saudi Arabia. The country realized that achieving the way to achieve higher economic goals required a
Best Buy Saudi Arabia
steady flow of technology and expertise into the country. Therefore, its new policy encourages foreign
capital and invites it to participate in economic development projects in Saudi business. In the past the
government used to impose restrictions on the movement of capital into and out of the Kingdom and the
ownership of foreign enterprises. The new Foreign Investment Act lifts all privileges of national capital
and offers same treatment, protection, and incentives to foreign capital. The Act requires that foreign
capital should benefit same privileges as national income had for more then 20 years. The new Foreign
Investment Law also allows foreigners 100 percent ownership of the projects, as well as ownership of the
property for land and housing. Moreover projects that are 100 percent foreign owned are eligible for loans
from the Saudi Industrial Development Fund. Investors are also able to hold investment licenses in more
than one type of activity. Another change is the reduction in the corporate tax rate for foreign companies
with profits over SR100.000 a year, from 45 percent to 30 percent. However the Act also excludes
numerous industries and business type including retail sector. According to the a section of the same Act,
Best Buy in Saudi Arabia cannot be fully owned, and at least 51 percent of our company should be owned
buy a Saudi Enterprise, which forces us to choose joint-venture as our business structure. In that sense we
should be careful on our relations with a Saudi Forming a joint-venture, which should be build with
caution that is also determined by a regulation. The relationships between a foreign contractor and Saudi
partner are regulated by Royal Decree No M/2 of 21 Muharram 1398 H (January 1978). This regulation
applies to both sides. It also applies to all contracts and agreements to which the foreign contractor and
the government of Saudi Arabia. While choosing our partner, we should keep in mind that it should be a
Saudi national residing in the Kingdom of Saudi Arabia and should be registered in the Commercial
Register of the Ministry of Commerce authorizing to act as an agent. Forming a joint venture will allow
us favor from Saudi Industrial Development Fund that is not restricted to fully owned foreign enterprises
in some industries. This is an experienced credit institution under the supervision of Ministry of Industry,
which provides low cost loans for up to 50 percent of the capital.
Best Buy in Saudi Arabia have strong potential for growth and its concept will attract huge number of
people by filling a big gap within the industry, however a local touch might be necessary to match the
market needs and the local population.
We know that entering into joint venture is a major decision, especially different cultures and
management styles result in poor integration and co-operation. Moreover objectives of both parties should
match. Thus we are looking a partner whose management styles and objectives match with ours. The ideal
partner for us is the one that has resources, skills and assets in multimedia industry and retailing. We are
also looking for a good fit between the cultures. The high sales volumes in its industry, trustworthiness
are important determinants. How well brand value of our partner complements ours and how their
reputation are, are other important factors to consider. Our partner should also be financially secure and

Best Buy Saudi Arabia

should not have any credit problems, which may prevent our future growth. Our potential partner’s
already existing sales force and marketing team is also important, if have any.
A joint venture will allow us to generate more resources and will give us a greater capacity. We will also
need technical expertise over the market structure, which will buy us lots of time, during our launch. It
will also give us rapid access to established markets and distribution channels.
We also look for strong management team with effective leadership skills and which respects individual
initiative and provides opportunities for industry growth. Our partner should not hesitate to initiate
aggressive marketing and expansions activities, when the conditions are right. We also look for a parent,
who can help us to provide products of superior quality at the best prices to our customers with already
existing distribution and supply chain. Thus our first choice would be the market leader in electronics or
related industry, which has a large sales volume.
We have scanned the whole electronics and multimedia industry in Saudi Arabia and we believe that Jarir
Bookstore might be a nice choice to form a joint venture with. Jarir Bookstore is not just a bookstore, the
company offers books, audio cds, DVDs, small electronics, office supplies and is market leader in
multimedia superstores in Saudi Arabia. The company was established in 1979 with a small store in
Riyadh, selling office supplies. Jirar’s existing market share and good company image will help Best Buy
to access an already existed market.
As Best Buy, our partner should have the capacity to change the negative perception of a foreign
company – the stranger - and give us a local touch. Jarir Bookstore is well reputed and highly respected in
the kingdom among its customers and among the business community, which will allow us to reach locals
more effectively. The company has 6 stores in Riyadh, 6 in Jeddah and 2 stores in Dammam, which will
help us to perceived as a local enterprise when complemented with Jarir’s brand image.

c. Proposed Organizational Structure

Best Buy used to use functional form of organizational structure at its top level. The company added Best
Buy International division to its top layer converting its organizational structure into a hybrid form. We
will use the same form in our Saudi Arabia subsidiary. We have formed the Middle East department
under Best Buy Saudi Arabia. At the moment we only have Saudi Arabia department within it. However
we are planning to add Turkey, Emirates, Israel departments in the close future. Within the Saudi Arabia
department we use hybrid organizational structure, which includes of 6 functions (Human Resources,
Marketing, Technology and Quality, Supply Chain Management, Finance, Strategy and Business
Development), 3 regions (Riyadh, Jeddah, Dammam), 3 product categories (TV- Video- Audio,
Computer & Office Supplies, Music-Movies&Books). We use this approach because we believe that

Best Buy Saudi Arabia

 hybrid organizational structure can be beneficial to us considering that we are selling to a sizable and
homogeneous class of customers. Those 3 product categories are crucial for our industry, and market
leadership in those three categories defines the industry leader.

Organizational Structure Chart

d. Proposed supply chain and operations

Supply Chain Management is one of the most important parts of company’s business. Supply chain
management refers to the activities that are involved in producing a company’s products and services and

Best Buy Saudi Arabia

how those activities are linked together 2. Supply chain management manages the flow of company’s raw
materials, information, finances and services in and among the different value chains of the company.
Best Buy has transformed its supply chain management from a high volume distribution mechanism to a
customer facing operations that drives strategy as well as product.3 It has become the best representative
of a company with customer-centered approach. Best Buy’s supply chain network in Saudi Arabia will
also focus on agility, responsiveness, and accuracy, ready deliveries and integration of smaller processes
to meet the changing tastes of different customers. The strategy of Best Buy through its supply chain will
be of “Customer Centricity”4 which will study customers buying habits and investing in the stores which
will provide customers with totally satisfying buying experience according to demographic segments such
as Young professionals, Family, Active younger males, teens etc. The store in Riyadh will focus on these
demographics and will plan out the store map accordingly. In order to be customer centric, Best Buy will
focus on achieving best value and efficient utilization of resources in its Supply Chain Network.

Best-Buys supply chain network will be as shown below:

2
International Business: The challenge of Global Competition by Ball et al 2007 Page 593
3
Continuous renewal, and how Best Buy did it (2007): Bala Chakravarthy, Peter Lorange Volume: 35 Issue:6 Page: 4 - 11
4
http://money.cnn.com/magazines/fortune/fortune_archive/2006/04/03/8373034/index.htm

Best Buy Saudi Arabia

Best-Buy will achieve efficiency in supply chain by utilizing its value chain correctly. The proposed
supply chain management will focus on freeing more time for sales representation and in store employees
so they can focus more on customer service.

Best-Buy will use its already established Supply chain network with advanced process mapping and IT
systems to improve the flow of goods from its purchase offices in Asia to its distribution centers. Best-
Buy will depend upon vendor-managed inventory system5 in which Best-Buy will have shelf-ready
products directly shipped to its stores and it will take help from vendors who will assist in inventory
management. This system will cut costs of keeping large warehouses and will increase the efficiency of
the value chain. Best-Buy will utilize different IT systems such as

Financial package from Oracle, i2 technology’s demand planning, replenishment planning, transportation-
management, supply chain management software, Retek’s transaction-processing system. 6 All these
software’s will help Best-Buy achieve total supply chain transparency. “The Oracle financial system
manages all of Best Buy's finances, and i2 Technologies' software supports inbound freight operations,
7
carrier load rating, network analysis, carrier bids, and optimization of inbound freight movement.” We
will implement Best-Buy’s ‘demand-driven supply network’ principle in Saudi Arabia.

It will also implement direct-import strategy which will involve sharing the demographics and forecast
information from Saudi stores to our suppliers, working with suppliers for new products and just-in time
inventory maintenance for both Best-Buy and Suppliers. By understanding the buying patterns of our
customers we will establish import relations with purchasing offices in Asian countries. This strategy will
help us maintain demand driven supply and cut costs of carrying excessive items in inventory.

The supply chain management software will track records, shipments, and inventory positions and will
forecast the demands. Thus our supply chain will increase the flow of information, will give more
autonomy to employees for changing store stock situation or changing floor plans etc, will increase the
delivery frequency from distribution centers located near-by, decrease the warehouse costs, produce better
forecasts and improved customer service.

5
http://www.allbusiness.com/retail-trade/miscellaneous-retail-retail-stores-not/4555352-1.html
6
http://www.informationweek.com/news/global-cio/showArticle.jhtml?articleID=59300926
7
"Best Buy Bolsters Supply Chain" Elena Malykhina Information Week (Feb. 2005)

Best Buy Saudi Arabia

e. Marketing Plan

Saudi Arabia is not much affected by the global credit crunch. The economy is still in good shape with
retail and other markets still moving in vertical direction. Saudi Arabian electronic market grew from
35,023 million dollars in 2001 to 44,085 million dollars in 2007. The electronic consumer market in Saudi
Arabia values $3.5 billion in 2004, is still in developing stage but its growing very fast with rising
population. In comparison to the growing demand, there still remains gap between demand and supply.
Thus, being a new market there is perfect opportunity for Best Buy to introduce itself in the Saudi
Arabian market.

Best Buy will enter Saudi Arabian market with Jareer Bookstores. By doing this it will leverage the brand
name of both Best Buy and Jareer Electronics to market its presence in the market. Being the best
electronics retailer in US, majority of people around the world are already aware of Best Buy’s business.
We will use the company image and use it to market Best Buy in Saudi market. By using the customer
centric approach, allowing people to select what they like and want, and by providing best product and
customer service we intend to create demand for Best Buy in Saudi Arabian market.

Competition in the retail electronics market is intense with large consumer electronics chains such as
Extra (Dominant consumer electronics retailer), Modern Electronics (part of Al Faisaliah Group has 26
fully owned showrooms and more than 600 dealers) and many small players.

Best buy will answer the competition with its marketing strategy directed at the customer’s need, wants
and demands. Best Buy will use three main strategies. The first strategy involves using the Jareer
Bookstore’s existing large customer base to create the beginning buzz in market for Best Buy. Combining
experience of Jareer Bookstores with added electronics retail experience of Best Buy will do this. The
customers from Jareer Bookstores will be attracted to Best Buy.

The second and probably most important strategy will focus on pulling the serious electronics consumers.
These go in stores with intension to buy but they are thoroughly aware of the prices in different stores.
This group of customers will be most important for Best Buy as define the trend of the market. These
users can differentiate between different stores on basis of their prices, customer service and any
additional features, which will result in more customer satisfaction. These users will be enticed by Best
Buy’s customer centric approach combined with competitive pricing strategy.

The third strategy focuses on building a firm brand name and brand recognition in the Saudi market,
which will help in attracting more customers, increasing the chances of expansion in neighboring

Best Buy Saudi Arabia

countries and reducing costs with increasing profits. Our value proposition will be providing quality
products with best customer service at an affordable price. Our value proposition to our customers will be
– They will find anything and everything in electronics, at more attractive prices and with satisfying
service. We will combine the best qualities of Best Buy’s consumer electronics experience with Jareer
Bookstores customer relation, culture and market experience in Saudi Arabia. Best Buy provides best -
Electronics, Customer Service and Price. Combining with Jareer Bookstores, our marketing mix will
focus on customers. Customer service goals will be set which will ensure quality service. Quality of our
products will be top notch and it will be coated with enticing discounts and price reductions.
Newspapers, Online Media, Coffee Bars, Television, Website, Events etc will all contribute to the
marketing mix.

i. Product marketing

Being an electronics retailer, we have less control over our customer’s point of view regarding different
products. But we have control over the product choices we make and the way in which offer the products
to our customers. Our ambiance will incite excitement in our consumers to look for different products on
the display. The arrangement of products will be chosen through carefully crafted mechanism of knowing
about hot selling items, which items will be sold if placed where and which kind of products will be
grouped or which others should be kept apart.

Central part of the store will host small events like Gaming competition for kids, or Items on sale, Hot
Selling Items etc. As stated earlier Customer Service is also a key component of our marketing mix. Our
service will be our best advertisement.

ii. Pricing Strategy

Best Buy will have pricing strategy aligned to provide High-service retailing which will provide great
experience for their customers. This strategy will be constantly communicated throughout the
organization. The pricing will be differentiated based on the type of category the product resides in. Some
categories like HDTV’s, Plasma TVs etc will be priced to increase the total revenue of the company,
products from other categories such as MP3 players, DVD players, Games will be priced more
competitively in order to draw more customers in the store. Even though prices in some categories will be
higher, they will have added values of experience to them. Prices will be kept comparable to the
competitors. We will implement penetration pricing to get the highest market share.

Best Buy Saudi Arabia

iii. Promotion Strategy

Advertising: Advertising budget will be less as Best Buy will primarily use the advantage of its
international brand name and Jarir’s extensive experience in Saudi Arabia. Initial advertisements will be
run in local newspapers and television marking the arrival of Best Buy in Saudi Arabia. The
advertisements will show Best Buy as one of the eagerly awaited brands in Saudi Arabia. Each of these
ads will be theme based and will be targeted for different audiences. Along with these promotional events
will be held in malls, cafes and supermarkets. Jarir Bookstore will be used as one key advertisement place
in which small best buy experience will be created which will entice customers for more Best-Buy
experience.

iv. Public Relations

Addition to the advertizing additional PR will be achieved through getting ‘Best-Buy’ quoted by experts
in publications and websites. Direct Marketing will be offered through mailboxes. Customers who will
wish to participate in email advertisements will be sent promotional emails, discounts and additional
offers only available to those customers giving them opportunity to shop in Best-Buy at discounted
prices.

v. Service

Service will be Best-Buys key strategy. Best-Buy will back up quality product with cheerful and fast
customer service. Efficiency of our service will also play a vital role in generating customer loyalty and to
provide maximum customer satisfaction. We will provide best shopping experience in our store.

iv. Keys to Success

Keys to the success for our Best-Buy store are :

· Selling products, which are of high quality, technologically advanced yet comparable in price.
We will offer differentiated products yet products will be chosen to satisfy the customer needs
based on repetitive studies of customer buying patterns. Customers will find present and future
best selling items in our store.
· Best Customer Service is our next key to success. Customers are most important for us and we
will design customer care plans to provide best customer service possible.

Best Buy Saudi Arabia

 · Highly refined targeted advertisements and promotional events will generate awareness of Best-
Buy in Saudi market and bring more customers into the store.
· We will leverage the existing suppliers of Best-Buy to give our customers same product
experience.
· Being the price leader

V. Conclusion
a. Proposed Time Frame and Management Expertise
As discussed in previous chapters Best Buy will be launched in three cities in a three stage-expanding
plan, which consists of opening a new store in every 2 years. Unlike our major competitors in Europe, we
will not follow guerilla marketing. We aim to grow at a steady state. Sustainable growth plays an
important role in our time frame for entry. We will have Retail Chain Manager, Finance, Customer
Operation, Supply Chain, Marketing departments, which will require local expertise in their areas. The
major management team expertise, we are looking for will be local expertise on marketing and supply
chain management. Both areas are backbones for our success in Saudi Arabia. The supply chain is crucial
to work on costly efficient basis, which may help us to be the market leader. We foresee that with a
successful management over our supply chain, we can be the dominant price leader in Saudi market,
which is not populated with major retailers yet. Related to that, maximizing our market share will be a
challenging issue in order to be the market leader and implement sustainable growth. Thus marketing
expertise plays a key role for our success in Saudi Arabia. Moreover managerial expertise to handle the
relations between Saudi subsidiary and Best Buy international will be needed. We will also need
managerial expertise to handle relations with Saudi government. Furthermore we will need expertise in
technology and quality management, human resources to form talented workforce and expertise on legal
counseling.

b. Threats During Entry

We foresee that global economic downturn poses a great threat for our entry to Saudi Arabia market.
Saudi Arabia cannot avoid the problems of recent economic crisis. The Saudi Cabinet announced that
series actions would be taken to ensure economic stability and protect the country’s financial institutions
from the fallout of the global financial crisis. Thus the Saudi government announced tax reduction on
investments (both foreign and domestic) to reduce the impact of economic crisis. A 50 percent tax cut on
the annual cost of training Saudis and another 50 percent tax cut on annual salaries paid is offered to the

Best Buy Saudi Arabia

companies investing not less than SR 1 million and employ not fewer than five Saudis in basic technical
and administrative jobs for a year. Moreover decreased demand due to the economic crisis has resulted in
lower wholesale and retail prices on products, which is a direct consequence of economic downturn and is
nor favorable for Best Buy. Thus we see economic downturn as a major threat for our market entry.
As the global crisis is spreading to even wealthiest nations, establishing an efficient supply chain and
working on cost effective basis play a key role to implement sustainable market growth. Due to lowering
overall demand, working at a cost efficient basis, which can be implemented with a successful supply
chain management, is crucial during our market entry.

Another important threat is failing to form talented management force. Best Buy Saudi Arabia needs
talented workforce, who can understand the market conditions, legal environment and is capable of
implementing parent company’s policies to the Saudi market. We see that our workforce will play a key
role in implementing our market entry strategy. Any step back due to poor management capabilities may
fail to match our market entry time frame.

High bureaucracy may cause time delays for our market entry. We foresee that the legal licenses needed,
quality standards, constructions procedures to build our warehouses, etc… may require longer time then
we estimate due to slow and high bureaucracy procedures.

Another important threat is the lack of control over joint venture. Due to Saudi FDI laws, we cannot own
more then 49 percent of Saudi subsidiary. Thus we may face with lack of control over the market entry
operations. Related to that any collusion with our partner may cause failure during entry process.
Moreover our partner may not spend enough effort and/or may not poses enough capability to
successfully implement our market entry strategy, which may lead to market entry failure.

c. Risks
The biggest risk we foresee in this venture is the recent economic downturn that we discussed earlier. We
see that the financial crisis may lead to higher level of unemployment, inflation, lowering demand and
economic instability throughout the world. Thus it may pose a big threat on our venture in Saudi Arabia.
The global financial crisis may cause economic and political instability within Saudi Arabia, which may
reduce consumption levels, thus reduce our profit margins. We should develop and implement successful
marketing strategies in order to increase our market share. One big threat we may face is the nationalism
movement. We will use our Saudi partner to prevent any problem may occur related to that threat.
Another important risk is that, our industry within Saudi Arabia is growing at an increasing speed, which
may attract many global competitors such as German Mediamarkt and French Darty, U.S origin Target

Best Buy Saudi Arabia

and Circuit City. Thus new comers may lower the market price, and related to that reduce our profit
margins. German Mediamarkt is the major threat as a new comer, who are known to use guerilla
marketing at their first entry. The company opened over 12 stores in 3 years as a market entry strategy to
Turkey between 2006-2009. The company declared their interest in other Middle East markets such as
Saudi Arabia. Thus new comers pose a great threat for our venture.

Another important threat is the level of local competition within the market. There are other local
competitors in Saudi Arabia market, which already have existing customer database and market share.
Those competitors are likely to reduce their prices to force us quit the market after our first entry.
Competitors’ knowledge on the local market, developed over many years, may help them sustain
competitive advantage over our venture.

Another big threat is the economic distance. Economic distance is a measure of economic disparity
between two nations; U.S and Saudi Arabia. It is easier to deal with countries that are close in economic
distance from our home country. Due to economic distance both countries have huge differences in
market segments, the demographics of consumers that can afford to consume similar types of goods and
services and knowledge about market demand. Moreover there are differences in physical infrastructure,
such as airports, roadways, railways, and seaports, which lowers the level of efficiency in supply chain
operations thereby increasing costs. Due to the huge differences in market structure, skills learn in U.S
market may not be replicated in Saudi Arabia. Thus we should adjust our marketing strategies in Saudi
Arabia for successful market entry. Related to that cultural distance plays key role in generating market
share. However we should note that, our industry is least likely to be effected by cultural differences since
the demand for certain type of technological products do not vary among different cultures. But we may
have difficulties to market our products and meet local consumers.

Another big risk is the failure to adjust Best Buy policy and global strategies according to cultural
differences. The cultural dimensions of Saudi Arabia that affect its consumption pattern, shared values
have a huge impact on the execution and implementation of marketing and management strategies. In
sensitivity to cultural differences in administrative policies, marketing mix and managerial strategies may
cause market failure. We should define clearly how customers derive meanings about the brand or
product. Mistakes arising from misunderstandings of brand names may cause huge losses. From a
managerial perspective failure to adjust organizational structure according to those cultural differences
may create collusion at the workplace. For instance there exists a distinct dichotomy between
subordinates and managers within Saudi Arabian companies. Those with most authority are expected and
accepted to issue complete and specific directives to others, which shows the degree of power distance.

Best Buy Saudi Arabia

VI. Bibliography
1
International Business: The challenge of Global Competition by Ball et al 2007 Page 593
2
Continuous renewal, and how Best Buy did it (2007): Bala Chakravarthy, Peter Lorange
Volume: 35 Issue:6 Page: 4 - 11
3
http://money.cnn.com/magazines/fortune/fortune_archive/2006/04/03/8373034/index.htm
4
http://www.ameinfo.com/189249.html
5
http://www.allbusiness.com/retail-trade/miscellaneous-retail-retail-stores-not/4555352-1.html
6
http://www.informationweek.com/news/global-cio/showArticle.jhtml?articleID=59300926
7
"Best Buy Bolsters Supply Chain" Elena Malykhina Information Week (Feb. 2005)
“International Business: The Challenge of Global Competition” by Donald A.Ball, Wendell
H.McCulloch,Jr., J.Michael Geringer, Michael S.Minor, Jeanne M.McNett, 11th Edition, McGraw Hill
“A Guide To Business Procedures In Saudi Arabia No 2: How To Obtain Licence For Joint Venture
Operations” Senior Manager Public Affairs, The Saudi British Bank, Helping Business In Saudi Arabia
Series
“What Does Saudi Arabia Buy From The Rest Of The World?” The Saudi British Bank
“Saudi Arabia enters the twenty-first century” By Anthony H. Cordesman, 2003
“World Investment Report 2007: Transition Corporations, Extractive Industries and Development” by
United Nations Conference on Trade and Development, CNUCED, Published by United Nations
Publications, 2007
“Doing Business with Saudi Arabia” By Anthony Shoult, Ebooks Corporation, NetLibrary, Inc,
Contributor Anthony Shoult Edition: 3, revised, Published by GMB Publishing Ltd, 2006
“Economic Development of the Arab Countries Selected Issues” Said El-Naggar, International Monetary
Fund
Jeddah Chamber of Commerce and Industry Press Release
“Drivers of Success for Market Entry into China and India” by Joseph Johnson & Gerard J. Tellis,
University of Miami, School of Business Administration
“Secrets to Successful New Market Entry” By Fran Grigsby, August 17, 2007
“Order of Market Entry: Established Empirical Generalizations, Emerging Empirical Generalizations, and
Future Research” by Gurumurthy Kalyanaram; William T. Robinson; Glen L. Urban, Marketing Science,
Vol. 14, No. 3, Part 2 of 2: Special Issue on Empirical Generalizations in Marketing. (1995), pp. G212-
G221
“A Market Entry Decision And Risk Analysis: A Comparison Betweenlarge And Medium To Small
Japanese’s Electronic Companies In Thailand Ms. Thanawan Rangyai” University Of The Thai Chamber
Of Commerce, 2007
The national Competitiveness Center at SAGIA: The Competitiveness Review, January 2009 Saudi
Arabia’s 10x10 Program
“Saudi Arabia among top 10 in economic reforms” World Bank Report, 4th June 2008
“General Considerations for Doing Business in Saudi Arabia, 2005” by Michael O’Kane, The Law Firm
of Salah Al-Hejailan Co
Saudi Arabian Ministry of Planning Human Development Report 2008
“Forecast of the World Economy Outlook in 2009 and 2010” Saudi Arabian Monetary Agency
“Forty Fourth Annual Report 1429H (2008G)” Saudi Arabia Monetary Agency, Research and Statistics
Department
“Establishing A Business in the Economic Cities” Saudi Arabia General Investment Authority
http://www.saudia-online.com/businessguide.htm
http://www.doingbusiness.org/ExploreEconomies/?economyid=163
http://www.globalsecurity.org/military/facility/dammam.htm
http://www.saudinf.com/main/a81.htm

Best Buy Saudi Arabia