Saudi Arabia — A Secret Mecca for Consumer Technology Companies

  • Saudi is a place startups should be investing — look at Uber’s success
  • Consumer market is flourishing and technology services are in demand
  • Doing business there is easier than one may presume

Demand in Saudi Arabia for consumer software is shockingly high. But most people in Silicon Valley do not understand why nor how to capitalize on it. The unique economy, culture and religions in Saudi have created a burgeoning consumer technology market with no slow down in sight. Investing in the market can be done without much effort.

Oil has attracted foreign companies who bring the bulk of their workforce from abroad. Expat employees now account for nearly 35% of a total Saudi population of 30 million — which is expected to double in the next 20 years. Foreign companies typically provide expats transportation stipends, cars, and housing allowances. To stay competitive, local companies also reimburse their employees for these expenses and sometimes even pay income tax of 10%. So even a worker on a monthly salary of $800, can spend most of it.

With that much disposable income in play, products that allow Saudi residents to cultivate their personal identity and stature of wealth have thrived. For men those are cars and electronics, and for the women it is jewelry and clothes — which is mostly worn behind closed doors and when they vacation. It is not uncommon for someone in Saudi to have multiple gaming consoles, phones and tablets. These consumer technology products sell out quickly in Saudi, according to the self-proclaimed “Not just bookstore!” called Jarir.

And with few entertainment outlets for younger generations, they routinely spend more than $1000 a year on TV subscriptions for sports and movies, and even more on mobile and on-line games. The upside is clear. According to Business Insider in 2010 during the social gaming boom, the top 5 overall spenders came from Saudi Arabia — of which the #1 buyer (a Saudi Prince perhaps) spent over $25,000 on one game buying his friends!

(For the social game veterans, ‘Buy Your Friends’ was a game built by Siqi Chen and Charles Hudson at Serious Business — which was later acquired by Zynga).

New ride sharing services such as Uber — and its less successful local competitor Careem — have also experienced explosive growth in Saudi Arabia. Traditionally, families hired private drivers to chauffeur women — who typically do not drive for religious reasons — and spend more than $800 each month. Not only is there a large demand but also a surplus of drivers for Uber’s service. In fact, according to a La Times article, Uber has over 100,000 active users now and is growing at 40% per month — of these customers, 80% happen to be women who are banned from driving.

How does a company setup in Saudi Arabia? Most foreign companies operating in Saudi Arabia either establish a foreign entity or find a local partner to do business through. An international company can setup a 100% foreign-owned business but it is taxed at 20%, highly monitored by the government, and is at the mercy of Saudi laws that disfavor foreigners. Hiring in Saudi is also expensive and companies must hire a minimum number of locals.

So unless a company needs a local physical presence, work with a local partner. Local partners have more favorable tax structure (often below 10%) and can handle local market issues like payment risk without regulation or recourse and a slow-moving, high-touch business culture with lots of holidays. Local companies are rated in a ‘Saudization Ranking’ based on the number of locals they hire. The more locals they hire, the higher the ranking and the more benefits they receive such as lower taxes. Because of policies like this it is easier to initially work with a local partner — usually via a simple revenue sharing model. .

When riding down the road in Riyadh, one will notice the latest brand name SUV’s and luxury sedans in addition to the skyscrapers and shopping centers under construction. It is obvious that people carry the latest tech products and show-off name brands. In a city that was built by oil tycoons and expat businessmen, the business culture flourishes and opportunities are sought after. Though the heat, holidays, and hierarchies may slow down the pace of business, there is no doubt for any startup that Saudi is a market to invest.

Co-Editor: Josh Wein

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