Give us a Chance

The word in town is that the SME sector will take over the reins of business over the coming few years. This promising sector will be at the forefront of economic growth and will be the main catalyst for Saudi creations.

The establishment of the SME agency is a major step in helping to stabilize and develop an ecosystem that will provide a platform for the small and medium sized Saudi companies to find their feet and grow. Supporting and growing the SME sector was also mentioned as a major initiative to underpin the 4-year transformation plan developed by the supreme economic council in Saudi Arabia. The aim of the plan is to facilitate market entry, to eliminate red tape, and to help establish more businesses across the kingdom.

The government has indicated finally, through various financial and legislative initiatives, a strong intent to make this sector a major contributor to economic growth plans. The current 35-37% contribution to GDP and 29% contribution to job creation is deemed weak, especially when taking into account the prevalence of SMEs in real estate development; about 50% of all SMEs are in this industry. There are also discussions about creating mega VC and PE funds to support SMEs, to help them grow and prosper.

So far so good, no? Well, there is one major piece to the SME puzzle that is missing. Throughout my 20-year career in banking, starting businesses and consulting, I have met and talked to many SME owners and managers. And while there seems to be a more positive sentiment these days that finally things are about to change for the better in terms of facilitation of both financial and legal frameworks for the sector, the vast majority of such people are still worried about one thing: will large companies and government agencies give SMEs a chance?

Many of the established Saudi businesses have failed to penetrate government agencies or large businesses successfully. Their main issues revolve around two main problems:

1) Payments and fees

Payment and fees are usually problematic for smaller companies because the big players don’t want to pay Saudi companies as much as (or even somewhat less than) international companies. There is a genuine belief in some cases that Saudi companies should provide the same service for less than half the price of a foreign, international company. There is also a tendency both to elongate and to delay payments to Saudi small and medium sized companies, for some reason.

 

2) Trust issues

Lack of trust is an excuse the big players use when deciding not to work with smaller companies. Lack of trust is shown through the following common statements:

“You have only been in the market for a few years.”

“You only worked in specific industries.”

“What if you fail?”

Let me sum it up for you. Basically, lack of trust means the following: “Even though we like you, we value your input, we believe in your capabilities… We would still rather go with an international provider to reduce our risk!” In response, you might ask: “What risk?” It’s the risk that the people calling the shots would be blamed for choosing a local over an international provider if things went wrong. If they choose a top 5 company, and things don’t go well, then no one can blame them personally. After all, they did get one of the best companies to do the work!

Talking to entrepreneurs about the trust issue is painful. They feel left out of the process. “How can I prove that I’m better if I’m not given a chance?” “How do international companies get these mandates even though some of them have no experience in our market?” “We are not allowed to fail, but others are?”

This is a call to all large institutions and government agencies… Give them a chance! Do not use the excuse that “I would rather go with the internationals so that you are not exposed if things go wrong.” The SMEs want to prove their capabilities; they are not worried about things going wrong. As long as you give them the chance, after some due diligence, of course, you should let them show what they can do. Will they all succeed? Probably not, have none of the top international IT, consulting, HR, etc. firms ever failed in Saudi? Of course they have; we all fail and learn. Minimizing your risk is done through proper due diligence and by making sure you have the right team to serve your purpose, not by going straight to a large company solely because of its big name.

So, will SMEs be given an honest and fair chance to prove their capabilities?

We shall see!

 

Tariq Linjawi

CEO – Managing Partner

UCG