Cultural Constraints on Management in Saudi Arabia - Research Paper Example

NOTES 1. This document is for your info; the file called “Journal Article 1_Submission Version” is the exact one you will be uploading. Do not alter the formatting or contents of that file (!!!) except where instructed in these notes. If there is something that needs to be edited, please tell me and let me do it instead. 2. On the file for submission, find the parts highlighted in yellow as shown below (next page). Fill in the correct information like so: NAME OF CORRESPONDING AUTHOR: Your Name Doctoral Candidate University Name, address, contact information Home address Mobile: (99)999-999-999 Landline: (99)999-999-999 E-mail Address: youremailaddress@email.com Alternate E-mail Address: your other emailaddress@otheremail.com Remember, do not change the formatting, that is strictly specified by the journal. Yes, I realize it is hard to read, I think they do it to minimize the file size. 3. You will be submitting the paper online at this website: http://ijrcm.org.in/commerce/guidelines-for-submission.php Which is the International Journal of Research in Commerce & Management. There is a tab on the right side of the page entitled “Online Submission”, click that and follow the instructions. Where it says “your e-mail ID” at the top of the submission form, I assume that means your e-mail address. Everything else is self-explanatory. The website may (I’m not sure) direct you to send the manuscript via e-mail once you have completed that online form. If so, send it to the e-mail address provided, with this as the subject line of the e-mail: “New Manuscript for Review in the area of General & Management”. You do not have to put any text in the e-mail, except something like “Please find manuscript for submission in attached file” or words to that effect if you feel like being polite. 4. Next steps: While we are waiting for a response to this article at this journal, we will work on preparing a different article for a different journal. Remember, you should not expect instant success with this, so what we will do to improve your chances is work towards having two or three article submissions in circulation. This entire exercise will probably take a few months at least, and it may be a year or more until something gets published after it’s accepted. However, “accepted for publication” is enough to satisfy the requirement for your degree program, so that is our goal right now. DEAR SIR/MADAM: Please find my submission of manuscript entitled ‘Cultural Constraints on Management Research in Saudi Arabia’ for possible publication in your journals. I hereby affirm that the contents of this manuscript are original. Furthermore, it has neither been published elsewhere in any language fully or partly, nor is it under review for publication elsewhere. I affirm that all the authors have seen and agreed to the submitted version of the manuscript and their inclusion of names as co-authors. Also, if my/our manuscript is accepted, I/We agree to comply with the formalities as given on the website of the journal and you are free to publish our contribution in any of your journals. NAME OF CORRESPONDING AUTHOR: Designation: Affiliation with full address, contact numbers & Postal Code: Residential address with Postal Code: Mobile Number (s): Landline Number (s): E-mail Address: Alternate E-mail Address: CULTURAL CONSTRAINTS ON MANAGEMENT RESEARCH IN SAUDI ARABIA ABSTRACT Although Saudi enterprises, particularly those involved in international business, have increasingly adopted many aspects of Western management styles, the cultural environment of Saudi Arabia presents some unique challenges for management researchers. Saudi culture is rich in traditions from both its Arab tribal heritage and the powerful influence of Islam, and as a result, business organisation and management follows a number of strict conventions. This article is intended as a guide to management research in Saudi Arabia, and presents a detailed overview of the Saudi business environment and identifies cultural and religious factors that impact firm organisation and management behaviours. This information assists researchers in approaching management studies in Saudi Arabia from a proper perspective. JEL Classifications: L21, L22, M50 Keywords: Management research, organisational culture, strategic management, Islamic culture, ethics Introduction This assessment of the cultural environment of Saudi business arose from an ongoing study of the use of strategic management tools, when it became apparent in analysing the study setting and research sample that a deep understanding of the unique characteristics of the Saudi business environment was necessary to prevent “Western bias” from affecting the research design or the interpretation of the results. While many Saudi managers are educated in US or European business schools and are well-versed in contemporary management theory and practise, the cultural background of Saudi Arabia – first, its Arab tribal heritage, and second, the influence of Islam – imposes a strong framework on organisational culture and management methodology. In this article, contemporary analyses of the Saudi business and economic environment are examined, with particular focus being given on the conditions that affect firms listed on the Saudi Arabian stock exchange, as that is the area of the research study on which this article is based. Some of the information here is drawn from reports of investment and business analysts (Samba Financial Group, 2009; BMI, 2010, 2011), and some is found in academic research studies (At-Twaijri, 1991; Naser & Nuseibeh, 2003; Rice, 2004; Al-Abdulqader, et al., 2007; Alkathlan & Prabakaran, 2009; Maghrabi, et al., 2009; Al-Moghaiwli, 2010; Kayed & Hassan, 2011). A critical aspect of the Saudi business environment is the influence of Islamic law and culture on organisational culture. Shari’ah law imposes clear guidelines and constraints on the conduct of Saudi business in terms of overall business ethics, but most particularly with respect to finance and transactions. In order to fully-explore this feature of the Saudi business environment, a number of analytical and comparative studies on organisational culture are first reviewed (Bjerke & Al-Meer, 1993; Dedoussis, 2004; Idris, 2007; Al-Gahtani, et al., 2007; Al-Yahya, 2008), followed by a review of literature on Islamic business practises (Rice, 1999; Rosly & Abu Bakar, 2003; Rahman, 2007; Aioanei, 2007; Grais, 2008; Abraham, 2008; Mirakhor & Iqbal, 2007; Esler, 2011). THE SAUDI BUSINESS ENVIRONMENT: REVIEW OF THE LITERATURE Saudi Arabia is an attractive target for management studies, because despite conditions of global economic uncertainty in the past several years, the Saudi economy has generally prospered and presents a positive environment for businesses (“Saudi Arabia Addressing Jobs, Housing as Economy Rebounds”, 2011). In assessing the business environment, At-Tawaijri (1991: 11) identifies five interrelated “situational sectors” that affect the external climate for businesses: Socioeconomic, technological, supplier, competitor, and government. In reviewing the literature produced in the last twenty years, what is interesting is that the rigour and scope of the research seems to mirror the growth of Saudi business. For example, At-Tawaijri’s approach is a somewhat superficial version of a PESTEL analysis. Rice (2004), by contrast takes a narrower but more detailed approach, looking at the business environment in terms of three key factors: Islam, the Bedouin heritage of Saudi Arabian culture, and the overwhelming importance of the country’s oil wealth to the Saudi economy; the petroleum sector accounts for roughly three-quarters of the Kingdom’s budget revenues, about a third of its GDP, and 90% of its export earnings (Rice, 2004: 63). Some very good resources which provide a detailed overview of the business environment are found in the reports of professional analysis and consultation firms. Business Monitor International (BMI), for example, produces quarterly business environment assessments, and these are helpful in tracking changes in the environment as time passes. BMI prefaces its assessments with a SWOT analysis; for 2010-2011 the SWOT analysis remained unchanged, which suggests that strengths, weaknesses, and opportunities, and threats identified are key factors of the business environment than must be understood: Fig. 1: Typical SWOT Analysis of the Saudi Business Environment (Source: BMI, 2010: 39; 2011: 25) Putting this together with earlier, more general assessments of At-Tawaijri (1991), and Rice (2004), we can begin to develop an overall characterisation of the Saudi business environment. The country is rich in oil resources, which implies that sufficient wealth exists for investment and business growth. It has a global outlook with respect to trade and commerce, but the main focus of government planning for the overall economy is to increase the country’s domestic business sector by encouraging privatisation and reducing reliance on foreign labour. And finally, these objectives are heavily influenced by the culture and religion of Saudi Arabia. This basic understanding – which should be offered with the caveat that it is developed from purely external perspectives – is validated by the conclusions of a number of other studies with more internal perspectives that address specific aspects of the Saudi business and economic environment. Kayed and Hassan (2011: 56-57) explain that Saudi Arabia’s vast oil wealth has in some ways hindered entrepreneurial development, and by implication the development of a ‘semi-skilled’ labour sector, because the Kingdom has been able to use its own financial resources for economic development without having to rely upon – and meet the conditions of – organisations such as the World Bank and the International Monetary Fund: “Oil wealth has created a job/employment culture; instead of considering employment in the private sector to be a provisional measure to gain experience in order to start an independent business, employment in the public sector became an end goal for many. The economic and social environment created by the oil boom and the orientation towards securing employment within the public sector, have limited the natural entrepreneurial drive of many Saudis and hindered their capacity to create wealth and jobs through entrepreneurship.” (Kayed & Hassan, 2011: 61) In other words, since entrepreneurial development on the scale of small and medium enterprises that characterise many other emerging economies has not really been necessary in Saudi Arabia, it has tended to be regarded as being a ‘poor’ alternative for businesses. Those that do follow the entrepreneurial model find it “difficult” to enter the market; that was the unanimous assessment of 85 small Saudi manufacturing firms studied by Maghrabi, et al. (2009: 312). Significantly, only 4.7% of those firms (4 out of the 85 surveyed) utilise unskilled labour in their production processes, which is further evidence of the obstacle to privatisation and ‘Saudisation’ noted by BMI; whether this is a matter of preference for the firms or a matter of adapting to low availability, however, is not made clear by the study (Maghrabi, et al., 2009: 313; BMI, 2010, 2011). Cultural influences on the Saudi business environment are significant. The role of Islam cannot be overlooked; Saudi Arabia is the spiritual and physical homeland of the world’s second-largest religion (“Christianity goes global as world’s largest religion”, 2011), and the temporal laws of the country are aligned with the laws of Islam, known as Shari’ah. Because of its comprehensive significance, the relationship of Shari’ah law to the Saudi business environment is discussed separately in the following section. Other aspects of Saudi culture, however, are revealed by research studies and analyses of business practises and the Saudi stock market. Many Saudi companies are essentially family-owned businesses, with small numbers of shareholders holding most of the companies’ shares. This has a mostly negative impact on the disclosure of company information, partly because the need for public disclosure is not critical for most companies, and partly because there are concerns about exposing company information to competitors (Al-Moghaiwli, 2010: 263; Kayed & Hassan, 2011: 56). While Saudi Arabia is in many respects a thoroughly modern, sophisticated society, there are clear vestiges of its Bedouin tribal heritage, characterised by near-absolute rule by the leader of the political or social unit, the reliance of the ruler on a relatively small and close-knit group of advisers, clear divisions – and sometimes enmity – among different groups based on religious sect, region, or economic interests, and a patronage relationship between the leadership and subjects (Rice, 2004: 61-62). There are a number of pieces of evidence that show how these cultural characteristics are reflected in management and business practises, particularly among the exchange-traded firms that are the focus of the current study. The Saudi stock market is dominated by small-cap, retail investors, which indicates many of the listed firms have limited free-floats and maintain the family- or clan-based ownership structure (Samba Financial Group, 2009: 5, 8). This explains the hesitance to adopt greater information transparency, which is an obstacle to investors; on the other hand, many companies are willing to share information with investors who contact management directly, which hints at the ‘patronage’ aspect of Saudi society (Kayed & Hassan, 2011: 42, note 3, 56). As a consequence, equity investors tend to rely on fundamental analysis of a few key financial indicators and other qualitative sources of information such as news reports rather than empirical analysis (which requires more detailed information) in making investment decisions about companies’ stocks (Al-Abdulqader, et al., 2007: 84-85). As a result, the Saudi stock market is highly volatile because of information asymmetry (Alkhathlan & Prabakaran, 2009: 17, 32). From that it can be inferred that Saudi enterprises might become even more sensitive about sharing information, out of concern for the effect it might have on their stock prices, and therefore their equity values. ISLAM AND BUSINESS PRACTISES If there is a single cultural aspect that defines Saudi Arabian more than any other, it is Islam. Arabia was the birthplace of the Prophet Mohammed, and the King of Saudi Arabia – HRH Abdullah bin Abdul Aziz, fourth descendant of modern Saudi Arabia’s founder, Sultan Abdul Aziz al Saud – rules as the custodian of the holy places of Mecca and Medina on behalf of the Ummah, the greater Muslim community spread across the world (Esler, 2011: 30). As such, there is no separation between the temporal affairs of the state and the spiritual affairs of the Muslim people. Islamic law, called Shari’ah, is taken from the teachings of the Qu’ran – believed by Muslims to be the true word of Allah revealed to his prophet Mohammed – and the sunnah, which are the recorded sayings and acts of the Prophet himself (Rice, 1999: 346). Shari’ah is integrated within the laws of the Kingdom of Saudi Arabia, and strongly influences business decisions, because Islam is considered a complete guide to relations amongst people in every aspect of their lives (Bjerke and Al-Meer, 1993: 30). Business relationships of all kinds are guided by three complementary principles described by Islam (Rice, 1999: 347-348). The first is tawhid, or Unity, which implies that people are equal with respect to their relationship to Allah, and therefore business should be characterised by co-operation, and equality of effort and reward. The second principle is adalah, or Justice, which proscribes all forms of social and material inequality, and sets the ethical bounds on economic matters: “...no bearer of burdens can bear the burdens of another;...man can have nothing but what he strives for...” (Qu’ran, 53: 38-39 in Rice, 1999: 347). The third principle is khilafah, or Trusteeship, which says that mankind are the trustees of the Earth on behalf of Allah; a modern example of the idea is “sustainable development.” Khilafah does not prevent economic or business activity or the accumulation of wealth by one’s own honest enterprise, but makes the motivation and the concern for the effects of one’s enterprise on others critical considerations (Rice, 1999: 348). Shari’ah affects all aspects of business, but in a comparative context to Western business and economic systems, displays the biggest differences in financial matters. The most important guideline is the prohibition of riba, or interest, and the arrangement of financial transactions such as loans into forms of profit-sharing agreements; this is based on the principle described above that no one can benefit from something to which he has not put forth his effort or shared the risk (Rahman, 2007: 123). Other important guidelines include avoidance of gharar, or excessive risk; engaging in businesses that are halal, or acceptable, and avoiding those that are haram, such as those involving gambling, alcohol, pork, tobacco, or weapons; and honouring zakat, which literally means “purification,” and in practise means giving a certain portion of one’s profits as charity for the poor (Aioanei, 2007). ANALYSIS The importance of understanding the culture and business environment of Saudi Arabia is obvious. Management perspectives, methods, and goals are affected by the external environment in terms of the legal and ethical framework the country operates in; the internal environment is affected by the attitudes and behaviours of the people in the organisation, attitudes and behaviours that are derived, at least in part, from their cultural orientations. All these inputs to the way in which strategic management is approached will undoubtedly have effects on the perceptions of managers towards strategic management methodologies and the use of strategic management tools. So far, the literature has shown that Saudi Arabia is blessed with vast resources that allow it to be economically independent and successful, but also have the negative effect of creating somewhat of a class divide (Maghrabi, et al., 2009; Kayed & Hassan, 2011). The country has roots in tribal Bedouin culture, which has led to a business culture of many closely-held companies largely owned by families or a few ‘well-connected’ shareholders (Samba Financial Group, 2009; Al-Moghaiwli, 2010). And finally, as the homeland of Islam, the Muslim culture and Shari’ah dominate both private and business affairs in the Kingdom. It is one thing to understand that these factors have effects on the strategic management and ultimately on the use and effectiveness of strategic management tools, but this knowledge is of limited value unless we also understand how they do. Fortunately, the literature offers many insights into this question, and from the perspective of the researcher investigating aspects of Saudi management, the cultural factors that guide organisational behaviour are manifested in a number of ways. As a consequence of both tribal culture and the culture of Islam, Arabian society is both collectivist and high-context in communications. In the context of the business environment, that means that there is an emphasis on obedience and shared responsibility, with rewards and advancement being largely based on tenure and loyalty, while motivation is largely derived from a sense of ‘belonging’ (Dedoussis, 2004: 17). The close-knit nature of Saudi society reflected in the ownership of businesses also promotes high-context communication, where non-verbal cues and the status of the messenger with respect to the receiver is an important part of the message (Bjerke & Al-Meer, 1993: 33; Dedoussis, 2004: 19). This leads to a preference for consensus and consultative decision-making, which in the context of Arabic-Islamic culture is known as Shura. In practise, however, the patronage aspect of Arabian tribal culture and the role of the group/clan leader or manager as the responsible party for the actions of his subordinates mean that consultation is generally restricted to a few loyal and trusted people (Dedoussis, 2004: 19; Al-Yahya, 2008: 391; Kayed & Hassan, 2011: 56). Shari’ah and the other guidance from the teachings of Islam play an important role in Saudi business as well, but also presents some challenges. There is not, for example, a single acknowledged religious authority for all of Islam (Abraham, 2009: 40); matters of business and economics are subject to various interpretations, in much the same way other faiths have many learned leaders who interpret the directions of their holy texts in different ways. Riba, to give one example, can be defined as interest of any kind, or it can be defined as “usury,” or excessive interest, depending on the scholarly authority (Abraham, 2009: 40, 42). The difficulty for Islamic businesses arises in the interaction with other modes of doing business; Islam recognises that there are two facets, the conduct of one’s own business and the conduct of business with others, who may not always be other Muslims, and so the challenge is for the Muslim business to be competitive – something which Islam actually encourages (Rice, 1999; Rahman, 2007) – and yet maintain the principles of Shari’ah. There have been some attempts to assist in helping Islamic business practises interface with the outside world, such as the development of an Islamic Financial Services Board (IFSB) to attempt to set global prudential, accounting, and reporting standards for Islamic financial companies (Rahman, 2007: 133), and the expectation is that these ‘best practises’ would be required of these companies’ Islamic business customers. As has been pointed out, however, financial reporting – and presumably, the flow of other types of information – is not as transparent as in Western businesses (Naser & Nuseibeh, 2003; Al-Moghaiwli, 2010). This is due partly to the close-held nature of many Saudi businesses, but also due to the religious overtones of business conduct; the strong belief that Allah guides the outcome of all activities conveys a strong sense of fatalism on the business culture, despite the admonition of the Qu’ran that one should exert his utmost effort to succeed – in that context, many poor business decisions and outcomes are simply written off to fate, and as a consequence, accountability in business is weakened (Idris, 2007: 37-38). INSIGHTS AND RECOMMENDATIONS FOR RESEARCHERS The management researcher interested in studying Saudi organisations should bear some key factors in mind. The typical form of the Saudi firm is strongly hierarchical, but it exists in a culture with a certain reverence for consensus and collaboration. This is not, however, a paradox from the Saudi perspective. Information flow tends to be hierarchical as well; so while consensus and group input is valued, its extent is limited by progressively narrower information boundaries as one descends downward through the organisation. For the researcher, the most common manifestation of this is a strong sense of “place” amongst research subjects. Studying a phenomenon such as the impact of the use of a specific planning or performance management method – for example, Balanced Scorecards – can be problematic if one takes a “horizontal” approach and makes a presumption that enough information is available to lower management or non-management levels for there to be accurate perceptions of the method in question. As a practical matter, designing research instruments such as surveys must be done in a tailored way to effectively gather the information available. REFERENCES Abraham, I. (2009) “Riba and Recognition: Religion, Finance and Multiculturalism”. In Johnston, J. & McPhillips, K. 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Available from: http://samba.com. “Saudi Arabia Addressing Jobs, Housing as Economy Rebounds”. (2011) IMF Survey Magazine, 21 September 2011. International Monetary Fund. Available from: http://www.imf.org/external/ pubs/ft/survey/so/2011/INT092111B.htm. Read More