CFOs in Saudi Arabia more optimistic about expansion

JEDDAH – Chief financial officers (CFO) reported an average increase of 9 percent in their company’s international revenues over the past financial year but their mood in 2012 is more subdued – only 24 percent of CFOs are very optimistic about their expansion plans, compared to 49 percent in 2011, BDO Ambition Survey 2012 said in its report titled “Global Opportunities”.

Nearly two-thirds (62 percent) of CFOs say they rely on international business to drive their growth, despite finding it more difficult now to conduct business abroad than three years ago. The three primary reasons they cite are the poor economic situation (31 percent), increased regulation (25 percent) and greater competition (22 percent).

This year, currency fluctuations and geopolitical risks have replaced red tape and bureaucracy as the top threats to successful foreign expansion.
These worries have moved CFOs to focus investment on markets that are perceived to be safer investment bets.

In Saudi Arabia, majority of CFOs are optimistic that their companies’ international expansion plans in the next year will prove to be successful, on par with the global average.

Saudi Arabian CFOs consider Qatar, the UAE and Egypt as particular focuses for expansion.

Saudi Arabian CFOs have the following recommendations for international expansion:

Do thorough research to improve your knowledge of the market

Find good staff and partners in the region

Understand the political situation and work with that government

Most are likely to say that it has got easier to conduct business abroad compared to three years ago – 38 percent say it has got easier altogether and a fifth say it has got much easier (compared to 6 percent overall). However, three in 10 feel that is has got more difficult to conduct business abroad.

Those who say it has got easier cite their increased experience and the easing of regulations as the main reasons for this, while competition is given as the main reason for it having become more difficult.

Unlike their overseas peers, for whom the global economy is seen as likely to have the biggest ongoing impact on their companies’ ability to expand abroad, Saudi Arabian CFOs are much more concerned about political instability generally (cited by 66 percent compared to 49 percent overall) and twice as likely to see Middle East unrest as impacting on their overseas expansion (62 percent compared to 30 percent). The global economic slowdown is seen as likely to have an ongoing impact by 58 percent of Saudi Arabian CFOs (compared to 78 percent overall). 42 percent say the financial crisis in the eurozone has already had an impact on their international expansion plans (on par with the overall average of 44 percent).

Similarly, geo-political risks are considered the biggest risk facing the companies of Saudi Arabian CFOs when expanding internationally, with 32 percent seeing them as a risk. Beyond this, the intensity of local competition, the economic slowdown and regulatory interference are considered the other main risks. Currency fluctuations, considered the biggest risk by CFOs overall (mentioned by 30 percent) are only seen as a risk by 4 percent of Saudi Arabian CFOs.

Saudi Arabian CFOs are less likely than their global peers to see overseas expansion as key to growth, and less prepared to take risk to achieve overseas growth. Only 38 percent agree that ‘expansion abroad will largely drive my company’s future revenue growth’, compared to 62 percent overall, and 36 percent agree that ‘the rewards when expanding abroad outweigh the risks’ (compared to 48 percent overall). An explanation for these attitudes may lie in the fact that Saudi Arabian CFOs were almost twice as likely to agree that ‘recent unrest in some countries has changed my company’s international plans’ (44 percent compared to 24 percent).

Saudi Arabian CFOs have seen an average of 8 percent increase in their companies’ international revenues in the current financial year over last year, on par with the global average of 9 percent. However, their expectations of future global revenue are highest of all CFOs surveyed, with 60 percent saying that the proportion of their company’s global revenue representing the international side of the business in the next three years was likely to be a lot more than now (compared to 35 percent overall).

The key opportunity factors driving Saudi Arabia’s appeal are:
• Market size (65 percent)
• Access to new customers (39 percent)
• Attractive profit margins (30 percent)
The main risks considered applicable to Saudi Arabia when expanding into this market are:
• Geopolitical country risks (35 percent)
• Cultural or language barriers (and different business customs)(26 percent)
• Corruption or ethics (26 percent)

One in four CFOs plan to invest in Saudi Arabia when asked about their plans toward a prompted list of 19 countries, five percent expect to enter the Saudi Arabian market, 14 percent expect to increase their investment and 6 percent expect to maintain their investment in Saudi Arabia. Just 1 percent each expect to pull out or decrease their investment. CFOs from China and India are most likely to be planning to enter the market, and CFOs from China and those working in the real estate sector are most likely to be planning to increase their investment in Saudi Arabia.

When asked to spontaneously cite which countries would be a particular focus for general expansion, Saudi Arabia was identified by 5 percent of CFOs overall, giving it a ranking of 23 on BDO’s Global Market Opportunity Index. CFOs from the UK were most likely to see Saudi Arabia as a focus for expansion, along with India.

It is seen as an attractive market for expansion because of its market size, the availability of raw materials and the access to new customers it provides.

The Saudi Gazette 2012, Oct 31 2012