IN THE INTERNATIONAL

SPOTLIGHT

SAUDI ARABIA
(CASE ANALYSIS)

SUBMMITED BY GROUP 2
BAYOGOS, BRANE
ABOSOLO, ERIC
BACHAO, JEREMIAS
MARGALLO, RUEL
ALVARADO, VERNA
BONROSTRO, FRANZCLE
ESTUBO, MARECHO
MOLINA ROMNAFE
DALISAY EMERLYN
SUBMMITED TO MAAM, JOAN BAYANI

EXECUTIVE SUMMARY

COMPANY DESCRIPTION
Saudi Arabia has an oil-based economy with strong government control over major economic
activities. Saudi Arabia possesses 18% of the world's proven petroleum reserves, ranks as the largest
exporter of petroleum, and played a leading role in OPEC for many years. The petroleum sector accounts
for almost all of Saudi government revenues, and export earnings. Most workers, particularly in the
private sector, are foreigners.
Saudi Arabia occupies most of the Arabian Peninsula, with the Red Sea and the Gulf of Aqaba to
the west and the Persian Gulf to the east. Neighboring countries are Jordan, Iraq, Kuwait, Qatar, the
United Arab Emirates, the Sultanate of Oman, Yemen, and Bahrain, connected to the Saudi mainland by a
causeway. Saudi Arabia contains the world's largest continuous sand desert, the Rub Al-Khali, or Empty
Quarter. Its oil region l

$1506.8 billion
(PPP; 19th)
$745.273 billion
(nominal; 19th)[1]
GDP growth

5.13% (2012)[2]

GDP per capita

$53,780 (PPP; 8th)[1]

GDP by sector

agriculture: 3.2%; industry: 60.4%;

services: 36.4% (2009 est.)

Inflation (CPI)
Labour force

2.90% (2012)[2]
7.63 million (2009 est.) note: about
80% of the labor force is non-national

Labour force by agriculture: 6.7%; industry: 21.4%;

occupation
services: 71.9% (2005 est.)
Unemployment

5.7% (2013)[3]

Main industries crude oil production, petroleum

refining, basic petrochemicals,
ammonia, industrial gases, sodium
hydroxide (caustic soda), cement,

fertilizer, plastics, metals, commercial

ship repair, commercial aircraft repair,
construction
Ease-of-doing-

22nd[4]

business rank
External
Exports

$381.5 billion (2012 est.)[5]

Export goods

petroleum and petroleum products

90%[6]

Main export
partners

United States 14.3%

China 13.7%
Japan 13.7%
South Korea 9.9%
India 8.2%
Singapore 4.3% (2012 est.)[7]

Imports

$136.8 billion (2012 est.)[8]

Import goods

machinery and equipment, foodstuffs,

chemicals, motor vehicles, textiles[9]

Main import
partners

China 13.5%
United States 13.2%
South Korea 6.7%
Germany 6.5%
India 6.3%
Japan 6.0% (2012 est.)[10]

Gross external
debt

$127.4 billion (31 December 2012

est.)[11]
Public finances

Public debt

9.4% of GDP (2009 est.)

Revenues

$293.1 billion (2010 est.)

Expenses

$210.6 billion (2010 est.)

Economic aid

(Donor) $100 million in 1993

toLebanon; since 2000, Saudi Arabia
has committed $307 million
toPalestinians; pledged $240 million
to Afghanistan; pledged $1 billion in
export guarantees and soft loans

to Iraq.
Credit rating

Standard & Poor's:[12]

AA- (Domestic)
AA- (Foreign)
AA+ (T&C Assessment)
Outlook: Stable[13]
Moody's:[13]
Aa3
Outlook: Stable
Fitch:[13]
AAOutlook: Stable

ies primarily in the eastern province along the Persian Gulf

RESEARCH BACKGROUND INFORMATION

International and foreign law on bribery and corruption Examples of international frameworks,
which are ratified by respective member states include: OECD Convention on Combating Bribery of
Foreign Public Officials (1997) [This makes it a crime for companies and individuals to pay bribes to
foreign public officials.]
UN Convention against Corruption (2003). [This addresses bribery both at home and abroad and
includes private sector corruption.]

The Anti-Corruption Standards and Frameworks (produced by the Institute of Business Ethics)
provide an overview of selected international private sector standards seeking to combat bribery and
corruption. It sets out the content and implementation requirements of each standard.
Foreign Corrupt Practices Act (FCPA)
In addition, the provisions of the US Foreign Corrupt Practices Act (FPCA) will affect the
operations of many multinational companies, besides those primarily based in the US.
The FCPA established criminal and civil penalties for unlawful payments or bribes (or promises
of payments) to foreign officials for the purpose of obtaining or keeping business, either directly or
indirectly or through agents, to influence any act or decision or to secure any improper advantage in order
to obtain or retain business.
The FCPA applies to foreign companies listed on a US exchange or required to file accounts with
the SEC, as well as by US corporations or US nationals. It also applies to foreign nationals who cause an
act in the US (such as a wire transfer or establishment of an e-mail server in the US) which furthers an
FCPA offence.
Accounting requirements apply to companies required to file periodic reports with the SEC.
Requirements cover both systems of internal control and adequate record keeping non-compliance can
be a criminal offence.
The US federal authorities are pursuing cases aggressively and assessing large penalties for the
violations of FPCA.
Companies which may be subject to the FCPA are strongly advised to conduct suitable due
diligence on intermediaries, agents or local partners. Local U.S. Embassies or Consulates can provide
suitable profiles under the International Company Profile (ICP) service.

SAUDI ARABIA TODAY

Saudi Arabias economic freedom score is 62.1, making its economy the 77th freest in the 2015
Index. Its score is essentially unchanged since last year, with improvements in trade freedom and freedom
from corruption offset by declines in labor freedom, business freedom, and the management of public
spending. Saudi Arabia is ranked 8th out of 15 countries in the Middle East/North Africa region, and its
overall score remains above the world average.
Only one of Saudi Arabias economic freedom scores has increased over the past five years. Since
2011, a drop of 4.1 points has been led by decreases in five of the 10 economic freedoms, with notable
declines of 12 points in government spending and 20 points in business freedom. This has set Saudi
Arabias economy apart from the economies of some of its more freedom-minded Persian Gulf neighbors.

These trends undermine an already uneven institutional and structural economic framework. Government
spending and taxation remain relatively well-maintained, with oil profits contributing well over two-thirds
of government revenues. However, the rule of law remains weakly enforced, and the judiciary is strongly
influenced by the royal family. A closed economy and investment regime limit technology transfers and
the investment needed for economic diversification.
Doing Business in Saudi Arabia
Economists forecast continued real GDP growth to remain at approximately 4.9% per annum through
2016 given continued Government of Saudi Arabia spending and continued private sector growth given
major infrastructure, economic cities and other major projects. Inflation was expected at 4.6% in 2012,
with inflation slowing to 3.9% through 2014 as global commodity prices decline, and the dollar
potentially strengthens.

In 2012 Saudi Arabia was the United States largest trading partner in the Middle East. U.S. exports to
Saudi Arabia for 2012 totaled USD17.972 billion, which is up from the USD13.826 billion recorded in
2012. With the United States importing USD 55.67 billion in Saudi crude in 2012, the overall trade
volume resulted in Saudi Arabia being the United States 9th largest trading partner. In 2012, the fastestgrowing non-oil industrial sectors were power generation, gas and water equipment and services (+6.0%);
transport and communications (+5.6%); retail, restaurants and hotels (+4.4%); and construction (+3.7%).
Likewise, the power generation, water treatment, telecommunications, transportation, and infrastructure
sectors should continue to be the main engines of Saudi economic growth. As in past years, the
construction sector will continue be one of the main beneficiaries of continued large government outlays.
Saudis have been doing business with Americans much longer than they have with any other
major economic power, going back to the 1930s. Since then, American know-how, expertise, and
assistance have significantly contributed to the expansion and modernization of the Saudi economy.
Saudi business people are familiar with Americans and with the way Americans do business. Saudi
business people, for the most part educated in the United States and fully conversant in English,
genuinely like and respect Americans and actually want to do business with us. Business people in Saudi
Arabia welcome offers of cooperation and partnership with U.S. companies.
The size and continued growth of the Saudi economy, the fact that the Saudi currency or riyal is
pegged to the U.S. dollar (at 3.75 riyals per dollar), and the pro-American outlook of Saudi business
circles, all make Saudi Arabia an indispensable partner for U.S. companies who are serious about doing
business in the Middle East.

THE PROBLEM
The problem in this case is about the Saudi Arabian government, which offers a possible business
plan to the American company Skyblue. Skyblue is a commercial aircraft manufacturer based in Kansas,
USA. Because of its great reputation of high-quality and state-of-the-art technology, the royal Saudi
Arabian family announced the minister to talk with the executive vice president of Skyblue, Robert
Auger. The minister told him that the government wants to buy 10 aircrafts over the next two years and
even though, there are other competitors for this project, Skyblue is the favored manufacturer from the
royal family. The problem shows up, when the minister tells Robert that the royal family is suffering from
a stock market loss and that three of the competitive firms have each given $100,000 to help. Moreover,
the minister mentions that if Robert will do so as well, it will serve him in the decision making process.
Before giving the minister an answer, Robert wants to wait for a message of the headquarters and during

the mean time he meets up with a Saudi Arabian friend who is an insider in the Saudi government. The
friend tells him that he has not heard about any stock market losses and neither of the pool of money
being put together for members of the decision-making committee. What should Skyblue do? Whom can
Robert trust? Is this how business works in Saudi Arabia? Is it legal for Skyblue to give the money to the
committee in order to get the assignment?

MARKET ANALYSIS
The replacement of Saudi Arabia's heir on April 29, along with other major changes in the
country's leadership, represent a further consolidation of King Salman's authority. That said, the elevation
of the king's son as second in line to the throne is likely to prove a controversial choice, and could spark
future instability.
The new king has quickly consolidated his authority over Saudi Arabia's economic policy
apparatus, restructuring the country's administration and taking steps to improve the coordination of its
vast public investment plans. That said, these changes have so far not greatly altered the economic policy
line pursued by Saudi Arabia, and we retain our view that Salman will maintain his predecessor
Abdullah's reforms and energy policies.

Saudi Arabia's economic outlook remains favorable in spite of the continuing slump in oil prices,
but we expect growth to moderate heading into 2016. The forces bolstering economic activity - a
sustained expansion in government spending and increases in oil production - will gradually tail off over
the coming quarters.

Aircraft Manufacturing Company near Saudi Arabia

Israel Aerospace Industries

Founded: 1953
CEO: Joseph Weiss
Founders: Shimon Peres, Al Schwimmer
Aircraft manufacturer Israel Aerospace Industries or IAI is Israel's prime aerospace and aviation
manufacturer, producing aerial systems for both military and civilian usage. It has 16,000 employees as of
2013. IAI is wholly owned by the government of Israel.
Xi'an Aircraft Industrial Corporation

Founded: 1958

Parent organization: Aviation Industry Corporation of China

Xi'an Aircraft Industrial Corporation, also known as Xi'an Aircraft Company Limited, is a
Chinese aircraft manufacturer and developer of large and medium-sized airplanes. It is based in Yanliang
District, Xi'an, Shaanxi Province. Wikipedia
Guizhou Aircraft Industry Corporation
Aircraft manufacturer

Guizhou Aviation Industry Import/Export Company is a Chinese aircraft manufacturer and

military aircraft in Guizhou province. It is a member of the Aviation Industry Corporation of China.

.
SIMMILAR CASE AND THEIR RESOLUTION
ARM CASH BRIBERY
The Saudi contract called al-Yamamah which means "the dove" was Britain's largest-ever
arms agreement and the source of intense scrutiny and controversy ever since it was signed in the mid1980s.
Today after years of denying claims of corruption and bribes the company finally admitted
that the deal was mired in wrongdoing. The US department of justice today filed a telling indictment to
which BAE has agreed to plead guilty. It says, among other accusations, that BAE "used intermediaries

and shell entities to conceal payments to certain advisers who were assisting in the The statement goes on
to give examples: "BAE agreed to transfer sums totaling more than 10m and more than $9m to a bank
account in Switzerland controlled by an intermediary. BAE was aware that there was a high probability
that the intermediary would transfer part of these payments to the [Saudi] official. To Britain's shame,
these admissions have been forced out of BAE, not by the UK's own prosecutors, but those of another
country.
The stakes around al-Yamamah were always high. The deal was immensely lucrative for BAE at
the time, generating 43bn of revenue and keeping the firm afloat for more than two decades.
It was important enough for the then prime minister, Margaret Thatcher, to be involved in helping to
clinch the long-running deal in 1985. And, standing behind the politicians at the signing ceremony, was
the smiling Prince Bandar, son of the Saudi defense minister [now crown prince] Sultan.
It was later to become plain how much he had to be pleased about. The agreement was substantial
and involved expensive military hardware. In the first phase, Britain sold the Saudis 72 Tornado planes,
30 Hawk trainers and 30 other trainer planes. A further batch of 48 Tornados was sold in the second phase
of the deal agreed in 1993, and a third tranche, agreed after the end of the Serious Fraud Office
investigation, involved the sale of 72 Eurofighter Typhoons.

The Guardian first started its lengthy investigations into BAE back in 2003. The paper obtained
evidence that the company was operating a slush fund through front companies to provide substantial
treats and favors to Saudi dignitaries. Whistleblowers came forward to reveal how the arms dealers were
spending huge sums to keep the head of the Saudi air force sweet. But those sums proved relatively small
in the grand scale of things. The Guardian discovered that BAE was paying secret sums of money to
confidential agents all around the world through a global system of offshore anonymous companies. An

undeclared subsidiary called Red Diamond was acting as a vast laundry. A parallel entity called Poseidon
made specific Saudi payments.
Or, as the justice department in Washington put it today: "BAE took steps to conceal its
relationships with advisers and its undisclosed payments to them. For example, BAE contracted with and
paid certain of its advisers through various offshore shell entities beneficially owned by BAE. BAE also
encouraged certain of its advisers to establish their own offshore shell entities to receive payments while
disguising the origins and recipients of such payments."The justice department states the arms firm
operated a deceptive system of parallel overt and covert payments to its agents, who could then use the
secret supplies of cash to pay bribes.
"BAE retained and paid the same marketing adviser both using the offshore structure and without
using the offshore structure. In the UK, the SFO launched its own inquiry in 2004. Its investigators
started to get close to the Saudi royal family, uncovering evidence of huge sums being paid to Swiss bank
accounts linked to middlemen including the well-connected billionaire Waif Said.
In September 2006, the Swiss were preparing to disclose the bank records to the SFO. The firm and its
lobbyists started a public campaign warning that huge numbers of arms-manufacturing jobs could be lost.
Behind the scenes, the Saudis were issuing their own threats. They claimed they would stop
supplying vital intelligence about al-Qaida terrorists to Britain if the investigation was allowed to
continue. SFO investigators were told dramatically that they faced "another 7/7" and the loss of "British
lives on British streets" if they carried on.
It was reported that the Saudis had issued an ultimatum that the inquiry had to be terminated
within two weeks, and in December 2006, Lord Goldsmith, then the attorney general, rose in the House of
Lords to announce that the investigation had indeed been brought to a halt. It transpired that Tony Blair
had written a "secret and personal" letter to Goldsmith demanding that he stop the investigation. He

hoped for a new arms deal from the Saudis. Plus, he claimed, there was a "real and immediate risk of a
collapse in UK/Saudi security, intelligence and diplomatic co-operation".
The prime minister said he "would be failing in his duty" if he had not made his views known.
Inside the SFO, threats were privately discounted, on the grounds they were coming from Prince Bandar
himself, a recipient of BAE's largesse.
But that was not the end of the matter. In 2007, the Guardian revealed that the claims the SFO had
been investigating included one that BAE had secretly paid more than 1bn to Prince Bandar through a
US bank, as well as making him the free gift of an airliner.
The US justice department decided to launch its own investigation. At its heart were claims that
BAE had been paying 30m every quarter for at least a decade to the colorful prince.
The US prosecutors could take jurisdiction as the payments had been channeled through a US bank in
Washington where Bandar was the Saudi ambassador for 20 years. The British government refused to
hand over documents about the Bandar payments to help the American prosecutors, payments allegedly
made with the knowledge and authorization of Ministry of Defense officials. Ministers had claimed for 20
years that there were no secret commission payments, and BAE officially promised the US government
the same in a 2000 official letter which later proved to be its undoing.

ANSWER TO THE QUESTIONS

What are some current issues facing Saudi Arabia? What is the climate for doing business in Saudi
Arabia today?
Loss of Export Markets

The importance of the oil and gas industry to the Saudi economy cannot be overstated. In 2012,
Saudi Arabias top exports were crude petroleum (76%), refined petroleum (5.7%), ethylene polymers
(3.7%), acyclic alcohols (2.9%), and petroleum gas (2.5%). These commodities represented over ninety
per cent of its total export earnings of US$395 billion. Its main export markets in 2012 were the United
States (14.3%), China (13.7%), Japan (13.7%), South Korea (9.9%), India (8.2%) and Singapore (4.3%).
In barrel terms, Saudi Arabia exported an estimated 7.5 million barrels per day, making it the largest oil
exporter that year. The oil and gas industry is clearly critical to the Saudi economy, making recent
technological developments in the international oil producing markets particularly troubling from the
Saudi perspective.

Competition for the Role of Regional Hegemon

Saudi Arabia has had a frosty relationship with Iran for some time now. Islamic sectarianism
aside, much of that frostiness stems from the mutual dislike between Tehran and Riyadh. Tehran appears
to object to the House of Saud using its de facto role as the guardian and custodian of some of Islams
holiest sites, including the Grand Mosque in Mecca, to derive its legitimacy. Iran sees itself as a
democracy and removed from Saudi Arabia, which it considers an authoritarian dictatorship. Thus, when
Muslim militants besieged the Grand Mosque in 1979 in an attempt to overthrow the monarchy, the
Ayatollah Khomeini termed the occasion a great joy.

The Muslim Brotherhood

The threat posed by the Muslim Brotherhood to Saudi Arabia also requires attention. The recent
designation by Riyadh of the Muslim Brotherhood as a terrorist organization has placed increased strain

on relations within the Middle East. Currently, the Muslim Brotherhood is recognized as a terrorist
organization by Saudi Arabia, Bahrain and Egypt. Notably, Turkey and, to a lesser extent Iran, support the
organization. The Turkish Prime Minister, Recep Tayyeb Erdogan, is believed to be a mentor of the
Brotherhood, exacerbating Saudi dislike and fear of the organization. Saudi concerns over the Muslim
Brotherhood in large part stem from the fear that it could pose a political threat within the Kingdom, and
incite a revolution similar to the 2011 Egyptian revolution.
Regional Violent Extremism
Recent escalations in violence in Iraq are troubling for Saudi Arabia as, geographically, it now
has extremists gaining a strong hold in both Iraq and Yemen with the potential for the violence to spill
over into the Kingdom. Consequently, the Saudi security forces have been placed on high alert. The most
immediate threat is likely to be the Islamic State (formerly ISIS), which, despite the tactical and materiel
constraints that it would face, has publicly expressed its desire to attack the Kingdom. The threat posed by
al-Qaida in the Arabian Peninsula (AQAP), which has previously attempted to attack Saudi Arabia from
Yemen, should also not be underestimated.
Saudi Arabia is facing a number of internal problems, many of which stem from growing economic
disparities and dislike of the current government. Anti-government sentiment grew in the wake of the
2011 Arab Spring, and recent counter-terrorism laws passed have compounded the situation, since anyone
who speaks out against the monarchy or the government can be classified as a terrorist, leaving people
unable to voice their concerns. They resort to using social media networks; over forty per cent of all
Internet users in Saudi Arabia use Twitter, making the country the highest user of the medium, relative to
population, in the world. Human Rights Watch, like other human rights groups, has deemed the new laws
a legitimized form of oppression against protestors, claiming that they, and not violent terrorists, are
actually the intended targets.

Doing business in Saudi Arabia can be a highly-lucrative venture for Western businesspeople if they can
handle the culture differences. Saudi Arabia's economy is booming thanks to oil exports; its real 2011
GDP growth is estimated by the CIA World Fact book to be a healthy 6.50 percent.
The U.S. Department of Commerce described Saudi Arabia as the most stable economy in the
Gulf and its government as having conservative economic and financial policies. It claimed Saudi
business people genuinely like and respect Americans and actually want to do business with them.
Saudi Arabia also fosters a surprisingly friendly environment for businesses; it ranked 12th in the 2012
World Bank Ease of Doing Business Index. If Westerners want deepen their relationship with the Saudi
market and businesspeople, they need to conform to the Saudi social and business culture, which can
differ remarkably from Western norms.

Days and Times

The weekend in Saudi Arabia is Thursday and Friday. Saudi businesspeople pray five times a day; the
exact time of the prayers are listed in the local newspapers each day, according to Kwint essential.
While Westerners are not required to pray at those times, whatever business activities they are engaged in
with Saudi businesspeople will be interrupted by them. During the month of Ramadan (the exact dates
vary each year), businesses slow down noticeably. While Westerners are not expected to fast during
Ramadan, they should refrain from eating in public and in the presence of those who are fasting.

Gender Considerations

In Saudi Arabia, public interaction between men and women are severely limited, even in business
settings. In public, Western businesswomen may be expected to wear an abaya. Indoors, their clothing
should be loose-fitting and cover their collarbone, elbow and knees. In many public places (like
restaurants), Western businesswomen cannot meet with Saudi businessmen without a male in her party or
cannot meet with Saudi businessmen at all. Western business women tend to be accepted but with a great
deal of reservation, stated a Culture Crossing posting on Saudi Arabia. Miscellaneous During small talks,
Western businesspeople should avoid asking specifically about a Saudi businessman's female relatives.
They should not point the soles of their feet at anyone. Saudi businessmen are comfortable standing very
close to the men they are talking with, often encroaching upon what is considered personal space by
Western standards. Saudi men are usually addressed by their title (e.g. doctor, professor) and first name.
Western businesspeople should use their right hand when shaking hands with others and giving and
receiving objects from others. They should never flatly refuse refreshments like coffee, tea and dates; they
should at least accept the first round of offerings. They should not take photos of people without
permission. They should not express admiration of a Saudi's material possessions.
2. Is it legal for Augers firm to make a payment of $100,000 to help ensure this contract?
No, because under the International law it is kind of bribery which is prohibited
3. Do you think other firms are making these payments, or is Augers firm being singled out? What
conclusion can you draw from your answer?
No and maybe the minister just want to get money from Augers firm and the entire minister told
about him are such a bluff and lies. The minister take advantage in the situation he know that Skyblue
will the one who win so he approach the firm and told Auger that giving a such money will help Auger to
close a deal
4. What would you recommend that Skyblue do?

Sky blue should reject the offer of minister to pay 100,000 us dollars because it is against the law
even though that it may affect their bidding competitiveness. Sooner or later their deal might get in
public that may put them in situation that they didnt want to.

OPINION
The deal was dirty even though it always happen in Saudi arabia auger company shouldnt
engage with this deal because the deal was very risk and the deal also maybe a fake . The 10 aircraft may
bring them a lot of profits but what about the aftermath of this deal, if we read back the arm cash bribery

case it involves a higher official of Saudi government, taking this as example the case maybe go out and
publicized that may shatter image of Skyblue manufacturing company.
RECOMMEDATION
Quit the deal with the Saudi government or enter the deal without giving bribery cash. But
engaging in the deal without giving the minister the money might hurt their feelings and become
disadvantage for the Skyblue. So the better thing to do first is approach the minister and told them that
the skyblue
CONCLUSION
Augers firm has been singled out by the Saudi minister and wants to draw out money from them.
The minister take advantage of what will going to happen he anticipate that the Skyblue will win he use
that knowledge to get money from augers firm. Everything that he told to Auger is a lie the losses in
London stock exchange and the pool of money for king relative. Sky blue should reject the offer of
minister to pay 100,000 us dollars to be competitive at the bidding because it is against the law even
though that it may affect their bidding competitiveness. Sooner or later their deal might get in public that
may put them in situation that they didnt want. This incident can ruin the entire image of their company
and result to remarkable lost

REFERENCES

Economy of Saudi Arabia

http://www.heritage.org/index/country/saudiarabia
Saudi today
http://www.scribd.com
Market Analysis
www.euromonitor.com/saudi-arabia
www.bmiresearch.com/saudi-arabia
www.studymode.com
www.papercamp.com
Bribery law
www.cms-cmck.com
world-toolkit.yale.edu/anti-bribery/understanding-anti-bribery-laws
https://www.unodc.org/corruption/publications_compendium_e.pdf