Expanding into new markets presents a plethora of opportunities for businesses, but it also comes with significant challenges, particularly in recruiting the right talent. As companies eye the Saudi Arabian market, understanding the intricacies of local recruitment becomes paramount.
Understanding the Market
In recent years, Saudi Arabia has emerged as a focal point for economic growth and diversification, driven by its ambitious Saudi Vision 2030 initiative. This vision aims to reduce the Kingdom’s reliance on oil, diversify its economy, and develop public service sectors such as health, education, infrastructure, recreation, and tourism. As part of this transformation, the Saudi employment market has undergone significant changes, presenting both opportunities and challenges for businesses looking to invest and recruit in the region.
One of the most pressing issues in the Saudi labor market is the unemployment rate. As of the first quarter of 2024, the overall unemployment rate in Saudi Arabia stood at 3.5%. For Saudi nationals, the unemployment rate was 7.6%, reflecting a decrease compared to the same period in 2023. These figures underscore the Kingdom’s ongoing efforts to boost local employment, particularly through the Saudization initiative, which mandates a certain percentage of jobs be filled by Saudi nationals.
The Saudization policy, also known as the Nitaqat program, is a cornerstone of Saudi Arabia’s strategy to increase employment among its citizens, in order to absorb the large number of young nationals entering the market as 60% of the population is under 30 years old. This program categorizes companies based on their compliance with Saudization quotas, which vary by industry and company size. Companies that fail to meet these quotas face restrictions, such as limitations on obtaining new visas for foreign workers and eligibility for government contracts. Recent amendments to the Nitaqat program have aimed to simplify compliance by consolidating sectors and providing a more flexible approach to quota requirements.
This program impacts, of course, the recruitment strategy of foreign companies investing in the Saudi market. While certain technical activities require skills which are sometimes hard to find locally, the “saoudization” limit foreign companies’ capacity to fill this skills gap with imported labor. Finding balance is not always an easy task for companies, which cannot rely on expatriates coming from outside for short-term missions as often as before, due to the regulations which increasingly make localization mandatory.
The gender dynamics in the Saudi labor market have also been a focal point of reform. Historically, women’s participation in the workforce was limited, but this is changing rapidly. Female participation in the labor force increased from 20% in 2017 to approximately 35.8% in early 2024, thus already overcoming the 30% target of the Saudi Vision 2030. This shift is partly due to policy changes, such as lifting the ban on women driving, providing companies with financial incentives to employ female workers, and implementing workplace anti-harassment regulations. A shift is also observed in the Saudi society which encourages this evolution, as studies show that 87% of married Saudi men aged 18-35 privately support women working outside the home.
Despite these advancements, challenges remain. There is a notable skills gap in the Saudi labor market, with many employers reporting a shortage of skilled professionals. This scarcity is particularly acute in technical fields, where the demand for qualified candidates often outstrips supply. To address this, the Saudi government has invested in upskilling programs and initiatives to train the local workforce, particularly in high-demand sectors like technology and healthcare.
The shortage of skilled workers in the private sector can partly be explained by the historical preference for Saudi nationals for jobs in the public sector. Indeed, for many Saudi nationals, the allure of public sector employment has long been rooted in its traditionally higher salaries and more limited working hours compared to the private sector. Until recently, government jobs were seen as the pinnacle of employment, offering not just financial stability but also a desirable work-life balance, with typical working hours running from 7:30 a.m. to 2:30 p.m. This preference is reflected in a recent Gallup survey in 2015, which found that a significant majority of Saudi students (78%) still express a desire to work in the public sector. This inclination is driven by the perceived job security, prestige, and benefits associated with government positions.
However, the dynamics are slowly shifting. The salary gap between the public and private sectors has been narrowing, in part due to economic reforms and initiatives under Saudi Arabia’s Vision 2030. As a result, the private sector is becoming increasingly attractive, particularly for younger Saudis who are drawn to the opportunities for innovation and creativity that it offers. Despite these changes, the transition is gradual, and the public sector continues to hold significant sway over the employment preferences of many Saudis.
Hiring Local Talent
Saudi Arabia’s job market is characterized by a young, tech-savvy population, making digital platforms an essential tool for recruitment. Platforms like LinkedIn, Mihnati, and GulfTalent are popular for job postings, while social media channels such as Twitter, Instagram and Facebook are widely used for employer branding and candidate engagement. These platforms allow companies to reach a broad audience and attract top talent by showcasing their Employer Value Proposition (EVP).
When crafting job offers, Saudi talents typically prioritize several key factors. Competitive salary packages are a primary consideration, as the Kingdom is known for its attractive compensation standards. According to Paylab, the salary range in Saudi Arabia spans from approximately 5,042 SAR to 20,382 SAR per month, with variations depending on the industry and position. Beyond salary, Saudi workers value job titles, the prestige of the position, and the reputation of the company. Additionally, work-life balance, including working hours and job location, plays a significant role in their decision-making process.
Cultural sensitivity is paramount during the recruitment process. Understanding and respecting local customs can make a substantial difference in attracting Saudi talent. For instance, maintaining a conservative dress code and avoiding physical contact between unrelated men and women are important cultural considerations.
To avoid cultural missteps, companies should engage in cultural sensitivity training for their recruitment teams. Building personal relationships and demonstrating genuine interest in candidates’ well-being are appreciated gestures in Saudi culture. This approach not only helps in attracting talent but also in retaining them by fostering a supportive and respectful work environment.
In terms of compensation packages, companies often go beyond the basic salary to include additional benefits. Common offerings include health insurance, housing and transportation allowances, and annual airfare for expatriates. These benefits are crucial in attracting and retaining talent in a competitive market. Employers are also increasingly offering flexible work arrangements and robust learning and development programs to meet the expectations of Saudi workers.
Challenges and Solutions
Navigating the cultural and linguistic landscape of Saudi Arabia presents a unique set of challenges for foreign employers. The Kingdom’s rich cultural heritage and predominant use of Arabic can create barriers for international companies seeking to integrate into the local market. According to the EF English Proficiency Index, Saudi Arabia ranks 83rd globally in English proficiency, indicating that while there is a growing number of English speakers, the majority of the population primarily communicates in Arabic. This linguistic divide necessitates strategic hiring practices, such as employing bilingual staff or investing in language training for employees to facilitate smoother communication.
Cultural differences further complicate the recruitment process. Saudi Arabia’s business culture places a strong emphasis on personal relationships and trust, which can be unfamiliar to foreign employers accustomed to more transactional interactions.
Foreign employers must also be mindful of cultural sensitivities to avoid missteps that could hinder their recruitment efforts. For example, maintaining a conservative dress code and respecting gender norms in professional settings are crucial for building a positive reputation. Additionally, understanding the hierarchical nature of Saudi society, where decision-making is often centralized among senior leaders, can help foreign companies navigate corporate structures more effectively.
Navigating Saudi Labor Laws
Navigating the intricate landscape of labor laws in Saudi Arabia is a critical task for any international business looking to establish a foothold in the Kingdom. The Saudi labor framework is comprehensive, encompassing a wide array of regulations that govern employment contracts, wages, working conditions, and more. These laws are designed to protect both employers and employees, ensuring a fair and equitable working environment. However, non-compliance can lead to severe penalties, making it essential for companies to have a deep understanding of these regulations.
Employment contracts in Saudi Arabia must be meticulously crafted and registered with the Ministry of Human Resources and Social Development (MHRSD) on the Qiwat platform. Payroll practices must also adhere to local standards, ensuring timely and accurate payment of wages. Any changes to the terms of employment, such as salary adjustments or job responsibilities, require mutual consent and should be documented in writing to prevent disputes.
Health and safety regulations are another critical aspect of Saudi labor laws. Employers are mandated to provide a safe working environment, complete with necessary safety equipment and protocols to protect employees from occupational hazards. The MHRSD enforces these regulations, conducting inspections to ensure compliance and imposing penalties for violations.
For companies employing expatriates, navigating the visa and work permit process is crucial. The sponsorship system, known as Kafala, requires employers to sponsor foreign workers, which involves significant administrative responsibilities and costs. This system is undergoing reforms to improve labor mobility and reduce dependency on sponsors, but understanding the current requirements remains vital for compliance.
Given the complexity of these regulations, engaging local legal experts or Professional Employer Organizations (PEOs) can be invaluable. These entities offer expertise in managing compliance, from onboarding to tax filings, ensuring that companies adhere to Saudi labor laws while focusing on their core business operations.
In summary, entering new markets like Saudi Arabia requires a well-rounded recruitment strategy that considers local nuances, legal compliance, and employer branding. By understanding the market, hiring local talent, navigating labor laws, and building an attractive employer brand, companies can successfully expand into new territories. Artemis Business Care is here to help you.
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