Localizing Leadership Positions for Multinational Companies in the Gulf

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Abstract

The main aim of this research is to examine leadership localization in Saudi Arabia and help in the understanding on its effect on business growth in the region. Various governments in the gulf region have put policies in place to enforce leadership localization. For instance, in Saudi Arabia the government gives sanctions that organizations that do not comply will not receive government contracts. Measures have been put in place to monitor the rate of localization in the region.

For example, in Saudi Arabia, the Nitaaqat program that was initiated in 2011classifies companies according to their observed rates of saudization. Companies are granted privileges according to their rates of localization. Future research can use quantitative research and probability sampling to generalize the findings to the entire Saudi Arabia nation and the extensive gulf region.

Introduction

Countries in the gulf region experienced rapid economic growth around 1960-2000, approximately about 4.1 percent in Saudi Arabia (Pakkiasamy 2004:192). Research indicates that the rate of population growth is slow compared to economic growth (Dyer 2006:71). Literature indicates that there are about 10 million foreigners in the Gulf Region who make a large percentage of the workforce that is approximately 90 percent of the employees in Qatar and Saudi Arabia (Abdalla 2006:15).

President Sheikh Zayed bin Sultan al-Nahyan in his speech in 2003 mentioned that the imbalance created by a high percentage of foreigners in Saudi Arabia posed a great problem that threatened the societys stability and the future generations (Mellahi 2006:123).

In oil and gas corporations, the need for leadership localization is to put an end to dependence on foreign experts (Lee and Larwood 1983:660). For example, the formation of Aramco in Saudi Arabia and its development to become a multinational oil corporation is a clear indication of the success that can be realized from localization and self-reliance (General Statistics Department KSA 2007:53).

The localization program is also meant to fight the problem of unemployment which is high despite continuous economic growth. Unofficial estimates put Saudi Arabia unemployment rate at 15 percent, out of which 35 percent range between 16 to 24 years.

Aramco has been successful in the practice of recruiting and retaining local employees at work. The firm was established 75 years ago and is the largest private employer in Saudi Arabia. The process of leadership localization is impressive with current statistics indicating that 87 percent of the employee population is local and 99 percent of the managers are local citizens.

Moreover, 95 percent of the managers were trained and groomed in the organization. One of the main challenges lies in dismissing local employees. The legal processes involved in dismissal are complicated and local employees perceive jobs as individual rights rather than scarce opportunities (Al-Dosary and Rahman 2005:501).

Research Rationale

Saudi Arabia remains a profitable business center characterized by fast growing multinational corporations in the oil and gas sector. For example, the construction of Dresser-Rand facility expected to be completed by 2013. The facility has a training center which will be used to train the recruits from the local community.

Due to continuous development opportunities in the Gulf Region, the companies rely on expertise talent. Currently there is a trend to enforce localization of executive employees in both multinational and local companies operating in Saudi Arabia and various Gulf Nations (The Economist 1997:41).

The current inclination toward leadership localization has been engineered by quest by the local companies to ensure a sustainable talent management that will promote long-term business, productivity, and prosperity. A policy to initiate leadership localization is also meant to provide economic opportunities for the educated population in the Middle East.

The aim of this study is to examine how the Saudization policy works with government and multinational private corporations in the country to replace the foreign workers with Saudi citizens (Harry 2007:145). It will also review employment quotas put in place to regulate recruitment of immigrants, to preserve the opportunities for the local citizens (Oddou 1991:331).

The campaign to enforce leadership localization in Saudi Arabia is meant to ensure self efficiency and internal security in the country. The strategy is also meant to reduce crimes related to unemployment and discrimination.

The multinational corporations and local companies operating in the gulf region have recognized the dilemma that can arise from lack of investment in long-term management of human resource. The outlined initiatives are being used by the government to promote development of leaders from the local population (Bhanugopan and Fish 2007:370).

This is enforced through hiring expertise that shows commitment to development of local talent (Godwin 2006:11). Companies in need of identifying talent have hired experts to assess the existing human capital in the company and talent future needs. Executives are obligated to mentor indentified talent, and the organizations are seeking guidance from executives (Forstenlechner 2010:137).

Relation to previous research

Research shows that Saudi Arabia has experienced rapid growth in the recent past. This led to increase in demand for individuals who could sufficiently take leadership positions in the companies (Kotter 2002:143). The companies in the region resorted to recruitment of expertise whose main objectives were overseeing project activities.

Human resource management skills and development of leadership were not prioritized and this led to poor imposition of quotas to enforce employment of the local population (Daher and F Al-Salem 1985:82). Senior executives focused on short-term goals.

At the peak of the global recession, regional growth rate decreased, the expatriates left leaving the companies without any leadership development strategies in the local population that could make up the next generation of business executives (Achoui 2009:46).

Realization of the importance of long-term sustainable business growth and utilization of locally available resources has led to a complete change in the corporations approach to leadership. Organizations seek to build good working relationship with the local population, and this is based on offering leadership opportunities to enhance leadership development. In addition, sufficient communication between the executives and the developing local talent is crucial toward realization of the set goals (Said and Al-Buraey 2009:76).

The localization plan at Dresse-Rand in Saudi Arabia is aimed at hiring local population. The oil manufacturing company plans to provide opportunities from the lowest levels to senior executive leadership positions.

The Dresser-Rand company reached an agreement with Saudi Petroleum Services Polytechnic (SPSP) to sponsor 37 students in several disciplines including: welding, electricians, pipefitting, and machinists. The company has a management team to help in the identification, qualification, and development of local suppliers in Saudi Arabia (Mendenhall and Oddou 1985:43).

Aims and Objectives

The main aim of this research is to explore how localizing leadership positions for multinational companies in the gulf, especially in Saudi Arabia can bring more business to the oil and gas energy sectors. The main question is
To find out whether culture sensitive leadership lead to realization of increased business growth in the oil and gas multinational companies in Saudi Arabia.
The importance of integration of cultural values into leadership to increase business productivity in the multinational corporations will be explored using literature review to create a better understanding of:
1. How leadership localization affects the productivity of the multinational oil and gas companies
2. How knowledge of the local culture and ability to deal with the local people affect business growth in the multinational oil and gas companies

Research Statement

The issue of leadership localization has acquired high significance in the current era characterized by high unemployment rates among the youth in the country (Lumsden 1993:47). This trend is continuously putting pressure on the government of Saudi Arabia to provide jobs for its citizens.

Although there are policies put in place to ensure the local citizens secure employment opportunities to balance the local and immigrant employment rates, research indicates that employers prefer expatriate workforce (Mahdi and Barrientos 2003:74).

This is attributed to good work performance of the expatriates as compared to the locals. Expatriates are willing to carry out demeaning and physically demanding duties, but their compensation is lower as compared to that of the locals (Synnot and Fitzgerald 2007:251).

Comparing the expatriate and local workforce performance enables business corporations to assess the effects of variables like education, age, training, nationality, and leadership position held by an individual in the place of work.

This information is used by business corporations in improving their strategies to promote the performance of the locals. This is considered as a means of solving the problem of economic leakage and boosts the rate of indigenous employment in the local and multinational corporations (Peng and Hao 2011:98).

Research indicates that although Saudi Arabia realizes great revenues from petroleum production which is also termed as a traditional economic activity in Saudi Arabia, the country experiences structural weaknesses because of external influences from foreign investors and this poses the risk of economic insecurity in the oil rich country (Heidrick 2012:2).

Success in the process of leadership localization and consequent realization of economic growth requires a change in attitudes of the human resource department which steer recruitment and oversee their retention in the workforce (Saad and Fadeel 2983:369).

The multinational; and local corporations looking forward to localizing leadership in their organizations should explore the factors that make talented employees choose some employers and not others (Oliver 1997:701). The process of leadership localization has economic, demographic and political perspectives and thus success will require multi-approaches to the problem in question.

Research Hypothesis

Leadership localization in the local and multinational oil and gas corporations will establish internal stability in management development among the local population, consequently leading to growth in business productivity.

Study Model

Leadership localization in Saudi Arabia will lead to growth in business productivity hence economic development and self efficiency in the country. Imposition of legal quotas to enforce leadership localization imparts negative mentality in the local citizens and thus reduces economic growth sustainability.

High dependence on expertise in the local and multinational corporations in Saudi Arabia can lead to economic sabotage and decreased economic performance in case of global recession that will reduce the countrys revenue inflow. Institutional training and grooming of the young population into leaders encourages employee sustainability hence economic growth in the institutions.

Methodology

The study will use information from detailed literature review, primary and secondary sources of data collection.

Literature Review

It will contain opinions from other scholars related to leadership localization in the gulf region. Through literature review, the proposal will bring out a clear grasp of the history of the research problem in Saudi Arabia and efforts which have been put in place by the government and private firms to enhance leadership localization. In addition, it will look into previous researches on the same problem and the results of implementation of research recommendations (Maxwell 2012:249).

Primary Sources

Information will be sought using population surveys and questionnaires to get insights on demographic, economic, political characteristics together with motivational behavior in the population. It will enhance collection of first hand information from institutions.

Structured and Standardized Surveys

To fulfill the study objectives, the study will use quantitative approach through survey questionnaires (Kumar 2005:43). The research sample will be drawn from senior executives and junior staff in local and multinational corporations operating in Saudi Arabia. The research Surveys will be conducted in the selected firms.

Information will be sought from companys records that indicate the rate of employee training to encourage localization. In addition, surveys will use employee registers from the human resource personnel to ascertain the rate of recruitment and retainance of employees in an effort to support localization (McKinsey and Company 2006:94).

A self-administered questionnaire designed in the light of research objectives will be distributed among 150 senior executives and 200 junior staff in the oil and gas multinational corporations in the western province of Saudi Arabia. The study will be limited to one part of the country as a strategy to control the cost of the research and to ensure achievement of the set objectives (Kothari 1985:65).

The researcher will administer the questionnaires which are to be completed in either Arabic or English. With the consent of the management of the specified corporations, the research will be carried out during official working hours, and the standardized questionnaires will require 30 to 45 minutes to fill in. participants will be selected randomly by the use of employee register but there will be no coercing for participation.

After giving the informed consent and explanation on the purpose of research, the selected employees will be given liberty to choose whether they want to participate in the research process or not (Kotter 2003:219).

The questionnaire will include questions to ascertain the effect of the Saudization policy in the effort to localize leadership in the business entities. In addition, the questionnaires will seek to get insights on individual perceptions of effect of localized leadership on growth of the business corporations especially the major oil and gas corporations.

Data Analysis

Following a logical reasoning from the studied literature, the research will present the localization determinants in Saudi Arabia. The determinants will be analyzed to ascertain their relationship with localization success in the country. The data collected will be analyzed using regression analysis and correlation technique.

The information collected will be interpreted and reduced to numerical terms (Dawson 2002:76). In the process of analyzing the information, the researcher will sample the collected information using the study variables. Sampling will be used to ascertain if the Saudi policy is targeted to particular institutions and if it is fairly applied to ensure business growth even in foreign investments.

Regression analysis and correlation analysis will enable the researcher to construct codes to enhance categorization of the collected information. The researcher will then be able to interpret data from the junior staff and compare it with the data collected from the executives and thus be able to draw his or her research conclusions.

Through comparison of data from individuals of different ranks, the researcher will be able to ascertain the authenticity of the research and thus make informed decisions if further research should be carried out or not (Ricketts 2009:1-7). Sampling will be used to ascertain if the Saudi policy is targeted to particular institutions and if it is fairly applied to ensure business growth even in foreign investments.

Regression test is used to explore the variance in leadership localization in various organizations (Kothari 1985:65). The test will also be used to ascertain the dependent determinants of business growth in Business Corporation are related to localization in Saudi Arabia. The analysis will also be used to show the relationship between organizations management and the success in efforts of leadership localization in the country (Melvin 2005:22).

Secondary Sources

The research will seek information from the government of Saudi Arabias statistics board and the department of labor. This will be meant to verify the information collected from the primary sources, and to gain some insights from the nationally documented information on unemployment rates and the measures put in place to enforce leadership localization in the country.

Conclusion

The proposed idea is to carry out a qualitative study on leadership localization in Saudi Arabia and its economic impact on the growth of local and international corporations in the region. A literature review to get an overview of other related research in the region.

The main study will use standard and structured questionnaires to give the researcher an opportunity to ascertain the validity of the responses through the use of standardized questions in the study. Probability sampling will enable the researcher to choose a reliable sample from which the data collected can be generalized to the target population.

Leadership localization has been planned for in the Gulf Nations since oil was discovered. Foreign companies and expatriates took advantage of lack of local individuals in possession of the required technical skills. Currently, gulf countries have put policies and other strategies in place to increase the percentage of the local population working in the multinational and local companies established in the region and this is attributed to economic, demographic, and political factors.

A quantitative study through the use of questionnaires will be conducted to give insights into the plans put in place to enforce leadership localization in oil and gas companies in Saudi Arabia. In addition, the questionnaires will seek information on the relationship between leadership localization and business growth in the multinational corporations in question.

The research will use non-probability sdampli8ng method in the selection of target companies. This will limit generalization of the research findings to the entire nation of Saudi Arabia. The research will seek to understand the relationship between Saudization policy and business growth both in the local and multinationals oil corporations in the Saudi Arabia.

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