By Andy Sambidge
Confectionary firm Nestle begins direct sales, distribution ops, bypassing Saudi partner tradition
Swiss confectionary giant Nestle's Middle East unit has announced it has started direct sales and distribution operations in Saudi Arabia in a move that may threaten the role of family-owned sole agent companies.
Nestle Middle East said it was one of the first multinationals to have a direct operational presence in the kingdom.
A large majority of companies have traditionally used Saudi family-run agents to set up their local operations because of their knowledge of the market.
The move by Nestle follows the recent decision by the Saudi Government to further open up the national economy to international companies.
"We see the commencement of direct sales and distribution operations as the beginning of a new and exciting chapter in Nestle's long operational history in Saudi Arabia," said Yves Manghardt, chairman and CEO of Nestle Middle East.
"Saudi Arabia, with its 28 million inhabitants and its sizeable youth population, presents tremendous growth opportunities for Nestle," he added.
Nestle Saudi Arabia will be headquartered in Jeddah, with branch offices in Riyadh and Khobar.
The company, which aims to employ around 225 people in the first year of operations, said it is determined to exceed the local Saudization targets.
When Saudi Arabia joined the World Trade Organization (WTO) in 2005, there were predictions that an end to the agency system would be the inevitable result of membership, because foreign companies were effectively given the green light to set up operations on their own.
However, until now there has been little evidence that foreign manufacturers wanted to do so, preferring to stay with their local partners because of their knowledge of the Saudi market.
Nestle, which has been operating in Saudi Arabia since 1955, said its water operation in the kingdom, Al Manhal, will remain managed by separate manufacturing, sales and distribution joint ventures.
Nestle Middle East has invested more than $400 million in the region since its launch in 1997, owning and operating 17 factories and 37 offices, and employing more than 7,000 people.
This is a very good move in the interest of the all the people in the Kingdom. We also hope this will be followed by other GCC states in the automobile and other sectors where in few firms are making profits at the cost of the endusers and preventing large companies from making economic profits. End all exclusive dealerships as this takes away competition, increases the costs and leads to poor service to the customers.