Workforce localisation policies in multi-national enterprises: the determinants of successful implementation in the Kingdom of Saudi Arabia

Abstract

Workforce Localisation policies in Saudi Arabia (commonly known as ‘Saudisation’) have passed their nineteenth year, aiming at replacing foreign employees in the private sector with local employees. The government’s rationale behind the localisation of the workforce includes both the high rate of unemployment amongst Saudi nationals and the massive presence of expatriates in the labour market. The government acted firmly in this issue as organisations are threatened by closure and severe financial penalties if they do not comply with the policy requirements. Although these policies apply to all private firms, the regulations have been even tougher on Multi-National Enterprises (MNEs) as one of the main objectives of Saudi’s foreign investment policy is to create employment opportunities for locals. However, many MNEs have been found to be lagging behind in implementing the policies. Despite the importance of these policies and their implications on MNEs’ performance, research in this area remains very limited. The literature available has focused on issues of rationales and barriers of WL polices. One of the main gaps in literature is the lack of multi-dimensional models that identify the factors associated with the success of such policies. In an attempt to overcome the mentioned limitations, this research identifies the determinants of localisation success through the employment of multi-dimensional model. From the model proposed, the research evaluates the impacts of Institutional determinants, HR determinants, and firm characteristics on localisation success. The study draws its conclusion from the analysis of quantitative data collected from Human Resource Directors representing 157 MNEs. Hypothetical relationships are examined using multiple regression analysis. With regard to the first group of localisation determinants, the results support the institutional determinants of cause and control whilst supporting only the consistency proposition in the content determinants. With regard to HR determinants, the roles of HR director, recruitment, and training were found to be powerful determinants of localisation success. Finally, the results have shown that determinants related to MNEs’ characteristics—namely MNE size and MNE age—have no significant impact on localisation success. We also found that MNEs operating in the petrochemical industry are more likely to succeed in their localisation polices than other industries namely high and low technology industries. The overall findings have raised a number of areas of interest. First, the drivers of these policies were specifically social perception in the form of legitimacy and extrinsic economic pressure. Secondly, it was also duly observed that legislative and regulatory influence was found to be a strongly positive determining factor. From a theoretical perspective, it is concluded that greater diffusion of policies which acknowledge the potential variations in skill sets and labour availability and capability would, in fact, result in a more transparent approach. In the long term increased trust between organisations and policy-makers could have the effect of accelerating the localisation process because MNE’s work collaboratively with policy-makers and are prepared to invest resource in improving the level of localisation as a form of strategic and competitive advantage.