Think local: How startups can successfully expand into Saudi Arabia's fast-growing market

Arab News

02-05-2025

RIYADH: Saudi Arabia's rapidly expanding market presents lucrative opportunities for startups, but successful entry requires careful planning and a deep understanding of the local landscape.
Industry experts told Arab News that companies looking to expand into Saudi Arabia must focus on key factors such as securing regulatory approvals, ensuring financial stability, hiring the right talent, and adapting to the local culture.
By prioritizing these elements, businesses can establish a strong foothold in one of the Middle East's most lucrative markets.
Regulatory landscape
Regulatory compliance is one of the primary hurdles for startups entering the Saudi market. While the country is actively fostering entrepreneurship and foreign investment, businesses must follow strict licensing and legal requirements.
Mohammed Al-Zubi, managing partner and founder of Nama Ventures, emphasized the need for startups to thoroughly understand and prepare for regulatory processes.
'While Saudi Arabia is opening up to startups, businesses must secure the right MISA (Ministry of Investment) licensing, sector approvals, and legal structures. Many founders underestimate the process and should plan accordingly,' Al-Zubi said in an interview with Arab News.
Failing to navigate these regulatory frameworks can lead to operational delays, legal complications, or financial penalties.
Mohammed Al-Zubi, managing partner and founder of Nama Ventures. Supplied
Paula Tavangar, chief investment officer of Injaz Capital, echoed this, noting that 'compliance with Saudi-specific regulations, including licensing, Saudization requirements, and sector-specific rules, is also essential from day one.'
She emphasized that while Gulf Cooperation Council countries may appear similar, 'successfully entering the Saudi market has its own very unique economic landscape, regulatory environment, and consumer behavior.'
The Ministry of Investment has streamlined processes to encourage foreign investment, but businesses must still comply with industry-specific guidelines and labor laws, including Saudization policies, which mandate hiring a certain percentage of nationals from the Kingdom.
Beyond legal compliance, establishing local credibility is crucial. Saudi businesses often prefer working with entities that demonstrate a long-term commitment to the market.
Tavangar stressed that 'building an on-the-ground presence in Saudi Arabia is not optional — it's central to gaining traction.'
She added that 'Saudi stakeholders generally prefer working with companies that are physically present, engaged locally, and committed to contributing to the Kingdom's Vision 2030 goals.'
The regulatory framework is evolving to attract foreign startups, with the Saudi government offering multiple incentives to support early-stage businesses.
'The Saudi government actively supports foreign startups through initiatives like the National Transformation and Development Program, which can assist with relocation logistics and business setup,' Tavangar said.
This means startups should not view Saudi Arabia as a short-term expansion play but rather as a core component of their growth strategy.
Paula Tavangar, chief investment officer of Injaz Capital. Supplied
Financial preparedness
Expanding into Saudi Arabia requires significant financial resources. From securing office space to investing in marketing and hiring local employees, the costs can add up quickly.
Startups must assess their financial stability before making the move, ensuring they have the necessary capital to sustain operations during the initial stages of expansion.
Tavangar pointed to the financial realities of entering the Kingdom. 'Financial readiness is key. Costs associated with setting up in Saudi — such as obtaining a foreign investment license through MISA, setting the entity, renting office space and hiring local talent — can add up quickly,' she said.
Setting up operations in the Kingdom comes with significant financial obligations that startups must prepare for.
These include licensing, incorporation costs, and office rental, which can be partially offset through available public initiatives. 'There are multiple low-cost co-working space options in addition to free spaces through accelerator programs,' Tavangar noted.
She also highlighted the importance of leveraging public-private support schemes.
'Again, NTDP has a program that can sponsor 50 percent of employee salaries for the startups that require the support,' she said, underscoring the need for early-stage companies to budget carefully and align with available national resources.
In an interview with Arab News, Ahmed Mahmoud, CEO of DXwand, a startup that has recently expanded to Saudi Arabia, stressed the importance of financial resilience.
'A startup should have strong financial stability, consistent revenue growth, and a proven market presence. It should be well-funded with enough capital to sustain operations for at least a year after expansion,' he explains.
Mahmoud encourages startups to evaluate their expenses closely and tailor their pricing models to remain competitive within Saudi Arabia's evolving market landscape.
'To succeed in Saudi Arabia, startups must carefully assess their unit economics and cost structures. A strong balance between customer lifetime value and customer acquisition cost is crucial for long-term profitability,' Mahmoud said.
Other financial considerations include managing operational expenses such as office leases, logistics, and employee salaries.
Localization costs — such as translating marketing materials into Arabic, adapting services to cultural preferences, and ensuring compliance with local regulations — should also be factored into financial planning.
Talent acquisition
One of the challenges of expanding into Saudi Arabia is finding and retaining the right talent.
Al-Zubi advises startups to take a strategic approach to talent acquisition. 'While Vision 2030 initiatives are fostering a skilled workforce, specialized tech and startup talent can still be limited. Startups should leverage local hiring programs, university partnerships, and experienced regional hires,' he said.
Hiring Saudi nationals is not only a regulatory requirement in certain sectors but also a competitive advantage.
Local employees bring market insights, cultural understanding, and access to networks that can help businesses establish stronger connections.
'Founders should hire local leadership, engage with stakeholders, and spend time in-market. Remote operations rarely succeed in Saudi Arabia,' he explains.
Market localization
Saudi Arabia is a relationship-driven market where trust and personal connections play a significant role in business success.
Startups that fail to adapt to local consumer behavior and cultural expectations may struggle to gain traction.
Al-Zubi highlights the importance of cultural adaptation. 'Startups must localize offerings, marketing, and operations to fit local consumer behavior. Strong local partnerships can accelerate trust and market entry,' he said.
Mahmoud also underscored the importance of branding and culturally relevant marketing strategies.
'Localization isn't just about language — it includes pricing models, payment preferences, and customer experience. Businesses that invest in culturally adapted services enhance trust and engagement,' he noted.
Tavangar emphasized that 'the local context is very important' adding: 'While in the UAE we observe very successful implementation of business models that worked in the west, Saudi Arabia has a different business environment, very tailored to the local demand and culture.'
Strategic partnerships
Establishing partnerships with local businesses, distributors, and investors can accelerate market entry and growth.
Saudi companies prefer working with brands that demonstrate commitment and credibility, and forming strategic alliances can help startups gain that trust.
'Building local partnerships with investors and distributors isn't just helpful — it's a game-changer. It boosts credibility and makes market entry smoother,' Mahmoud said.
Tavangar added: 'A local partner who has 'skin in the game' can significantly aid in navigating both the cultural and business landscapes.'
Ahmed Mahmoud, CEO of DXwand. Supplied
Leveraging digital transformation
As Saudi Arabia accelerates its digital transformation, startups leveraging advanced technologies like artificial intelligence, automation, and cloud infrastructure are well-positioned to gain a market advantage.
The Kingdom's investment in smart cities, fintech, and e-commerce presents opportunities for tech-driven companies to scale quickly.
Mahmoud highlights the importance of embracing technology as part of a long-term strategy.
'With Saudi Arabia going through a rapid digital transformation, there's a huge opportunity in e-commerce and fintech, both of which align with Vision 2030's innovation goals,' he said.
Additionally, businesses that set up a regional headquarters in the Kingdom can benefit from government incentives, including potential tax breaks and funding support.
By taking a long-term approach and investing in local partnerships, cultural adaptation, and digital innovation, startups can position themselves for sustainable growth in one of the Middle East's most dynamic economies.
As Al-Zubi said: 'Startups that immerse themselves in the market, build strategic partnerships, and adapt to Saudi dynamics will find the most success.'