Saudi Aramco Entrepreneurship Cluster

Saudi Aramco Entrepreneurship Cluster

Graduate School of Business and Law

Doctoral Symposium

Entrepreneurship Clusters, Employment, and Diversification of Industries in Saudi Arabia

An Analysis of the Saudi Aramco Entrepreneurship Cluster

Key words: Entrepreneurship, industries diversification, employment, cluster

Author: Naeimah Almawishir

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Entrepreneurial Clusters, Employment, and Diversification of Industries in Saudi Arabia

An Analysis of the Saudi Aramco Entrepreneurship Cluster

Abstract

This research analyses Saudi Aramco Entrepreneurship Cluster (SAECP) framework, examines entrepreneurship impact on the employment, and explores the difference in the entrepreneurship cross industries by applying qualitative and quantitative methods. Based on theoretical framework of sufficient entrepreneurial clusters impact on the employment and industries diversification, collaboration among education institutions and industries should be existed to promote innovation, technology, and knowledge based industries.

1.  Introduction and Context

Saudi Arabia is one of the oil rich countries and the largest oil producer. Saudi’s economy has relied on oil industries for its development over 40 years, as oil is the main engine of economic growth (Albassam, 2015). According to the Central Department of Statistics and Information of Saudi Arabia, oil industries have contributed to 50% of the Gross Domestic Product (GDP) since the 1980s. The Saudi Aramco Company is one of the world’s largest oil companies, owned by the Saudi government; it is responsible for approximately 98% of the national oil supply. Therefore, the Saudi Aramco Company plays a significant role in the Saudi economy. However, relying on oil industries has created two major problems in the Saudi economy: non-diversity in industries and a high unemployment rate at approximatley11% during the last decade. Moreover, according to the Walker from the Guardians (2015), the Saudi economy has faced recently a significant problem after the massive decline in the oil prices in 2015 that led to a serious decrease in the domestic budget for 2016.

According to the Saudi Economic Report (2014), Saudi’s economy has faced a continuous increase in the unemployment rate as a result of lack of private sector jobs that are suitable for domestic workers, which has led to an increase in foreign workers’ participation of more than 50%. This is because of the wage gap between Saudis and foreign workers, as the latter’s relatively cheap wages are economically more suitable to work in the private sector. Moreover, most of the private sector jobs are low skilled jobs. Fifty seven percent of Saudis refuse to take jobs that do not require high academic qualifications. Consequently, the Saudi government adopted a development policy to tackle these fundamental problems through the transition from a traditional economy to a knowledge-based economy by encouraging entrepreneurship (Khorsheed et al., 2014). In order to encourage entrepreneurship, an entrepreneurial environment should be created through the establishment of entrepreneurial clusters. Entrepreneurial clusters could provide massive support for industries through the complex interaction of technology, skills, and infrastructure (Delgado et al. 2010), decreasing the establishment cost of business and easing innovative opportunities (Kerr & Nanda, 2009). This indicates that the existence of clusters could foster entrepreneurship in its role to develop the economy.

Creating an entrepreneurial environment and providing the necessary support, such as education programs, training programs, networking, and information, could encourage entrepreneurship. For that reason, entrepreneurial clusters are created to provide the required services to develop entrepreneurship. As an example, the entrepreneurial cluster of the Saudi Aramco Entrepreneurship Centre Program (SAECP) in cooperation with King Fahad University of Petroleum and Minerals (KFUPM) that focuses on innovative ideas and technology based businesses. Consequently, this research will analyse Aramco cluster from its program to test whether the cluster impact can be applied to different context. Moreover, this research will examine the entrepreneurship in the SAECP and its impact on the employment, and examine the differences in entrepreneurship among different industries.

2. Literature Review

2.1. Does entrepreneurship affect the employment rate and industries’ diversification?

Entrepreneurship could be defined in two way (1) based on the classical economists’ view such as Ricardo, a skill or ability to manage consumption and production, and entrepreneurs are providers of capital, and (2) The neoclassical economists such as Knight define entrepreneurship as the new business establishment with uncertainty of receiving a profit, whereas Langlois viewed entrepreneurship as problem solver to uncertainty and economic changes (Langlois, 2007). On the other hand, Schumbeter defines entrepreneurship as a correspondence act or process to invent technology, products, methods, industries or markets (Shane & Venkataraman, 2000). Stanley Metcalfe describes entrepreneurship as the acquisition process in current capitalism, as the capitalists’ class direct economic surplus and profit from its internal capacity for transformation, the corresponding transience of the activities, and influence other classes economically (Casson et al., 2008; Ndhlovu and Spring, 2009). Therefore, it could be more beneficial to select two or more approaches providing an adequate explanation of the entrepreneurship role in economic performance. Consequently, based on the Schumbeter and Langlois approaches, entrepreneurial activities exist in a context of stimulating the market and reaching equilibrium, or in the context of an invention of the new market.

Entrepreneurship has a substantial impact on economic performance; it is a crucial tool for job creation and national productivity growth. Therefore, entrepreneurial activities enhance the labour market through increasing employment opportunities and support for the industries by new inventions they create especially in regions that have a developed system (Van Praag & Versloot, 2007; Van Stel & Suddle, 2008) that encourages entrepreneurial activities (Van Stel et al., 2005; Van Stel & Storey, 2004). However, some regional characteristics and development could deter the survival of entrepreneurial business (Caves, 1998). First, motivation drivers such as a desire, a need for additional income, and socialising influence starting entrepreneurial activities significantly. The second characteristic is entrepreneurial skill development, which could be achieved by providing organisational support such as training and coaching (Vik & McElwee, 2011). Third, cultural and organisational aspects, such as motivating competition and innovation that strengthen the business and industries as a result ( Mayer, 2013; Williams & Vorley, 2014). Therefore, supporting industries through entrepreneurship could require massive changes in the entrepreneurial environment (Vik & McElwee, 2011; Williams & Vorley, 2014), that should be considered when designing and adopting the entrepreneurship policy (Down, 2012).

2.2. What determines entrepreneurship?

Although entrepreneurship could have an adverse impact on industry or the employment rate in some countries, entrepreneurship is still considered the fundamental engine for economic development in other regions. A good entrepreneurship plan should be based on promoting the motivations and removing the obstacles to the entrepreneurial activities, which could be divided into three perspectives, the micro perspective, industry level and macro level (Audretsch et al., 2007, p.4):

1. The micro level, for example, the characteristics of entrepreneurs, such as the education qualifications and industry experience, and firms’ aspects that include firm quality and international participation impact positively on the entrepreneurial activities (Barringer et al., 2005) .

2. The industrial, the long term of business cycle and industrial development level impact of each industry should be considered in the entrepreneurship plan and entrepreneurship measurement, as it is suggested to consider a pro-entrepreneurship policy to have the positive impact (Beugelsdijk & Boorderhaven, 2004; Congregado et al., 2012).

3. The macro, in relation to the entrepreneurial environment:

3.1. Creating entrepreneurial clusters can provide the necessary support for entrepreneurial activities (Delgado et al., 2010); (Glaeser et al., 2010); (Guiso & Schivardi, 2011), namely, networks (He & Chi, 2013), high-tech innovations, knowledge and an innovative environment (Breznitz & Taylor, 2014); (Engel, 2015). Moreover, educational institutions to train skilled employees and assist high-tech business, government regulations to protect innovation rights and entrepreneurs cooperating to invest in the potential opportunities of industrial patents, are fundamental characteristics to develop a sufficient entrepreneurial cluster, as all three provide the necessary support to create the entrepreneurial environment to encourage entrepreneurial activities (Engel, 2015). In addition to the private institutions being more beneficial because of their higher network capacity compared with the governmental ones (Kuechle, 2014); (Li et al., 2015).

3.2. Government regulation towards local investments, such as innovation protection and entry systems, could have a diverse impact on entrepreneurship, especially on the international businesses in the local market (Norbäck et al., 2014), yet privatisation control encourages entrepreneurial businesses (Parker, 2009; Mohammad & Ahmad, 2012; Down, 2012).

2.3. What affects the entrepreneurship development plan in Saudi Arabia?

Focusing on the Saudi government’s policy towards entrepreneurship helps to assess the main issues in the Saudi economy which include achieving industries’ diversification, decreasing the unemployment rate, and developing the private sector. Accordingly, the Saudi government acquired a development policy to tackle these problems through the transition to a knowledge-based economy by encouraging entrepreneurship (Khorsheed et al., 2014) through creating entrepreneurial support programs that provide the financial and practical support for new businesses establishment. To achieve the effective development of transition when projects and assistance are integrated and aimed, there are three levels should be considered: the strategic level, such as policy makers, institutional level, for instance the support institutions, and enterprise level, entrepreneurs and business entities as examples (Rahatullah Khan, 2013). Although entrepreneurship programs provide the financial and organisational supports for new start-ups, they have no positive impact on the economic performance (Thompson et al., 2012; Mohammad & Ahmad, 2012) for two reasons:

1.  The policy focuses more on funding than on training that develops the entrepreneurial skills to manage the businesses (Khorsheed et al., 2014) Elmahgop et al., 2015). Therefore, more focus on training is need within the entrepreneurial program. Already, entrepreneurial cluster are meeting that deficit by providing the training themselves (Engel, 2015).

2.  Lack of entrepreneurial culture that is necessary to encourage entrepreneurial activities (Mohammad & Ahmad, 2012; Salem, 2014).

To develop entrepreneurship in Saudi Arabia, the institutional level should be developed first. Therefore, several factors and services are required in the entrepreneurial programs as explained below (Khorsheed et al., 2014; Elmahgop et al., 2015; Elmahgop et al., 2015; Rahatullah, 2013) :

1.  Research and development, such as innovation labs, prototype labs, common facilities centre and business research.

2.  Funding, for example loans, angel investors and start-up competitions.

3.  Training, for instance soft skills, business training, coaching and mentoring and start-up training.

4.  Distinctive services such as consulting, collaborations and marketing linkages, and lobbying soliciting awareness.

This could be assisted by applying for sufficient entrepreneurial programs in the clusters that are based on collaboration among education institutions and industries to promote innovation, technology, and knowledge based industries (Khorsheed et al., 2014; Khorsheed & Alfawzan, 2014; Salem, 2014).

Therefore, this research will focus on the Saudi Aramco Entrepreneurship Centre Program (SAECP) in cooperation with King Fahad University of Petroleum and Minerals (KFUPM) that focus on innovative ideas and technology base businesses to analyse Aramco cluster framework from its program to examine whether it could about be applied in different regions. After that, his study will examine first the entrepreneurship in the SAECP. Then, this study will examine the impact of the entrepreneurship on the employment average, and then explore the difference in the entrepreneurship cross industries.

3. Research Questions and Objectives

Based on the research problem and the literature framework, this research will seek to achieve the essential objectives of this study by answering the following questions:

1.  How much of the entrepreneurial businesses can be explained by the initial services of the SAECP such as research and development, funding, training, and distinctive services (consulting, collaborations, and marketing linkages)?

2.  Is there a relationship between the entrepreneurship and the employment rate in SAECP?

3.  How does the entrepreneurial program in SAECP support different industries?

4. Data and Methodology

To achieve the fundamental objectives of this research, a mix methodology of quantitative and qualitative will be applied on the research sample that includes the entrepreneurs and workers in the SAECP, and the data will be collected through a questionnaire from the entrepreneurs and interviews with the workers. Applying a qualitative method will provide analytic framework to analyse Aramco cluster from its program to test whether theoretical hypothesis about the cluster impact can be applied to different context (Rauch et al., 2014). On the other hand, quantitative method will provide an objective description of the trend numerically and by studying a sample of the population to generalise the assumptions by the quantitative method. Moreover, it will determine the significance of the relationships among variables, ensuring the validity, objectivity, reliability and credibility to the research model through applying the statistical measurements that are important to strengthen the study. Moreover, quantitative methodology allows the design of hypotheses and the ability to either validate or disapprove them (Kaplan, 2004). Therefore, the quantitative methodology will test the following hypothesis to answer the research questions as explained in the table (1).

First Research Question
Statistic Method / Hypothesis / Model
Multiple Regression / H0: The initial services of the SAECP are less likely to be related to entrepreneurship.
H0: βj<1
H1: The initial services of the SAECP are more likely to be related to entrepreneurship.
H1: βj>1 / EF=RD, F, T, DS
Where:
EF is the entrepreneurship in SAECP.
RD is research and development in SAECP.
F is funding in SAECP.
T is training in SAECP
DS is distinctive services of consulting, collaboration and networking in SAECP
Second Research Question
Statistic Method / Hypothesis / Model
Pearson Product Moment Correlation Coefficient (r) / H0: Entrepreneurship is less likely to be related to the employment rate in the SEACP.
H0: P0=P1
H1: Entrepreneurship is more likely to be related to the employment rate in the SEACP.
H1: P0≠P1 / ρEF,EM=Cov(EF, EM)σEFσEM
Where:
Cov is the covariance.
σEF is the standard deviation of entrepreneurship.
σEM is the standard deviation of the employment rate.
Third Research Question
Statistic Method / Hypothesis / Model
One-way ANOVA / H0: Entrepreneurship in the SAECP is less likely to be different among industries.
H0:μ1=μ2…=μj
H1: Entrepreneurship in the SAECP is more likely to be different among industries.
H0:μ1≠μ2…≠μj / Yij=μj+εij
Where:
yij is the sum of two components:
μj is the mean of entreprenruship among different industries. εij is the random error.
i is the entrepreneurial business , and j is the industry type.

Table (1)