SMEs are the lifeblood of the Kingdom’s national economy. According to the “Monshaat” observatory report issued in the third quarter of last year, their number amounted to 978,445 thousand enterprises, of which, the building and construction sector occupies around 20.7%.
Considering the impact of such businesses on the construction industry, we see that they are not only part of the supply chain but also have a competitive advantage. Because they can provide specialized services efficiently to major contractors while maintaining top quality to major contracting institutions and their range includes businesses of all sizes and projects of all types at all stages of construction.
In line with the goals of Vision 2030 which states the Kingdom’s commitment to diversifying the economy, improving the standard of living of its citizens and enhancing the capabilities of local talent, the government has opened up the tourism, hospitality and entertainment sector in early 2018.
The Public Investment Fund launched the Saudi Entertainment Projects Company “Seven” through which it aimed to:
- Create a sustainable entertainment economy.
- Support the localization of national expertise and cadres.
- Developing the infrastructure of the entertainment sector in line with international standards.
- Attracting local and international investments.
- Targeting tourists from inside and outside the Kingdom.
- Increasing hotel occupancy and revitalizing air traffic.
- Providing huge job opportunities for individuals and SMEs, regardless of their work activities.
Seven has announced a huge portfolio of projects to develop innovative entertainment destinations that cover all parts of the Kingdom, with investments amounting to 50 billion Saudi riyals.
At the beginning of this year, the company signed a contract worth 1 billion Saudi riyals with Al-Bawani Company Ltd to develop the construction works of the entertainment destination in Tabuk.
In comparison, an integrated entertainment project in the Al-Hamra district in Riyadh was awarded to the Shapoorji Pallonji Company with a contract worth 1.39 billion riyals.
Although awarding construction contracts to the largest construction companies is logical, given their long history in the industry, it has put pressure on the small and medium enterprises sector, which has come to see the market as more challenging and complex.
Hence the importance of developing a strategy for the sector’s participation in the national development process.
How can SMEs obtain construction contracts for major projects?
First of all, owners of small and medium enterprises must meet basic criteria that we will discuss in the following points:
- Obtaining a pre-qualification certificate (PQ) from the concerned authorities to work in the public business sector and national development projects.
- Full knowledge of the strategy of working on major projects and studying the market, as contracting institutions focus their selection on professional competence, the ability to control costs and a flexible response to constant market changes.
- Updating the management and technical skills of the facility’s staff and the efficiency of evaluating the supply chain of the contracting institution with which it is intended to work and the projects that it will implement to be able to present a sustainable and informed plan.
- Absolute commitment to the quality standards of major projects in accordance with predetermined financial and time constraints. It may seem exhausting at first, but the efforts will soon bear fruit for the business and get them high-quality work in the future.
Then comes the role of the owners of the SMEs and how they can apply to the contracting company to offer their services:
In principle, this is done through personal attendance, which is the most widespread and important, or by communicating via e-mail.
- The small contractor must possess a portfolio of distinguished and successful projects that prove their expertise in the field and enable them to gain the trust of the business it aspires to work with.
- Introducing and classifying their business in a way that is precise and presents them in the right light, when it comes to showing their specialization.
- Present innovative proposals and provide the best offer for services (administrative – technical – labor) to meet the project’s requirements, as well as seeking to obtain a list of project tenders.
Despite the initial complexity of this strategy, it would place SME contractors among the distinguished in their field and lead them toward growth and success in an industry.
The role of the government sector in supporting SMEs in the construction sector:
The government sector contributes continuously and effectively by launching several initiatives. It is also:
- Providing technical support to develop and enhance the technical and administrative capabilities of the enterprises.
- Issuing tenders for small projects that are part of the major national development plans would raise the competitiveness between enterprises.
- Granting diplomas for national competencies makes it easier for large companies to target professionally qualified businesses to benefit from their services in national-level projects.
Advantages of the participation of SMEs in the sector of major entertainment projects:
- Supporting local employment, which in turn enhances the initiative to localize the sector, led by qualified national cadres.
- Ensuring access to skilled workforce teams working for the enterprise and providing services at an appropriate cost.
- Refining worker’s skills in facilities, as some large contracting companies provide training courses through which they transfer their experience and competencies acquired over decades.
- Ensuring the flow of revenues, which in turn is reflected in accelerating growth and raising the level of businesses.
- Large contracting companies focus on delivering projects on time, within the declared budget, and as per fixed specifications and standards. Therefore, it is easier for them to entrust the management and implementation of some parts of their projects to sub-contractors with high qualifications, who can complete complex and high-cost projects without default or leave room for error.
Challenges and difficulties that SMEs may face with large contracting institutions:
Despite the importance of the cooperation of SMEs with large contracting companies, they, like all other businesses in any sector, may face difficulties represented in the:
- Obstructing the enterprises growth, in the event of a crisis of delay in the payment of their dues by contracting companies, which may cause serious damage to their financial stability, since SME contractors mostly struggle with cash flow issues.
- Exposure to pressure to reduce costs results from the certainty of compliance with procurement procedures, whose conditions vary from company to company.
- Some small contractors tend to obtain more project contracts to increase revenues without taking into consideration the workload, which causes an imbalance in the activities of the various projects if they are not managed effectively and ultimately affects the quality of work (risk management, tracking contingency plans, resource management…etc.) and not adhering to deadlines, which should be avoided from the start, as good planning is the key to success.
From the foregoing, it is evident that it is possible to integrate SMEs to work side by side under the auspices of large contractors committed to achieving entertainment projects in the Kingdom.
The entertainment industry in the Kingdom is expanding at a breath-taking pace, earning its place as one of the key non-oil sectors in the country. Most importantly, the sector is on its way to become a world-class entertainment hub in the region.