Determinants of foreign banks’ entry into a developing market
: the case of the Kingdom of Saudi Arabia

  • Najla Alomar

    Student thesis: Doctoral Thesis


    The study has three objectives: first, to explore the determinants of foreign banks’ entry in the Kingdom of Saudi Arabia (KSA); second, to identify the relative importance of factors (determinants) as perceived by foreign banks; third, to investigate the challenges faced by foreign banks in the KSA. Although literature exists on the entry determinants, the literature on why these banks enters emerging and developing markets is very limited. Literature provides limited guidance on which motives are important. The thesis uses the KSA as a context to understand the entry determinants and challenges of foreign bank entry in such markets. Despite being an important emerging and developing economy, research that has examined the entry determinants of foreign bank entry into the KSA is scanty. The study draws from key theories: Internationalisation Theory, Eclectic Paradigm, the “Follow-the-Customer” Hypothesis, and Comparative Advantage Theory. A mixed-methods approach has been employed by applying both quantitative and qualitative methods. The sample comprised all foreign banks operating in the KSA by the end of 2019. The targeted population was Chief Executive Officers (CEOs), Chief Operation Officers (COOs), and other senior managers of foreign banks in the KSA. A total of 92 questionnaires were canvassed; of these, 71 were received from them; after that, 36 of them were interviewed using a semi-structured interview method based on their willingness and availability to participate. The data collection was done from mid-December 2019 to mid-February 2020. The quantitative data were analysed using the Distribution Fitting Algorithmic Approach (DFAA), while the qualitative data were analysed using the thematic analysis method. The study found that eleven determinants (out of 23) are significant that influence foreign banks’ decision to enter the KSA. Surprisingly, as for the research question, which investigated whether the Islamic culture in KSA impacted foreign banks’ decisions, it was found that it was not impacting. In addition, the pegging of the Saudi Riyal against the US dollar was found to be a significant determinant encouraging the foreign bank to enter the Saudi banking market. “Follow-the-customer” and Saudi market characteristics were ranked as the most important ‘main entry determinants’. Results indicate that foreign banks encounter various challenges included: ‘government regulations, policies, and Saudi legal environment’, high ‘Saudisation’ ratio of the workforce, more highly developed local banking technology and related requirements, high competition, and oil price change. Interestingly, no conflict or major differences were obtained from questionnaire analysis and semi-structured interview outcomes. The study contributes to the existing literature by providing comprehensive results on the foreign banks’ entry determinants and II their challenges in KSA as a context of developing and emerging markets. Importantly, the study, for the first time to the researcher’s knowledge, provides a relative ranking of the entry determinants. The study is expected to help policymakers, regulators, decision-makers, and bankers to understand foreign banks’ entry. This study could help the KSA government, particularly the Saudi central bank (SAMA), to use the findings for official policymaking and formulating industry regulations. The study’s findings could benefit foreign banks operating in the KSA or seeking to invest there. Future researches could consider examining the influence of foreign banks’ entry on the Saudi banking market and how it impacts the KSA economy as a whole.

    Date of Award2022
    Original languageEnglish
    SupervisorMilind Sathye (Supervisor) & Suneeta Sathye (Supervisor)

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