Saudi Arabia is reorganizing the outsourcing market to enhance local content and localize jobs

Saudi Arabia is moving to reorganize the external outsourcing market, in a move aimed at limiting the exit of part of spending and expertise outside the Kingdom, and enhancing the ability of local companies to provide services that government agencies and establishments rely on. This step comes in parallel with the Kingdom’s move to maximize the impact of government spending and develop local content, through the localization of businesses and services that can be implemented within the Saudi market, the creation of quality jobs, and the development of specialized local companies.

In this context, the competent authorities in Saudi Arabia, in partnership with representatives of the private sector, are studying a plan to regulate the external outsourcing sector and reduce economic leakage, after ensuring the readiness of local authorities to shift towards national competencies, and identifying the specializations targeted for gradual nationalization, in line with the goals of “Vision 2030” in creating quality jobs within the Saudi market.

External outsourcing is the entrusting of services or operations for an entity inside Saudi Arabia to a specialized external company or party, instead of implementing them with its employees or internal resources, and its goal is to provide financial savings to the entity.

According to private information, the Federation of Saudi Chambers, in partnership with the Ministry of Commerce and the Ministry of Economy and Planning, prepared a study on the impact of localization of outsourcing business on Saudi establishments, with the aim of measuring the extent of reliance on these services outside the Kingdom, and assessing the extent of the institutionalization of localization of these businesses, in a way that contributes to supporting decision-making and developing related opportunities.

Specialized competencies

The study examines the main reasons for using an external provider instead of a local one, whether it is quality of service, low cost, availability of specialized competencies, speed of implementation, or lack of a local alternative at the same level.

The study determined the extent of entities’ readiness to transfer these services to a local provider within 12-24 months, with the most prominent obstacles expected upon localization, whether they are the local competency gap, the relative high cost, the risk of service interruption during the transition, the complexity of data migration, or the lack of a reliable local provider of the same size.

The importance of localizing this system lies in keeping spending within the Saudi economy, creating quality jobs for citizens, building specialized local companies, transferring knowledge and technology, as well as enhancing business continuity and operational sovereignty, and raising the quality of government services.

The localization of this sector increases the proportion of Saudis in jobs, and contributes to building an integrated local capacity that government agencies and companies can rely on instead of a large portion of spending and expertise going to external suppliers.

Maximizing government spending

This becomes increasingly important as the Kingdom moves towards maximizing the impact of government spending and local content. The definition of local content includes the participation of Saudi elements in the workforce, goods, services, assets, and technology.

When a Saudi entity assigns a service to a local company, a larger portion of the contract value is transformed into salaries, suppliers, technology, training, and investments within the Kingdom, rather than the value leaking outside of it. This is directly aligned with the goal of local content development.

Outsourcing also includes broad sectors, such as information technology, call centers, shared services, accounting, human resources, data analysis, operation and maintenance, and consulting. It can thus be a means of providing functions at different levels, not just operational functions.

Local content weighting mechanism

Last April, the Local Content and Government Procurement Authority announced the implementation of the mechanism of weighing local content in the financial evaluation of competitions, works, and purchases of government agencies for management consulting activity and information technology services, in addition to requiring a minimum level of local content at the facility level to enter management consulting activity competitions, as part of its ongoing efforts to develop local content and maximize the benefit from government business and procurement.

The authority explained that a minimum local content at the establishment level of 30 percent will be required for management consulting competitions in two stages. It begins in early April 2027 for competitions with an estimated cost of 10 million riyals ($2.6 million) or more, and will later include competitions with an estimated cost of 5 million riyals or more starting in January 2028.

Revised data published on Monday showed that the euro zone economy grew more than expected during the second quarter of 2026, at a time when the bloc appears to be dealing with the energy shock caused by the Iran war better than expected.

The European Union's statistics agency said that the gross domestic product of the euro zone, which includes 21 countries, grew by 0.6 percent between April and June, compared to a previous estimate of 0.4 percent, according to Agence France-Presse.

The single currency area's economy recorded zero growth during the first three months of 2026.

The upward revision was largely driven by Ireland recording growth of 10.2 per cent in the second quarter, well above the 3.9 per cent estimate issued in July.

The large fluctuations in Ireland's data are not related to underlying economic activity, but rather result purely from accounting processes conducted by multinational companies, including major pharmaceutical companies and giant technology companies, that chose the country as their headquarters in Europe to take advantage of its low corporate taxes.

Germany, Europe's largest economy, also saw its data revised, with growth rising to 0.3 percent between April and June, compared to a previous estimate of 0.2 percent.

But inflation jumped to its highest level in three years, recording 3.3 percent in August, well above the European Central Bank's target of 2 percent.

The European Central Bank is expected to raise interest rates again when it meets on Thursday, as renewed tensions in the Middle East push energy costs higher.