Over the years,when helping companies export to Saudi Arabia,I’m often asked about the topic of "local content".To be honest,the Saudi market offers many opportunities,but the rules are quite strict,especially regarding localization requirements.If you’re not careful,it could affect your bidding.Many people struggle with the question: What percentage of local content does a product need to have to be considered a "local product"?And what advantages can you gain in bidding once you meet the standards?Today,let’s break down this system to help you clarify your thinking and avoid pitfalls.

What is "Local Content" in Saudi Arabia?More Than Just Product Proportion

Don’t rush to think about the proportion just yet.Let’s start from the beginning.Saudi Arabia’s "local content" system actually refers to the total expenditure of contractors on locally produced factors in projects,including goods,services,assets,technology,and labor.To put it simply,it’s about measuring how much "Saudi flavor" your project contains.This system is managed by the Local Content and Government Procurement Authority (LCGPA).Companies must submit materials to them or authorized third-party audit agencies for review in order to obtain a "local content certificate" detailing the score.The score is usually in the form of a percentage,which depends on your investment in Saudi Arabia,local hiring,and procurement strategies.

It mainly depends on several dimensions:

• Laborforce:Thetotalcompensationofemployeesdirectlyinvolvedintheproject,especiallythosefromSaudiArabia.
• Capacitybuilding:ThetrainingofSaudis,thedevelopmentoflocalsuppliers,andtheexpenditureondomesticresearchanddevelopment.
• Depreciation:ThetotaldepreciationoftheprojectsexecutedwithSaudilocalassets.
• Purchasingofgoodsandservices:ThegoodsandservicesrequiredfortheprojectwillbespentinSaudiArabia.However,thisisnotafullamount.Itneedstobemultipliedbytheir"localizationscore".Forexample,thegoodsyoupurchaseForcomponents,thelocalizationexpenditureiscalculatedat22%ofthepurchaseprice.

What proportion is considered a "local product"?In fact,there is no unified threshold,as each project is different and depends on the requirements in the tender documents.However,generally speaking,if your product or service has a high localization score,it can be identified as a "local product".How is the score calculated?There are two ways:

• Predefinedscore:LCGPAregularlypublishesalistthatassignsfixedscorestovariousproducts,materials,andservices.Forexample,itemslabeledas"MadeinSaudiArabia"receivevaryingscores.Financialservicesmayscore75%,butphotovoltaiccomponentsonlyscore22%.
• Third-partyaudit:Ifyouthinkyourproductismorelocalized,youcanaskaverificationagencytoauditit,andthescoremightbehigherthanthepredefinedone.Forexample,ifaphotovoltaicsuppliercanprovethatitslocalcontentexceedstheaverage,theymightearnextrapoints.

Want to learn more about computing?The LCGPA official website offers templates and guides that are super practical.[LCGPA Official Website: ](https://lcgpa.ac.cn/)Here,we can help you calculate the local component score step by step.

In short,the local content requirement is not a fixed percentage,but an overall evaluation.Companies need to invest more locally,hire Saudis,and use local supply chains in order to significantly increase their scores.

How much advantage can localization bring in Saudi bidding?The benefits are numerous

When it comes to bidding,localization is a powerful weapon!The Saudi government is increasingly prioritizing local products and giving local products various advantages in tendering.Here are the main highlights:

• Pricemarkup:Localproductscanenjoya10%priceadvantage.Whatdoesthismean?Evenifyourbidis10%higherthanthatofforeigngoods,you’llstillbeonequalfootingorevenatanadvantageduringthebidevaluation.Thisdirectlyenhancesyourcompetitiveness,allowingyoutowithstandthepressureofpricewars.
• ForceList:LCGPAwillissuealistoflocalproducts,whichwillbeupdatedregularly.Productsonthelistwillbegivenprioritywhenpurchasing.
• Minimumrequirements:Biddingdocumentsusuallysetaminimumrequirement,suchasthelocalizationratethatmustbeachievedduringthecontractperiod.Ifthisrequirementisnotmet,thebiddermaybedisqualifieddirectly.
• Scoreweighting:Duringthefinancialevaluationstage,localizedcontentaccountsforacertainscore.Companieswithhighscoreswillhavehighertotalbiddingscores.
• Tendencyofbidding:InSaudiArabia,theevaluationofbidsprimarilyfocusesonprice,withlow-pricedbidstypicallywinningthecontract.However,underequalconditions,localcompaniesaregivenpriority,followedbyjointventurescontrolledbySaudiinvestors.Ifforeigncompanieswanttogetashareofthemarket,prioritizinglocalizationistherightapproach.

These advantages are not free; they must be proven by certificates.For more details,you can check the LCGPA website homepage.[LCGPA Website:]

Conclusion: Localization is a long-term investment.Don’t just focus on the short-term benefits

After all,Saudi Arabia’s local content system is not an obstacle,but an opportunity.There’s no fixed threshold for the proportion,but the higher the score,the easier it is to win the bid.When starting a business,you can start with a predefined score,and then audit and improve the score when the business matures.Don’t find it troublesome.Building a local supply chain early,hiring local people,and investing in training can all translate into real advantages.Do you have experience with Saudi projects?Welcome to share and let’s exchange ideas!If you’re not sure,quickly check the official website and take action now!