The impact of management practices on business performance in Saudi Arabia

This study examines how management practices and business environment conditions interact to influence firm performance in Saudi Arabia, drawing on data from the 2022 World Bank Enterprise Survey covering 1,573 firms. Most existing research treats management practices and infrastructure quality as separate drivers of performance; our findings show that these factors are closely connected and mutually reinforcing. We examine how strategic practices such as R&D investment, maintaining a website, introducing new products, and exporting interact with environmental factors, including electricity reliability and overall infrastructure quality, to affect sales, exports, and labour productivity. Because firms experiencing outages may differ systematically from those that do not, we employ two-stage least squares (2SLS) estimation with a PCA-based infrastructure quality index as an instrument to address potential endogeneity in outage exposure. Three main patterns emerge. Management practices matter considerably: having a website is associated with 29 per cent higher sales, 56 per cent higher exports, and 19 per cent higher productivity, while R&D activity is associated with 36 per cent higher sales. Environmental conditions also have substantial effects, as electricity outages are associated with roughly a third lower sales, whereas better infrastructure correlates with 14–16 per cent higher sales and productivity. Importantly, the returns to management practices appear larger when infrastructure is reliable, suggesting complementarity between internal firm capabilities and the external operating environment. These patterns have implications for Saudi Arabia’s Vision 2030 agenda: fostering private-sector competitiveness may require simultaneous attention to improving management practices and ensuring reliable infrastructure service delivery.