1. Localization of Foreign
Investments:
Contract Issues
Sean O’Connor, J.D., M.A.
Boeing International Professor
Director, CASRIP

2. Overview
> Challenges
> Practices
> Approach
> Recommendations
> Implementation Strategies

3. I. Challenges
The Kingdom of Saudi Arabia:
A. desires to localize key technology, which currently
remains largely in the hands of foreign companies and
research institutions
B. has a relatively low percentage of foreign direct
investment into its private economy
C. has a significant and growing sovereign wealth fund
that will need to be invested strategically to benefit the
private economy in the long term

4. II. Practices
A. Advanced economies develop most of their knowledge
and technology inside their country.
B. Stable and predictable laws and judicial proceedings
best encourage foreign direct investment in advanced
technology and innovation economies.
C. Sovereign wealth funds often used for stabilization of
volatile/cyclical revenues, or to grow savings to fund
long term liabilities like pensions or schools

5. III. Approach
A. Developing an innovation ecosystem requires anchor
research institutions, corporations, capital,
entrepreneurs, and specialized professional services
B. While IP is important, the baseline legal system needed
for an innovation ecosystem is a flexible, efficient, and
secure set of free market based laws and regulations
C. Investing private and government funds overseas can
be done strategically to maximize knowledge transfer
and localization of technology industries in the home
country through joint venture and strategic alliance
approaches

6. IV. Recommendations
A. The Kingdom should consider orienting its laws,
administrative procedures, regulations, and judicial
proceedings around:
1. strong protections for private property, intellectual property, and
enforcement of contracts;
2. rapid formation of companies and local venture capital funds;
3. efficient technology transfer between research institutions and
private industry; and
4. access to fair and timely judicial proceedings to resolve
business disputes.

7. IV. Recommendations
B. The Kingdom should consider imposing policies or
conditions on both incoming foreign investment and
outgoing sovereign wealth investment favoring the use
of strategic alliances, joint ventures, sponsored
research, and public-private partnerships that expressly
enable transfer of knowledge and technology into
locally controlled entities within the Kingdom.

8. V. Implementation Strategies
A. Create an appropriate legal environment to develop
localized innovation ecosystems:
1. Transparent and predictable laws protecting tangible and
intangible property and enforcing contracts;
2. Fast and accessible administrative procedures to form
corporations and investment funds, as well as to secure
intellectual property rights and business licenses;
3. Technology transfer laws to establish procedures and allocate
intellectual property rights in public and private funded research
to move early stage research to market commercialization
4. Judicial administration enabling fast and fair access to tribunals
that can resolve business disputes efficiently predictably based
on positive law

9. V. Implementation Strategies
B. Contractual and governance mechanisms to facilitate
knowledge and technology transfer to localized
innovation ecosystems:
1. Joint ventures;
2. Strategic alliances;
3. Sponsored research;
4. Public-private partnerships;
5. Inter-institutional agreements

10. Conclusions
A. The Kingdom has great potential for both foreign direct
investment in new technologies in the Kingdom and
investments by its sovereign wealth fund in overseas
research and development. However, to obtain
maximum benefit of these investments, particularly with
an eye toward the wise localization of technologies in
country, Saudi entities must ensure that certain
contractual arrangements are secured. Only this will
ensure the flow of technologies within the Kingdom,
controlled by Saudi entities.

11. Conclusion
B. Foreign direct investment and research partnerships
will be greatly enhanced by ensuring the right kind of
legal environment for these contractual arrangements.
Thus, the Kingdom should also review its legal system
for the key components set forth above that support
innovation ecosystems around the world. Where
components are lacking or inadequate, serious
consideration should be given to remedying these as a
prerequisite to enjoying the rich rewards possible
through localizing control of new technologies under
both foreign direct and sovereign wealth fund overseas
investments.