Sabic Analysis

[pic 1]

[pic 2]

INDEX

INTRODUCTION        3

EXTERNAL ANALYSIS        4

PESTEL ANALYISIS        4

PORTER’S 5 FORCES        4

COMPETITORS FRAMEWORK        5

INTERNAL ANALYSIS        6

CORE COMPETENCIES        6

BLUE OCEAN VS. RED OCEAN STRATEGY        7

THE FOUR ACTIONS FRAMEWORK        8

ORGANIZATIONAL CAPABILITIES        9

CONCLUSION        11

APPENDIX        12

REFERENCES        16

INTRODUCTION

In the own words of SABIC^[1]: “We are transforming everything we do, the way we do it, and our relationships with all our stakeholders, to do an ever-better job of helping make tomorrow’s world better than today’s.” Due to this statement, we can confirm how ambitious is the vision of the 122th largest company according to Forbes^[2]. SABIC is one of the main producers of chemical products, fertilizers, plastics and metals worldwide. With their headquarters located in Saudi Arabia, SABIC is the biggest company in the country and in the whole region of the Middle East, according to the Saudi stock-exchange Tadawul.  

The company has been extremely successful in the past years ($5,7 billion net income in 2018), overcoming the difficult situation of the middle east, with current conflicts in Israel, Syria, Lebanon and Yemen. This Conflicts affect also Saudi Arabia, as it can be reflected in the attacks on Saudi Oil facilities, hit by Drone strikes, that forced to suspend over the half of the nation’s overall daily output^[3].

Within the situation defined above, the aim of this essay is, by making a detailed audit about the company and the external forces affecting that are affecting the sector, to conclude how is it possible to find such a competent and successful company in an environment full of obstacles and handicaps. For analyzing the sector and the company, we will use a wide range of external and internal analysis tools, as PESTEL analysis or Core competencies in order to deeply understand the different points that are relevant for the industry in general and for SABIC in particular.

EXTERNAL ANALYSIS

PESTEL ANALYISIS

        After studying the PESTEL analysis of Saudi Arabia (Appendix 1) , we have come to the conclusion of agreeing with Eduard Soler i Lecha^[4] in the 3 core points that empowers the international relevance of Saudi Arabia.

         The first and more important point is the energetic power that Saudi Arabia has. Producing more than 13% of the world’s petroleum, the country has a predominant position in the market. The petroleum and other natural resources as natural gas, iron ore, gold, and copper imply more than the 50% of The GDP of the country. Moreover, as long as the world economy continues depending on mineral fuels, the acts of Saudi Arabia will be extremely relevant for the world political and economic future. This is an advantage for companies like SABIC, which activity is reinforced by the economic dependence of the world in the mineral fuels obtained in Saudi Arabia.

        The second point is the diplomacy, and specially the good relationships with the United States. Due to the strong position of Saudi Arabia caused by the country’s natural resources, Saudi Arabia is a key trade partner for USA, and trades of good and services were valued in more than $48,1 billion in 2018. As defined by the U.S department of State^[5]: “The U.S.-Saudi partnership is rooted in more than seven decades of close friendship and cooperation, enriched by the exchange opportunities that are key to the promotion of mutual understanding and the long-term development of ties between our two peoples.  In cooperation with the Government of Saudi Arabia, the United States provides technical support in areas such as education, trade, and economic development.” This protection and help coming from the American Government is reflected in Saudi companies as an advantage in matters of international trade, easing the commerce and being seen as the first option to be chosen.

        The third and last point is the religiousness of the country. The kingdom of Saudi Arabia is an extremely Muslim state, ruled by Muslim rules. This fact, and the fact that the royal family has power over mainly the whole government of the country, makes it needed to adapt the commercial approach to the country in order to build a successful company in Saudi Arabia. For instance, the founder of SABIC was Jálid bin Abdulaziz, King of Saudi Arabia from 1975 to 1982, which was a competitive advantage in terms of resources and international relations of the company.

PORTER’S 5 FORCES

        After developing an analysis of Porter´s five Forces (APPENDIX 2), we have arrived to the conclusion that SABIC has strong competition, with competitors like BASF, that has had more than $69 billion revenues in 2018^[6]. Despite the strong competition, there are two main entry barriers: Natural resources and regulation.

        Concerning natural resources, Saudi Arabia is the second largest country in proven oil reserves with more than 266 million barrels^[7]. Moreover, SABIC accounts with 64 manufacturing and compounding plants all over the Middle East, Asia, Europe and America. Moreover, the relevance of Saudi Arabia in organizations like the OPEP, and the trades with US, empowers the situation of SABIC in the market among their competitors. Despite this advantage, the bargaining power of the suppliers is high, as the feedstock is limited and the one owned by government-based entities sell at fixed price.

        The facts mentioned previously, plus the need of a high initial expenditure are big obstacles in terms of new entrants. Regarding the substitutes, in high technology petrochemicals the possibility is low due to the different industry demands and the high switching cost regarding the patents.

COMPETITORS FRAMEWORK

Current strategy

In words of the own company, “SABIC’s ambition is to be the preferred world leader in chemicals”^[8], and they are doing it by focusing in four core businesses: Petrochemicals, Agri-nutrients, specialties and metals. Growing a portfolio focus is the key of the current strategy of SABIC, which is now focusing on creating innovative and sustainable products. In the last years, and as reflected in their annual report, they are in a deep transformation into a sustainable company. There are three top priority corporate programs:

...