Strategic planning involves a formalized and systematic effort by an organization to define its policies and long-term objectives. Strategic plans contain information on the necessary policies and strategies needed to achieve these goals. Additionally, strategic plans help companies position themselves in the market to gain a competitive advantage over major business rivals. Key in strategic planning is performing a SWOT analysis, which involves identifying a company’s strengths, weaknesses, opportunities, and threats. The process also involves critically diagnosing a firm’s internal and external business environment to create objectives that best propel the organization towards its long-term objectives. This report presents a critical strategic analysis of Saudi Arabia Basic Industries Corporation (SABIC). SABIC is a fast-growing global firm that deals with petrochemicals, metals, agri-nutrients, and specialties. It’s headquarters are located in Riyadh, Saudi Arabia. The company was founded in 1976 and has expanded to over 50 countries, with a global workforce of over 33,000 talented staff.
SABIC’s Vision and Mission Statement
SABIC’s vision is to become the preferred world leader in chemicals. The company’s mission is to responsibly provide quality products and services through learning, operational excellence, and innovation while sustaining maximum value for its stakeholders (SABIC n.p). With uncompromised integrity as its core foundation, the company seeks to engage, inspire, and create value to key stakeholders by delivering customized and cost-efficient solutions.
SABIC offers products and services to its customers through its main strategic business units, which include petrochemicals, agri-nutrients, metals, and specialties. An executive vice president heads each of these departments. The petrochemicals department manufactures essential advanced chemicals, plastics, and materials used by customers in their daily endeavors around the globe. Examples of these chemicals include Aromatics, Ethanolamines, Ethoxylates, Gases, Glycols, Linear Alpha Olefins, and Oxygenates (SABIC n.p). The agri-nutrients business line manufactures fertilizers and other nitrogen-based inorganic products used across the Americas, Middle East, Far East, and East Africa. SABIC’s metals are supplied under the brand name ‘Hadeed,’ a manufacturing subsidiary fully owned by the firm (SABIC n.p). Moreover, the company’s Specialties business makes highly differentiated products, such as special engineering thermoplastic resins and compounds, thermosets, additives, and additive manufacturing solutions. Many manufacturers of office equipment, automotive products, electronics, and computers all over the world use SABIC’s high-performance polymers.
The company targets both traditional markets and the new and emerging technology consumers in the more than 50 countries in which it operates. Key industries that it targets include automotive, healthcare, packaging, building and construction, personal hygiene, consumer goods, electronics, and emerging technologies such as pipes and pressure vessel industrial application technologies (SABIC n.p). SABIC has sharpened its focus on growing markets while drawing upon market knowledge, a steady expanding product portfolio, and extensive application development expertise. In the market spaces identified by the company, business teams that focus on driving tailored platforms are formed. Further, SABIC offers an array of material technologies intended on serving customers through its high-performance thermoplastics, polymer and foam products, pipes and utilities, thin-wall packaging, and personal hygiene products. Innovation hubs are situated in the Middle East, the United States, Europe, Northeast Asia, and Southeast Asia. These innovation centers ensure that the company manufactures products that are tailored to meet target-customer-specific needs.
SABIC’s SWOT Analysis
SWOT analysis is a powerful strategic planning tool used by organizations to identify key strengths, weaknesses, opportunities, and threats as they relate to business competition or overall project planning. The technique ensures that a business is able to implement business strategies that harness the company’s core competencies, grab available opportunities, work on its weaknesses, and devise better ways of dealing with business threats (Alzoman 26). Analyzing both the internal and external business environment is key to identifying major weaknesses, strengths, opportunities, and threats. Thus, business environment analysis is a crucial part of strategic planning and analysis.
External Environment Analysis of SABIC
SABIC’s external environment is made up of economic, demographic, technological, social-cultural, political and legal, and global factors.
Economic growth greatly influences the petrochemical industry. SABIC greatly benefits from the growing Saudi Arabia’s economy, which has seen demand for the company’s petrochemical products increase exponentially. Similarly, economies of the company’s key global markets have grown steadily in the past decade. In 2018, Saudi Arabia’s economy grew by 2.4%. In 2019, economic growth in the country grew by 0.3%, recording a GDP of USD 792.97 billion, as illustrated in Figure 1 below. The global economic growth was 2.7% in 2019, as illustrated in Figure 2 below. Such economic growth positively impacts the company’s ability to sustain its earnings through increased disposable incomes.
Trade restrictions, tax policies, and political calmness are influential political factors that affect the petrochemical industry. In the Middle East, where SABIC is headquartered, and thus most of its policies implemented, local governments own most petrochemicals. Additionally, governments in these regions use quota restrictions and high tariffs as a way of protecting local organizations from adverse external competition (Alzoman 26). The government of Saudi Arabia does not impose corporate taxes on local firms. As a result, SABIC enjoys higher profits as its earnings are not subjected by taxes, allowing the company to use the revenues to invest in technology, diversification, and innovation through research and development projects, thus improving its competitiveness. The fact that the company operates in countries that are not involved in any serious conflicts ensures stability in supply and reduces risks of economic collapse.
SABIC relentlessly focuses on scientific innovations propelled by its research and development (R & D) to stay ahead. As its motto ‘chemistry that matters’ suggests, the enterprise is keen on using technology to create innovative products that meet and surpass its customers’ expectations. Advanced technology utilized by the company has enabled it to manufacture a wide range of specialty materials and powerful thermoplastic resins used in the ever-growing range of innovative products and applications. Globally, technology is advancing at a fast-paced rate (Alzoman 26). Everywhere in the world, companies and ever governments understand that technology plays an integral role in economic growth as it determines product quality and production efficiency. With this in mind, SABIC explores state-of-the-art technologies and incorporates them in its processes, thus creating superior products.
Any organization ought to tailor its products to meet social expectations, and the products offered by SABIC are generally universal; hence they can be used in any part of the world. The company’s sensitivity to social and environmental fabric has enabled the organization to create corporate social responsibility (CSR) programs that touch the lives of its customers and the community.
Owing to the company’s market diversifications and globalization efforts that see its products offered in many parts of the world, SABIC does not expect to be adversely affected by a single country’s economic bow-down. Generally, emerging and growing markets, such as Africa, South America, and Asia, are likely to increase the corporation’s products and services demand compared to already developed countries, whose economies are quite steady (Alotaibi, 21). As a result, SABIC’s plan of expanding to the emerging markets is economically viable.
Industry Analysis Using Porter’s Five Forces Model
Porter’s five forces model is used to analyze an industry’s immediate competitive environment. The five forces that determine the competitive intensity and industry attractiveness include the threat of new entrants, buyers’ power, suppliers’ power, substitution threat, and competitive rivalry.
The threat of New Entrants
The petrochemical industry is lucrative since it mainly deals with oil and gas, which are highly demanded. As a result, the industry attracts new players, including global giants such as Aramco, Shell, and Reliance Industries, among others. The entrance of new firms into the industry increases competition, which in turn leads to reduced profitability. Due to the threat of new entrants, SABIC will likely face stiff competition in the future, thus significantly reducing its market share.
Threat of Substitution
The industry is innovating new products that seek to replace hydrocarbons. For instance, the world is pushing towards the adoption of renewable energy, which may replace traditional oil and gas products. The adoption of new technologies that substitute SABIC’s products means that the company will suffer from a decrease in demand, and consequently reduced revenues.
Supplier Bargain Power
Since the petrochemicals industry is served by many competing companies that have different suppliers, the bargaining power of suppliers is quite high. Companies, including SABIC, must continuously strive to meet new demands from suppliers of quality raw material, machine components, and labor (Alzoman 25). However, suppliers who act as sole producers of key input are very few, thus reducing their bargaining power.
Rivalry from Competitors
Many companies are dealing similar products; thus, the competition level is intense, both locally and internationally. Price control is insignificant; hence it is hard for companies, such as SABIC, to use pricing methods to influence demand. Technology is a key differentiator in the petrochemical industry. With SABIC being a global giant in technological innovation, the company can build a competitive advantage over its key competitors. Lastly, market share is stagnant and highly dependent on product grades. As a result, SABIC’s ability to retain its market share depends on its ability to maintain product quality.
Buyer Bargaining Power
Since customers can get similar products from competitors, their bargaining power is high. However, it may become moderate when the demand is limited to highly sophisticated polymers, which can only be produced by a few companies. In markets where customized polymers are highly demanded, SABIC is not likely to be negatively impacted by shifts in buyers’ tastes and preferences. However, for competitors’ standard range products, SABIC must adjust effectively to cater to the new customer demands.
SABIC Competitive Analysis
SABIC competes with many firms, such as Saudi Aramco, BASF, Yara, Shell Chemicals, Mitsubishi Chemical, and Dow Chemical Company. Besides SABIC, the petrochemical industry in Saudi Arabia is made up of various small players in the private sector. Recently, competition in the petrochemical industry has been increasing sharply due to globalization. Moreover, acquisitions and mergers between major industry players have taken place as a means of improving competitive advantage. Since most of the SABIC competitors are almost equal in market power and size, the competition is severe (Alzoman 24). The generic nature of the products offered by players in the petrochemical industry poses a serious challenge to SABIC. Most of the products are standardized; thus, customers do not perceive any major differences between them. Therefore, the customers can easily switch from one product to the other. Additionally, huge investments, as well as the complex nature of operations, make exit barriers too many. Switching to other industries is also very difficult since there are no similar businesses. As a result, competitors cannot leave the market easily, making competition intense. Therefore, the company in question has to work extremely hard to remain competitive and profitable in the market
International Organization Analysis
The following is a summary of SABIC’s internal organization analysis.
|Functions||Function description||Resources/capabilities/core competencies||Gaps/Areas need to improve|
|Sales & Marketing
|Promoting sales and distribution in the company’s major markets||Resources: Competent sales and marketing team
Capabilities: Skilled sales workforce around the globe
Core-competencies: A strong global distribution network
|Formation of Joint Ventures|
|Finance||Aligning the company’s finances to its objectives by investing wisely and transparently||Resources: Revenues resulting from the company’s profits
Capabilities: Strong financial muscles
Core-competencies: Being a tier-one global petrochemical company, SABIC is financially stable, enabling it to invest in R&D, hence creating superior products
|Expanding into untapped markets can increase revenues.|
|Production||Manufacturing of high-quality products||Resources: Diversified business segments producing products offered by the company
Capabilities: Strong business-level management teams
Core-competencies: The firm has compounding hubs and manufacturing facilities that make its core products
|Involving franchise or joint ventures can help SABIC make more customer-focused products|
|IT||Promoting the adoption of state-of-the-art technology in the company||Resources: Technology oriented teams
Capabilities: Strong investment in innovation and R&D
Core-competencies: A market leader in innovation
|Ever-changing technology presents new opportunities that can be tapped into|
|HR||Developing and retaining a talented pool of employees in the company||Resources: A large pool of skilled HR Team (over 33,000 employees)
Capabilities: Skilled and diversified team able to promote the company’s objectives
Core-competencies: Dedicated and diversified team can easily push the company’s agenda.
|The company should develop local skills and knowledge among local employees.|
SWOT Analysis Summary
|Opportunities for the organization
· Joint ventures and franchising that could increase demand and capacity
· Increasing demand for sustainable fertilizers around the globe
· The company can leverage its strong technological and innovation capabilities to create a competitive advantage.
|Threats for the organization
· Intense competition in the petrochemical industry can erode profits
· Environmental liabilities that can lead to high costs
· Violence and political instability in the Middle East may disrupt the company’s operations.
|Strengths within the organization
· Global market leader in the production of advanced thermoplastics, fertilizers, methanol. Polypropylene and polyethylene.
· Strong customer value enhancement through customized-oriented processes.
· Over 33,000 skilled employees
· Strong support from the Saudi government
· Comprehensive portfolio of product offering serving more than 50 countries
|Weak areas in the organization that needs improvements
· Turbulent relationship with some of the company’s subsidiaries
· Dumping allegations by some countries such as India, thus tainting its image.
Recommendations Based on the SWOT Analysis Summary
Based on the company’s SWOT Analysis, the following recommendations can help SABIC face its challenges by working around its threats while optimizing on its strengths. First, the company should direct significant effort towards marketing and R&D to deal with fierce competition. Secondly, the company should not rely on the foreign and expatriate workforce, but develop local skills and knowledge among local employees. Thirdly, an aggressive distribution strategy is needed to sustain profitability and counter competition from new market entrants. Lastly, SABIC should explore possibilities of forming strategic alliances and getting into Joint Ventures to increase demand. Similarly, incentives in the form of technology, expertise, and loans can be offered to local investors who produce inputs.
SABIC is segmented into different business units, namely petrochemicals, agri-nutrients, metals, and specialties. An executive vice president leads each business unit. The business segment leaders lead teams and nare responsible for delivering key strategic objectives under the company’s business-level strategic level. For instance, they help position the business against its key rivals by implementing effective marketing and operational strategies. Similarly, business-level strategic teams monitor changes in key external forces and demand for specific products. This enables the business to implement strategies that address changes in the market, hence helping the company meet its long term objectives.
Corporate Level Strategy
At the corporate level, SABIC is led by a board of directors that consists of seven members. The board is mandated with the responsibility of defining the company’s long-term objectives as well as diversification priorities. Consequently, the board monitors the competition in different market segments to identify threats and opportunities. Additionally, the board supervises the management, ensuring that the corporation is operating under the acceptable standards of corporate governance. The corporate-level strategies implemented by the enterprise help steer the company towards the attainment of its long-term objectives.
International Business Strategy
SABIC has uniquely positioned itself to leverage its global operations to support Saudi Arabia’s vision of becoming a global economic icon by 2030. The fact that the company has set up innovation centers in different locations across the globe ensures it can tailor its product offering to address the local challenges better and offer the best solutions. With its products being consumed both locally and internationally, SABIC is committed to good practices across all the markets it serves. To advance its international business strategy, the company operates in more than 50 countries with more than 33,000 skilled staff.
Strategic planning is the process of defining an organization’s policies and long-term objectives. A crucial element in strategic planning is the process of performing SWOT and PEST analysis, which involves critically evaluating a company’s internal and external business environment to create objectives that best propel the organization towards its long-term objectives. SABIC offers products and services to its customers through its main strategic business units, which include petrochemicals, agri-nutrients, metals, and specialties. From the strategic analysis performed on the company, it should direct significant effort towards marketing and R & D to deal with fierce competition, and develop local skills and knowledge among local employees. it should implement aggressive distribution strategy needed to sustain profitability and counter competition from new market entrants and explore possibilities of forming strategic alliances and getting into Joint Ventures to increase demand.
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