Saudi Basic Industries Corporation (SABIC) is a Saudi company that operates in the chemicals/petrochemicals industry. Founded in 1976, SABIC has established itself as a market leader in the petrochemicals industry, supported by a high demand for its products, the growth of oil industry, and ready availability of raw materials in Saudi Arabia. The company manufactures and sells a wide range of products, among them polymers, chemicals, agricultural nutrients, and even metals. As such, the range of industries served by SABIC includes agriculture, building and construction, healthcare, automotive, mass transportation, electrical and electronics, mass transportation, and packaging. Being one of the country’s largest companies and a leader in the petrochemicals industry, the company strives to show leadership in aspects of sustainability, employment practices, and corporate social responsibilities, among others. This discussion will provide an analysis of SABIC’s operations in the context of strategy and Porter’s five forces of competition.
The Performance of SABIC in Relationship to Strategy
- Clear, consistent, long-term objectives
SABIC’s long-term strategy is summed up in the company’s brief, yet comprehensive vision of being the preferred world leader in chemicals (SABIC, 2019). Having long-term objectives ensures that the company does not settle for the success it enjoys today as the leader in Saudi Arabia’s petrochemical industry. In fact, the success SABIC enjoys today is the result of articulating a long-term strategy and pursuing it consistently. Moreover, relying on short-term objectives with no long-term vision has been identified as a major reason why many organizations fail to grow beyond their primary markets of operations (Alotaibi, 2015). Having clear and consistent long-term objectives helps SABIC to continually strive to get better, not just as a petrochemical company, but also as a multinational corporation. This means that, other than pursuing revenue growth, the company also strives to show leadership in other areas that define global leaders in the corporate world, including sustainability and employment practices.
- Profound understanding of the environment
For an organization that relies on crude oil as the primary source of its raw materials, it is imperative to have sound measures in place towards preventing the release of toxic substances to the environment. The chemical and petrochemical products that SABIC produces also pose a great danger to the environment if poorly handled. SABIC shows a profound understanding of the environment by integrating environmental sustainability into its core business strategy. SABIC strives to gain an understanding of the megatrends that affect the company as well as society at large and to respond to these megatrends in a way that favors a sustainable future (SABIC, 2019). SABIC recognizes that corporations that seek to compete globally must guarantee that their operations are environmentally sustainable (SABIC, 2019).
- Objective appraisal of resources
In order to attain social and economic sustainability, it is imperative for organizations to demonstrate objective appraisal of resources (Epstein, 2018). This is demonstrated in the way a company conducts its operations with respect to profitability vs. the quality of careers it provides its employees. Economic sustainability is further upheld in the supply chain, by ensuring that a company’s practices do not lead to the exploitation of natural resources in a manner that cannot be sustained. As part of its core business strategy, SABIC strives to pursue social and economic sustainability as part of a process that entails continuous learning, adaptation, and improvement of business processes (SABIC, 2019). The company demonstrates an objective appraisal of resources through recruitment practices. SABIC commits to nurturing the talents of its employees towards ensuring that they achieve their life goals (SABIC, 2019).
Porter’s Five Forces of Competition Framework
- The Level of Competition in Chemical/Petrochemical Industry
The level of competition in the chemical industry of Saudi Arabia and the Middle East is minimal. This partly explains why SABIC is the largest public company both in Saudi Arabia and the Middle East (Back, 2014). However, in the global front, where the company seeks to achieve domination, SABIC faces stiff competition from companies in all parts of the world. According to Mathias Back (2014), SABIC ranks fourth in the global chemical industry, behind BASF (German), DowDuPont (USA), and SINOPEC (China), in respective order (Tullo, 2018). SABIC’s 2017 annual sales of $37,000 million are dwarfed by the market leader’s $69,000 million (Tullo, 2018). Considering that SABIC’s annual growth in the period between 2016 and 2017 was 5.3%, compared to the market leader’s 11.8%, it is clear that the SABIC needs to accelerate its rate of growth in order to keep up with its competitors (Tullo, 2018).
- Assessing the Ease of Finding an Alternative to SABIC’s Products and Services
In SABIC’s primary market, it is hardly possible to find an alternative to the company’s products and services. This partly owes to the fact that 70% of the company is owned by the state-owned Saudi Arabian Oil Company. State ownership helps SABIC to operate monopolistically in Saudi Arabia (Tullo, 2018). Moreover, the company is readily endorsed by the Arab community in the rest of the Gulf region, driving its growth to become the largest publicly owned company in the region.
In spite of SABIC’s dominance in its primary market, finding an alternative to the company’s products outside the Gulf region is relatively easy. This is because every world region has a company that offers chemical products. For instance, South Africa has Sasol, Brazil has Braskem, Japan has Mitsubishi Chemicals, and India has Reliance Industries, and so on (Tullo, 2018). Each of these companies ranks among the top 50 chemical manufacturers globally (Tullo, 2018). Moreover, some countries have multiple representatives in the global top 50, with the USA having a dozen companies, Germany having six, and the Netherlands having three (Tullo, 2018). The relative ease of finding a company that provides similar products to SABIC makes it difficult for the company to grow at the pace it desires. Moreover, it should be noted that SABIC’s key competitors operate in developed economies, which are conducive for the growth of the petrochemical industry, owing to the high demand for these products.
- How powerful are SABIC’s buyers and suppliers?
SABIC provides a free and publicly accessible web platform for suppliers who wish to join in a collaborative partnership with the company. This largely owes to the diverse products it manufactures, which necessitates that the company encourages competition among suppliers in order to secure the most favorable deals in the market (SABIC, 2019). However, the company sets strict guidelines to which suppliers must comply in order to qualify for the partnership (Al-Garni, 2019). Through this platform, SABIC attracts new suppliers to supplement those that the company has traded with for years. The strength of this strategy for securing suppliers is unquestionable. It helps the company to secure standard quality products from a wide array of suppliers and at the most competitive prices in the market. While it is difficult to assess the strength of suppliers, it is clear that SABIC is always willing to collaborate with small-scale suppliers, as long as they can provide standard products. This strategy promotes suppliers while helping the company to minimize costs.
SABIC primarily relies on the gulf market to sell its products. As a result of multiple generations of mining and exportation of crude oil products, the Gulf region enjoys the privilege of having thriving economies with financially privileged citizens (Back, 2014). As an emerging competitor in global markets, the Gulf region is also equipped with thriving industries, which are powerful enough to support SABIC’s survival as one of the largest chemical/petrochemical manufacturers in the world (Back, 2014). Without a doubt, SABIC’s buyers are indeed powerful.
- The threat of new businesses starting in this industry
The threat of new market entrants in SABIC’s primary market is negligible. This is due to the fact that SABIC is monopolistically dominant in its primary market, where it enjoys the backing of the state. SABIC’s main sources of threat are the already-established companies in the global market.
SABIC’s long-term objective of being a global leader in the chemicals industry is supported by the company’s strategy, which is indicative of an understanding of the principles of social, environmental, and economic sustainability. The company’s growth is, however, undermined by slow growth, compared to its key competitors. Additionally, the ease of finding alternatives for the company outside the gulf undermines the capacity of the company to realize growth globally. Nonetheless, the fact that SABIC is at minimal risk of encountering competition from new market entrants is advantageous to the company’s prospects for growth.
Al-Garni, A. M. MESSAGE FROM GENERAL MANAGER, GLOBAL PROCUREMENT. Supplier Portal. Available at: https://supplier.sabic.com/
Alotaibi, H. J. (2015). An assessment of the connection of elements in a strategic plan: a case study of SABIC company. International Journal of Advanced Research in Management and Social Sciences, 4(10), 19-36.
Back, M. (2014). BASF the Undisputed Leader in the TOP 10 Chemical Company Rankings. Vogel Communications Group. Available at: https://www.process-worldwide.com/basf- the-undisputed-leader-in-the-top-10-chemical-company-rankings-a-378663/
Epstein, M. J. (2018). Making sustainability work: Best practices in managing and measuring corporate social, environmental and economic impacts. New York: Routledge.
Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard business review, 86(1), 25-40.
SABIC. (2019). About – SABIC Vision. Available at: https://www.sabic.com/en/about/our- vision
SABIC. (2019). Sustainability. https://www.sabic.com/en/sustainability
Tullo, A. H. (2018). C&EN’s Global Top 50 chemical companies. C&EN. https://cen.acs.org/business/finance/CENs-Global-Top-50-chemical/96/i31