SABIC is a Saudi based multinational company, which has large number of manufacturing plants in many countries of the world. HSBC (2007) reported that the Saudi Basic Industries Corporation (SABIC) established as a non-oil company in 1976 by means of royal declaration along with the explicit aim to accumulate value to the hydrocarbon wealth of Saudi Arabia such as byproducts of oil and gas, which has no direct consumption or market value but left as waste.
In the seaside and gulf cities of Yanbu and Al Jubail on the Red Sea SABIC established its plants to process hydrocarbons which were previously utilized either for petrochemical raw material otherwise sold to the steel mills as low-priced fuel to use as furnace-oil to melting the metals and kept huge contribution to the national development and tremendous economic growth. SABIC is the footprint of non-oil sector development in Saudi Arabia while the county mostly dependent on oil economy and the government and developing partners are emphasizing on non-oil growth.
Adamo et al (2005) mentioned that during seventies SABIC started its journey with joint efforts of a few companies to produce diversified plastics using feedstock of petroleum which is a milestone of Saudi industrial development where first significant joint venture with Mobil and the second one is with Exxon in 1980. The SABIC’s joint venture with Mobil was named Yanpet while the joint effort with Exxon was branded as Kemya both the project implemented with fifty-fifty partnership with same objectives to producing plastics in Saudi Arabia.
For the machinery and equipment of Yanpet to producing polyethylene, SABIC directly communicated with Union Carbide Corporation 1 and licensed their Unipol branded plastic machineries and then sublicensed them to Yanpet which was contrary to the partnering agreement though it was more than the said investment of SABIC. SABIC conducted similar complicacy in the operation of Kemya for which both the partners Exxon and Mobil sued against SABIC and awarded a compensation of US$ 416.8 million by a judgment of US Supreme Court, however such an odd situation may not let down its progress (SABIC 2006).
Being the global market leader of petrochemicals SABIC’s international expansion strategy droved to forming joint venture with so many companies rather than plastic. SABIC introduced the biggest steel production in the GCC region with production capacity of 5.50 M. tons per annum and in 1983, it has formed another joint venture with Japanese Mitsubishi while the project known as Al Jubail. In the same year, it also introduced periled fertilizer with Japanese cooperation. In 1999, SABIC formed another joint venture with SAFCO and introduced granular urea production plant that facilitates SABIC to turn it as a biggest exporter of granular urea around the globe.
In 1985, SABIC again formed joint venture with Exxon to produce ethylene and its byproducts and another joint venture with Shell and Dow Chemical and time to time it has expanded and it China and Europe, India and US operation. Further more the international expansion of SABIC has involved in acquisitions to boot it organic growth that evidenced in 2002 through its acquisition of DSM’s petrochemicals plants in Netherlands and Germany while in 2007, it acquired British Huntsman and Teeside.
Organization structure of SABIC
The organizational structure of Saudi Arabian Basic Industries Corporation (SABIC) is complicated and different from single product firms as it has separate departments for business operations and it has many business units. According to the view of Anderson (1992) and Hill (2008), the organizational structure is one of the significant factors to implement the Multi-product Strategies and it will be different from structure of a single product firm.
Anderson (1992) and Hill (2008) further added that the Multi-product firm using the Multidivisional (M-form) Structure which has also 3 variations and these are the Cooperative M-Form, the SBU M-Form, and the Competitive M-Form. From the product line of this company, it can assume that SABIC is a Multi-product firm as it has at least six dissimilar strategic business units and Affiliates, so its organizational chart will be Multidivisional (M-form) Structure though figure one shows that its structure is more difficult than M-form structure.
However, figure one presents entire organizational structure of SABIC and following figures divide figure 1 to demonstrate the chart in separate three heads and these are SBUs and Affiliates, unit for shared services and the corporate structure of SABIC. According to the annual report 2009 of SABIC, Chairman of the Board Prince is Saud bin Abdullah bin Thenayan Al-Saud takes decision by considering the board meeting and Vice Chairman and the CEO Mohamed H Al-Mady is the head of all business units.
According to the annual report 2009 of SABIC, it has earned over 60% of total profit from a single business sector that is from chemical segment and in production process all businesses share materials, technology, marketing process and distribution channels. This data demonstrates that SABIC maintains the moderate to high-levels of diversification strategies for their development as manufacturing most of the raw materials used by other main SBUs, for example, Polymers and Performance Chemicals. As a result, its corporate organizational chart based on the concept of SBU (M-from) the multi-divisional structure.
The above figure shows the Corporate Structure of SABIC where Vice Chairman or the Chief Executive Officer is the controller of all units and it has four different sub sections like finance, control, human resource, and R & T department.
However, the head of finance department is vice precedent who controls other four sub departments by taking help from GM and this sub sections of finance departments are corporate planning, corporate IT, Finance and Acquisitions. Similarly, its control department has also dependent on four other important parts, where vice president is the head of control department and GM are the maintaining sub divisions, which are- legal, internal audit department, TQM and Security with environment.
The human resource department plays vital role among four departments therefore, it has six sub sections for communication, organizational effectiveness, workforce plan, performance and business partner, leadership development etc. R & T department is significant for further expansion of SABIC in international market, as it has to maintain chemical research, polyester research, operational research, and technological control.
Jaroudi (2007, p.54) stated that from the very beginning, this company was performing as the owner for its affiliates only and there was no direct connection among the management of the affiliates but from the fiscal year 2002, SABIC modernized its affiliates in order to control and maintain the management more effectively. In addition, it coordinates the activities of the company by dividing the company in six major Strategic Business Units and figure 3 shows the major divisions of SABIC.
These SBUs produce huge variety of products like chemicals, polymers, fertilizers, and metals, which are mainly key components to build the modern world. In every operations of SABIC, there are many suitable strategies, which are for not only sustaining in the market but also helping to become the market leader. As the business world has been changed dramatically, most of the organizations are taking different types of strategies. Different theories are adapted to mobilize the strategic power of a firm, which will give some competitive advantages also.
The motive of SABIC’s international business
For any multinational company or international organization, the underlying motive behind the internationalization is the growing profit, which may difficult to achieve in local market. SABIC is Saudi origin firm that already ensures its presents in world’s most lucrative market including Europe, America, and Asia. The reason behind this internationalization is clear from its mission statement where it states the expectation to return maximum value to the stockholders that is the profit concentration. The net profit of SABIC in 2008 and 2009 showed that it earned SR 22,029,843000 in 2008 and SR 9,073,722 in 2009 (SABIC, 2009). Due to the economic downturn in 2009, most of the local and international organizations experienced substantial loss. In spite of this rough situation in world economy, SABIC able to earns a smart profit only because of its international operations as loss of one affiliate covered by the other affiliates around the world.
Expansion and Growth
Another reason behind the internationalization of SABIC is the intention of growth and expansion worldwide. The intention reflected in the growth strategies of the organization and it already expands its business to 213 sites in 40 countries, which employs over 33000 employees.
- Sales Maximization: The volume of sales is an important indicator of business growth and profit of any organization and both of these can increase through international business. SABIC experienced huge of volume of sales due to the international expansion. In 2008 the gross sales of the company was SR 150,809,596000 and in 2009, the amount of gross sales was SR 103,061,800000 that was possible only because of internationalization. The major portion of these huge amounts of sales comes from the sales in European and American market.
- Customer Contact: Another reason behind foreign operation of SABIC is the intention to stay close to the customers. As a global business organization, almost all the customer of the company trace in different location around the world. To these huge customer from single location is tough so that SABIC go for international operation where they can stay close to the customers.
- Technology and Innovation: The success of the chemical business largely depends upon the successful installation of new technology and promoting innovation. SABIC embedded the latest technology in their operation in various plants around the globe. In 2009, it integrates advanced PP Ziegler-Natta catalyst (TiNo) in polymer plant and with the help of Germany, SABIC uses α-SABLIN® technology to commercialize Linear Alpha Olefins (LAO) in chemical market. All these progress made by the company due to international business.
Why did SABIC select that particular country
United States of America (USA) is the heart of all activities of world economy and it is the strongest economy of the world. USA is one of the most attractive places for FDI as the financial performance, product demand, labor availability etc are very positive for foreign firms. Here the position of the FDI in USA makes clear the attractiveness of the country to the foreign investors.
In the year 2007, the total amount of FDI by the foreign firms in USA was around $237 billion and this huge amount of investment proves the attractiveness of the US market to the foreign firms. The rate of increment of FDI in the country is 38% and most of the investment in USA made by the manufacturing firms. Foreign firms spend $140 billion on equipment and plant installation and export an amount of $181 billion whereas the total amount of import was $468 billion in the year 2005. The financial performance of foreign company in USA is far better than the performance of US local firms as the foreign firms add values more the US firms and the shipment is also 15% higher than the local firms do.
Investment by other country
Due to the high attractiveness of the US market and industry, a large number of countries invested in USA including the country of Middle East. From the following table, it observed that the total amount of investment in manufacturing sectors in the country was $709,545 million dollar within which countries from Middle East invested $2,028 million. This huge number of firms from different countries invests in the country due to success in establishing operation in USA.
Success of Plastic and Chemical Industry
The overall FDI in USA is very lucrative which has observed in previous section and this section the success of FDI in chemical and plastic industry have explored. The total amount of investment in chemical industry in USA exceeds $47642 million in 2007. In 2008, the investment in this sector was $37452 million by the foreign firms, which clearly indicates high potentiality of this industry in USA. On the other hand, investment in plastic, metal, and related industry was $9,192 million that shows the investment attraction of these sectors by the foreign firms.
Experience of SABIC in US market
SABIC established its American operation in 1987 as a wholly owned subsidy of the mother company of Saudi Arabia and named as SABIC Americas, Inc. (SAI). Initially it established its office in Connecticut that later shifted to Houston in 1998. SABIC doing business in Central America, Canada, South America, Mexico and the Caribbean through SAI and it is the entry point for whole American continent. In America, SABIC experiences a high growth and business development. Company has manufacturing plants and research plant in America through which new product have developed and increase the quality of the existing product. Here brief experiences of SABIC in the different are of operation in America have presented.
- Financial Performance: The profit of SABIC in US operation in 2009 was $5.86 billion and it is the world’s six largest chemical producers including USA. The total asset of the company in the country is 72.5 billion at the end of 2008 and the amount of current asset of SABIC Americas, Inc. (SAI) was $25 billion. The production facilities in USA are one of the important plants of SABIC and the production of USA in 2008 was 56 million metric tons whereas in 2001 the production was only 35 million metric tons.
- Product Range: In course of business expansion and product development, SABIC Americas, Inc. (SAI) offers a wide range of products to the customers and these product portfolio makes the company of the leading producers of chemical, plastic and other related products. The major chemical product offer by SAI in USA are aromatics, oxygenates, fiber intermediates and chemical intermediates. Within these four brought category there are also sub products like methyl tertiary butyl ether, the octane enhancer etc.
- Research and Technology: SABIC has a unique department for research and technology named Technology and innovation (T & I) to help the strategic business units (SBU) of the company to develop new products and to develop the quality of the current products. To enhance the capabilities of the affiliates of the company, SABIC establishes SABIC Technology Center (STC) in Texas, USA for more research activities. SABIC has a high expectation over this research center and firmly believe that it will able to attract talented researchers from the various corners of the world and contributed to the growth of SABIC.
- Acquisition: As part of the strategic growth decision of the company, SABIC decided to acquire GE plastic that is one of the big plastic manufacturers of USA. This acquisition decision of the company indicates the policy of the company regarding diversification and it expends $11.6 billion on this acquisition deals. Acquisition is one of the successful strategies for business expansion and SABIC already acquires a good numbers of firms around the world as part of growth and expansion.
Business level Strategy
There are three possible business level strategies, which can be accepted by SABIC in its business, innovated by Michael Porter, and named as Porter’s generic strategies. These strategies are low cost leadership, differentiation, and focus (Kotler & Keller, 2006, p. 56). Following figure will help to show these strategies, and by these, SABIC can choose its best one:
- Low Cost Leadership: If SABIC can reduce its costs, as low cost leader in the market; then it will be able to develop and implement low cost leadership as strategic implementation in business level strategy. However, for construction business, SABIC can not maintain its costs as lower as cost leader in the market. Therefore, this strategy is not appropriate for business level implementation.
- Differentiation: When SABIC would present its business as unique as others would in competitive market and business level, then it can establish differentiation in strategic implementation in business level. SABIC is being very popular and familiar in its business in local and global market. It is also proved itself as identical and rare, which is proven that, it can establish differentiation as business level strategy.
- Focus: When SABIC is focusing on either costs or differentiation on some specific factors, areas in the business environment, then it can implement focus as business level strategy. SABIC is already implementing differentiation as business level strategy, so it is better to stick on the same strategy as before, either concentrating on focus as strategic implementation.
Current business level strategy of SABIC (Differentiation)
SABIC is now using differentiation as business level strategy. By this strategy, the organization is targeting on customers’ satisfaction and product differentiation with specific features are implementing in existing business strategy to prove itself as unique as local and international competitive market. According to market research of SABIC, differentiated products are attracting not only consumers, but also business and corporate level customers in global markets. So, the quality of its products must be enriched, which can prove it as unique as others can in global competitive market. By implementing differentiation strategy, SABIC is getting more opportunities to expand itself in local and global market, which will definitely ensure future long-term business growth of SABIC.
Benefits of using this strategy
The implementation of differentiation as business level strategy, SABIC have lots of benefits by using it, which are described in below:
- Increase Specialty Products: To make its business different in the competitive market, SABIC is giving importance on high value products, which are recognized as specialty products in strategic business unit. These products are obviously helpful to build long-term growth strategy and to develop high quality chemicals to manufacture specialty products in the market.
- Dynamic Growth of Collaboration: According to the vision of SABIC, the global expansion model of business level strategy has emphasized on the bilateral collaboration among the partnering organizations to ensure dynamic growth of business and it is utilizing new operating model along with country based differentiated model to encapsulating in the path forwarding in its strategy. It is also developing comprehensive restructuring design in short term and long term objectives of the company. The collaboration is establishing strengths to accomplish the goals according to future strategy within 2020. It is recognizing itself as differentiated as world leader with the help of strong revenue and profitability. The alliances are required ongoing commitment to excellence in manufacturing, satisfying customers with valuable products, and managing global talent with effective way of innovation and technological development.
- Enhancing Product Capacity: SABIC is also differentiated itself by enhancing long product capacities with existing facilities and benefits in expanded markets. The synergies of new and existing products are meeting up local market demand, and differentiation is expanding global markets.
- Global Growth Strategy: The success of SABIC is focusing on the tremendous local investment by the company while it mostly depended on the partner for advanced technology and specialized know how with best research and technology programs in global growth strategy and the differentiation is helping out in success of ambitious global and local growth strategy.
- Rapid Expansion of Business: From 1976, the overseas expansion has been increased in the growth strategy after implementing differentiation strategy in the business. It is also positioned itself as world’s fastest growing company with stable growth and well-planned management system in the market. The effective management system is also describing the company as most rapid developed in 20th century in competitive market.
Relation between global expansion and Differentiation
SABIC is expanding its global markets very rapid way. In the dimensions of differentiation strategy, global expansion is more increased. The relationship between global expansions of SABIC with its business strategy of differentiation is attached very closely, which is discussed with various points of view:
- Growth of Global Market: SABIC is focusing more and more on every major region and country of the world to engage as virtually in the growth of business strategy. It has not only engaged with these areas but also achieved great success, which is very important for future development on the business of SABIC. It has enlarged its markets in Brazil, Russia, India, and China, which are showing 40% increased in economies of these countries. On the other hand, in the mature markets like West and Japan, the rate of SABIC has increased at 2-5%. The demands of petrochemical materials are very much strong in China. These global expansions of new and ongoing markets are possible with the help of differentiating SABIC according to its business level.
- Impact of Strong Performances in Global Expansion: SABIC has proved itself with robust sales in 2008, which has increased more than 8% than 2007. The increased sales are possible with the help of strong performances despite of having credit crisis.
- Strategy of Globalization: In 2008, business level strategy has been increased with the important step of globalization. This strategy has enhanced future operations in China with landmark agreements. It has also increased strategic cooperation agreement to expand the scope of business strategy in the company. This strategy is also increased 50% feasibility of produced and used raw materials in the innovative technological system.
Attributes of strategic value
Delivering superior value to the customers ensure the satisfaction of getting services or products. Companies like SABIC have four disciplines where it can get strategic advantages. These areas are:
- Operational excellence: It refers to provide the quality services or products in a competitive price, which will ensure the convenient, and reliability of the customers. Every customer has a certain demand to buy a product or services. The process of meeting this demand of the customer is termed as operational excellence. As a part of business, SABIC has gained some sort of operational excellence also. It has some specific strategic approaches to the production and delivery of products and services. For this operational excellence, SABIC has overcome the impact of economic downturn in recent years though the market of its products became vulnerable.
- Customer Intimacy: In present business world, success in business is mostly deepened on the customer centric movement of the firm. Every firm is now running to catch the customer satisfaction and for this, they tried to become intimate to the customers. SABIC has also implemented some strategies to become customer intimate. It has customer application centers from where the customers can get the services quickly. Besides, it has developed a new model, which will allow the company to adjust with the changed circumstances for ensuring the highest customer value. This model will also ensure the opportunities to expand the operation globally.
- Product Leadership: Product leadership is a concept where the company is giving priority to the quality of the products, which means to become the best product or service provider whatever the price is. This attribute is basically measurable in the products whose customers are not price sensitive. SABIC as a manufacturer of such products, it is striving for attaining the product leadership. IN all categories of products, SABIC wants to be the market leader. For this, it is ensuring three aspects. Creativity, which is ensured by innovation, research, and development, is the first aspect. The commercialization of these innovations is second, which means to communicate and provide these innovative products to the customers. Upgradation of these innovations according to change in customer mind or environment is the final thing.
- Balance in Price and quality: Whatever the product is, customers want to ensure that they are getting the best thing within a given price. SABIC is providing such products, which have the best utility to the customers. Thus, the customers find a balance in what they get against what they pay.
Grand Strategies to gear up business
Grand strategies refer to the masters of business strategies, which are not only considering the solution of any problem but also help to indicate the way of implementation of those strategies. In case of SABIC, the business level strategies are accompanied along with some grand strategies. In every operation of SABIC, the combination of business level strategies and grand strategies are playing a significant role. There are 15 grand strategies used in the field of strategic management. Many organizations are using these strategies while some are using only one and the other are using a combination of any strategies. SABIC is also using many strategies simultaneously to get the better result out of it.
- Market development: Market development is the strategy where the firm is offering the products or services to the customers with almost same products only doing some sort of cosmetic modification through marketing the products and services to the related new market adding some new channels or changing the contents of the advertising and promotional activities. SABIC in case of its new expansion strategy in the global marketplace indicates the undertaking of this strategy. It has its own market development strategies, which applied in almost 42 countries all over the world and it is designing the products and services according to the environmental and cultural changes for the present customers;
- Product development: The product development strategy is the strategy where substantial modification has been done of existing products and services or the creation of completely new but related products, which will be marketed, to the existing customer with the existing channels and existing advertising and promotional activities. SABIC is developing its products in almost every year with some changes according to the customer demand or changes in the business environment. It has seven product categories as termed as basic chemicals, intermediaries, specialty products, plastics, polymers, fertilizers and metals. Within these categories, there are sub categories, which are basically based on the change of the basic products.
- Innovation: Innovation is the key strategy, which is massively used by SABIC. Innovation means to create a completely new product. In its mission statement, SABIC has clearly declared that it is providing products and services as an innovative way of providing responsibility. Here innovation has got the highest priority. SABIC has always tried to create such an environment, which will inspire the innovation. Besides, SABIC is considering three most important matters, which will build the future of the company. These three matters are- dynamic growth, collaboration, and Innovation. That is SABIC is giving continuous importance in innovation for not only its present sustainability but also for its future growth. It is using innovation strategy as its most powerful weapon to attain a good competitive leadership by reaching the challenges of future. It is encouraging the innovation throughout its processes to give flexibility. In case of technological advancement, innovation is a must thing considered by SABIC. SABIC demands that innovation is an integral part of its culture and for this, it has added innovation as one of its major part of vision 2020.
Strategies to cope up with risks
Risk is a major part of business associated with some uncertainties in business area. In every sphere of business life, risks are burning truth. For this, different companies are taking many strategies to cope up with the risks. Multinational companies are facing more risks than national as multinationals will have to face cultural, environmental, political and many other differences in country to country. SABIC as a multinational company has faced different types of risks like political risk, economical risks, ecological risks, environmental risks and so on. Besides, the industry where SABIC belongs to has differentiation in country to country. For example, safety regulations in case of production have been maintained strictly in some countries where in many developing countries these regulations are ignored.
- Growth Strategy: Growth is the major concern of SABIC in the present marketplace. The competition in the market has become so tough that companies like SABIC are facing problems to exist in the competition. SABIC from the beginning is trying to maintain a sustainable growth rate. It has taken a long-term growth strategy. For example, it has a growth strategy where the target is to develop and produce high quality chemicals and polymers starting from 2010 and continue up to 2020. It has another long-term growth strategy namely “2020 strategy”. The purpose of this strategy is to establish SABIC as the preferred world leader in chemicals.
- Globalization strategy: Globalization of the chemical and polymers along with plastics are another key risk minimizing strategy of SABIC. It is a risk minimizing strategy in a sense that, if a business in a market or country faces loss, SABIC will try to overcome this loss from a country which is generating good business outcomes. As a part of this strategy, SABIC has signed two agreements, which are basically landmark agreements, which will help the company to enhance its further operations in China. As a part of risk management program, SABIC is taking the globalization strategy by expanding its operations in Brazil, Russia, India, and China.
- Management strategy: Selecting the appropriate strategy is important. However, implementations of these strategies are also very important. To implement these strategies, a good management system is an essential part of taking strategy. The all other strategies are deepened on the management strategy. There are many types of management structures, which designs the management practices usually. The pursuing of growth strategy has been dictated by the management. Besides the country to expand the business is also depends on the decision of top-level management. Altogether, the over all risk management strategies are deeply related with the management strategies. Thus SABIC has such a management strategy where all the managers are related and bound to listen each other opinion. All the risk management issues are discussed and finalize with the help of top managers.
- Corporate strategy: The strategy in case of corporate level is driven by emphasizing on innovation and hunting the appropriate talents. As a chemical, plastics, and metal manufacturer, it is strongly associated with environmental issues. However, SABIC is assuring that they are not doing harm to the environment as they are reducing the contamination of harmful components in every day. The corporate social responsibilities issues are also good corporate strategies adopted by SABIC as an expression of its customer friendly orientation.
Business expansion strategies
Expanding the business globally is allowing SABIC to get higher profitability and rate of profit growth. As a multinational organization, SABIC is getting many advantages and these are:
- Getting an international image by selling the domestic products in international markets;
- Acquiring knowledge on location economies by realizing individual value creation activities to the regional environment where to operate more effectively and efficiently.
- Realizing the cost economies by experiencing the effects of serving a greater market.
- Getting the greater return leveraging valuable skills.
SABIC’s marketing strategy, human resource strategy and product-offering strategies are the key to increase the profitability and growth.
- Marketing Strategy: SABIC has taken a new marketing strategy as it is emphasizing heavily in strategic business units. The concentration of overall marketing strategies is targeting the ultimate customer satisfaction and fulfillment of the needs of the customers. SABIC has communicating its commitments to the customers through its marketing programs expressing the availability of innovative product lines, which is giving extra strength to its international presence. Besides, with the help of its research and development wing, it is doing some sort of test marketing regarding the acceptance of its new products and services. To do these works, SABIC is employing a huge number of talented people in its marketing department.
- Human resource strategy: SABIC has a unique practice of human resource management. In case of recruiting, it is giving priority to the dedication of the candidates and eligibility to work with SABIC. It hunts the most talented personnel from different parts of the world. In the last year, it integrated the human resources by enhancing and extending the performance management program. It has undertaken a new manpower planning process aligning with the management goals and other strategies.
- Product offering strategy: The variety of product lines of SABIC has been created keeping in mind that different customer need different products in different ways. Altogether, the product offering strategy of SABIC is indicating the overwhelming customer oriented nature of SABIC. In many cases offering a product to a customer has become an art for SABIC.
Competitive advantages of SABIC
The market positioning and competitive advantages are greatest strengths of SABIC for maintaining current and future growth of business in competitive market. This company has expanded very rapidly with high operating standards in the competitive global and local market. (Keller¸ 2003) So, SABIC is differentiating as high valuable and quality products according several competitive advantages in the market, which are discussed in below: (SABIC, 2008)
- Collaborative Environment of SABIC: The success of SABIC is mainly gone through dynamic growth of collaboration, which has proven by its turbulent financial times with ongoing effort of building future growth. These growths are mainly depending on collaboration and innovation of the business.
- Success on Execution of Business of SABIC: The successful execution of the business is developing short term and long-term goals in competitive and challenging environment of innovation in near future. These are also helpful by highly adaptable entity of SABIC.
- People of SABIC as Great Resources: The business of SABIC is developed by great atmosphere and talented people, which are fighting up in highly competitive world and industry. The company understands the importance of successful global enterprises and its people or employees, who are most important in creating innovative environment. SABIC is also enhancing the opportunities for all employees in every location of the world, which is according to the corporate reputation around the world competitive market. SABIC is continuously supported and trained its employees by Learning organization and having huge investments on them. The vision of the company is expanding continual training and investments in its employees, which are worked as competitive advantage of the company. These opportunities are expanded the ability and growth of company in future growth.
- Committed Logistics to Meet up Customers’ Demand: The commitment of delivering to customers according to time and places are taken very seriously by SABIC. It is another great competitive advantage of SABIC to maintain successful supply chain, by focusing on many factors, which are important for customers of the company. The competitive environment is fulfilled by company’s future aspirations and anticipation of needs of existing and future customers from any corner of the world. Therefore, the ongoing effort of logistical support and operational needs are enhancing competitive advantages of the organization to meet up goals with great progress;
- Strategic Positioning of Resources: SABIC is producing most of the basic chemicals, which is one of the largest petrochemicals productions in worldwide in Saudi Arabia. The strategic positioning of resources is built up by having competitive edge of major trade routes. These positioning are obviously an important competitive advantages as fast growing markets in worldwide and Asia Pacific.
- REACH Certification of High Quality Products: In 2008, SABIC has obtained intermediate products with the commitment of high quality and well-priced products. These are perfect competitive advantages for the organization to being responsive according to customers’ needs.
- Agricultural Market Development: After hard global financial crisis, the significant growths of fertilizers are minimized day by day. However, SABIC is built up agricultural development and playing an important role in global fertilizer market, which is another competitive advantage of the organization.
- Employee Empowerment: SABIC is providing safe and friendly organizational environment to its employee, and empowering them in comprehensive and competitive working environment. There are more than 30 countries, which are depending on products of SABIC with exchange of very strong prices. It has also maintained boom production in global construction market, mostly in Asia and China. Therefore, the growing strategy of employee empowerment is enhancing competitive advantage of market requirements locally and globally.
- Creativity and Technical Innovation: SABIC is focusing on continuous development of business strategies, manufacturing capabilities and profit generation abilities in proper ways. These are being possible for creativity and technical innovation of products and systems in competitive market environment. It is another vital competitive advantage of SABIC to build up itself in global expandable market.
- Control Implementation and Delivery Mechanisms: The world is becoming more competitive day by day because of choices of customers in supply chain is being complicated. It is also differentiated according tom product quality, supply assurances, and level of satisfactory services. For meeting up these obstacles, SABIC is implementing control and delivering mechanisms according to customers’ value, which they are seeking to its supply of products and services;
- Driving Business Performances: The dedication of workforce and to improved productivity is increasing business performance of SABIC more and more developed by times. The performances are well developed because of intuitive and task orientation in working ways. The asset optimization and extension of using other intermediary plants are being wireless, which are important competitive advantages for running the business in long run with profitable way.
- High Ambition and Competitive Mode of Business: The future expectation of SABIC is to become world leader in chemical market. It is also achieving its vision by being ambitious and competitive markets in high quality industrial products and services. These are working as competitive advantages to our customers.
- Applying Efficient Manufacturing Techniques: The newest and efficient manufacturing techniques are used in SABIC in quality products, competitively priced, and production system. This is helpful as competitive advantage for SABIC to compete in local and global markets.
- Global Growth Strategy: As SABIC is running its business ambitiously and competitively, it has expanded global market by applying global growth strategies in its resources and business structures. These are making ambitions of business in a reality as competitive advantage in the market.
Mode of entry strategies: 230
SABIC is maintaining leading manufacturing and producers of commodity and specialty products, like chemicals, polymers, fertilizers, and metals etc. For maintaining successful business in local market, SABIC has to make modern products according to market and customers’ demand. Therefore, for expanding global markets, SABIC has to manage mode of entry strategies in new markets with successful foreign direct investment (FDI), which are very important for the organization.
On the other hand, some other companies, who has been running construction business and expanding their businesses towards different directions, also have to maintain FDI to US and UK markets. For an example, Sisk Group has taken broader diversification strategy to expand its business in horizons. This would happen, hen the company has successfully developed significant departures, which is being helpful for remaining the organization to become most successful in UK market with FDI for growth of opportunities and to expand in US markets too (Business & Finance, 2010).
Another example of successful steps in FDI is Kingspan Group Plc, which is another multinational construction production company, which is starting its successful life cycle after 1989 after having floated into Irish Stock Exchange. It is expanding its business through UK, Benelux, Germany, Poland, Hungary, and the Czech Republic to diversify its business worldwide. Within 2007, it has earned € 90 million with exceptional business and diversification with the sales of 2.4 million shares (Business &Finance, 2010).
For these reasons, if SABIC wants to diversify its business successfully in diversified markets with Saudi Arabia, it has to maintain FDI in proper way. From 1987, SABIC was running its diversified business in US markets, when it was getting largest construction company in Asia. It is ranked as 4th largest petrochemical company in worldwide in Fortune 500, 2009. In 2007, SABIC has expanded its business US$ 20 billion as FDI in US market and has projected US$ 70 billion within 2020. After investment in US market, it was generating profits $72.5 billion, which is more than before. (Supply Chain Europe, 2006) So, if SABIC want to become more successful in geographic expansion of business, it has to focus on some mode of entry strategies, which would be helpful to take decisions on FDI in US market more broadly. By this way, SABIC is expanding its global market in competitive world. For different entry of different markets, SABIC is implementing various factors as entry strategies, which are discussed in below (SABIC, 2008):
Analysis of Porter’s Five Forces Strategy
Industrial analysis, invented by Michael Porter, is a modern model and strategy, which is applicable for knowing five different forces strategies of any organization. SABIC has to analyze Porter’s five forces strategy to know the mode of entry strategy of organization in different markets internationally. By following figure, SABIC is described its forces given below:
- High Entry Barriers: Global markets are different according to cultural, economical, demographical, and political conditions. If SABIC is considering itself as new entrants in the market, it has to make itself more innovative and flexible according to market and customers’ demand. Therefore, entry barriers in other markets are highly competitive for SABIC.
- Low Competitive Rivalry: SABIC is holding most lucrative position in Asia and other countries as market leader. Therefore, competitive rivalry of the organization is low in expansion of global markets.
- Low Bargaining Power of Suppliers: SABIC is maintaining very successful supply chain to run its business, and being competitive in the market with help of suppliers. So, suppliers and SABIC have good relations in expansion of global markets, which has low bargaining power of suppliers.
- High Buyers’ Bargaining Power: The motto of SABIC to satisfy its customers, but customers’ demand is being higher according to product differentiation and technological faster movement. Therefore, bargaining power of buyers is high in competitive market.
- Low Availability of Substitutes Products: SABIC has maintained business as market leader, so the availability of substitute products is lower in the market expansion.
Factors related with Entry Strategies
In October 2008, financial crisis had stuck the world by recession and putting the pressure on products’ demand and financial ability of different organizations. SABIC was not different from them, so the organization is using its opportunities continuously in global market place and producing widest ranges of products and using latest mode of technologies. By this way, SABIC is expanding its global market in competitive world. For different entry of different markets, SABIC is implementing various factors as entry strategies, which are discussed in below (SABIC, 2008):
- Maintaining Sound Investors Relationship: To enter in different markets, SABIC has to maintain sound relationship with investors, by local partnership, research and technology programs, and global growth strategies in worldwide.
- Believing on Ethical Commitment: In business decisions of entry strategies, SABIC is making believe on ethical commitments, which are affecting a lot on economic factors of any markets. Therefore, the organization has already maintained this commitment to Middle East/ Africa, Europe, and Asia.
- Launching Advanced E- Commerce Portal: SABIC is launching advanced e-commerce portal worldwide, by adding different features, like logistics operations, visibility of shipments, and showing product categories in the portal.
- Building Skilled and Capable Employees: SABIC is investing skilled and capable employees to beat in entry strategies of different markets in 21st century of workforces. It is also ensuring role of effective supply chain in expanded markets.
- Effective Mobility Programs: SABIC is establishing its business all around the world, by transferring knowledge and technological development of its manufacturing and managing systems. It is also utilizing human as effective capital to fulfill its mode in entry strategy.
- Innovative New Programs: For maximizing existing employees and markets, SABIC is maintained talented and attract new employees with continuing development programs in various areas. These innovative programs are related with performance recognition and rewards, career development, continuous learning and organizational effectiveness. These factors are using to enhance performance of employees and build strong reputation of business in global expansion as entry strategies and this reputation attracts and maintains talented employees with innovation and growth of business in new markets.
- Supportive Learning Organization: Innovation and learning is the main part in the success of SABIC in its business and learning organization of SABIC is supporting employees in gathering knowledge and innovativeness in different entrants on different level of markets.
- Adoption of Global Conditions: The current economic circumstances are very unstable and challenging for any business. Therefore, for future growth, SABIC is adopting changes of environment and global conditions, which are very helpful to understand mode of entry strategies. It is also seeking corporate environment for customers, which can easily innovate and adopt processes with changing economic circumstances.
- Eco- Responsibility with Environmental Excellences: SABIC is providing customers the eco- friendly environment, where products are manufactured with friendly way by providing less harm on environment. It is also reducing the use of sodium chloride, wastewater etc. This strategy is also helpful in enter in the new market as global expansion of SABIC business.
Challenges, issues, and prospects
- Gas Price: Gas price has increased from $25 per barrel to $55 per barrel in US market, which deeply changed the structure of the business, and radically reduced the capability of the traditional stalwarts to compete. In addition, the operational cost has increased and it failed to meet the commitment of marginal producers for further cost pressure;
- Production: SABIC (2006) reported that the market demand is increasing by 27% for polyethylene and 20% for ethylene that indicates shortage of 61 million tones of Polyethylene for global market. In this context, SABIC has decided to increase its production up to 60 million tones but its production capacity is the main hindrance to reach expected level though it successfully increased 5% of total production in 2006;
- Economics of scale: Foreign direct investment does not ensure the SABIC’s right to manage subsidiaries as needed for optimizing experience curve or economics of scale, therefore, it is also difficult for SABIC to maintain a strong control over the international subsidies to protect from competitive attacks.
- Political factors: Besides expansion in US or other international market, SABIC has to consider the investment policy, device supply, network development, over taxation, rate of exchange, savings of personal intelligence, recession, ups and downs of currencies and the other uncertainties;
- Jurisdiction: Jurisdiction of the court is an important factor for SABIC as it has to follow the rules of other countries where it has operation. However, the problem arise for jurisdiction when few employees take legal action against its subsidiaries or parents company for any breach;
- Legal issues or Policies: SABIC has to follow the tax policies, immigration law to export and import products or raw materials;
- Global recession: According to the annual report 2009, SABIC’s financial position like net profit adversely affected due to global financial crisis though its production volume increased up to 4% and sales volume amplified up to 5%;
- Environmental factors: SABIC (2009) reported that bag house dust (BHD) is a fine powder, which generated during plant cleaning is the great environmental threat for SABIC Metals SBU as it takes huge amount of money to recover from this problem;
- Low software integration: Though SABIC is in number six position in international market but one of the core challenges is to find out which software SABIC should use as it is now using low quality software globally. In order to offer quality products it should check the accuracy like Olefin is a major chemical of SABIC, which is used as versatile substances and heavily associated with plastic, so, purification is important to assure the accuracy and other chemicals like aromatic and Oxygenates also need sophisticated software to assure the quality as aromatic chemicals are using in manufacturing process;
- Safety issues: It is not possible for ordinary people to measure quality of the fertilizer and the effect of fertilizer in food value, so, it is a great challenge for SABIC to assure people by providing high quality products to safe public health;
- Human Resource management: Managing the employees is a great challenges for SABIC as the employment terms has to change after merger and acquisition, for example, at the time of acquisition more than 850 Huntsman Petrochemicals (UK) employees would transferred to SABIC;
- Culture and Religion: SABIC has more than 33,000 employees all over the world and they come from different culture and religion, so, it is difficult to manage these factors to get proper outcomes from international market;
- Other issues: SABIC is investing in international market through a foreign direct investment(FDI) strategy may also introduce conflict between partners for the issue of control along with potential changes and differentiation in objectives from each other.
Explaining the issue of SABIC
Here the presented statement of the optimal choice of SABIC’s foreign entry mode depends on its foreign expansion strategy that can be elaborated all the way through the previously discussed knowledge about international strategy of the organization in relation with the decided mode of entry which is now in practice. To give a clear vision in this regard, it will be helpful to show the input- output features of these two issues-
By analyzing the relationship module of the diagram for SABIC, it can be sum up that the relativity of international opportunities and the identification of resources and capabilities, which result in strategies and entry modes SABIC are practically based upon core competencies of the organization. More particularly, in the practice of SABIC there are various types of international strategies those can be melted as corporate assets and scopes, which lead to induce different corporate strategies.
In the foreign expansion strategy of SABIC formed with various entry modes those are utilized as aftermath, which is combined to generate management problems and risks and eventually, better performance and innovation take place due to boost with it huge extensions. So, the decision relating entry modes is utilized because of the organization’s competitive situation along with the unique set of resources, qualities, and core competencies for SABIC.
On the other hand, when a SABIC has decided to implement various generic strategies including costs, differentiation or focus, it also judge the related costs and benefits of that approach casing the global marketplace (Hill 2009, p. 132).
Due to SABIC’s continuous expansions, it is essential to match the success and purpose of entrance with the viability of international strategies. Here, the company SABIC must consider several influential factors like- social, political, legal, economic, technological, and religious context of a nation. For this, in some cases, a strong global mega retailer would like to create a joint venture with a less recognized local company rather than direct exporting to achieve an accelerated acceptance, here the introduction of differentiation or focused differentiation is viable to quickly penetration into the target market. Sony Ericsson is a perfect example in this case while the company is emphasizing upon such scheme by formulizing excellent joint venture globally.
Prospects of SABIC
- HSBC (2010) reported that expansion of the business in international market has bright prospect for SABIC as it became one of the major player within last 25 years operation, for example, SABIC generates more than 85% of total sales profits from global markets, particularly in the Far East, where SABIC is capable to supply its plastic with other items more cheaply than the local competitors;
- SABIC (2006) pointed out that the merger and acquisition with large companies developed the corporate strength of SABIC in global market, for example, In last quarter of 2005, it signed a agreement with an Italian company Technip to share engineering and construction services and it entered a contract with Toyo a Japanese company to develop supply chain management in ethylene and propylene segment;
- Expansion in international market always reduce the operating cost and minimize business risks from expropriation and nationalization;
- SABIC will be able to diversify its product line by sharing raw materials and technology from international market, for example, in the fiscal year, SABIC expanded and diversified product line by acquiring 100% stake in Huntsman Petrochemicals (UK) Ltd by $685m in cash to enter UK market and capture the European petrochemical market;
- Sinopec Corp and SABIC had signed an agreement to form 50:50 equal share joint venture company to enter into the Chinese market, which will enhance the function of SABIC as it intended to establish a manufacturing centre in Asia;
- The CEO of SABIC stated that corporate expansion strategy is only one way to reach its goal as It would like to hold the number one position among petrochemical companies by 2020;
- However, the demand of SABIC Innovative Plastics has increased dramatically in US market as and the global market, which will help to increase its profit margin as home health care is a fast-growing market sector where these plastics products are playing a crucial role;
- The other prospects of expansion in international markets for SABIC are greater flexibilities and diversification opportunities, improvement of accessing monetary assets, composition of greater competitive advantage, opportunity for both partners for meeting goals, sharing of modern technologies with raw materials, achievement of economies of scale through size facility, scope of offering preemptive competition, potential influence on government policies, etc.
- SABIC should employ more engineers to offer fast and quality services for different customers in international market;
- as the gas price is high and production cost is increasing, it should adopt cost effective strategies,
- To expand the business by foreign direct investment, it should take appropriate measure by considering previous global financial crisis;
- It should concentrate more on motivation of employees, internal meeting, audit reports, and team learning in order to coordinate them to work as family;
- It should concentrate both on the End-User Satisfaction and engineering Services to offer quality service;
- It should concentrate both on the End-User Satisfaction and engineering Services to offer quality service;
SABIC as a multinational company, is trying to sustain its market leader position in the global market to do so SABIC has introduced multilevel global expansion strategy while the implementation of these strategies are very significant to achieving the organizational objectives. In case of applying new strategies, SABIC must keep in mind that, strategies are situational matters and success of a strategy is mostly depends on the organizational environment rather the past success of the strategy to meet the requirements of present without compromising the aptitude of future generations to meet SABIC’s own needs and to serving the of the globe.
The long run international expansion strategy of SABIC is based on to enchanting complete advantage of petroleum feedstock position to generate the lowly proportional cost of production with most excellent technology, emerging markets, and huge stock of raw material arrangement of SABIC.
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