The Saudi Basic Industries Corporation
The Saudi Basic Industries Corporation (SABIC) constitutes a Saudi Arabian multinational company dealing with chemical manufacturing and is a principal subsidiary company to Saudi Aramco. Specifically, the corporation specializes in petrochemicals, industrial polymers, and metals, among other products, and is the second-ranked public corporation in the Middle East. The corporation’s principal shareholders are mainly from Saudi Arabia and other members of the Gulf Cooperation Council (GCC) formed by six nations. The company’s headquarters are in Riyadh, and it was established in the late years of the twentieth century by the royal decree to engage in the conversion of the oil by-products into other useful products such as chemicals, polymers, and fertilizers and had a significant impact on the neighboring communities in terms of the economic boost as it rose in ranks to become a globally competitive company. The corporation has consistently reported increased net profit and revenue margins with its 2018-2019 fiscal year revenue amounting to $45.1 billion and $ 5.7 billion in profits primarily attributed to its adopted diversification strategies.
SABIC’s Strategic Details and the Circumstances that Motivated the Company to Diversify
SABIC Business Strategy
The corporation’s strategy sets a viable roadmap for realizing the entity’s vision that encompasses becoming the preferred world leader in the manufacture and trade of chemicals, besides being an authentic global powerhouse through facilitating reliability and subsequent sustainability. The corporation’s additional strategies encompass the provision of differentiated products for customer market satisfaction and growth and productivity improvement for overall efficiency. The corporation also targets investing in innovations where there is a prospect of superior growth in the product market.
SABIC’s principle pillars to help in the realization of the stipulated visions and goals primarily rest on such factors as consumer focus through understanding their continually evolving needs, market focus through targeting regional markets across the globe, operational excellence through the improvement of efficiencies in such core areas as manufacturing and supply chain for the realization of overall cost-effectiveness. The corporation’s other pillars include constant innovations for competitive advantage, transformation through investing in leadership and training, and the general improvement of the operational model. SABIC’s business portfolio encompasses a wide array of products, including petrochemicals, various specialty plastics, agri-nutrients such as fertilizers and metal products. Importantly, the corporation has a diversified global footprint constituting fifty countries of operation globally, about sixty manufacturing sites and a variety of technology innovation centers, and a diversified market niche serving over a hundred countries.
Circumstances that Motivated SABIC to Diversify
The major contributory factor to the corporation’s diversification was the governments initiated an economic strategy for diversification that targeted the reduction of the overall kingdom’s sole dependence on oil sales that accounted for about three quarters of the country’s total revenues and the government needed to shift to a broader industrial base. Besides, natural gas abundance necessitated the need for energy conservation and protection of the environment by the corporation hence led to the use of the natural gas reserves as a valuable raw material petrochemical manufacture. Furthermore, since its formation, SABIC was set to access long-term corporate loans from the kingdom’s public investment funds that would allow it to engage in world-class projects, in addition to the corporation’s joint venture partners that would balance its capital requirements and other commercial loans that were made easily accessible. Thus, the blend of long-range planning by the corporation, the engagement in long-term investments, and the ease in the accessibility of public and private financial resources significantly contributed to the successful growth and diversification of the industrial corporation.
Mode of Diversification Adopted by SABIC Company and how it relates to Resources and Capabilities
The selected mode of diversification for SABIC Corporation encompassed innovations and sustainability that chiefly constitute the company’s significant economic value creation and the overall growth strategy. Notably, the approach constituted a basis for extensive collaboration, particularly between customers and the entity’s significant stakeholders. The contemporary world has significant challenges ranging from pollution to increased population pressure hence posing a significant concern for global climatic adversities. The challenges require resource efficiency and actions geared towards waste minimization to facilitate in lowering the impacts through the adoption of a circular economy solution.
The corporation focused on eliminating the prevalent global challenges impacting even the immediate business environment with an increased prospect of affecting its overall performance. Thus, the corporation’s investments and collaborative efforts in the research and innovation domains aided in value creation and the subsequent realization of the entity’s ambitions through the facilitation of the development of new advanced process technologies and the creation of product solutions to meet the customer’s overall constant needs. The strong collaborative efforts facilitate appropriate resource utility hence improving the corporation’s capabilities to distinct market entry, subsequently resulting in profit and revenue increment attributed to its products and market diversification. Besides, the innovation diversification strategy facilitates the company’s solution delivery to the global most significant challenges, significantly contributing to the overall corporate capability improvement and subsequent success in the operations.
Furthermore, the corporation engaged in conventional process improvement by identifying appropriate probable ways for wastage reduction and the conservation or reuse of resources. The postulated activities enable the corporation to transform the existent challenges to viable opportunities, thus enhancing its capabilities to minimize the environmental impact and cost reduction aiding in conservation and wastage reduction. Specifically, among the innovative ways, the corporation encourages exceptional talents and supporting entrepreneurial activities, particularly those focusing on plastics and polymers as the steps facilitate the country to move from dependence on oil to other viable ventures. Transportation and packaging sector improvements enable safe and secure product delivery to the consumer as they reduce incidences of tampering with the product. In the process, the corporation enhances value retention and minimizes the resources for the overall good of the corporation in terms of the competitive advantage derived from enhanced capability and optimal resource use.
Benefits of Diversification in the Industry and its Significance in its Shape and Growth
A corporation’s diversification is instrumental in enhancing insulation against continued product cyclicality, especially in the oil and gas industry, that could impede the company’s operations, particularly when the economy is weak, resulting in a significant reduction of the total annual profit and revenue margin reduction. This is enhanced through the opening of an unpenetrated client base with subsequent unlock of economies of scale. Diversification is critical in extending a corporation’s capabilities and broadening the subsequent sectors and markets served, thus facilitating the elimination of overreliance on oil and gas sectors.
A corporation’s product and market diversification dramatically contribute to the company’s democratization and improved company governance thus facilitate reciprocal interdependence between various entities in the highly knowledge-based industries as it incorporates careful consultation and assessment in terms of potential corporation growth and an enhanced ability to cross-selling services of great significance to the corporation. Notably, contemporary society is characterized by continued transitions and innovations in various sectors, including the energy industry, which provides corporations with an expansion opportunity into other affiliated and inter-related industrial sectors. Market diversification positively correlates with the corporation’s shape and growth through the variety of benefits affiliated to it, such as constant increment in overall resources that positively impacts the corporation’s performance.
Implications of the Adopted SABIC’s Strategy on;
Organizational Structure
The corporation’s adopted strategies aid in the reform of the organizational structure to facilitate meeting the continually evolving customer need through the creation and development of a more customer-focused entity with an enhanced capability of more effectively meeting the needs. Importantly, the strategies are central in addressing the significant challenges the corporation faces, including the prevalent changes in the market landscape, technology, and innovations. The strategies adopted help the corporation optimize the existent portfolio while still venturing in significant innovations necessary for future growth. More so, the strategies aids in focusing and directing more resources exclusively on the specific identified needs, thus enhancing customer intimacy and subsequent development of more focused solutions to aid in moving the corporation to the next performance level.
The strategies also aid in fostering a culture of continuous improvement through constant system improvement to match the contemporary market demands, for instance, through establishing new operations management system for overall manufacturing excellence. The new system can empower the global manufacturing community by fostering high levels of commitments and innovations. Importantly, the strategies aid in incorporating accountability through improving awareness and practice, facilitating the identification of potentially harmful conditions, and addressing them.
SABIC Management System
Attributed to the need for risk management, the adopted strategies by SABIC corporation necessitated the development of an environmentally healthy, safe, and secure management system to guide the manufacturing and commercial operations of the corporation. Notably, SABIC’s management system primarily focuses on establishing a world-class performance framework, for instance, by minimizing the environmental impact of the corporation’s activities, the identification and appropriate risk management, and the drive for continued improvement in operations. The programs’ realization is facilitated by proper governance and code of ethics whose development was facilitated by the adopted strategies. Notably, the contemporary corporation’s management system necessitates regular self-assessments and the development of corrective and preventive actions to aid in mitigating any identified potential issues, thus enhancing a continuous system improvement. Furthermore, SABIC’s management system facilitates accountability by taking appropriate responsibility, particularly by the leaders in all business units and headquarters.
Decision Making within the Diversified Firm
SABIC is primarily founded on strong moral principles encompassing performance with integrity and continues to grow under the strong morals towards the realization of the prospected future goals. The adopted strategies encourage an independent decision-making process with no prior communication and coordination efforts with the competitors. When present, the strategies guide in the appropriate course of action, including taking extra care. Critical information meriting protection against competitors’ access encompasses various prices, the set terms, and conditions of the trade and the entity’s profit margins. Importantly, identification of indicators that could impede appropriate decision making is enhanced by the corporation at various levels, such as in the management and stakeholder levels and other imperative decisions that could significantly impact the firm’s performance.
Over time, SABIC corporation reported improved overall performance attributable to its choice of diversifying its operations as the process results in an impeccable performance of the entity. The corporation’s reported financial strength is mainly dependent on the increased profit and revenue margins stemming from the optimal organizational performance geared towards future success in the international business arena. Future research on diversification should focus on challenges firms face while standardizing diversification and probable negative implications associated with it.