Introduction
Saudi Arabia is a country with a fast pace of development and investment opportunities. The market of this country is highly competitive and attractive for both local and foreign companies in terms of cooperation. In order to better understand the way Saudi businesses act, it is important to focus on their marketing strategies. This paper will explore the Saudi Arabian Oil Company (Aramco) to discover its vision, products, segmentation, competitive advantages, rivals, and micro and macro environment. The alternatives for further development will also be discussed in terms of the company’s current position, environment, and trends in the petroleum market.
Business Identification: Strategy and Products
Saudi Aramco is the national petroleum and gas company of the Kingdom of Saudi Arabia and the largest company in the world in oil production and oil reserves. Founded back in the 1930s in cooperation with an American oil company, it is completely controlled by the government of Saudi Arabia since 1980 (“Overview”). The company owns, manages, and develops all energy resources in the country, including the world’s largest oil and gas giant, Ghawar Field, and Safania-Khafji Field, the world’s largest offshore gas and oil field. According to information for 2017, it managed fields with oil reserves of 332.9 billion barrels, which remains the absolute majority of the country’s reserves. The company’s mission can be defined as establishing and continuously enhancing the full conversion refinery, acting as a reliable and cost-effective business.
The company’s business strategy is built on the idea of the global energy provision in order to improve human progress and sustain the worldwide community. The average daily production of the company is ten million barrels per day. According to the results of 2018, Saudi Aramco still became the most profitable corporation in the world – its net profit is more than $ 111 billion. For comparison, the United States occupied its first place with the production of 12.615 million barrels per day (“Saudi Aramco Downstream”). This is evidenced by the data of the Joint Organizations Data Initiative (JODI).
In addition to petroleum, Saudi Aramco also controls gas production in Saudi Arabia, while its subsidiaries are located all over the world – in the UK, US, and Japan, Egypt, Italy, China, India, Singapore, and South Korea.
The petrochemicals compose another product manufactured by Aramco in terms of the downstream business sector. The latter refers to petroleum refining of crude oil as well as processing and purification of raw natural gas. In particular, kerosene, gasoline, fuel oils, diesel, asphalt, and a range of other products are offered by the company to its customers. As reported by Nasser, Saudi Aramco President, and CEO, “we are expanding this business both in Saudi Arabia and in fast-growing overseas markets like China and India, with the aim of converting two million barrels per day of crude oil into petrochemicals” (“Saudi Aramco Downstream”).
Consistent with Saudi Arabia’s Vision 2030, Aramco will conduct research on crude-oil-to-chemicals complex creation in the region (“Saudi Arabia’s Vision”). In other words, the company acts as one of the key players in the global market of gas, petroleum, and petrochemicals.
Target Market and Segmentation
Among the typical customers of Aramco, there are the companies working in the fields of shipping, refining/chemicals, exploration/production, sourcing of materials, and distribution. Both small businesses and essential industries can cooperate with Aramco in the countries of its presence. The geographical method of segmentation is used by the given company to identify customers and divide them according to the country or continent.
The opportunity to determine the beneficial locations for investment and cooperation is the result of such an approach. Aramco also applies the so-called positive segmentation strategy to reach the target customers (Krane 102). This means that its customers are primarily distinguished by their needs, which can be met by the company through the provision of not only gas and petroleum but also petrochemicals. The different needs of customers allow this corporation to determine customer expectations in a timely manner and improve continuously.
The method of catering to the customers is an innovation that is used to enhance services and the overall energy supply. The key reason for the customers to purchase the products of Aramco is their high quality and the dedication of the company to their business. The innovative culture is encouraged by extensive research and development, which aims to ensure a bright future for its customers. Public relations and the image of Aramco are two more areas that attract customers, promoting loyalty, respect, and trust in the company.
The official website should also be noted as an important means of staying connected with customers, who can find necessary information, ask questions, and resolve emerging problems in a convenient manner. At the same time, the highly motivated staff of Aramco provides responsiveness and satisfaction to customers in the context of the welcoming organizational culture. Thus, Aramco’s customers receive the products, service, and quality they want, which makes them remain committed to the company.
Competitors and Differentiation
Shell Oil Company and Abu Dhabi National Oil Company (ADNOC) are two competitors of Aramco, operating in the Gulf region and worldwide. All of the mentioned companies are well-integrated businesses that assist in establishing a sustainable energy future. However, compared to Aramco, Shell seems to pay more attention to social responsibility and the so-called green energy. There is a range of projects that are devoted to producing cleaner and convenient energy. In addition, Shell prioritizes new energy sources, claiming that the planet needs to reduce carbon emissions and impeding climate change. In particular, the Net Carbon Footprint initiative was organized in order to meet the global ecologic efforts.
In turn, ADNOC is the most valuable brand in the Middle East, and this company invests a lot in its development. The exploration blocks were recently set in offshore and onshore potentials. As the 12th largest oil and gas manufacturer in the world, it attempts to increase due to technology implementation and significant support from the UAE government. It becomes evident that the competitors of Aramco are strong and dedicated to their businesses, which makes it essential to have a competitive advantage and offer the customers greater value to keep their attention. For Aramco, the competitive advantage –is identified by its vision that is as follows: energy is opportunity.
The initial public offering (IPO), also known as listing, of the world’s largest oil company, Saudi Aramco, was first announced in 2016. After conflicting reports in 2018 that the corporation abandoned this idea, the company authorities nevertheless confirmed that they would conduct an IPO and announced the dates: 2020–2021. A year later, the media reported that it could be held in London, Tokyo, or Hong Kong. An IPO is the company’s public offering and the first public sale of shares to an unlimited number of people. In other words, the organization for the first time launches its shares on the market, so that the investors who were not related to it from the very beginning could purchase them.
Aramco’s key competitive advantage lies in fostering innovation in every aspect of their business. For example, the customers are offered the company’s products via advanced means of presentation. The progressive technological processes also contribute to Aramco’s positive image and communication with clients. It should also be stressed that the marketing strategies of the company strengthen its position in the petroleum market. In order to manage customer loyalty, there is a set of processes for quality assurance as well as some environmental efforts. The latter include the plans regarding reducing the ecological footprint, yet the assumptions are not yet implemented in practice.
In the case of Aramco, the IPO, another competitive advantage, offering pursues several goals, the priority of which would determine the expected benefits. The first advantage is the improved image, status, and credit rating. The latter is especially important since it is easier for public companies to obtain a loan than private ones, and public status obliges them to regularly report on financial results. Second, it is likely to help in raising funds, which is, perhaps, the main reason for entering the stock exchange. The company receives funds that can be used for development, while the market players begin to sell and buy its securities.
More to the point, the IPO would diversify business and increase corporate governance and transparency. However, there are obvious disadvantages to entering the exchange as stocks straightforwardly respond to changes in investor sentiment. The scandals surrounding corporations, their quarterly performance, and high-profile statements by management can collapse securities rather rapidly.
Business Threats
There are several current challenges to be taken into account by Aramco to ensure that its development will continue and its full potential will be achieved. First, there is the economic danger that may occur in both short- and long-term periods due to the volatility of the global economy. Another point that is worth paying one’s attention to is the increase in the costs of mining and refining, which can also impact the overall prices for Aramco’s products. The rise in labor costs can be one more potential challenge, and this threat cannot be easily anticipated since the company works in many countries of the world.
Second, the diversification of the product sale seems to be beneficial to address the overconsumption problem. The level of energy consumption per capita in the Middle East region, including Saudi Arabia, is higher than in a significant part of the industrialized countries. For example, domestic demand for oil in Saudi Arabia is growing at an incredible pace. Therefore, the authorities should look for more effective ways to solve the problem. This possible damage is complicated by the fact that Aramco’s profits tend to slightly decline over the years, which is caused by the presence of strong rivals, whose business strategies make their products more demanded. In other words, a lack of new product lines in the near future poses the risk of even more reduced revenues.
In addition, a lack of downstream services promotion. However, the first step towards addressing the above threat was already taken by Aramco that initiated the related research, and started planning. As a part of the Accelerated Transformation Program, the company aims to accomplish significant results through technology improvements and research centers spread all over the globe. The general sustainability of the company, nevertheless, along with the leading market position is likely to help Aramco to survive and become much more effective.
Alternatives of Aramco
The critical review of the current marketing strategies adopted by Aramco demonstrates that it operates effectively since the results are convincing. Although the company is among the leaders of the gas and petroleum industry, it is still necessary to diversify the products, thus remaining competitive and competent in the rapidly developing world. One of the alternatives that can be recommended is focusing on new business lines by means of acquisitions and investments. The extensive implementation of technology is likely to allow Aramco to become a knowledge-driven organization, which will help in selecting proper partners and other stakeholders.
The second issue that can be done differently is working more with renewables. Today, energy policy is closely linked to environmental issues, affecting the status of oil giants in the world ranking. The problem lies in the existing model of oil powers that have a wasteful attitude to nature, which also leads to global warming. Greening, the oil industry is a fairly new phenomenon on the market. For example, by cultivating the technology of solar generation, it is possible to make it economically viable to use renewable energy sources for oil production. This will allow the Gulf countries to focus even more on exports, instead of burning their own oil and natural gas to generate electricity. In other words, the generation of solar energy to improve production efficiency in developed fields, which will also reduce current costs for oil production.
The third opportunity for Aramco is associated with the expansion to new markets and the deeper entrance to the existing ones. This recommendation is especially pertinent to the Asia-Pacific region, which is characterized by the quickly growing population size. It is rational to expect the increased demand for energy from such countries as China, Vietnam, India, and others located in the mentioned area. In this connection, one should prioritize the diversification of products and options for expansion simultaneously. It goes without saying that a detailed analysis of these markets and their anticipated demand should be conducted. Most importantly, the cultural and social aspects should be taken into account since the Arab and Asian contexts differ considerably. As a result, Aramco would face the growing demand from new customers, thus improving its profitability.
Micro and Macro Environment Actors
The microenvironment of Aramco is marked by its internal organizational culture and stakeholders. It is important to note that this is a state-owned enterprise that is strictly controlled by the government. Amin Nasser, the President, and chief executive officer are responsible for all major decisions taken by the company, especially those that have a global impact. The senior vice president, general counsel, and corporate secretary, Nabeel Mansour, takes the post of the second internal actor, who manages the design and implementation of professional programs, oversees corporate supply chains, and leads logistic operations.
The Board of Directors, which is headed by His Excellency Yasir Othman Al-Rumayyan, the Chairman, performs the role of the body that provides guidance associated with the company’s long-term strategy. Aramco’s employees compose one more valuable asset of its internal environment (Alsamman 132). They are trained in terms of the Saudization movement that implies equipping the Saudi Arabia population with relevant skills so that they can succeed in the professional area.
The external environment actors of Aramco are investors, partners, customers, and competitors. In order to analyze this sphere of interest, it seems to be useful to apply Porter’s 5 Force Model with its dimensions. The review of the global oil and gas market shows that Aramco has a low threat of new entrants since there are huge investments needed and no switching costs. The threat of substitutes, buyer power as well as supplier power can also be determined as low due to the unavailability of substitute products for the energy sector. Ultimately, the degree of rivalry can be regarded as a medium even though the competitions mentioned earlier in this paper have strong points.
Although their business strategies seem to be elaborated and comprehensive, those of Aramco also cannot be underestimated. The leading positions, great investments, and a clear vision of the future make the company successful. The Organization of the Petroleum Exporting Countries (OPEC) is the organization that largely impacts the performance of Aramco since it oversees the majority of the global reserves.
Speaking of the investors and customers, one should state that Aramco possesses wide distribution channels and skilled employees. The most common marketing the company uses today is business-to-business relationships, and it should be stressed that the petroleum sector is firmly regulated. The foreign refining ventures of the company include Fujian Refining and Petrochemical (China), Motiva Enterprises (the United States), Reliance Industries (India), Showa Shell (Japan), et cetera. In addition, Aramco pursues the strategy of merging and acquisition: it acquired 13% of Hyundai refinery in South Korea and plans some other agreements in the future.
As for the suppliers, the company invites them to join the e-marketplace platform, SAP Ariba, which provides the opportunity for online trading between the company’s partners and Aramco. While it was owned by the state for many years, the initial public offering (IPO) that was discussed in the previous sections of this paper is likely to attract investors and boost the further development of Aramco.
Conclusion
To conclude, Aramco is a national Saudi company operating in the sector of gas and oil manufacturing. It is known as one of the world’s largest companies with subsidiaries across the globe. The current mission of the company defines energy as an opportunity, and its business strategy is associated with innovating the products and services to provide customers with the best experience possible. Shell and ADNOC are analyzed as the key competitors, yet it is found that Aramco has a competitive advantage. The introduction of IPO and a focus on innovations compose the competitive strategy of this company.
Although there are such potential challenges as a lack of diversification and global economic volatility, it is expected that Aramco would handle them successfully. The recommendations on alternative strategic decisions include expansion to the Asia-Pacific region, product line diversification, and emphasis on renewable energy.
Works Cited
Al-Samman, Adel Mahmoud, Saeed Hameed Aldulaimi, and Muhammad Alsharedah. “Training Effectiveness and Commitment to Organizational Change: Saudi Arabian ARAMCO.” Management and Administrative Sciences Review, vol. 5, 2016, pp. 128-142.
Krane, Jim. “A Refined Approach: Saudi Arabia Moves Beyond Crude.” Energy Policy, vol. 82, 2015, pp. 99-104.
“Overview.” Saudi Aramco, n.d. Web.
“Saudi Arabia’s Vision for 2030 and Saudi Aramco.” Saudi Aramco, n.d. Web.
“Saudi Aramco Downstream Strategy to Combine Organic Growth with Strategic Acquisitions, Saudi Aramco CEO Amin Nasser says at GPCA Forum 2018.” Saudi Aramco, n.d. Web.