Introduction
In my analysis, I explore Saudi Aramco (SA) Company, which is one of the world’s most renowned and valuable oil companies. According to the financial survey conducted by the firm, Saudi Aramco has a value of $2.5 trillion (Saudi Aramco, 2011).
This analysis seeks to examine the position of Saudi Aramco in relation to its changing environment. To achieve this analytical objective, a STEEPLE strategic analysis tool will facilitate an exploration of the firm’s external environments.
STEEPLE refers to a strategic tool that evolved out of PESTLE due to the need for ethical considerations by organizations. The acronym stands for social, technological, economic, political, and legal environment as well as environmental conservation.
It is imperative for organizations to conduct a thorough analysis of the environments under which they operate in order to gain insight into the future. Thus, they will be able to achieve their goals having all the necessary information. This is because environmental forces have the far-reaching impact on the industry as well as individual firm’s performance.
Technological environment
Saudi Aramco Company has demonstrated significant advancement in technology, which appeared to be a basis for project implementation. A shift in the market demand and environmental concerns for cleaner technology provide critical challenges for Saudi Aramco Company (Saudi Aramco, 2011).
An example of this shift has caused an introduction of alternative fuels, such as ethanol, that can be the only feasible solution to the current shortages in gas supplies (UNEP, 2009). Nowadays, there is a consensus for the need to design technologies capable of leveraging the environment from the prevailing global warming and ecological degradation.
The company continues to receive pressure with calls to ensure the production of environmental friendly fuels that will deal with a problem of environmental pollution. Such mechanisms pose numerous challenges for Saudi Aramco to invest more deposits in technology that would turn around the increased demands on the global market.
Legal environment
The legal framework under which a firm operates is essential in determining its future. It is imperative to analyze Saudi Aramco’s legal relations with the major stakeholders in its current environment. To ensure this analysis, the paper examines the relationship between the Saudi Arabian government and Saudi Aramco Company.
Although the factor is not an internal element, its role is significant in providing a strong background, upon which it forms its legality. For any firm to succeed, it must enjoy the legal backing of the government. Saudi Aramco has good relationships with the Saudi government which offers it an inevitable strength. This is because Saudi Aramco is an exclusively state-owned company operating as a National Oil Corporation (NOC).
As such, Saudi Aramco has an essential element of acting as a state-machinery in control of strategic national oil reserves in the Saudi regime (Titman, 2010). The Saudi Arabian government has the authority to determine the direction of the oil policy while Saudi Aramco has the autonomy to conduct its operations.
Such a clear differentiation in duty between the government and the company was important and very helpful for establishing an amicable relationship.
To demonstrate a good attitude towards each other, the corporation’s plans have always received support from the Supreme Council for Petroleum and Minerals (SCPM), which is a senior organization chaired by King Abdullah and charged with the responsibility of making national decisions about the Saudi’s energy resources. These circumstances have placed Saudi Aramco on the edge of advantage in its quest for operational efficiency.
Environmental Conservation
Sustainable environmental conservation is a subject that continues to yield to a great emphasis and focus on many firms. More particularly, environmental issues remain crucial to oil manufacturers. To Saudi Aramco, environmental pollution remains an inevitable practice due to the nature of its production. However, the firm has done extremely well by cutting down its pollution rates controlling their issues.
Economic Environment
The ever-growing world demand for oil products coupled with low elasticity of price provides a fundamental opportunity for the firm. Research has documented an unanimous consensus that oil prices will continue to rise with an increase in demand. Since Saudi Amaco Company is one of the world’s leading oil firms, it remains advantaged in its future due to its vast oil reserves.
The recent increase in oil prices gave the firm a unique source of extra funds, which enable it to make strategic capital investments through expansion. It is worth noting that negotiations with World Trade Organization (WTO) by the Saudi Arabian government to maintain relatively low oil prices for its domestic consumers has provided an impetus to generate significant competitiveness for domestic firms.
Strategic talks of the Saudi government with the US and British governments in 2005 opened up an access to overseas markets from which Saudi Aramco consistently benefited (Titman, 2010).
On the other hand, the growing domestic demand for oil in Saudi Arabia earmarks a potential shortage in the supply of gas. Additionally, the recently witnessed growth in the Saudi economy has subsequently led to inflation in prices of oil as well as increased demand.
These scenarios project a tightened supply of gas. Experts forecast a sharp decline in the exportation of liquefied petroleum gas (LPG). Studies suggest that Saudi Aramco will cut down its oil exports to meet the increasing domestic demand while considering the general shortages.
Political
Changes in the political environment of a country play a magnificent role in shaping businesses. Saudi Aramco Company does not operate in a political vacuum. Political changes in the country have a far-reaching impact on its daily operations. Therefore, it is beneficial for the analysis to focus on the influence of the body polity on the success or failures of a given business. Policies emanate from the political and ruling class.
It is worth noting that the Saudi Arabian government determines the business policies guiding the general practice of business. Therefore, since the firm is state-owned, it is arguable that rules imposed or formulated will not be stringent, especially those that concern the operations of Saudi Aramco.
Studies reveal that internal and external competitors allege that the company enjoys political leniency in terms of restrictions and subsidies, which have given it almost monopolistic advantages over other players in the industry.
Although the firm enjoys government protection and support, its intervention has numerous negative influences on the firm.
The company relies on the government plans and directives to set up oil prices. According to a survey conducted on Saudi Aramco, this practice causes bureaucratic inefficiencies through the creation of long “red tape.” Moreover, the company lacks the energy of self-dependency in the derivation of its strategic plans.
Another significant issue affecting Saudi Aramco’s activities is the political interest in the Middle East and, especially, in Saudi Arabia. The recent political uprising and anti-incumbency revolts in countries, such as Egypt, Libya, and Tunisia, have placed Saudi Arabia on the likelihood of similar experience.
This anticipated threat of change in political regimes from aristocratic to democratic one carries multiple impacts on the functioning of Saudi Aramco (Titman, 2010).
Strategic responses to the critical factors
Responses to the changes in economic factors
An interpretation of the Saudi Aramco’s strategic responses to the underlying challenges and change in environmental elements will utilize the STEEPLE analysis.
In the early 1990s, Saudi Aramco emphasized an improvement of its profitability and strategies aimed at reducing operating costs (Gerry, Kevan, & Richard, 2008). However, the increasing worldwide demand for natural gas has caused a shift in strategies in order to meet the ongoing challenges.
To achieve its position as one of the leading world oil reservists and supplier, Saudi Aramco responded with strategies to solidify its reserves for natural gas and oil. One question that could be asked is what tactic Saudi Aramco has employed to meet this challenge. To achieve this objective, the company has been responsive in discovering extra oil reserves.
To make this strategy sustainable, the company has maintained a low-cost approach to enhance its strategic oil reserves through investing sufficient funds (Gerry, Kevan, & Richard, 2008). Due to a growth in demand for oil that leads to shortages in supply, the state-owned firm focused on increasing the number of its gas fields.
The firm’s emphasis on gas exploration demonstrates its efforts in expanding its oil and gas supplies to both domestic and foreign markets. One of the fundamental achievements by Saudi Aramco is the discovery of the gas field at Karan offshore. Through this discovery, the production of oil by Saudi Aramco has risen to about 1.5 billion cubic feet per day.
This move provides an impetus for greater improvements geared toward addressing the major challenges of the oil industry. However, despite the efforts to strengthen the capacity of supply, the Saudi’s policy of restrained exploitation of its natural gas and oil will constrain Aramco’s exports in the foreseeable future.
Table: Aramco’s Strategic projects.
Societal and Environmental responses
As mentioned in the STEEPLE analysis, the environment remains a major concern by many firms engaged in pollution-related activities.
Saudi Aramco is one of the firms that contribute to production of greenhouse gases. Informed of the imperative to maintain a habitable environment, the corporation has lived to uphold its corporate social responsibility whose vision is to lead in the provision of social and economic opportunities for the benefit of the government as well as partners (Gerry, Kevan, & Richard, 2008).
As it is indicated in the table of both ongoing and completed projects, the human-resources department of Saudi Aramco has made tremendous improvements in the conservation of the environment.
The strategy to ensure a controlled production was gained from the motivation to create an environment with minimal hazards to the ecosystem. Aramco – Carbon Dioxide Capture and Storage Program, and Aramco – Hawiyah Gas Treatment Plant Expansion are real examples of the lasting commitment of the corporation to meet the challenges of pollution (Titman, 2010).
The company has channeled huge funds in the establishment of the mentioned plants which are capable of reducing pollution by approximately 30%.
For instance, the firm has spent four hundred million $ (USD) establishing the already completed Aramco – Hawiyah Gas Treatment Plant Expansion. Another response that drew the attention of the corporation is the ongoing project for construction of Aramco – Carbon Dioxide Capture and Storage Program (Saudi Aramco, 2011).
In its strategic plan for conservation of its immediate environment, Saudi Aramco states that it endeavoured to guarantee its commitment for the public to minimize unnecessary hazard that affected the environment. It assured the public of its utmost protection of the environment.
To achieve this goal, Saudi Aramco has designed a strategic plan responsible for ensuring compliance with the requirements of public health (Gerry, Kevan, & Richard, 2008).
Changes in environmental legislations and policies have heightened the need to comply with the national and global health standards. Similarly, national activism and campaigns geared toward pushing to adopt policies that promote environmental sustainability provides major challenges to Saudi Aramco.
However, due to the support of the Kingdom of Saudi Arabia, the firm is able to channel funds to control air and land pollution. Although there are other facets of the STEEPLE that have yielded minor responses from the human resource department of Saudi Aramco. It is also important to mention that Saudi Arabian contribution is inevitable in shaping the strategic decisions of the firm.
These factors are concerned to influence social, political, and legal environments. First of all, the political environment of the Kingdom of Saudi Arabia has experienced challenges of stability. Because of this, political unrest and its effects influence the general performance and operations of the firm.
However, the nature of ownership and operations of Saudi Aramco, it is clear that although political turbulence will influence its operations, it is highly likely that effects will be mild. This is because Saudi Aramco enjoys autonomy and authority as a state corporation with legal and protection rights (Titman, 2010).
For example, the attempted terrorist attacks on its oil plant in 2006 caused a major change in how to deal with threats of political instability and insecurity. Since these attacks were national, the government continued to wage endless war on terror and militia groups.
Secondly, the social changes taking place within the realms of cultural transformation are great challenges to any firm. However, the organizational structure and management of the corporation resemble the social aspects of Saudi Arabia. Additionally, the nature of products which Saudi Aramco produces leaves little room for social considerations when it comes to consumer dynamics.
Considering the significance of the social spheres within which it operates, Saudi Aramco has adequately responded with strategies that have offered synergies to the organization (Gerry, Kevan, & Richard, 2008).
Conclusion
The study has critically analyzed the strategic position of Saudi Aramco with respect to social, technological, economic, political, and legal environments and environmental conservation. The study reveals that Saudi Aramco rides on three fundamental strategies with a view to achieve its goals. These strategies include mobilization of resources, profit maximization, and cultural diversification.
The company is a fully state-owned corporation that enjoys an exclusive political and legal support from the government of the Kingdom. The Supreme Council for Petroleum and Minerals (SCPM) evidenced this fact through the historical support for the Saudi Aramco’s strategic five-year plans (Saudi Aramco, 2011).
As one of the leading NOCs in the world, Saudi Aramco has benefited from the economies of scale due to its huge production. To maintain its oil reserves, the firm has successfully invested technological advances with an aim to discover low-cost oil and gas to sustain the ever-increasing domestic and foreign demands.
References
Saudi Aramco. (2011). Annual Review. Web.
Gerry, J., Kevan, S., & Richard W. (2008). Exploring corporate strategy (8thed.). Harlow, England: Pearson Education.
Titman, S. (2010). More Thoughts on the Value of Saudi Aramco. Energy Insights. Energy Policy and Discussion from a Financial Economist’s Perspective. Web.
United Nations Environment Programme (2009). Towards Sustainable Production and Use of Resources: Assessing Biofuels, 12(3), 50-2.
Zawya. (2011). Saudi Arabian Company. Web.