Introduction: Economy of Saudi Arabia in a Nutshell
When it comes to talking about business in Saudi Arabia, oil and oil tycoons are the first images that pop into one’s mind. However, oil industry feeds a number of other businesses, allowing them to grow from minor ones into business empires. Started as a company processing oil by-products, Sabic is a vivid example of such a phenomenon.
The History of Sabic: The Path of the Dragon
When talking about Sabic and the way in which it shaped the market of Saudi Arabia, as well as the specifics of business relationships within the specified market, it is crucial to offer a quick overview of the development of Sabic. Decyphered as Saudi Basic Industries Corporation, Sabic started out as a state enterprise that was going to offer the services of utilizing oil by-products.
As the company asserted, what used to be considered as waste would be transformed into useful chemicals, including such products as polymers and fertilizers. Needless to say, the given niche was relatively new and, therefore, no one had taken it by that point yet.
It is also essential that the company and its affiliates were originally located next to fishing villages. Having a tangible impact on the villages’ infrastructure, the Sabic affiliates finally contributed to the economical growth of the specified villages, turning them into industrialized cities. Creating a number of affiliates to coordinate the utilization, Sabic finally grew into a corporation that embraces eighteen affiliates and whose influence has been growing increasingly since 1976, when the company was founded.
In the course of its development, Sabic has gone through a number of changes, including organizational, industrial and economical ones. To see the peculiarities of the company development, one should consider the following stages of Sabic’s evolution:
Table 1. Sabic Statistics (GulfBase)
Sabic Real Statistics: from 1993 to 2013
|EPS||Book value||RoA (%)||RoE (%)||GPF (%)||NPM (%)||E/A (%)||Borrowing (%)||Leverage (%)||Current ratio||Quick ratio||D/E (%)||LA/TA (%)|
Judging by the data offered above, Sabic has gone a long way from a small company to a major corporation that literally defines the further development of the Saudi Arabian business. According to the table above, the company’s development was boosted in 2011 – 2013, which can be explained by the fact that in 2011, Sabic started to expand under the influence of globalization tendencies. Thus, it can be considered that the chosen economical strategy, i.e., the expansion venture, has proven efficient.
However, it is clear that the company is not going to stop at this point of its development; on the contrary, Sabic is currently planning not only to win over the European Market, but also to meet the latest demands and come up with more items for its product portfolio, including such products as polyurethanes and metallocene linear low density polyethylene (MLLDPE) (Bloomberg).
Mission and Vision Statement: The Impossible Takes a Little While
Like any other company, Sabic has a distinctive vision and a clear mission statement. Even though in most cases, the company’s vision does not define the quality of the services that the given company provides, it still helps evaluate the scale and the scope of the company’s focus.
With that being said, it is important to stress that the company’s mission is, according to the way in which the company’s leader put it, “to responsibly provide quality products and services through innovation, learning and operational excellence while sustaining maximum value for our stakeholders” (Sabic).
Therefore, it is clear that providing technologically advanced services is only part of the company’s mission; the other part of the mission statement makes it clear that Sabic aims at satisfying the customers’ need for excellence. The latter proves that the company sells not only products, but also the legend behind these products, i.e., the image of a successful ad technologically advanced person.
As for the company’s vision, it seems to have been persistent since the day when the company was founded, too. In the company leader’s own words, Sabic’s vision is “to be the preferred world leader in chemicals” (Sabic). At this point, however, Sabic seems to abandon its tendency to stress the needs of the customers and focuses on its own achievements.
While the given feature of the vision statement is positive, Sabic could use a vision statement that will be more customer-focused. Thus, Sabic will be able to appeal to its potential customers in a much more efficient manner.
The Product: Selling Comfort and Peace of Mind
On the surface, every company sells a specific product to their customers, and the quality of this product, as well as its prevalence, defines the price that people are ready to pay for the product and, therefore, the company’s revenues. It would be wrong to say, however, that the produced goods or offered services are the only products that a company has to offer.
Adopting a more general view of the trading relationships, one has to admit that any company provides their customers primarily with comfort and certainty concerning a specific part of their lives; for instance, a pharmaceutical company sells medicine and an image of a healthy and, therefore, happy person; a toy company sells toys and the concept of development and entertainment for children and more free time for their parents; the list goes on. In that sense, the products that Sabic sells to its customers can be split into the following categories:
The actual products
When it comes to listing the products that the Sabic Corporation offers to its customers, one must stress that the company has made quite a few changes in the list of its products in the course of Sabic’s development. The given process can be considered natural, since with the progress of technology, the development of the customers’ demands and the recent discoveries regarding the 3-D polymers, it is necessary to shape the production process and reconsider production values. However, the basic range of products offered by the company remains unchanged since 1965; these are:
The legend behind the product
There is no use selling a product unless one has a strong and impressive legend behind it. Companies do not simply sell goods – they sell certainty and comfort, as well as the image of a happy owner of the specified product. Sabic is no exception to this rule; behind every product that it sells, there is a strong and well-polished legend. Among the most persistent ones that have stood the time test, the following should be named:
- Improving the customer’s market success;
- Providing comfort in the customer’s work and daily life;
- Guaranteeing safety in the customer’s working process by providing the goods and equipment of the finest quality;
- Offering the customer a concept of success and an image of a professional user of the provided equipment;
- Helping the customer feel that (s)he keeps in touch with the latest technological advances.
As one can see, with this extensive list of concepts that lie beyond the goods produced by Sabic, the ideas of safety, comfort and innovations can be traced. Therefore, it can be assumed that the above-mentioned concepts should also be included in the list of Sabic’s services.
Company’s Financial Heath: A Published Account
Sabic has definitely made an impressive progress over the past few years; a mere look at the financial report that the company has to offer shows that the company is relatively financially healthy. However, some symptoms can be viewed as rather menacing; by analyzing them, one can possibly determine the existing threats and detect the issues that might evolve into serious concerns in the nearest future.
The 2013 Sabic report consists of five parts, each representing a corresponding element of the company’s financial strategy. The Independent Auditors’ Limited Review Report has shown that the company is in perfect conformity with the existing standards and that there is no need to change the current financial strategy of the company whatsoever. According to the Inteim Consolidated Balance Sheet, Sabic’s assets are almost $4,000,000 lower than the 2012 estimated amount (141,375,305 and 145,368,067 correspondingly) (Saudi Basic Industries Corporation (Sabic) and Its Subsidiaries).
As the aforementioned financial report shows, Sabic’s weakest financial aspect is its inability to provide an accurate estimation of its future financial assets. The given drawback poses a considerable challenge to the company’s further development, since it poses a tangible threat to the efficiency of the avenues chosen by Sabic for the company’s financial growth. Moreover, the inability to anticipate the possible losses might result in the inability to handle a crisis that may struck the company in the future.
At the same time, it is necessary to specify that the company’s cash equivalents at the end of the period are much higher in 2013 than they were in 2012. Therefore, it can be assumed that at present, it will be best for Sabic not to make risky financial stakes and rely on the traditional financial strategy. The given strategy can be very challenging, since Sabic is going to operate in a completely new environment. However, with a well through-out plan, the company will be able to achieve success in the new market.
Aiming Higher: Forward Markets and Expansion Plans
As it has been mentioned above, Sabic is not going to stop at what it has already achieved and is working on its further strategy. Despite the fact that the company could use more popularity in Saudi Arabia, the company director has clearly decided to expand into the Asia and European markets.
The given choice seems rather risky, seeing how the company has not captured the Saudi Arabian market completely yet. However, as the interview with Al Madi shows, the given step is the only way to meet the company’s standards, which presuppose “doubling of sales to $60 billion/year by 2020” (Alperowicz 25).
When speaking of the forward markets that the company will most likely explore in the nearest future, one must stress the fact that Sabic is going to introduce new products to its customers. As a result, the company has included more states into its expansion plans. It is remarkable that Sabic is going to introduce its goods to the Asian population as well as the European and American one, therefore, having to face even tougher competition with the local companies.
The results have been rather satisfactory by far; according to the latest accounts of the company’s progress, Sabic has started capturing the Asian market; in 2013, the number of polymer feedstocks provided by Sabic has risen to 1300 (stable) (Polymerscan, 2013). Therefore, it is clear that the Sabic Company is going to pursue its expansion idea.
The given strategy has its strengths and weaknesses. On the one hand, it is clear that in the light of the current concern for cleaner and safer environment, the idea of recycling oil by-products sounds more than attractive to most of the public that the company’s promotion campaign is targeted at.
Therefore, Sabic is clearly on the right track; offering the goods that will help keep the environment cleaner and at the same time providing a relatively flexible pricing policy. It is also important that the company is keeping the track of the latest technological developments in the given sphere, trying to keep in pace with the standards that the recent technological advances set. Compared to the products that the company offered in the distant 1990s, the production of polypropylene goods is a major improvement.
On the other hand, the risks of producing completely new services in an entirely new environment are obvious; the slightest slip is fraught with great consequences, which the head of the company is clearly aware of: “We are trying to strike a balance between C2 and C3. We are concerned about polypropylene.
There is no structural alteration in PP demand, so any sharp [movement] could possibly choke off the [improvement] we are seeing” (Polymerscan, 2013). Therefore, it is crucial that the company should take account of every single factor, either an inside or outside one, when planning its further steps.
Conclusion: The Existing Avenues of Further Development
The conducted case study shows that Sabic definitely has the potential to enter the world market and compete with the world-renowned companies efficiently. It is clear that the company has its faults, among which the company’s cyclicality, limited geographic diversity and high dividends should be named. Since the aforementioned issues can be considered the company’s features and, therefore, are an inseparable part of Sabic, there is no need to get rid of them; moreover, the elimination of these features can lead to the loss of the company’s uniqueness. Thus, Sabic should find the way to operate successfully in the new environment without these disadvantages in the way, which will require improvement of the other aspects of Sabic’s operation. In addition as a contrast to the specified flaws, Sabic has a distinct leadership style and strategy that will help it stay afloat in the new environment and, by learning more about the latter, become highly valued in the new market. With that said, it can be concluded that Sabic will survive the changes associated with expansion and prove prone to the possible crises.
Appendix A: A Published Article about “Sabic”
Alperowicz, Natasha. “Sabic Grows and Diversifies.” Chemical Week 172.29 (2010): 25, 27–28. Web. ProQuest. 14 June 2013.
The Saudi Basic Industries Corp (Sabic) has enjoyed a meteoric rise in relatively short period since its creation, and it ranks today among the top 10 global chemical industry players in sales terms. It is one of the fastest-growing and most profitable companies in the worldwide chemical industry. Sable is also the world’s largest chemical company by market capitalization, totaling SR300.75 billion. It overtook Reliance Industries recently to take the top position and outranks such long-established industry giants as BASF, Bayer and DuPont.
Sabic’s growth was initially based on manufacturing joint ventures in Saudi Arabia with Western and Japanese partners including ExxonMobil, Shell, and Mitsubishi Corp. Sabic’s long-term vision focuses on further profitable and sustainable growth, based on a doubling of sales to $60 billion/year by 2020. The target of doubling sales by 2020 could lead to Sabic overtaking some of the current industry leaders in sales terms, depending on how those companies progress during the same period.
Next year will mark the 35th anniversary of the foundation of Saudi Basic Industries Corp. (Sabic; Riyadh), a company established to add value to Saudi Arabia’s natural resources and make the Kingdom less dependent on oil exports. Until Sabic’s first petrochemical plants came onstream in the early 1980s, natural gas produced in Saudi Arabia, in association with crude oil, was flared or re-injected.
Sable has enjoyed a meteoric rise in the relatively short period since its creation, and it ranks today among the top 10 global chemical industry players in sales terms.
It is one of the fastest-growing and most profitable companies in the worldwide chemical industry, “Sabic has grown tremendously in the last three decades, from a regional Middle Eastern company to become a global leader,” vice chairman and CEO Mohamed H. Al Mady says. “Depending on whose ranking you take and which plants are inclnded, we are between the 6th and 7th largest on a global basis.” Al Mady has led Sabic for more than 12 years.
Sabic is also the world’s largest chemical company by market capitalization, totaling SR300.75 billion ($82.4 billion) at CW press time. It overtook Reliance Industries recently to take the top position and outranks such long-established industry giants as BASF, Bayer, and DuPont.
Sabic is a public company listed on the Tadawul Stock Exchange (Riyadh). The Saudi government owns 70% of the company’s shares, and private investors in Saudi Arabia and the Gulf Cooperation Council (GCC) countries hold the rest. Its sales last year reached SR103 billion and net income topped SR9 billion. Net profits in the third truarter of 2010 soared almost 50%, to SR5. 33 billion.
Sabic’s growth was initially based on manufacturing joint ventures in Saudi Arabia with Western and Japanese partners including ExxonMobil, Shell, and Mitsubishi Corp. These plants continue to benefit from attractively priced feedstock, mainly ethane, and Sabic’s partners have over the years generated high levels of profitability via their participation in the jv’s.
Sabic has been increasingly striking out on its own in basic chemical markets but, as part of a previously announced diversification strategy, continues to seek partnerships with technology providers that have market expertise in downstream sectors. The company’s recent agreement with Mitsubishi Rayon to build a methyl methacrylate and polymethyl methacrylate complex in Saudi Arabia is an example of this policy.
Sabic’s long-term vision focuses on further profitable and sustainable growth, based on a doubling of sales to $60 billion/year by 2020. The company, as part of this strategy, has made major investments at home, acquired businesses in Europe and the U.S., and invested in China, and it is now in the process of diversifying its portfolio.
Sabic’s diversification plans include a planned entry into the polyurethanes (PU), nylon, and rubber and elastomer businesses. The company is examining additional investment opportunities, including cooperation in selected projects with state-owned energy firm Saudi Aramco.
Major overseas investments included the 2002 acquisition of DSM’s petrochemicals business, and the purchase of Huntsman’s U.K. petrochemical assets in 2006. These two acquisitions extended Sabic’s reach into Europe through ownership of manufacturing assets at Geleen, the Netherlands; Gelsenkirchen, Germany; and Wilton, U.K.
Sabic’s third, and by far largest overseas acquisition, was the $ll.6-billion takeover of GE Plastics, since renamed Sabic Innovative Plastics, in 2007. This deal transformed Sabic into a leading producer of engineering plastics.
Sabic also ranks among the world’s leading producers of polyethylene (PE), polypropylene (PP), glycols, methanol, and fertilizers. Its major domestic manufacturing sites are at Jubail and Yanbu, Saudi Arabia, which Al Mady refers to as “our mini-Verhnnd,” referring to BASF’s Verband integration concept. Sabic comprises six strategic bnsiness units (SBU): chemicals, engineering plastics, fertilizers, metals, performance chemicals, and polymers.
Performance chemicals, the youngest SBU, is the main driver of Sabic’s diversification strategy. It plans to introduce more than 40 new performance products over the coming years, and by 2020 is expected to account for almost 10% of Sabic’s revenues. The performance chemicals SBU is headed by Jacobus Van Haasteren, who says that the task is a unique opportunity. “Creating growth from where we are today to that goal in 2020 is a challenging and interesting task,” he says.
Organic growth initiatives include two recently completed petrochemical complexes in Saudi Arabia and a 50-50 jv with Sinopec at Tianjin, China. The YanSab petrochemical complex came online at Yanbu last year, and earlier this year Sabic and its Japanese partners, led by Mitsubishi Corp., brought onstream an expansion of their Sharq petrochemical complex at Jubail.
Sabic is also in the process of starting up the massive Saudi Kayan complex at Jubail, scheduled to be fully onstream at the end of 2011 or beginning of 2012, Al Mady says.
Kayan, in which Sabic has a 35% stake, will be Saudi Arabia’s most diversified petrochemical complex and include products so far not manufactured in the Kingdom. “The first to come onstream at Kayan was the utilities plant, followed by the glycols unit, and we are finalizing the start-up of the polyethylene and polypropylene plants,” Al Mady says.
Cumene, phenol, and polycarbonate (PC) units are next in line. “8o we are moving in a step-wise approach where the smaller plants will be onstream toward the end of the project,” he says.
Construction of the Kayan complex was impacted by an overheated engineering and construction market in the last few years, which led to delays and cost overruns. Sabic has arranged loans to cover a 24% rise in construction costs on top of the original SR35.4-billion budget.
Sinopec and Sabic began commercial production earlier this year at the Tianjin jv, dubbed Sinopec Sabic Tianjin Petrochemical Co. The complex is based on a 1-million m.t./year ethylene plant and includes eight downstream facilities. The partners are already planning a further expansion. “We are contemplating adding to that complex a polycarbonate plant and are now finalizing the negotiations with Sinopec,” Al Mady says. Sabic ties with Bayer MaterialScience as the leading manufacturer of PC. The new plant in China will use Sabic’s own technology, says Charlie Crew, executive v.p. and CEO at Sabic Innovative Plastics. It will most likely be designed to produce 240,000 m.t./year of PC. “Polycarbonate is a product that is going to be very important for us as we penetrate more of the Asian market and will be able to supply product from Kayan in Jubail,” Crew says. The company is also looking for growth in PC in the Mideast, Crew says. “We will be very strategically positioned with our polycarbonate facility in the Kingdom of Saudi Arabia, which will allow us to expand our market reach in [the Mideast and] other emerging regions”.
Sabic’s 2020 growth plan, approved by the company’s board three years ago, is progressing well, Al Mady says. “The program focuses on continuous growth in the Kingdom and other countries through both organic growth and acquisitions,” he says. Sabic is focused on improving its operations through manufacturing excellence, reliability, and investing in downstream projects, he says.
The target of doubling sales by 2020 could lead to Sabic overtaking some of the current industry leaders in sales terms, depending on how those companies progress during the same period. However, size in itself is not important, Al Mady says. “The most important thing for us is to have profitable growth and to make sure that we stay focused on our vision to produce the right chemicals, sustainable chemicals.., and whatever happens with the ranking, happens,” he says.
Analysts view Sabic’s growth plans positively but they say that the company will find it difficult to double in size by organic growth alone. “Until now, barring a few acquisitions, much of the growth came from capacity additions in Saudi Arabia, which relied on cheap natural gas,” says Hassan Ahmed, an analyst with Alembic Global Advisors (New York). But no new gas has been allocated to the chemical industry in Saudi Arabia since 2006 because of a shortage in the Kingdom and Sabic needs more acquisitions if it is to hit its 2020 targets, Ahmed says.
Al Mady is reluctant to discuss Sabic’s acquisition plans. “We always, through our acquisition department, review our gaps and look for possible fits, and continue to examine the right moment [to acquire businesses],” he says.
No new investments in basic chemical projects have been announced since the completion of YanSab, Sharq, and Kayan due in part to the Kingdom’s declining feedstock availability. But Sabic is “in contact with the relevant ministry for our future feedstock allocations,” Al Mady says. Sabic has to compete for feedstock against other producers and their technologies and materials, he says. “The ministry is always evaluating us vis-à-vis the competition,” Al Mady says.
Uncertainty over future basic chemical feedstock supplies means that the only way Sabic can grow is “to diversify along product and geographic lines, and diversification is the prudent strategy,” Ahmed says. The performance chemicals SBU is looking to add higher-value chemicals and polymers to the company’s product slate. Sadaf, the jv with Shell at Jubail,- Kayan; and Petrokemya, a wholly owned Sabic subsidiary at Jubail, are being considered as possible sites for tbe PU project, which will be implemented by the performance chemicals SBU, Al Mady says. The final choice will depend on the availability of raw materials, including toluene and chlorine, both of which are available at Sadaf, for example, he says. The project, expected to be implemented as a jv with a technology provider, will comprise isocyanates and polyols manufacturing facilities and a PU systems house. “Polyurethane is important for Sabic and we are in the process of finalizing the project’s details,” Al Mady says.
The Sadaf jv is the first and one of the largest original Sabic complexes, and the partners are seeking growth opportunities on several fronts, Al Mady says. “The leadership at Shell is very keen to grow the company and I have no doubt that this is in their strategic plans, and we are working together to find the right opportunity for us to grow Sadaf,” he says. “We are studying with them polyurethanes, alpha-oleflns, and other chemical projects.”
Sabic is also eager to cooperate with Aramco. Before Aramco selected Dow Chemical as its partner in the Ras Tanura petrochemicals mega-project, since relocated to Jubail, Sabic expressed an interest in participating in the complex. “We continue to discuss with Saudi Aramco opportunities for integrating our skills in petrochemicals with their skills in refining on a worldwide basis and complementing each other in this arena,” Al Mady says.
Aramco selected Sabic as the marketer of Aramco’s share of polyolefins from the recently completed Fnjian Refining and Petrochemicals complex at Quanzhou, China. The complex is a jv among Sinopec, Aramco, and ExxonMobil.
There are possibly two additional opportunities for Sabic to cooperate with Aramco. They are an export-oriented refinery project at Yanbu, which ConocoPhillips exited earlier this year and a proposed refinery at Jizan in the south of Saudi Arabia, which originally included a PP plant.
However, Sabic has not discussed the Yanbu refinery with Aramco and it would not be interested in venturing outside its Jubail or Yanbu hubs to a location suoh as Jizan, Al Mady says. “We are strong in the Jubail and Yanbu areas because of the existing infrastructure,” he says. “Once you depart from those cities, you pay a premium.”
Sabic’s elastomers project would be a jv with ExxonMobil. The companies are finalizing details of the elastomers project, which has been delayed, and they are due to make a final decision early next year on whether to proceed. “It is a huge complex and has yet to be approved by the boards of directors of ExxonMobil and Sabic,” Al Mady says. The delay has allowed the project to be optimized and engineering, procurement, and construction costs reduced.
Sabic is pursuing other growth opportunities outside Saudi Arabia, including in China and Europe. “We have introduced our high-density bi-modal PE at a plant at Gelsenkirchen, and have commissioned a low-density polyethylene plant at Wilton,” Al Mady says. Sabic Innovative Plastics opened its second polyetherimide resin plant at Cartagena, Spain recently. Sabic is planning to build compounding facilities for PP and PC in China.
Diversification will make Sabic less vulnerable to commodity chemical market cyclically, analysts say. “The main strength that Sabic has, apart from a global distribution network and scale, is its access to very cheap feedstock, which makes it among the lowest-cost commodity chemical producers,” Ahmed says. “The way to address cyclically is to start delving into high-margin and less cyclical specialty chemical product areas.” Ahmed sees two main challenges facing Sabic: achieving its growth targets while not overpaying for acquisitions, and expanding its commodity chemical footprint without sacrificing its low-cost position.
Sustainability has a major role to play in Sabic’s expansion plans. “As part of our innovation and growth, we are introducing products that will not only help Sabic but also its customers sell products that are sustainable,” Al Mady says. “We are also reducing our carbon footprint around the world.”
These innovative products include fuel-efficient and recyclable materials, as well as weight-reducing products, particularly for automotive applications. “Our innovative materials and our design support help customers reduce weight and enable systems integration for lower cost.”
Sabic’s emphasis on natural gas feedstock also helps the company to reduce its environmental footprint, Al Mady says. Natural gas is “better than using coal or oil in the first place,” he says. “Secondly, we are reviewing all our manufacturing steps and identifying areas for improvement.” Sabic has new technology to convert CO2 emissions from glycol manufacture and is using CO8 emissions from fertilizer plants to make other products. “There are many things we have done in the past, which make Sabic one of the most sustainable companies, in the [Mideast! area at least,” Al Mady says. “But we aspire to continue with our sustainable growth through profitable, sustainable projects.”
Several of Sabic’s targets for 2020 are still being defined, but the company has a clear path covering the next five years, Al Mady says. “We will continue our growth in performance chemicals and with debottlenecking our plants; and at the same time look for opportunities in and outside the Kingdom,” he says. “We hope we can maintain our growth that we have demonstrated in the last few years.”
Appendix B – Screenshots (Journal)
Alperowicz, Natasha. “Sabic Grows and Diversifies.” Chemical Week 172.29 (2010): 25, 27–28. Web. ProQuest. 2013.
Bloomberg. Saudi Basic Industries Corp. Web.
GulfBase. Saudi Basic Industries Corp. Web.
Polymerscan, 2013. Web.
Sabic. Ambition and Commitment. Web.
Saudi Basic Industries Corporation (Sabic) and Its Subsidiaries. Web.
- Returns on assets
- Returns on equity
- Gross profit margin
- Net profit margin
- Liquid assets/Total assets