SUMMARY SUSTAINING COMPETITIVE

ADVANTAGE IN THE GLOBAL

PETROCHEMICAL INDUSTRY: A SAUDI
ARABIAN PERSPECTIVE

KARINA ADITYA
29116209
YP 55 A

MASTER OF BUSINESS ADMINISTRATION

SCHOOL OF BUSINESS AND MANAGEMENT
BANDUNG INSTITUTE OF TECHNOLOGY
2017

Summary Sustaining competitive advantage in the global petrochemical industry: a

Saudi Arabian perspective
What are the main ideas of the reading material(s)? Please specify.

The article was written by Salem M. Al- Ghamdi and M. Sadiq Sohail. Both of them are
an expertise in petrochemical industry especially Saudi Arabia which is the largest and the
greatest natural asset and source. Saudi Arabia is well know as a largest producer and
exporter of oil, one of the product is petrochemical. Competitiveness is exist among the
industry inside some macro economics factors, to identify the factors that contribute to
national advantage we used five porters analysis. Based on Strategic Management
(Michael A. Hitt, R. Duane Ireland, Robert E. Hokinson. Strategic Management 11 th
Edition. 2015), there are five force the firm analyse to understand potential they had. This
paper talks about petrochemical industry in Saudi Arabia, looking at their competitive
advantage using porters model to analyse external situation to provide strategic
alternative. We learn how the company being established, organized and managed.
SABIC (Saudi Basic Industries Corporation)
SABIC, has 16 manufacturing subsidiaries but their main business is petrochemical in
private sector. In Saudi Arabia, the production of petrochemical is higher than the
consumption. They using exported-oriented strategy because more than 76%
petrochemical is being exported. Strength Saudi in petrochemical industry is low cost of
feed-stock as well as low cost of utilities (their cost is lower than the competitors because
they have large production capacity). But there are several lack in technologies, skill of
personnel in marketing approach, product development and providing technical support.
Industry Analysis
The objective is to see the dimension in maximising corporate value creation.
Rivalry between firms

Most of firm in petrochemical industry is a big firm, they are equal in size and
market power. To improve and strengthening their position in industry due to
globalisation, they do merger and acquisition. When oversupply happens, the price
went down sharply and making price war because the storage cost and
maintenance cost are high or reduce the production capacity will make the cost
higher. (based on RTB there are factor in high storage cost that affect this factors)

Goes to private sectors.

There is no differences in quality, so it makes consumer easily switch to another

firm and the cost isnt too high.

It hard to move to another industry, because there is no similar business. And we
already invest much for instalment, machine, etc. Rivalry between the firm
became extreme, the want to maintain their position in this industry.

Bargaining power of supplier

Bargaining power of supplier is weak, because there are so much supplier in this
field and switching cost to another supplier is low. Petrochemical industry in
Saudi Arabia has bargaining power in reasonable price, it make the supplier

compete each other to enter the market.

For some supplier who supplies critical raw material, they having high bargaining
power. Because non-availability will cause the production shut down. This will be
applied to raw material who dont have substitutes.

Bargaining power of customers

SABIC has many customers within several nation such as Indian, Far East, middle
East, Africa, Europe and Japan. They enter US as competitive market, and also
Turkey, Algeria and China. They focus to develop existing market rather than too
fixated on the existing market, because if they only focus in existing nation will
pose a threat and to maintain the flow of production and achieve profitability.

Threat of entry of new competitors

Large investment, expensive petrochemical investment

Many firm already dominate many sectors of the market
Risk, complexity and size in Building petrochemical plant
Capacity of production, higher quantity production will give higher profit. But we

need to invest for plant in full capacity.

Technology is licensed, we must pay for that
Finding the location near to natural gas resource or refineries. Consider about
transportation condition (easy to access).

Threat of substitutes

There is new policy in some country not to use PVC for food packaging. There are
some substitutes such as biochemical, and in carbohydrate-based substitutes in
product paint cleaning and plastic manufacturing related to cleaning and
degreasing.

What are requirements for implementing the ideas in your own context?

For identifying porters force, this element must be analysed

Political/Legal: Some country PVC
has been phased out for food
packaging
Economic: personal and competitor
saving rates, GDP for labor and
customer.
Global: Petrochemical business in
Global Market. The position of
SABIC, competitor and opportunity
to grow in this business.
Technological: Technology is licensed.
Physical : Energy consumption and located, practised used to develop energy sources
What are practical implications for you?

From this data we can do analysis based on the actual condition of SABIC

Scanning : identify general environment

Monitoring : Detecting the changing through event and trends
Forecasting: analysed develop feasible projection what might be happen and how

quickly the event and trends

Assessing : Determining the timing and significant effect of the changes and event
that have been identified and making firms strategies in their management.

What are the lessons learned?

Based on the article, there are some factor can affect our strategy. For example, policy for
food packaging dont contain PVC. This factor came from external environment,
especially in Politic/legal. Five porter analysis help us to identify the situation inside the
petrochemical industry in Saudi Arabia. From five force already identify, we can make,
estimate and consider a strategy that appropriate to the condition.