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IPF Exclusive, July 2013


IPFs at a Glance | 1999-2005

Total Global Strategy 


SABIC has gone through the three phases, which most companies have gone through in their drive to become global.


Mohamed Al-Mady, Vice Chairman and CEO of Saudi Basic Industries Corporation (SABIC), took part in the 5th Iran Petrochemidcal Forum on 17th May 2003. As one of the distinguished speakers, his topic of discussion was "Managing for Worldwide Competitiveness Through a total Global Strategy". The lecture's theme examined the need for companies to develop a global strategy, the petrochemical industries and SABIC's drive to become global.

Today I would like to share with you some thoughts on "how can companies develop a total global strategy to manage for worldwide competitiveness". Naturally, I will focus on the globalization impact on the petrochemical industry, and I will also share with you SABIC's story and its drive to become a true global company.

The need for global strategy is growing due to recent and future changes that are making such a strategy more successful than a multinational one. Some of the major groups of drives that have increased the need for globalization are related to:

  • Increasing International regulations and the Formation of International Economic Blocks;

  • Changing Market and Economic conditions;

  • Increasing costs and competition;

  • and the information and communication revolution.

As you all know, the petrochemical industry is very sensitive to global economic, financial, and political changes. For example, the petrochemical industry has been significantly impacted by the Asian financial crisis of 1997, and the severe fluctuation in oil prices during the period from 1997 to 2000:

The above two global events have caused the petrochemical industry to suffer from demand uncertainty and price instability. These in turn have negatively affected the profitability of most petrochemical companies. 

Margin squeeze, reduced profitability, and lower economic growth have all exposed the weakness in the existing industry structure. In addition, they have led to trends such as consolidation, restructuring and intense search for competitive advantages by most petrochemical companies.

Mergers between Exxon and Mobil and Dow and Union Carbide are just examples of the move toward building global forces in the petrochemical industry.


The petrochemical industry is very sensitive to global economic, financial, and political changes.


Also, some chemical companies such as Dupont and Hoechst have moved out of the chemical industry to the new life Science. As a result of the continuous global changes in the petrochemical industry, a reshaped industry is beginning to emerge. The main focus and aim of the major companies in the industry is how to become "Learn and Mean". This has required most companies to seek competitive advantages by reducing cost and increasing productivity. The methods to achievement had been through investment in best technologies, organization restructuring and implementing practices.

One of the major steps taken by major petrochemical companies to reduce cost has been the shifting of manufacturing facilities to "best cost" locations that are mainly in the developing regions. A clear example of such practice is that in 1984 more than 75% of world ethylene and methanol capacity was produced in North America, Europe, and Japan. Today that picture has significantly changes where about 35% of the world total capacity of ethylene and more than 80% of the world total capacity of methanol is being produced in developing countries outside the traditional developed regions.

A good example of the competitive advantages is that the cost of producing Polyethylene resin in Saudi Arabia and its transportation costs to major markets in Asia and West Europe are significantly lower than the similar costs of the same products if produced in the US, West Europe or even Asia.

Therefore, the petrochemical industry is very much influenced by global changes, which has forced most companies of those industries to develop and follow global strategies in order to gain competitive advantages and be able to survive, grow and make profit.

Saudi Basic Industries Corporation was founded in 1976 by a Royal decree. It is quite important to remember that when the royal decree to establish SABIC was signed, Saudi Arabia had no industrial infrastructure, and very few Saudis possessed the technical or managerial skills to even comprehend such undertaking. In addition, at the time, the kingdom had no exports of manufactured products. None at all.

What Saudi Arabia Did have, were four special advantages that would enable the dream to come true and the vision to turn to reality: A large supply of high quality natural gas and natural gas liquid; A geographical location midway between large customer markets in Europe and Asia. A rapidly growing work force that was ready and eager to raise to the level of challenge by upgrading its skills and potential. And finally, a large yet underutilized financing potential.

And so, with these advantages, a royal decree, and eight employees; SABIC opened its doors for business.

I was personally one of those eight employees and whenever I think about the day I joined SABIC, an ancient Chinese proverb comes to my mind. It goes something like this "If you are crazy enough to hop on the back of a tiger, you might as well ride it for a while".

So far it has been very interesting ride. Since its establishment in 1977, SABIC has realized that in order to survive it has to ultimately become a global company as a result of the dynamic forces of continuous global changes that affect the petrochemical industry, which were mentioned earlier. Nevertheless, SABIC did not attempt to achieve that without going through the natural growing cycles and phases that are required for a company to become global. In fact, SABIC has gone through the three phases, which most companies have gone through in their drive to become global.

In the first phase, SABIC has focused all its efforts and utilized all its resources to build state of the art efficient production facilities for petrochemical products, fertilizers and metal. SABIC has accomplished this by entering into several joint venture agreements with world class manufacturers who have brought to the table the kind of technology and management know-how which SABIC needed. In order to ensure the transfer of technology and know-how to its human resources, SABIC started massive training and human development efforts to increase the skills and qualifications of Saudi manpower and in order to assume leadership responsibilities in SABIC.

These efforts have enabled SABIC to establish well-managed and efficient production operations in two major locations in the kingdom (Julbail and Yanbu) in less than 10 years of its establishment. These production facilities produced high quality products with competitive costs. During that phase, billions of dollars were invested; thousands of people were employed, and SABIC started its journey to become a major player in the petrochemical industry.

The second phase, which SABIC went thorough was to convert its local core strategy into an international one. During that phase, the focus of SABIC was on assuming full control of its marketing function and being able to market SABIC's products to major international markets. Naturally, SABIC had to adapt its core local market strategy and make all necessary adjustments to reach successful marketing strategies that can work in different parts of the world. In this respect, SABIC has established several internationals market affiliates in major world locations including the US, Europe, Hong Kong and Japan. These marketing affiliates have been able to penetrate several international markets and have gained a growing market share for SABIC' products in these markets. In addition, SABIC has established a state of the art research and development center in Houston, which may be considered a first tangible step towards globalization.

The third phase was started in 1998 and is still continuing up until today. SABIC realized that the continuous global changes in the petrochemical industry required a major restructuring of its business. Accordingly, SABIC adopted a new organization structure based on the Strategic Business Units concept (SBUs). SABIC business was divided into five major strategic business units (basic chemicals, intermediates, polymers, metals and fertilizers). Each business unit was assigned to be fully in charge of the complete cycle of business related to a major product or products, i.e. planning, production and marketing in all markets of the world. Support services and logistics were assigned to be performed by other organization units outside the SBUs. Such structure has made SABIC more business oriented and more sensitive to the needs of customers. In addition, SABIC has been able through that concept to better optimize its production capacity according to the needs and the changes in the market place.

In the summer of 2002, SABIC made a gigantic step towards becoming a global company by acquiring petrochemical plants and related assets of DMS, the leading Dutch chemical company. By doing this, SABIC has for the first time become owner and operator of production facilities in Europe, very close to major customers. This year, SABIC has acquired the Scientific Design research company of New Jersey in joint venture with Sud Chemie (Germany), which will further enhance SABIC's research and Technology capabilities.

As further support to its global drive, SABIC has started another two major new initiatives. These were: a comprehensive business transformation project, which we call FANAR, and another major reorganization that has led to a new structure as of September 1st , 2002. According to that new structure, all petrochemical Strategic Business Units have been put under one umbrella to achieve better optimization of resources. Also, four major corporate core divisions have been established to manage all corporate functions on a global basis. Lastly, the concept of shared services has been introduced to utilize critical mass and economy of scale in providing efficient, high quality support services with relatively lower cost. Leading corporations have successfully employed this business model, which has been proven to be very supportive to globalization drive.

SABIC has made significant achievements since its establishment in 1977. It now has 17 manufacturing facilities, total assets worth 26 billion US dollars, and total production today exceeds 42 million metric tons. The company has now over 16,000 employees worldwide. In the year 2002, SABIC's total revenue were 9 billion US dollars and its net profit was 750 million US dollars. The company is now considered as the largest producer of granular fertilizer in the world, the second largest producer of urea fertilizer and the 4th largest in ethylene. SABIC is currently ranked as the number 11 petrochemical company in the world.

We believe that what SABIC has accomplished so far is only the first chapter of a long story. Other chapters will have to follow. We do indeed realize that more challenges are ahead of us but we are determined to continue our way and with God's will shall achieve more success and yet greater accomplishments.

 

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