Strategic Analysis of SABIC Corporation

Ahmad Alkhathami

University of St. Thomas

ETLS 858 Technology Capstone

April 26, 2011

 ABSTRACT
This paper is a strategic analysis for the Saudi Basic Industries Corporation SABIC. The
paper discusses the vision, mission, strategies, and actions the company has taken. It shows how
SABIC acts toward achieving its vision being the world preferred leader in chemicals. The paper
presents the companys strategy of global expanding through acquisitions and building new
facilities. Also, it shows how the company adopts innovation and sustainability as tools to
success in the 21st century. Then, the paper shows the financial performance in the last few years
and the expectation of the following three years. Finally, it concludes with the challenges that
may faces the company toward achieving its 2020 goals and how SABIC could overcome that
challenges.

Organization as a system
The Saudi Arabian Basic Industrial Corporation SABIC is a petrochemical company
established in 1976 in Saudi Arabia for the purpose of using the by-product from oil extraction to
produce value-added products for the local and international markets. Since that time, SABIC
has been growing very fast until it is now one of the top 10 petrochemical companies worldwide
in term of production of wide range of chemical products. It is, also, the largest producer of
Polyethylene and Polypropylene in the world.
SABIC, the giant petrochemical company, headquartered in Riyadh, Saudi Arabia has
workforce around 33,000 employees. It is the largest petrochemical company in the world in
term of capitalization. It exists in 40 countries, with over 60 manufacturing facilities. It serves
customers in about 100 countries. Meanwhile it continues to pursue a clear strategy of growing.

Vision
SABICs vision is to be the preferred world leader in chemical. SABIC established a new
strategy in 2006 toward being the leader of the petrochemical industry by 2020. This vision has
reflected many of the decisions and the companys practices in the last few years. As results, the
company has rapidly expanded in the local and international market, and it continues toward
achieving its goals of 2020.
Mission
 SABICs mission is to responsibly provide quality products and services
through innovation, learning and operational excellence while sustaining
maximum value for its stakeholders. Thus, SABIC has many tasks to fulfill
toward its customers, employees, and stakeholders. For the customers,
SABIC needs to maintain its customers through innovative products that
satisfy customers needs, in addition to providing competitive products for
penetrating into new markets. Regarding its employees SABIC needs to make
sure that its employees have the required skills and knowledge for meeting
customers needs through training and education. For stakeholders, SABIC
needs to grow the business profitability while it is following the plans of
expanding to new markets and developing new products.
Strategy
SABIC has a clear goal of becoming the world leader of petrochemical by 2020. In term of
achieving that goal the company has developed its strategies that it has started to pursue. The
major aspects of the companys strategies are:
- Partnership with industries leaders from around the world, where the company offers a
share in its resources in exchange of technology, expertise, and access to new markets.
- Heavily investing in theology and innovation, which helps the company enhances its
manufacturing processes, developing new technology to respond quickly to the market
needs before the competitors.
- Acquisition of major manufacturers and suppliers in key markets.

- Sustaining a strong relationship with customers,

- Sustainability development as a part of SABIC 2020 strategy,
Customers needs and wants
In the early years, SABIC facilities were located in Saudi Arabian east province which is
near the oil refineries. Its location near the feedstock gave it very competitive advantage,
which is providing the downstream plastic industries with cost effective products.
Recently, the wide range of products the company makes, in addition to rapid increase of
plastics technology and expectations of customers, SABIC planned to be very close to its
customers to be able to understand their needs more and quickly responds. SABIC has
expanded its sales offices, distribution and storage centers, and manufacturing plants
worldwide, especially in the growing markets where the high demand is, such as China, India
 and Asia Pacific. The company shares the ownership and management of those facilities with
its partners to sustain long term relationship with its customers, and to work as close as
possible to fulfill the needs of those customers who exist in about 100 countries.
SABIC continues to expand to new markets through joint venture and acquisitions in
Europe, north and south Americas, and Asia. In fact, the company is looking for opportunities
to expand in markets that the company has not reached yet such as Russia and
Scandinavian countries.
Through the innovation and technical capabilities the company owns, it works closely
with its customers to develop new solutions to their systems that exceed their expectations.
SABIC works with customers in aviation and automobile industries to develop products that
are light, energy efficient, and cost effective. It has accomplished many successful stories of
by developing substitute materials that have reduced the weight of the vehicles such as with
Turbocharged Megane R26, where 5.7 kg was reduced from the total vehicle weight by
replacing the backlight and quarter window glass with SABICs lightweight, high-optical
quality Lexan polycarbonate sheet with a proprietary blackout ink technology developed by
Exatec LLC, a wholly owned subsidiary of SABIC Innovative Plastics.1

For pursuing its goal as a global leader in chemicals, SABIC restructured

its business from functional structure which was useful in the early days to
strategic business units. As the company is made up of six business units
which are Chemicals, Performance Chemicals, Innovative Plastics, Fertilizers,
Metals, polymers. Each unit provides package of products to certain
customers and markets.

Sustainability
Sustainability has become a vital element of SABIC leadership agenda in the last few
years. Indeed, the company is pursuing strategy to apply sustainability through
manufacturing cycle in all of its products. The CEO Mohammed Al-Madi admitted that they
fell behind in energy utilization and material usage. However, the company already started its
strategy to catch up. It has accomplished good results in term of reducing the CO2 footprint,

1 2009 SABIC Annual Report

 increasing energy efficiency, and producing friendly environmental products in its
fertilization business unit.2

Technology and Innovation

Innovation is the lifeblood of our company, Mohammed Al-Madi said, the CEO of the
company.3 SABIC has taken a strategic step in 2007 through the acquisition of GE Plastics, a
global manufacturer and supplier of highly engineered thermoplastics material. That
acquisition not only provided SABIC with the technical expertise and access to new market,
but also to be closer to customers in the downstream industries such as the aviation and
automobile industries, where the company can work closer to them and provide them with
the right solutions. Several years before, in 2002 the company acquired DSM Petrochemical
in Europe.

SABIC has gone further in this strategy through establishing 15 technology and innovative
centers in many countries in Asia, Europe, and North America. It also has two application centers
in Saudi Arabia and Japan. Moreover, the company is following a strategy of research expanding
with four research laboratories that will start operating soon in Saudi Arabia, India, and China. In
addition, the company has established partnership with many universities locally and
internationally to support the research related to the companys business. Recently, SABIC
started collaboration with KAUST, a graduate level research university located in Saudi Arabia
to support Innovation and technology programs. Those programs will focus on
addressing the challenges of the 21st century in water, food, energy, and
environment. That collaboration results on establishing SABIC research and
Innovation center costs $150 million in the first stage, support researches
related to SABIC business, and research on management of research that is
associated to intellectual property rights.
It is clear that SABIC invests heavily in technologies that enhance the best
manufacturing process and develop solutions that meet the downstream
industries. The company owns six technology centers in Europe, United
2 Global Competitiveness Forum, 2011
3 2010 Annual Report.
States, Saudi Arabia, China and India. They all are linked via virtual network.
That makes the company a technological organization as an aspect of the
successful company in the 21st century.
Strengths

One of the strengths of SABIC is its location near to the suppliers of its raw materials. Also, it
is in a center location to serve its customers in both Asia, Europe, and America, which allows
SABCI to have a competitive advantage of low costs products.

The Partnership has been a key since the establishment of SABIC, where the company
partnered with many of the industry leaders in joint ventures, such as ExxonMobil and
Mitsubishi and other industry leaders in many successful subsidiaries since the early days.
SABIC still continues to follow this strategy that allows the company to benefit from the
partners repetition, expertise, and access to customers in growing markets while SABIC shares
its resources with its partner. One of the latest accomplishments is the companys joint venture
with China Petroleum and Petrochemical Corporation in china where the production
of the new plant started in late of 20094.

Marketplace

The company pays close attention to the growing markets in China and Pacific Asia, and it is
working to expand its market in that region of the world. Meanwhile, it continues to grow in
Middle East and Africa as important regions for the company.

By following the strategy of global expansion, now SABIC has facilities in about 40 countries
providing wide range of products which give SABIC a deep experience of the world market.
SABIC knows more about the trend of the market and becomes able to respond to the needs
faster than others.

Financial Analysis

SABIC maintains a strong financial situation and its investment is growing rapidly. Despite
the global recession the world faced in 2008 and 2009, the company was able to go through the
down turn of the demand on its products by keeping focus on the long term strategy. The

4 2010 SABIC Annual Report.

company continued its plans of expansions resulted in starting the production of the KAYAN at
the end of 2010 and Tianjin Petrochemical Co Ltd in China which began the production at the
beginning of 2010.5 Figure one below shows the sales and the net income for the last four years.
As it is appeared the company experienced huge reduction of sales and net profit in 2009.
However, the market started to grow again in 2010 with increase in net income to SR 21.59
billion, 138 percent increase from the net income of SR 9.07 earned in 2009. That increase
continued to grow in a faster pace at the first quarter of 2011 where the company achieved
net income of SR 7.69 billion, 42% increase comparing to the same quarter in 2010 of SR
5.43 billion, and 34% increase comparing to the fourth quarter of 2010 of SR 5.75 billion.
The increase is due to the increase of the productions and products sales which is expected
to grow through the rest of 2011 and the following years. 6

Fig. 1, the total sales and the net income during the last four years.

Diagram two shows the increase in the assets value of the company in the last three years which
indicates the companys commitment to expand its investment. That is due to the expansion of
the existing facilities, and the development of new ones.

5 2010 SABIC Annual Report.

6 SABIC website: www.sabic.com
 Assets SR '000
340,000,000
320,000,000
Assets SR '000
300,000,000
280,000,000
260,000,000
240,000,000
2008 2009 2010

Fig. 2, the increase in the companys assets in the last three years.

To look over some of the internal performance measures of the companys

operation, the table below shows the current rations for the last three years
where it appears that the company has reduced its current assets to current
liability ratio to be more efficient in term of utilizing the current assets such
as the cash, inventory, and account receivable.

The table below shows the account receivable turnover, which indicate that the ratio has
decreased in 2009 and 2010 comparing to 2008 that had better turnover than the last couple
years.

The table below shows the inventory turnover, where it appears that the inventory turnover
efficiency was at the highest in 2008. Then, it declined in 2009. After that, it increased again
in the year of 2010, which may due to the supply chain development program that the
company started to apply across the company lately.
 The final measure is the debt ratio (total liability divided by total liability and owner equity),
to make sure that the company does not have any risk of high liability, which appears that the
company has a good control over its liability

Based on the strategic plan the company has set for itself and the great expansion and
acquisitions in the last few years, the company will continue to grow in the following years.
As part of its 2020, SABIC goal is to reach a production capacity of 135 million metric tons.
The diagram below is showing the change of production in three different periods of SABIC
life.

Fig.3, SABIC production in 1985, 2008, and its plan in 2020.

According to the Global Investment House financial analysis, SABIC will continue to
grow in the following three years due to the improvement in the global market. 7 In addition,
SABIC plans to continue expanding. It has a recent joint venture for a big project in Saudi
Arabia with MAAD (Saudi Arabian Mining Company). Also, the company has finished the
proposal of the Carbon Black plant as a joint venture with Exxon Mobile. SABIC will

7 Global Investment House, Global Research- Saudi Arabia, 2010

 continue its strategy of being competitive through innovation, sustainability development
program, and introducing many new plastics grades to the market. Global Investment House
expects growth of sales of about 30 percent in 2011, nine percent in 2012, and six percent in
2013. Growing in sales will lead to compound annual growth rate 46.2 percent of net profit
from 2009 to 2013.

Conclusion
In conclusion, SABIC has adopted the norm of the 21 st centurys companies
through the vision and mission that has. Then, the company followed that by a
clear strategy to have innovation and investment in technology as a duty to grow
and to compete. Also, the sustainability development that becomes on the agenda
of the leadership of the company shows clearly how SABIC understand the global
issues that have grabbed more attention in the developed countries than the
developing countries. However, SABIC has caught up to meet the challenges and
acts according to the world market needs.
SABIC has set very high vision in a global market that rapidly changes.
Keeping up with that change especially with the development in new technology
would be a challenge for the company to reach that goal. However, if the company
continues its strategy of partnership with the leading companies and the research
centers, that will help the company stay in advanced positions to respond fast to the
change in the market.
The giant multinational company may need more effort in assuring that all the
strategic business units, subsidiaries, and partners will adopt the new culture that
SABIC working to implement. Indeed, the company needs to make sure the vision
and the new strategies are applied in all facilities. The company has launched its
Supply Chain Management Program prior to 2009. However, some of the internal
performance measures did not show obvious progress, which appears in the
performance of the inventory and the account receivable.
A giant company like SABIC where it has huge network, and many
management layers, leadership may need to build very clear performance measures
with the new strategy. As a result, the company will make sure that there is
guidance for all employees, whether those who are in the management and
supervision levels or front line. My suggestion is to use the balanced scorecards as
a performance measure tool. Developing balanced scorecards that have clear
quantitative and qualitative measures of performance across the companies units,
plants, and offices. The balanced scorecard will measure the performance of the
four following areas:
1- Learning and growth, by measuring the skills and the knowledge the
employees earn and to what degree are they learning to address the change
in materials, processes, and practices. The company will know the return on
investment in education and technology development.
2- Internal processes, including innovation and sustainability performance,
supply chain management program and how it drives the cost of the overall
products down, the outcomes of spending in technology, and tracking the
annual growth in production to the smallest existed plant. The company will
have early picture whether or not it is approaching its goal of producing 135
 million metric tons by 2020. Therefore, it will be able to respond earlier to
the needed change.
3- Customers, by measuring the growth percent, the new markets they enter,
and to what degree the company is able to maintain its relationship with
customers and meet their needs in the long term
4- The financial performance, not only focusing on the sales and net income
but also using the financial results as a tool to track the performance of the
three other segments of the balanced scorecard.
As an outsider, I dont have a full exposure to the internal processes
performance. I am expecting that the leadership of the company follow techniques
of measuring the performance. Overall I see SABIC has a successful and unique
story. Despite the recession in the recent period, it has a clear roadmap toward the
vision of being the preferred world leader in chemicals.

References

- Al-Madi, M. Innovation in heavy Industries Conference, Global Competitiveness Forum 2011

-01-24, retrieved from the YouTube website.

- Al-Madi, M. Future of the Global Petrochemical Industry. Conference in Dubai, United

Arab Emirates. 26/02/2007
- Alperowicz N. (2010). SABIC Grows and Diversifies. Chemical Week, vol
172 issue 29, p25-28, 3p

- Alperowicz N. (2011). SABIC Participates in Study to Develop Six Industrial Cities.

Chemical Week, 3/21/2011, Vol. 173 Issue 7, p14-14

- Chemical Business (2011). Saudi petrochemical giant plans big investments. Chemical
Business, Vol. 25 Issue 3, p63-64
- Global Investment House. SABIC financial analysis report. Global Research- Saudi
Arabia, May 2010, retrieved from the Internet, http://www.globalinv.net/default.asp?lf=1
- SABIC Annual Report, 2009
- SABIC Annual Report, 2010
- SABIC Magazine January/ February 2011, issue 101
- SABIC Corporation website. April, 2011