Saudi Basic Industries Corporation (SABIC) is a petrochemical company headquartered in Riyadh, Saudi Arabia. It was set up in 1976 by the Saudi government to add value to the country's natural resources. The industrial model consisted of capturing crude oil-related gases and to delivering them as raw material to manu- facture various industrial commodities. A chain of basic industries were located next to these natural resources to contribute to downstream industrial diversification in Saudi Arabia. Throughout the 1980s, SABIC was head- quartered in Al-Jubail city. The latter consequently witnessed an intense and empowering transformation from a small fishing village on the Arabian Sea into a modern industrial hub. While SABIC built the basic industries, the Royal Commission put in place the necessary infrastructure. SABIC is majority owned by the Saudi government (70 percent) along with private investors from Saudi and other GCC countries (30 percent).

SABIC is the fourth largest petrochemical company in the world, based on turnover. The industry leader is the German BASF, followed by the U.S. Dow and the Dutch LyondellBasell. SABIC is one of the largest company in the Middle East with a market capitalization of $94.4 billion (2014). SABIC's total assets were valued at $33 billion and sales reached $50.4 billion in May, 2014. The company employs 40,000 employees in 45 countries. It has accumulated 9,000 patent portfolio filings. SABIC is the world leader in the production of MTBE, ethylene glycol, and fertilizers, and the second largest producer of methanol (2013).

SABIC consists of six strategic business units that manufacture four different products: chemicals, fertilizers, metals, and plastics. The chemicals represent over 60 percent of the company total production by value. SABIC's manufacturing network in Saudi Arabia comprises 18 technology and innovation centers that employ 1,400 scientists.

At the international stage, SABIC's global presence has grown steadily over the years. The company is partner in three regional ventures in Bahrain. In 2002, SABIC Europe Petrochemical (SEP) was established after the acquisition of the petrochemical business from the Dutch group DSM. SEP has two major manufacturing com- plexes in Geleen in the Netherlands and Gelsenkirchen in Germany. The global network of the company includes strategically located offices, distribution centers,and storage facilities to better serve its key markets worldwide. SABIC has established technology centers that serve as satellite research and development units. Recently, it has expanded its business into China with the building of new petrochemical plants.

The feedstock (raw material) used in the petrochemical industry has historically been a source of competitive advantage for SABIC. The latter has enjoyed low-cost gas feedstock, such as methane, ethane, propane, butane, light naphtha, and other natural gas liquids from ARAMCO, a prominent Saudi oil company. It has also benefited, and continues to do so, from land leased from the Saudi government at no cost. However, there is a growing gas shortage in the Gulf region, a fact that may inevitably cut into SABIC's margins and reduce its overall cost advantage.

Although each business unit has adopted its own business strategy, SABIC pursues a cost-leadership strategy. Exceptionally, SABIC has not been successful in espousing a cost-leadership strategy for the metals business unit. Hence, the company focuses on the quality of its steel products and the adoption of a differentiation strategy. Historically speaking, SABIC was able to make it to the global arena thanks to its cost-leadership strategy. However, due to keen competition in recent years, SABIC has begun shifting to differentiation. Regarding its fertilizers, as SABIC provides for mainly Saudi farmers who benefit from government subsidies, the company adopts a focused cost-leadership strategy.

At present, with strong competition from other global petrochemical companies, other factors have become an absolute must for success in this industry. To do so, SABIC has established a state-of-the-art industrial complex for research and development in Riyadh, Saudi Arabia. The complex consists of research and technology innovation-related activities and services destined to enhance SABIC's capabilities. This industrial complex has also allowed SABIC to reach a competitive advantage by maximizing product quality for its customers. For growth prospects, SABIC is aware that it can no longer solely rely on its abundant feedstock. Also, innovation has turned out to be a key success factor. The company banks on the capability of transforming feedstock into solutions for its customers.

Recently, ARAMCO and a few other key petrochemical players, such as Dow Chemical Co., have begun the process of building petrochemical plants in Saudi Arabia. This increased competition in the raw materials industry may result in SABIC further limiting the cost advantages it has had for decades.

Questions

1. There are very few Middle Eastern companies that have made it to the global arena due to various factors. What are the key factors for SABIC's success?
2. What business risks and drawbacks does SABIC face? What strategic direction should the company pursue to avoid potential risks?