The Shaksy Group is a privately owned holding company with its headquarters in Muscat, Oman and was founded in the year 1976 by Said Bin Salim Al- Shaksy. The main activities are based on the group interest in several business operations in the region such as real estate, construction, oil and gas industries or sectors. The group offers four different services depending on areas of business operations and includes the Shaksy Engineering services, Shaksy Electromec services, Shaksy properties and the Sheeda Company. The Shaksy engineering company is the market leader in civil engineering services in Oman and United Arab Emirates while the Shaksy properties company has specialized in real estate where it develops the group’s real estate portfolio. Shaksy Electromec Company focused on multidisciplinary mechanical and electrical services while the Sheeda Company has concentrated in joinery works. The group has been able to employ over 1500 employees who are committed to delivering quality and valuable services to the group clients throughout the region. It has over 40 years of experience, and over these years the group has been able to build a significant reputation based on quality, trust, and value of their services. Shaksy group strives to serve the region through various subsidiaries and critical investments by continuously seeking to establish its sustainability through the pursuit of new and viable opportunities. This report, therefore, provides a strategic analysis of Shaksy Group Oil and Gas industry.
Shaksy Group operates mainly under the oil $ gas, construction and real estate industries. The growth rates of the sectors are different with some sectors experiencing rapid growth while others are suffering significant setbacks in their operations (Al-Mascati & Al-Badi, 2016, p.6). The Oil and Gas industry in Oman has in the past experienced substantial delays and especially in the year 2014 to 2014 where the output from the sector decreased from 960 000 bopd to 952 000 bopd representing a 0.83 % caused by price decrease for oil and gas (See Appendix A for more analysis). However, the industry has experienced a significant boost with the output increasing to 1 million bopd in the year 2016. Oman has continually invested in the industry through the use of modern techniques such as the EOR technology in a bid to improve their production.
The construction industry in Oman has been experiencing an increasing trend in the growth of the sector. Since the year 2012 to 2016, the industry experienced a growth rate of 9.4%. The growth in the sector has been attributed to the government support of the Eight Five-year development plans for 2012-2016. The market is also projected to increase rapidly with Oman’s government efforts to develop affordable housing in line with their vision 2020 (Urciuoli et al.2014, p. 52). The industry as of 2016 was worth 5.9 billion Omani Rial which was an increase from 5.4 billion Omani Rial in 2015 and represented 8.9% of G.D. P. however, in the year 2017, the first half of the year was characterized by a decrease in industry revenue by 7.1 % to a value of 2.7 billion Omani Rial due to the oil prices related cutbacks. Despite the negative impact of the oil prices, the industry is projected to proliferate by the year 2020.
The real estate since the year 2014 has been affected by the instability in oil prices. The industry has however shown some signs of recovery with the current rental rates have fallen by 10.1% in 2016. The rates have shown a stabilizing rate in 2017 with a small decline of 0.6%. The industry growth was determined by the number of expatriates in the country. However, with the government plans to offer affordable housing and the use of new technology to increase oil and gas production there are signs that the industry is set to experience its recovery.
The engineering services industry or market in which the company operates is at mature stage characteristic of the average concentration of activities which provide room for growth. The production is estimated according to IBIS World statistics 2017 to have expected revenue of 711 billion Omani Rial and an annual growth rate of 0.5% while no company in the industry has been able to dominate the market share (Caineng et al. 2014, p. 316). Most of the market share concentration is average in the industry with increased control of the oil and gas industry, the construction industry as well as the real estate by the Oman government and the impact of the oil prices in the country.
The company oil and gas industry is very competitive with the existence of significant players belonging to the OPEC members. Oman forms the largest producer and exporter of oil and gas of the non-OPEC countries (Grant, 2016, p. 10). The oil and gas industry in Oman has been experiencing some decreasing trends in the total revenue resulting from the reduced oil prices but the sector is expected to grow from 2018 after the country adopted new production techniques the EOR which can extract 30% to 60% of the oil and gas reserves compared to the prior method of using primary and secondary reserves to obtain 20% to 40 %. Regarding market share, Kuwait dominates the industry globally being rivaled by the United Arab Emirates and Saudi Arabia.
The Oil and gas industry in Oman and globally is highly sensitive to macroeconomic factors influencing demand and also the profitability of the sector. The industry had been affected by the sustained reduction in Oil prices. A decrease in rates will increase the need for the oils and gas products however it will negatively impact the industry profitability (Fleisher & Bensoussan, 2015, p. 12). Operating costs in the industry have increased over the last ten years. There has been an increase in demand for oil and gas products globally. However, the market might have increased due to the decreasing prices of oil over the last few years. With the forecasted increase in prices, the demand may decrease in future. The market has led to increased oil and gas drilling activities with companies focusing on extracting oil and gas from the unexplored reserves. This strategy aims to improve the industrial production in Oman and bridge the existing Gap between demand and supply. There has been a significant shift in the industry from the exploration of conventional gases to use of unconventional gas resources (Wheelen et al. 2014, p. 23). Such a strategic move has been very effective in reducing the dependence on conventional gas which has depleted in the last decade. Profitability of the industry is also driven by the rapid technological advancements and drilling or extraction techniques such as the EOR. These techniques have enhanced the production activities increasing the productivity of the companies and expected to spur increased growth.
The construction industry in Oman can be said to be the largest employer of Oman Labour force in the past years. The sector entails all the civil engineering activities in the real estate sector, and its growth and profitability had been boosted by the government efforts in support of the social, economic development plans (Al Nasseri & Aulin, 2016, p. 1). The demand for affordable housing has increased in Oman with most constructions in the past focusing on developing houses for expatriates. However, the growth of the industry has been affected by lack of professionalism, fairness in the financial transactions, incompetent construction supervisors, and a shortage of materials among other contributing factors (See Appendix B, for more information). Profitability in the industry is driven by the increased quality of the housing facilities and the ability to offer affordable housing (Yafai, 2014, p. 56). The demand of the housing facilities will also be determined by the strength of the industry to offer affordable housing to the majority of Oman population or by creating a balance between the private sector developments and the residential housing development.
The porter’s five forces play a significant role in analyzing and evaluating the potential opportunities and threats for the oil and gas industry globally and can be used to assess the performance of Shaksy Company in Oman and also globally (Porter & Heppelmann, 2015, p. 102). The main forces under focus by Porters five strengths include; the industry competitive rivalry, industry threat of new entrants, threat of substitution as well as buyer’s power and supplier’s power.
Competitive rivalry: The Oil and gas industry has always been very competitive with some countries or groups controlling more than 90% of the oil and gas reserves. Mostly the companies in the OPEC movement are the most productive and in most cases they rival other companies in the industry by having a more significant competitive advantage (Porter & Magretta, 2014, P. 7). The competitiveness is substantial in the upstream sector is significantly intensive and the top ranking companies in the industry include; the Royal Dutch Shell Company and the Exxon Mobil Company in the US. The top ranking groups in the sector include Saudi Aramco in Saudi Arabia, the National Petroleum Company as well as the China National Petroleum Company. The competition in the industry is therefore very high to moderate.
The threat of New Entrants: the threat of new entrants into the industry is very low due to the existence of many barriers which discourage new investors or companies from entering the market (Anton, 2015, p. 21). Such obstacles in the industry include the considerable capital requirement, economies of scale which require that a company will enjoy more benefits per unit cost of exploration and production and in most cases favor the big oil companies, access to distribution channels both upstream and downstream and the government policies governing the exploration and production of oil and gas.
The threat of Substitution: the development of substitute products limits the company from attaining its full potential of value creation. The danger can, however, be said to moderate in the industry since oil and gases have continued to be the dominant source of energy in critical sectors such as transport and manufacturing (De Meyer et al. 2015, p. 252). However, the development and the global shift towards the use of renewable energy, nuclear energy, and coals as well as other biofuels may have an impact on the industry but not a significant one. The strategy to develop these alternative sources of energy will require substantial capital investment and may not help the company attain its performance objectives and therefore the chances to replace the existing oil and gas industry are very minimal.
Buyers bargaining power: the industry buyers bargaining power is very minimal since the prices of oil and gasare determined through global benchmarks such as the Brent Blend, West Texas as well as Dubai/Oman. The buyers bargaining power is therefore relatively minimal in the industry, and the only likely buyer’s ability they may have is on determining the quality of the oil they will purchase (Saad et al. 2014, p. 2). The strategy to use the buyers bargaining power is not effective in achieving the set performance goals, but there is a need to control any form of buyer’s energy for the benefit of the industry.
Suppliers bargaining power: the bargaining power of suppliers in the industry is significantly higher or more significant as compared to the buyer’s ability. Most suppliers in the industry comprise of the national and international companies who are also operational in the industry. Such big companies can influence the global oil prices. For instance, the OPEC companies have greater control of at least 70% of the world’s oil and gas reserves. The Strategy of the company would be aimed at reducing the supplier power by increasing the demand for quality oil and Gas products globally (E. Dobbs, 2014, p. 38). The Shaksy Company in Oman like every other Oman Oil and Gas Company is developing a strategy of improving their extraction and production techniques to reduce the impact of these suppliers by producing quality oil and gas products which will attract buyers and minimize supplier impact in the road. Based on the above analysis of the porters five forces analysis, we can deduce that the strengths of the oil and gas industry in enhancing the profitability of the sector are moderate to high.
The PEST analysis is a handy statistical tool used to analyze a strategic business plan and can be used by the Company or organization to understand and maximize the available opportunities in the industry and minimize on the threats to the sector of the company at large.
Political factors: globally the oil and gas producing economies or countries have been faced with significant political instabilities and geopolitical conflicts. One of the reasons for increase conflicts has been because many of these oil producing countries control over 90% of their proven oil and gas reserves through their National Oil Companies and also control over 75 percent of the global oil and gas products (Gattorna, 2015, p. 35). The regions or countries have therefore experienced wars related to oil and gas production and especially in the Middle East Countries which have become a barrier for not only the local companies but also for the foreign oil companies to invest in the countries. The favorable political climate in the states can play a more significant role in the development and growth of oil and gas businesses in the region.
Economic Factors: it is a significant interrelationship between petroleum industry and the global economy. Despite the decreasing oil and gas prices most of the major producing countries have very high GDP which shows that the world economic growth is a driving factor in the consumption of oil and gas. A global financial crisis such as the 2008 economic crisis had a significant impact on the industry (Yusuf et al.2014, p. 502). The bankruptcy of large commercial banks which act as primary financiers to these oil companies may also be a significant threat to the industry as well as the increasing debts by the oil and gas companies which have been sustained for long due to the reduced oil prices has affected the profitability of the industry.
Social Factors; social factors have also played a significant in the development of the oil and gas industry. Major social factors include migration, culture, religion as well as ideological views. However, the oil and gas industry has been impacted and faces a significant threat from the increasing awareness and global focus on more friendly fuels which have also decreased the consumption of oil fuels (Kirat, 2015, p. 440). The society is still debating over the importance or profitability of the oil and gas business in the industry and the increasing environmental concerns which is also affecting and may be a significant demand determinant in the industry. However, positively there are increasing global oil and gas consumption levels and projected demand rise as a result of the increased population globally which is likely to help recover the growth of the industry.
Technological Factors: technological advancements are aimed at improving the production of oil and gas in the producing countries and therefore helping to bridge the gap between existing demand and supply. However, new technology in the industry has brought about uncertainty over the returns whereby the cost of acquiring or adopting the technology may be more compared to the expected profits due to the low oil prices (Sulaiman, 2016, p. 6). Most companies may, therefore, have a challenge of insufficient funds and could only rely on borrowing from the big banks in the economy and end up increasing the already existing debt margins. Technology also brings about the need for skill development and therefore has increased skill shortage in the industry and contributed to the increased cost of construction. The Shaksy Company can, however, take the opportunity of the new technology to increase production through the EOR technique which is more efficient regarding production compared to the use of the primary and secondary reserves extracts.
The Shaksy Group key competence in the industry has been its ability to build a reputation for quality, trust and value to their customer or clients. The success of a business or enterprise is depended on the relation or reputation the company can develop with its customers. Many top buyers in the oil and gas industry look for quality oil and gas products, and that is usually their most significant power in the market. The company strategy to develop trust has therefore been enhanced by their ability to produce quality products and services in their operational fields including the engineering services, construction, and properties development (Alzebdeh et al.2015, p. 57). A business environment built on trust helps in retaining customers by creating a long-lasting relationship. Another critical competence of the company it’s their human resource capability which has been able to attract and employ over 1500 employees who are not only experts in the various fields but are also committed to helping the group achieve its objectives and offer quality services to their clients. Such a strategy is very vital in the development of the Group as it helps to enhance its reputation which eventually leads to increased business prospects.
Strengths: the company able to produce quality products and services gives them a competitive advantage in the Oman industry and also provides them with an opportunity to venture into the neighboring countries especially through their quality engineering services (Aguilera, 2014, p. 202). The company greatest strength is also found in its ability to train and develop their staff and local companies in meeting various industry and customer demands with the aim of improving trust and creating value addition to their services (Madsen & Walker, 2015, p. 76). The company enjoys excellent support from the local community in Oman which is the most significant source of opportunities for the company, and that is the reason why the company has dramatically focused in developing the local companies to enhance their service provision local community. The company human resource management is very efficient and has been able to attract great experts and employees in the company.
Weaknesses: the company has concentrated most of their operations in Oman and few activities in the United Arab Emirates. Such lack of diversification of their services in other countries has limited their scope of expansion in the industry and their ability to rival other competitors in the industry. Oman is the most significant non-OPEC country producing oil and gas products (Rafieisakhaei et al. 2016, p. 54). The company has an excellent opportunity to diversify their operations and decline from dealing with the local market alone. The Oman culture is also a significant weakness in creating business relationships with countries with different culture, and probably it is a reason why the company has been able to expand its operations to the United Arab Emirates and not in the United States.
Opportunities: with the increasing demand for affordable housing in Oman the company has an excellent opportunity to increase their service provision in the properties and real estate industry. The rising global population is also growing oil and gas demands which also present an opportunity for the company to enter into new markets globally and compete with the significant players primarily in the oil and gas industry (Harhara et al. 2015, p. 497). Technological advancements in the industry also present the company with significant opportunities to improve the production and deliver quality products and services to their clients.
Threats: The company operations mainly in the construction industry face a significant risk from the increased cost of materials and technology. Lack of skilled workforce to adapt to new technological changes may affect the growth of the company. The reducing oil prices globally despite the concerns over a forecasted demand increase also put the company into high uncertainties and may affect their growth. Increased competition in the industry with significant oil and gas companies were controlled by the Oman national oil companies (Balasubramanian et al. 2018, p. 4). Many companies, especially in the oil and gas industry, are competing for the available oil and gas reserves without strategizing on how to increase their exploration due to increased exploration costs.
One of the most successful strategies employed by the Shaksy Group in maintaining their quality and relevance in the industry has been developing their employability skills and talents through constant training and mentorship programs (Kök et al. 2018, p. 7). Such a strategy has enabled the company team of employees to enhance their professional skills and also allow the company remains relevant and competitive in the industry characterized by increased technological advancements. Another key strategy for the company has been through the development of significant collaborations and partnerships with other investors in the region and especially in the construction industry. Such an approach has enabled the group to develop and enhance its capacity to establish quality real estate’s properties in the region helping the company to drive its performance. The company has also developed a strategy to implement integrated management systems which allow the company in maintaining top quality standards for their products and services in the industry (Siena et al. 2015, p. 17). The company has also developed a strategy to promote great teamwork through the human resource management systems which have enabled the company to maintain increased efficiency. Lastly, the company has been able to diversify their services into different sectors in a move to get entry into new and emerging markets and helping the company to achieve its expansion goals out of Oman into other Markets such as the United Arab Emirates. All these strategies have been useful in giving the company a competitive advantage in the industry as well as helping the company remain relevant over the last decades.
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