Strategic Evaluation Of Saudi Aramco’s Ecosystem, Market Competitiveness, And Internal Strength

Implication of General Ecosystem and Market Competitiveness

Discuss about the Analysis And Evaluation Of The Implication Of General Ecosystem.

This report provides an integrated analysis and evaluation of the implication of general ecosystem, competitive environment and internal environment of the oil and gas organization Saudi Aramco located in Dhahran. Based on the analysis, a detailed strategic recommendation has also been provided with the report.  It is certain that oil and gas organizations deals with a broad range of operation such as mining, upstream and downstream operation. In both the operations, the organization damages the natural resources and pollute the environment; thereby, as the part of its operation, the organization has to develop CSR initiatives and contribute to the environmental development. However, as there are many organizations running oil operation in the sector; thereby, which creates the urge of identifying the current market of Saudi Aramco and the competitiveness in the sector. To, evaluate implication of general ecosystem and market competitiveness, Porter’s five forces analysis has been conducted. Likewise, on the other side, to learn about the internal environment, VRIO framework analysis has been performed considering the current operational scenario of Saudi Aramco.

It is certain that oil and gas industry in Saudi Arab and even in the global environment face a stiff challenge due to the presence of large internal firms, pressure from the governmental bodies regarding environmental degradation and increasing economic inflation rate. Thus, to understand the challenges and competitiveness of the sector, porter’s five analysis provided below identifies these challenges and scale of competitiveness more intensively.

Extent of competition: It is identified that the competition in the domestic environment remains moderate for Saudi Aramco because it is a state owned player. Therefore, Ruqaishi and Bashir (2013) mentioned that the organization could always get the preference at the time of making major deals in the field of expansion and refining. However, for the end products like hydrocarbon, the company faces a stiff competition from the regional players like SABIC. In addition, even in the overseas market, the organization also has to deal with the internal giants such as Shell, Exxon and British Petroleum.

Threats of new entrants: As put forward by Sovacool (2010) the oil sector always appear to be intensive in nature; thereby, the complexities reside in developing establishing production facilities, and distribution networks. These tasks certainly appear to be time consuming and moreover, the execution of all these activities require a large investment and support from the regulatory bodies. Therefore, Saudi Aramco may not face high threat of new entrants in the domestic environment. So, the threats of new entrants are low.

Identifying the Stakeholders

Threats of Substitutes:  Exhaustion of oil resources increased the search for substitute products including bio fuels, solar power as well as the nuclear power (Perrons 2014). However, the technology is yet to enhance to desired extent where these sources could be consumed completely to substitute oil and gas products. So, in the coming days, this substitution could be certain to happen. Presently, the extent is low.

Bargaining power of supplier:  Saudi Aramco does not need any supplier because the organization uses its own supply network. The organization itself digs in and drill oil. Therefore, presently, the organization does not face any such big problems with respect to supplier bargaining power. So, the extent of supplier’s power is currently low (Mitchell and Mitchell 2014).

Customers’ bargaining power: Because of its increasing reserve, monopolistic acquisition in the regional or domestic market, and the support from the government, Saudi Aramco can control the market and it receives stabilized hold over the customers. On the other side, the organization’s taken the membership of OPEC (“Organization of Petroleum Exporting Countries”); thereby, it can control the production as well as global oil price; so it is worth mentioning that the buyer power is less, which has no impact on pricing of the essential products whose resources are restricted to few nations only (Mohanty et al. 2011).

The five forces analysis indicates that although Saudi Aramco does not have any high or significant threat in the domestic market but the due to lack of promotional and branding, the organization does not have adequate presence in the international market. It is certain that Saudi Aramco has high dominance in the domestic market but it has also has to create awareness in the international environment. Saudi Aramco needs an appropriate promotional mix strategies which would weigh up the brand value and identify in the global market.

Identifying the stakeholders

It is essential for the organization to identify its stakeholders who are affected by the operation (Al-Maamary, Kazem and Chaichan 2016). On the other side, Elvidge et al. (2015) mentioned that large organizations have several stakeholders groups and some could be internal to the business and other parties are treated as the external stakeholder because they reside outside of the business.

Internal stakeholders: As put forward by Yusuf et al. (2014), the internal stakeholder are considered by the broader community as reflecting Aramco as well as how it runs. Among the internal stakeholders, employees, managers and board members of the organization are the major stakeholders. These stakeholders are contributing to the growth and development of the organization. More specifically, Saudi Aramco employs over 65,000 people and the types of workforce includes market analysts, site engineers, chemical engineers, office administrators, oil plant workers and R&D researcher and any more.

Evaluating Saudi Aramco’s Internal Strength

External stakeholders:

As put forward by Matar et al. (2015) the external stakeholder are usually not the part of the operation o business but they might have a significant interest in what it operates and could influence the decision making of the organization.

Customer:

It is true that without customers the operation cannot run; hence, the major objective of Saudi Aramaco is to gain and maintain customers by enhancing and providing products and services which provides value with respect to price, quality, safety and environmental impact. Achieving such value could be challenging because, the customers have been observed to be wanting value for money which includes proof of highest quality fuels at the most competitive advantage (Ladd 2013). In order to reduce customers concerns regarding the pollution as well as environmental degradation, the organizations have to apply cleaning activities and more efficient fuel such as the bio-fuel.

Local Communities: Saudi Aramco’s oil and gas operation focuses on creating economic as well as social development when minimising the negative influence. The organization trues to invest in the long lasting benefits for the community.  As the organization is running the operation in the domestic areas of Saudi Arab a vast local communities are living close to oil refineries that have raised the concern over their safety (Rahim et al. 2010). The organization attempts to resolve these complexities and gain the trust of people by taking all the essential safety measures and this could include the implementation of the plant safety as well as making people aware of the mandatory plans and emergencies. Aramco, as its commitment to enhance the wellbeing if the local communities, has developed local partnership by collaborating with government. This means in order to do so, the organization receive consistent support from the government.

 The above stakeholder analysis indicates that Saudi Aramco has implemented some initiatives for some interest groups such as local community but compared to the environmental degradation caused by oil and gas operation, the initiatives are yet not meaningful the organization have to pay attention to the implementation of CSR initiatives.

As Saudi Aramco is running the operation in a global environment and dealing with the customers located in the vast areas, it must have to focus on the internal environment. Internal strength is often reflected on the productivity and other external variables. Therefore, to identify and analyze the current strength of the internal environment of Aramco, VRIOS analysis has been conducted in the following.

Value: In the recent time, Aramco has been very successful in maximizing its domestic reserves and the range of production and in 2014, the organization particularly manufactured 10.5 million barrels each day. In addition, the organization has also created a record level of the sales gas with the average of 8.3 billion standard cubic feet each day (Saudi Aramco 2018). Therefore, it is worth mentioning that Aramco’ operation holds a significant value.

Rarity

As put forward by Harhara, Singh, and Hussain (2015), oil and gas remains as the rarest of the natural resource and Aramco being a completely government owned organization with 91.4% of Saudi Arab’s  oil and gas production may make it difficult for the rivals to acquire new oil sources. Nonetheless, regulatory norms in the country plays a great role in Aramco’s competitive advantages.

Imitation

In the case of Aramco, it is identified that competitors may not imitate the service or type operational practice of Aramco because the technology and the amount of capital remains as the challenges for the competitors. Kokal and Al-Kaabi (2010) commented that scarcity of resource is another significant challenge for the competitors. However, Cowie et al. (2012) commented that the Abu Dabhi National Oil company holds a significant share of the market and they are exceeding with respect to technology (Reiche 2010). In addition, the barrel per day production of oil is around 5.8 million which is less than Aramco but this organization is not standing too far from Aramco. Thereby, the in the coming days, ADNOC could reach the current per day production margin of Aramco, which is a significant but possible threat to the organization.

Organization:

An organization’s other policies and procedures should be arranged and organized to sustain the exploitation of its valuable, rare and costly to copy the resources (Popli, Rodgers and Eveloy 2013). As put forward by Tordo (2011), the organizational structure of Aramco’s policies are not unique or rare because other large players in the sector are also there to British Petroleum, ADNOC and Shell’s that have significant and rare organizational structure as well as policies.

The analysis indicates that Aramco has implemented several operational initiatives to organize their operation and protect themselves from the competitors but the imitability rate is very poor. There are several competitors in the market and they are effectively acquiring the market with increasing production. Even though Aramaco has the governmental support to maintain the uniqueness, there are other government owned organizations which can excel to acquire the position (Reiche 2010). Thus, to remain unique, competitive and rare with respect to operation, the organization needs to increase up the production rate per day by extending the operation in the existing regional and even in the new regions.

Saudi Aramco does not have multiple number of supplier; it runs the operation with one single supplier such as the government or the state of municipal. It is identified that as the crude oil supplier, Saudi Aramco’s value chain could be different from other organizations which involve exploration, transportation, refining, distribution and production. The following chart provides a detailed overview of the initiatives and policies that the organization has incorporated into its business activities to resolve appropriately.

Exploration may include the use of technology to identify the oil reserves. Particularly, in the production phase the organization tends to explore oil to the surface with the help of natural and artificial methods. Thereafter, Aramco transfers oil to the some particular refineries and customers with the pipelines. Furthermore, in refining Saudi Aramco tends to convert the crude oil into a finished goods such as mobile, oil, oil engines and petroleum (Perrons 2014). Thereafter, as the part of their initiatives, the organization Saudi Aramco distributes the refined oil to the government who its customers. Particularly, for selling Saudi Aramco’s products, the organization do not need to promote and advertise products, because Saudi Aramco sells them to the fixed end users only.

The value chain model does not indicate any large or extending prices, in the refinery or exploration of oil and gas. Even though the organization is using technology in refinery and exploring new oil resources, the organization should use more advanced technology which would help to identify the actual or exact oil sources and preserve. On the other side, both in the upstream and downstream operation of oil and gas, the organization also need to incorporate environmental protection initiatives.

The analysis provided above has been conducted in different phases with strategic analysis tool such as porter’s five forces, VRIOS and Value chain model. Based on the findings of the analysis, the following suggestions have been provided to Saudi Aramco.

Promotion and Branding

Products: It is true that the organization has increasing market share in the domestic market but to extend the operation in the global environment, the organization needs to trade its products and services such as chemicals, oil and natural gas. On the other side, as far as the petroleum are concerned, the company could use its existing local refineries with crude capacity of 1.8 million (Ruqaishi and Bashir 2013).

Price: To run the operation in the global environment, the organization needs to implement a stable pricing strategy which would bring a significant return to the organization such as competitive pricing strategy (Mohanty et al. 2011). The competitive pricing strategy could be appropriate for the organization because the global environment is already acquired by several organizations and to gain significant return facing those competitors in the market, the organization needs to lower its price and this would probably take them ahead.

Promotion- The organization needs to pay attention to its promotional activities such as the promotion of oil and gas products. However, hence, the organization will not directly promote or advertise the products, it will rather promote the necessary environmental preservation initiatives. In the advertising context, the organization needs to create the awareness of protecting the greenery and natural resource of the environment. Hence this promotional initiatives should be linked to the corporate initiatives. 

Place: As the domestic environment is acquired by the organization, Aramco should place its products in the global market such as European and UK nations and in the nations where the economy is stable.

Aramco should not only think of making profits, the organization will also have to think of indulging or putting a lot of effort as well as commitment towards the community and the people. The organizations could implement the initiatives of recycling or preserving the natural water in the poor nation where water is under crisis. This is a global initiatives which could certainly create a strong impression in the global market. In addition to this, the organization could also think of investing on education; for example, it can develop an educational institute for the needy and deprived children of the community where it serves.

Conclusion

In conclusion, it is worth mentioning that petroleum segment has become much competitive even though Saudi Aramco acquires the major market share. However, the rate of growth of the competitors and the expansion of organization’s product to remote or rural remains as the significant challenge to Saudi Aramco. In addition, it is certainly true that Saudi Aramco is effective in the industry due to its high quality products, effective customer response and extending variety of products. The need for energy is increasing, thereby, the organizations should be able to meet that growing demand by any means. On the other side, it is true that technology is rapidly developing and this rapid development of technology may help the oil organization to fulfil this growing demand by innovatively exploring and extending the refinery process.

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