SUSTAINING COMPETITIVE ADVANTAGE IN THE GLOBAL PETROCHEMICAL INDUSTRY
Written on 15.10 by Dimas Sugeng Rachmadi
Sustaining Competitive Advantage in the Global Petrochemical Industry :
a Saudi Arabian Perspective(REF : Salem M. Al-Ghamdi & M. Sadiq Sohail (2006). J. International Business and entrepreneurship Development, Vol 3, No 1/2
1. Sustaining Competitive Advantage in the Global Petrochemical Industry : a Saudi Arabian Perspective
1.1 Competitiveness also arises from factors other than macro economic, such as availability of raw materials, cheaper workforce or technological superiority. Porter (1980) is credited with being the pioneer in identifying factors that contribute to national advantage. Porter (1985) made valuable contributions in identifying important factors that contribute to national advantage, that is the factor conditions of a nation..Even in the midst of widespread decline globally, the Kingdom of Saudi Arabia has been on the path of economic growth. However, Saudi Arabia has yet to succeed in the fast approaching global integration. With a relative decline in its competitiveness, the kingdom must use its comparative advantage to remain competitive. For the year 2004,the GDP was $247.2 billion, the real GDP growth rate for the year 2005 is estimated at 6.2% and the inflation rate based on consumer prices is estimated at 1.5%. Saudi Arabia is primarily a petroleum economy with oil revenues representing 90–95% of total Saudi export earnings, 70–80% of state revenues, and around 40% of the country’s gross domestic product (GDP).With oil and gas reserves remaining Saudi Arabia’s greatest natural asset and largest single source of revenue, the aim of this study is to analyse the global petrochemical industry and to identify the competitive advantage of Saudi Arabia. A conceptual framework of Porter’s model will be used to analyse the industry.
1.2 The first priority of Saudi industrial strategy was to develop industries that could exploitthe country’s abundant hydrocarbon resources, such as petrochemicals primarily andfertilisers. Although SABIC has enlarged its activities to engage also in some otherindustrial activities, petrochemicals remain the major part of its business. Overall SABIC has 16 manufacturing subsidiaries which have been established since the 1980s, nine produce chemicals or petrochemicals, three produce fertilisers, two produce iron and steel, one produces polyester and one produces industrial gas. Most of the petrochemical plants were developed in joint ventures with foreign companies. By the turn of the third millennium SABIC became the third largest producer of petrochemicals.. Another petrochemical company Latex has a dominant presence in latex production for multiple uses such as carpets, construction and paint. Latex expects that80% of its products will be consumed in Saudi Arabia and the rest in the neighbouring countries. The Saudi Venture Capital Group (SVCG) has an agreement with Chevron to build a plant to produce benzene and cyclohexane. Both these products are used as inputs in other petrochemical ventures. Compagnie Polyisoprene Synthetique (CPS) is another venture in the private sector which produces butadiene and isoprene, which is used to make rubber. Porter (1980) suggested that competitive strategy should be based on a deep analysis of the structure of an industry and its evolution. Porter (1980) described a five key forcesmodel to analyse the competitive game in an industry; national or global (See Figure 1).Porter’s competitive force model is probably one of the most often used business strategy tools and has proven its usefulness on numerous occasions. Porter’s five forces model is an outside-in business unit strategy tool that is used to analyse the attractiveness of an industry structure. The competitive forces analysis is made by the identification of five fundamental competitive forces:
