The document discusses strategy development at Saudi Aramco. It outlines Saudi Aramco's corporate strategy of ensuring energy security for Saudi Arabia and maintaining its position as a global oil leader. The document also discusses Saudi Aramco's business strategies, which include expanding production capacity and global reach. Finally, the document analyzes Saudi Aramco's strategies through different lenses such as profit maximization, resource-based view, and socio-cultural orientation.

1. Strategy
SAUDI ARAMCO Development

2. Ahmed Al Zayer 0050073746
Table of Contents
1.0 Background 4
2.0 Strategy Development 4
2.1 Corporate Strategy 4
2.2 Business Strategy 5
2.3 Emergent Strategy 7
2.4 Dynamics Strategy 8
3.0 External environment analysis 9
3.1 PESTEL 9
3.1.1 Political 9
3.1.2 Economic 9
3.1.3 Social 9
3.1.4 Technological 10
3.1.5 Environmental 10
3.1.6 Legal 10
3.2 Porter’s five forces 11
3.2.1 Competition 11
3.2.2 New entrants 11
3.2.3 Substitutes 11
3.2.4 Supplier power 11
3.2.5 Buyer power 11
4.0 Strategic group analysis 12
5.0 Internal environment analysis 14
5.1 Organizational Resources 14
5.2 Systematic Support 14
5.3 Diversification 14
5.4 Synergies 14
5.5 Organizational environment 15
5.6 Global Efforts 15
5.7 Organizational Policies 15
5.8 Culture 15
5.9 Organizational Structure 16
5.10 Human Resources 16
6.0 SWOT Matrix 17
7.0 Conclusion 18
MKT3002 Business Strategy In Global Environment
1

3. Ahmed Al Zayer 0050073746
References 19
MKT3002 Business Strategy In Global Environment
2

4. Ahmed Al Zayer 0050073746
List of Figures
Figure Title Page #
1 The Prescriptive Strategic Process 5
2 The Emergent Strategy Process 7
3 Porters Five Forces: Saudi Aramco 12
4 Strategic Group Analysis 13
MKT3002 Business Strategy In Global Environment
3

5. Ahmed Al Zayer 0050073746
1.0 Background
Saudi Aramco (SA) is considered to be one of the most valuable companies in the
world with an estimated valuation of between $2.2 trillion to $7 trillion in 2010
(Titman, 2010). It owns most of the crude oil reserves in Saudi Arabia and some other
Middle Eastern site and runs the largest hydrocarbon distribution network in the
world. It came into existence in 1933 when the Saudi government formed a
partnership with the American giant Standard Oil. Having gone through various
periods of change influenced by external political environment, the Saudi government
finally acquired controlling stakes of the company. The company is involved in oil
exploration, drilling, refining, petrochemicals, distribution as well as some assorted
businesses such as shipping.
2.0 Strategy Development
This report will focus on the SBUs of Aramco handling exploration and production
while ignoring the assorted businesses like shipping as well as auxiliary developments
like R&D.
The company is involved in joint refining ventures with the various companies at
home and abroad. SA conceived and executed various mega projects with the help of
government backup. The strategic process at Saudi Aramco revolves around the major
strengths possesses such as, the wealth of crude oil reserves which is the largest in the
world along with the preferential treatment it enjoys being a state owned company in
a geography endowed with the richest oilfields of the world. Since the 1990s Saudi
Aramco has adopted several corporate level strategies to improve its operations and
build a more professional corporation that can take other oil giants.
2.1 Corporate Strategy
The broader vision of Saudi Aramco is to ensure energy safety and supremacy
of Saudi Arabia in the world petroleum market. Its vision and mission are as
follows,
MKT3002 Business Strategy In Global Environment
4

6. Ahmed Al Zayer 0050073746
Mission: To ensure energy security of Saudi Arabian domestic market and
maintain the country’s stronghold over international oil prices.
Vision: To remain the world leader in the production of petroleum-based
energy by investing in innovation and entrepreneurship, creating educational
opportunities, powering economic progress, increasing environmental
awareness, and working in partnership for energy sustainability.
2.2 Business Strategy
The main focus in this process has been in expanding its capacity as well as
global reach. Following this pattern, SA has arrived at certain strategies. The
company has complete control over its suppliers, so, it can focus completely
on downstream operations.
Figure 1: The Prescriptive Strategic Process
MKT3002 Business Strategy In Global Environment
5

7. Ahmed Al Zayer 0050073746
As known, there are different strategic processes that can be used by the
organizations. In this case, Saudi Aramco’s strategies can be seen from three distinct
perspectives,
Profit Maximization/Competition: It is a highly profit oriented company which
can be seen from its revenues and net profits. It has the resources as well as
authoritative backing that have made it possible to restrict international
competition in the domestic market and lead take the pole position. However,
in other markets the competition is far more severe.
Resource Based: Mainly the strategy of Saudi Aramco is resource based. It
holds the richest oil fields in the world and that is the reason for its success
over the years. It has been fortunate to be located in an oil rich region and its
strategy is predominantly based on maintaining hold over the resources,
maintaining excess production capacity and thus dictating the price levels in
the world market.
Socio-cultural: Being a state owned farm, Saudi Aramco is also socio
culturally oriented. It has a distinct Arab identity and hence it is a formidable
player in the Middle Eastern markets but the same can hurt it as it expands its
business in other markets. But it has to be noted that it is not merely a profit
seeking firm but an important strategic component of the Saudi government
and hence being socially and culturally differentiation is a part of its
positioning strategy.
Game Based: Game theory can provide interesting insights into strategic
choices, but Saudi Aramco so far has not made any effort in this regard.
MKT3002 Business Strategy In Global Environment
6

8. Ahmed Al Zayer 0050073746
2.3 Emergent Strategies
Figure 2: Emergent Strategic Process, Lynch 2003
The emergent strategies arefour basic types,
Survival: Saudi Aramco has a strict competitive strategy based on profit
maximization as well as keeping ahead of the competition and that is what is
necessary for the survival. It has been able to build efficient capabilities over
its supply chain to survive the competition.
Uncertainty: Uncertainty is a part of oil industry because of the political nature
of the business as well as its own political affiliations. The economic
conditions of the world have significant impact on the oil industry as well. In
this regard Saudi Aramco is not fully prepared to face and cope with the
MKT3002 Business Strategy In Global Environment
7

9. Ahmed Al Zayer 0050073746
uncertainties of environment and the factors causing it. The company if fully
owned by the state and its welfare is subject to the survival of the government.
Innovation: Saudi Aramco had traditional methods of doing things and it was
not open to innovation in its products and services. Innovation is the key to
success for any organization and it is essential for its future planning. Recently
the leaders employed R&D facilities to bring the change within the
organizational processes.
Human Resources: Saudi Aramco has not taken significant steps to facilitate
the HR to date. The company must understand that effective investment in
HRM is vital to sustain and innovate in the market and build successful
organizational culture.
2.4 Dynamics of Strategy
Strategy follows in circular path over time in the organizations. Saudi Aramco
has a larger goal to support the cause of the government. However, that has
not prevented it from achieving business success because it has constantly
sought to come up with a winning strategy. The initial focus of the business
was to get access to local markets the success of which resulted in the shift
towards the world markets.
MKT3002 Business Strategy In Global Environment
8

10. Ahmed Al Zayer 0050073746
3.0 External Environment Analysis:
3.1 PESTEL Analysis
3.1.1 Political
Political environment of the country plays significant role for Saudi Aramco. The
company is backed by the state therefore the policies are often influenced by the
governmental rules, regulations and other socio-political needs. The policies of Saudi
Aramco are dependent on the governmental plans for the oil production in order to
maintain the prices. The dependence on government sometimes makes it difficult for
the company to devise independent strategies for its growth in the markets. But, the
global political dynamics has allowed the government to facilitate its expansion
policies thus benefiting it significantly.
Another important issue that can affect the company’s operations is the growing
political unrest in the world, Saudi Arabia in particular and the Middle East in
general. With recent anti-incumbency movements in African-Arab countries like
Egypt and Libya, demands for democratic and modern regimes are likely to grow in
Saudi Arabia too. Changes to the political and state controlled system will have
profound impact on the operations and functions of the company.
3.1.2 Economic
The economy of Saudi Arabia is dependent on the oil production and distribution. The
Saudi economy is petroleum centric. 75 per cent of its revenues come through petro
products and it constitutes 90 per cent of its imports. This makes large state owned oil
companies such as Saudi Aramco significant players in the market. It also plays its
part in controlling international oil prices as it owns significant proven oil reserves
with ability to control Global oil production.
3.1.3 Social
MKT3002 Business Strategy In Global Environment
9

11. Ahmed Al Zayer 0050073746
Saudi Arabia is an Islamic country where Islamic methods are followed in the society
and in various aspects of life. Being a state owned company, it is therefore, expected
from Saudi Aramco to provide the jobs to the nationals and generate considerable
amount of revenues for the betterment of the country. Saudi Aramco has fulfilled its
duty by creating jobs for the domestic market and by creating wealth. It will be
desirable for the company to build and implement active Corporate Social
Responsibility (CSR) strategy to take part in the overall improvement of the
community and people.
3.1.4 Technological
In recent years Saudi Aramco has shown significant technological advancement
which can be seen in successful implementation of large scale projects before
schedule. At the same time the global shift towards cleaner and greener technology as
well as alternative fuels can be one of the reasons to ponder upon for Saudi Aramco as
well as other oil companies. For example the introduction of ethanol based fuel
(UNEP, 2009) in many countries has already shown the feasibility of the same.
However, these methods are yet to be perfected but they will definitely be important
in the foreseeable future.
3.1.5 Environmental
Environmental issues are the most crucial ones for oil manufacturing companies like
Saudi Aramco. Because of the nature of Saudi Aramco’s business, emission and
pollution are inevitable and hence they are bound to get into controversies. But Saudi
Aramco has done well by taking steps in emission reduction and pollution control. It
has also taken initiatives to reduce harmful lead content in its products.
3.1.6 Legal
There has been lot of legal implications for the oil companies regarding
environmental allegations around the globe. This trend is getting high in the Saudi
Arabia as well. The first comprehensive environmental legislation came into existence
in 2001. Nevertheless it has taken a strong stance against pollution and industrial
wastes and all the companies must abide by it. Also, most major international oil
markets have different regulations of their own. For example in Japan all energy
MKT3002 Business Strategy In Global Environment
10

12. Ahmed Al Zayer 0050073746
related transactions happen through Japan Oil, Gas and Metals National Corporation.
It decides the mode and type of imports and hence any company willing to operate
this market should have a working relationship with them. On the other hand in the
US, laws differ from state to state.
3.2 Porter’s Five Forces
3.2.1 Competition
Competition in the domestic market is minimal for Saudi Aramco as it is the state
owned player and hence will always get the preference during major deals in the field
of expansion and refining. But for finished goods like hydrocarbon products, it has
significant competition from other domestic players such as SABIC. Also, in the
overseas markets it must compete with global giants such as Shell, BP and Exxon etc.
but its holds large oil reserves in the home country offering it a competitive edge.
3.2.2 New Entrants
The oil industry is a very intensive industry. Exploring oilfields, setting up production
facilities and distribution networks is a cumbersome and time consuming task that
also requires huge investments and backing from government and regulatory bodies.
Saudi Aramco have no threat of new entrants in the domestic market due to these
above mentioned capital requirement and the governmental support needed to set up
the business.
3.2.3 Substitutes
Depleting oil reserves have accelerated the hunt for substitutes such as bio fuels, solar
power and nuclear power. But the technology is yet to develop to an extent where
these sources can be utilized to completely substitute petro products. In the long run,
this substitution will be inevitable.
3.2.4 Supplier Power
Saudi Aramco has no supplier related issues as it is its own supplier. The company
explores and drills its oil. Therefore, Saudi Aramco does not face any significant
problem in the form of supplier power.
MKT3002 Business Strategy In Global Environment
11

13. Ahmed Al Zayer 0050073746
3.2.5 Buyer Power
Due to its stirring reserves and monopoly in the domestic markets backed by the
government, it can control the market and has significant hold over the buyers. The
Organization of Petroleum Exporting Countries (OPEC), of which Saudi Arabia is a
member, controls the production and global prices of oil, thus the buyer power is not
significant here as the buyers have no impact on the pricing of this essential product
whose sources are limited to few countries only.
New Entrants:
Weak: High entry
barrier
Supplier Power: Buyer Power:
Competition:
Weak: Vertically Weak in domestic
Strong: SABIC,
integrated market, Strong
Shell, BP, Exxon
supply chain otehrwise
Substitutes:
Strong: Biofuels,
other
alternatives
Figure 3: Porters Five Forces: Saudi Aramco
4.0 Strategic Group Analysis
Strategic group analysis is bit difficult to conduct because Saudi Aramco has a near
monopoly in the domestic markets. Therefore, the comparison of Strategies will be
MKT3002 Business Strategy In Global Environment
12

14. Ahmed Al Zayer 0050073746
based on their global reach and diversification to figure out the growth of a company.
It should be noted that other large state owned companies such as Petro China
(China), PETRONAS (Malaysia), ONGC (India) are not being considered here simply
because they are mostly restricted to their home markets and rarely cross paths with
Saudi Aramco. The comparison is drawn between the domestic competitor SABIC
and global giants British Petroleum, Royal Dutch Shell and Exxon Mobil
respectively. The rough estimates about the operations and functions of these
companies’ assets that Saudi Aramco has mostly caught up on diversification but it
lags behind in geographic coverage to most of these players. But SABIC is behind it
in both counts.
HIGH
Exxon
Shell
BP
Geographic
Coverage
Saudi Aramco
SABIC
LOW
Diversification
Figure 4: Strategic Group Analysis
MKT3002 Business Strategy In Global Environment
13

15. Ahmed Al Zayer 0050073746
5.0 Internal Environment Analysis
The internal environment of an organization consists of the elements important within
the organization. It includes current employees, management, and corporate culture
which is the main factor that derives the employee behaviours within the organization
(Morden, 2004). On the basis of this, the internal environment of Saudi Aramco can
be analysed from its resource based view, its policies, culture and organizational
structure.
5.1 Organizational Resources
As discussed earlier, Saudi Aramco is rich in terms of its access to raw materials. It
owns the world’s largest oil fields and has also built strong production capabilities to
cash in on that. It is cash rich and hence can afford to take up large projects to thrust
its growth.
5.2 Systematic Support
It is state owned and hence it has easy access to the resources. It is supported by the
regulators and hence it has significant negotiating power.
5.3 Diversification
It has been able to diversify its businesses over the years. From exploration and
drilling it has moved to petrochemical production. It has also moved to some other
areas such as shipping. But compared to other global players, it still needs to come up
with more innovative plans to diversify.
5.4 Synergies
It has been able to identify areas of diversification where it can have synergies with its
existing business. Its thrust into petrochemicals can easily be supported by its existing
crude oil production and refineries.
MKT3002 Business Strategy In Global Environment
14

16. Ahmed Al Zayer 0050073746
5.5 Organizational environment
Owing to its state owned and hierarchical nature, it may not possess a very vibrant
organizational culture. In recent times, much emphasis has been put on workforce
diversity to ensure flow of diverse ideas and thus fuel creativity. Saudi Aramco may
need to take some steps in this regard such as recruiting from other regions.
5.6 Global Efforts
Saudi Arabia got inducted into World Trade Organisation (WTO) a few years ago. It
is also trying to increase its geographical reach in other markets through various
efforts and this augurs well for companies like Saudi Aramco.
5.7 Organizational Policies
The policies are formed and implemented by the state in case of Saudi Aramco. The
company has no liberty to formulate and implement new policies and strategies
without the consent of the government.
5.8 Culture
Organizational culture is considered as an important factor that significantly
influences the adoption and implementation of organizational processes and changes
in the business (Laudon and Laudon, 2006). The culture at Saudi Aramco is based on
the Saudi Culture. The culture of Saudi Arabia is collectivistic in nature where high
power distance lies and the decisions are said to be in the hands of elders and the role
of gender is given high importance (Hofstede, 2001).
The culture at Saudi Aramco is no different than the culture of Saudi Arabia. The
company is owned by the state so the local policies, rules, regulations and laws reflect
in the Saudi Culture. The culture tends to be in hierarchal where the decisions making
process is centralized and power lies in the hands of the senior management.
MKT3002 Business Strategy In Global Environment
15

17. Ahmed Al Zayer 0050073746
5.9 Organizational Structure
The organizational structure at Saudi Aramco is based on Hierarchy. Overall, it can be
said that Saudi Aramco is a company that exists for its main stake holder, the Saudi
government. Its significant business success can be attributed to favourable dynamics
in the global economy and the synergy between its business goals with political
ambitions of the home country rather than a single minded attempt at business
success. Through Saudi Aramco, the Saudi government maintains its hold over global
oil prices. That is why it has developed access production capacity over the years that
can be used well to control the oil prices.
In addition, it has taken up expansionary measures to help the government face
unemployment issues in the home market. This has fuelled its growth but the original
beneficiary has been the government.
5.10 Human Resources
Saudi Aramco lags behind in this important division of its business which can have
profound impact on all its operations and profitability. The company announced that it
will try to enhance the human resource development in 2010 by increasing
employement opportunities and training programs for their people. At the end of
2010, there were 54,798 employees in the company, including 47,741 Saudis, or 87
percent, and 7,057 expatriates (SA: Annual Review, 2010)
MKT3002 Business Strategy In Global Environment
16

18. Ahmed Al Zayer 0050073746
6.0 SWOT Matrix
In order to summarize the discussion key SWOTs for Saudi Aramco, can be listed
below:
STRENGTHS WEAKNESSES
Easy access to huge natural gas and Over dependence on a single
crude oil base with excess production commodity (crude oil)
facilities Comparatively smaller downstream
Advanced project management capacity
capabilities and technology Comparatively small geographical
Strong backing from the local reach
government Cannot devise its strategies
Monopoly in the domestic markets independently.
OPPORTUNITES THREATS
Rising oil prices Economic recession and its impact on
demand
Access to emerging markets,
Increasing domestic demand that can
especially after Saudi Arabia’s induction in
snatch a share from the exports
WTO
Environmental legislations, public
Increasing growths in oil demand due
activism against pollution and emission.
to the growth in new markets.
Possible inventions leading to viable
Market development and penetration
substitute fuels
opportunities available in the domestic and
international markets. The political downfall can have
significant impact on the operations of the
Company’s operations
MKT3002 Business Strategy In Global Environment
17

19. Ahmed Al Zayer 0050073746
7.0 Conclusion
The study was conducted to analyze the business practices of Saudi Aramco and the
strategies devised by the company. The study findings suggested that the company
has three strategic approaches for its business practices which includes profit
maximization strategy, resource mobilization strategy and cultural diversification
strategy. The company has complete political backup from the government and it is
fully monitored by the state. The company enjoys unique position in the market due to
near monopoly in the Saudi domestic markets.
To summarize, it can be said that Saudi Aramco is an interesting case study that
shows that business profits can co-exist with larger socio-political goals in a state
owned corporation if they are aided by the external conditions. Saudi Aramco mainly
serves the policies of its government but at the same time it has successfully exploited
the conditions and used the privileges it has obtained from the government to the
fullest.
It has also successfully diversified into multiple fields. However, in order to be
globally competitive this company must try to diversify further and also explore
different geographical markets. It must also invest more in research and development
and put more effort towards innovating cleaner fuels and greener technologies
keeping the changing times in mind.
MKT3002 Business Strategy In Global Environment
18

20. Ahmed Al Zayer 0050073746
References
Gerry, J, Kevan, S. & Richard W., 2008. Exploring corporate strategy, 8thed, Harlow,
England: Pearson Education.
Hofstede, H, G., 2001. Culture's consequences: comparing values, behaviors, institutions,
and organizations across nations. 2nd Ed. California, UK, India: Sage Publishers
Kobayashi, Y 2007, Corporate Strategies of Saudi Aramco, Rice University, Houston, USA.
Laudon, K. and Laudon, J., 2006. Management information systems: Managing the digital
firm 9th Ed., Prentice Hall, Upper Saddle River, NJ.
Lynch, R. 2003. Corporate Strategy. 4th Edition. Harlow: Financial Times Prentice Hall.
Morden, T., 2004. Principles of Management. 2nd Ed. England: Ashgate Publishers
Porter, M., 1979, How competitive forces shape strategy, Harvard Business Review, Vol 57,
No. 3.
Saudi Aramco, 2011. Annual Review [online] available at
http://www.saudiaramco.com/content/dam/Publications/Annual%20Review/SA%20Annual%
20Review%202010_modified_060811-2.pdf [June 8, 2011]
Saudi Aramco, 2011. Company Information [online] available at
http://www.saudiaramco.com [June 8, 2011]
Titman, S., 2010, More Thoughts on the Value of Saudi Aramco [online] available at
http://blogs.mccombs.utexas.edu/mccombs-today/2010/03/sheridan-titman-on-fts-saudi-
aramco-valuation [March 23, 2011]
MKT3002 Business Strategy In Global Environment
19

21. Ahmed Al Zayer 0050073746
United Nations Environment Programme 2009, Towards Sustainable Production and Use of
Resources: Assessing Biofuels, vol. 12, no. 3, pp. 50-2.
MKT3002 Business Strategy In Global Environment
20