Saudi Basic Industries Corp (SABIC) is a manufacturing company with a diversified portfolio of products ranging from chemical and intermediates, fertilizers, industrial polymers, and metals (SABIC 2008).
Under polymers and metals, the company has established the SABIC Innovative Plastic Film and Sheet business, where it manufactures corrugated iron sheets for the construction of houses and greenhouse projects. This brand has grown considerably in its European, Gulf region, and American markets.
Despite its large-scale productions and heavy presence in some of the major American, Asian and European markets like the USA, Netherlands, China and India, its weak and almost unnoticed presence in the South Asia Pacific region is conspicuous. The company’s objectives and recommendation are to expand and extend its operations in order to reach new markets in the South Asian Pacific region, so as to increase its presence and size worldwide (SABIC 2008). Considering the harsh environmental conditions in Australia, the region is a potentially attractive market, considering the SABIC Innovative Plastic Film and Sheet products’ high quality and usability (Gorrill 2007, p.78).
The Business and Economic Environment (Pest) Analysis
Political Environment
The political environment of Australia is relatively stable, considering its regular democratic elections (Gorrill 2007, p.21). The following issues related to politics and the manufacturing industry are very crucial for effective penetration of the Australian industrial product market:
Nationalism and Patriotism
Several consumer kinds of research have repeatedly shown that Australians give preference to local products, hence would monitor the labeling of the product to confirm whether it’s locally manufactured. For example, in 2005, McDonald Australia Ltd, a local company in Australia announced it would stop sourcing all its potatoes (raw materials for fries) from Tasmanian producers, announcing a new deal with a supplier from New Zealand (Gorrill 2007, p.42). This resulted in a nationwide protest against McDonald Australia Ltd to create awareness on the local product’s verification by the public before purchase (Gorrill 2007, p.44). Such is the level of culture of patriotism in Australia and it is worth taking the time to monitor such cases before launching a new product. In other words, the national pride is reflected through the preference of the local products, and this if not well analyzed, may work against SABIC.
Government and general population’s support of Australian Brands and manufacturers
Australian manufacturing industry was highly regulated in the past decades (ABS 1973, p.55). The government of Australia restricted the entry of new industries, especially the manufacturing foreign industries to protect the local industries (Aspen 1990, p.188). However, presently, the manufacturing industry has been deregulated, giving foreign industries a lease of life to establish themselves. However, observers see the newly elected Labor government enacting new policies to protect Australian jobs, thereby making it difficult for the new firms to import labor and the existing firms reorganize their labor. This is likely to alter the labor relations of many companies.
The general Labor Trend
A Reserve Bank (RBA) compiled Labor Force Survey data showed that employment in the manufacturing industry has steadily declined in the past two decades. This was attributed to the increasing use of additional capital per unit of labor inputs and improvement in multifactor productivity (IBISWorld 2009). Again, an increase in average hours of work per person employed in manufacturing and the relocation of labor to more capital-intensive activities have also reduced employment requirements in the manufacturing industry (IBISWorld 2009). However, a reverse trend has emerged especially in the last two years, when the manufacturing companies employed a record 40,000 Australians (IBISWorld 2009).
Safety, Quality and Standards
In every government and region, there are specific safety and quality standards. The government would put standards of quality e.g. durability, and safety of its uses. These guide the process of manufacturing and distribution (Gorrill 2007, p.34).
Economic Environment
Economic stability
The Australian economy has experienced continuous steady growth, and at this moment, the economy is steady and strong (IBISWorld 2009). It is thus worth noting that the purchasing power has increased as much as the living standards have continued to improve. Economic projections indicate that the country’s economy will continue to prosper, with many seeking comfortable shelters as part of their basic needs (IBISWorld 2009).
State of Agricultural Economy
Agriculture is one of the major contributors to the Australian economy. The forecast shows agricultural production is likely to decline at an alarming rate, largely as a result of the expected worsening of drought, water insecurity, global warming, and the general climate change (Gorrill 2007, p.29). This negative impact is likely to be mainly on the horticulture productions. Traditionally, the horticulture industry has supplied the Australian population with fresh vegetables and fruits, a system that had been affected by the loosened border control, allowing importers to import cheap agricultural products (Gorrill 2007, p.37).
However, since this was sealed, the country is likely to face high demand for agricultural products in the future, putting a lot of pressure on the farmers to increase their production capacity, a scenario likely to increase greenhouse farming. With vegetables, fruits, and wheat making the top ten crops likely to be affected in the country, farmers are likely to resort to greenhouse farming, hence increase the demand on SABIC products of Lexan corrugated for greenhouse farming.
Socio-Cultural
Consumer Trend and Social Awareness Issues
There is an increased awareness of environmental and social issues in Australia. In a survey conducted in 2001, about 69% of Australians were concerned with environmental issues and would consider the product’s environmental status when deciding to purchase (Jackson 2009, p.18). The recent data may not be available but considering the increased awareness, the percentage is most likely high at present. In other words, customers, suppliers as well as the general public are increasingly demanding that every business, particularly manufacturing firms, reduce any negative impact of their products and operations in the natural environment and preserve the existing resource for sustainability. This means that any new product and its production process must be environmentally friendly in order to cut into this market.
The Australian labor market is highly unionized and Workers’ rights are at the forefront in the labor market (Gorrill 2007, p.81). It, therefore, follows that every company must be willing and ready to observe ethical issues related to employment as well as working conditions.
Demographics and Housing
There is a steady increase in the Australian population, consequently the increase in demand for housing. There were 20.55 million people by May 2006, and it was estimated to steadily rise by 1.2% yearly (Jackson, 2009, p.20). The social trends such as the move towards smaller households, the increasingly aging population, the rising number of households, and the increasing single parenthood are likely to further drive the need for housing (Jackson, 2009). Thus, the projected demand for new dwelling places in the country is approximately 128,000 per year up to 2014, and later to rise in a higher figure (Jackson, 2009)
Education and Skills
The Australian skilled labor is no doubt below par, especially technical skills needed in the manufacturing industry (Jackson 2009, p.25). Fabricators, architects, engineers, designers, and detailers are in short supply, and if there are, then they are the aging baby-boomer generation (Jackson 2009, p.21). This scenario has subsequently led to. This may complicate matters for the new entrant in the Australian market and it may need proper arrangement and realignment of the human resource strategies of the company.
Attitude on Available Brands
It is noted that many Australians are not only brand-aware but also brand-conscious; hence they would want to purchase particular brands that they can identify with. SABIC will need to look at the brand positioning very keenly and closely.
Technology
Australia is a technologically advanced country, with a highly sophisticated level of technology. Australians are amongst the leading internet users in the world with the bulk of the population preferring online purchases over traditional physical purchases. Many manufacturing companies in Australia have invested heavily in the research and development of new technology (Gorrill 2007, p.41). Every other effort is made to improve technological advancement to escalate productivity for the local industries. Furthermore, many international companies in the manufacturing industry generally have highly sophisticated technology to offer them a competitive advantage. Due to this, the companies were able to use technology to increase efficiency with their clients through the use of new technology in the manufacturing industry, enhancing the speed at which they could reach their clients with minimal contacts.
SABIC, therefore, has to get adequate information about the Australian market; knowing what the target customer needs most will require that they develop fact-based information to support the claim of strength and uniqueness of their steel product.
Steel technology
Currently, only 15% of Australian buildings are constructed using basic steel framing materials, as compared to the UK’s 70% and United States’ 50% (IBISWorld 2009). This means that the United States and UK developers have embraced steel framing technology than their Australian counterparts. However, the present efforts to make more heat-proof buildings from the new technology have presented a new dimension altogether, making steel demand projections to be on the upward trend in the coming years (IBISWorld 2009). Furthermore the old notion among Australian housing developers that steel was an expensive alternative to concrete framing has been ruled out by a detailed comparison of cost and time in five-building projects that showed that both the financial cost and time were more or less the same, and with more research, the overall result is bound to favor steel (Aspen 1990, p.78).
Competitor Analysis
However, the present trend of the steady growth of the industry in the Australian market has seen several manufacturing companies developing an interest in the business. Australia has many competitors like such as BlueScope Steel and OneSteel. BlueSteel is the main supplier of steel products in both Australian and New Zealand markets (World Cargo News 2007). In the Australian market specifically, BlueScope products for wall and roof cladding, steel house framing, rainwater products like guttering, and hoe improvement products are distributed through suppliers and distributors (World Cargo News 2007).
With the largest operating plant with an annual production of up to 5 million tones of steel products, the company has a strong presence in New Zealand, the Pacific, Asia and North America (World Cargo News 2007). It uses Australia’s largest rail freight to transport its product across the country (World Cargo News, 2007).
OneSteel, an Australian-based company that specializes in steel-long products for construction, mining, transport, and agricultural production industry is a highly diversified producer of a range of products, some similar to SABIC’s (OneSheet 2009). Having been part of BHP just in the last 10 years, the company has a brand name that seems unbeatable in terms of steel manufacturing produce. It relies on its 90 Metal and franchises, domestic distribution channels strategically located all over the country (OneSheet 2009). Again, it uses numerous sites to distribute its products created at the Whyalla Steelworks and the Market Mills that includes OneSteel Piping Systems, OneSteel Steel and Tube, Coil and Aluminium, OneSteel Building Systems, OneSteel Piping Systems, and OneSteel Oil and Gas (OneSheet, 2009).
At its international distribution level; OneSteel uses its New Zealand Company Holdings Steel and Tube Holdings Limited (OneSheet 2009). Though OneStop has a very well-structured competitive brand, its research, and development level has not reached the level of SABIC’s hence there is a slim possibility of it posing an immediate threat with new strategic innovations. However, with the entry of SABIC, the company will no doubt increase its activities to get them to compete with the new entrant.
Five Forces Analysis
Threat of New Entrants- High
The steel industry in Australia is relatively young as compared to other developed countries, posing high chances for new entrants to venture into the new market. Some of the new entrants are likely to come from long-time industrialist nations like Britain and the USA (Jackson 2009, p.27).
Bargaining Power of Supplier-High
The Australian suppliers are clustered and merged to form big suppliers, hence having strong bargaining power. When the suppliers are few, they have the bargaining power to extend their demand for better business deals or to pull the deals in their favor hence raising the cost of raw materials. SABIC may find it difficult to outsource their traditional suppliers from other countries to the target new market of Australia due to the stringent government regulations, restricting the firms operating in the country to use the local-based suppliers for their manufacturing products.
Bargaining Power of Buyers- Low to Medium
There are few brands of the corrugated sheet in the Australian market even though Australians would favor their products when doing the purchase. However, with the unique product of Lexan Corrugated Sheet, the buyers may find it the best solution to their needs considering the harsh economic climate in the country.
Threat of Substitute Products- Low to Medium
BlueScope and OneSteel are the only locally-based manufacturers of steel products. However, despite their specialization in steel and metal manufacturing, they have limited technological capability as compared to SABIC. This has limited their range of products in steel, plastic and metal manufacturing. However, with technology transferability in modern business, there is a high possibility of the two companies improving their technological ability with research and development being put at the forefront. If their research and development departments are adjusted and boosted, it would present an obvious threat to SABIC.
Rivalry of Competitors- High
The entry of SABIC into the Australian market will definitely result in cut-throat competition. OneSteel produces a wide range of steel products, some similar to SABIC’s. Considering SABIC’s unique brand of Lexans Sheet, it means that OneSteel is likely to come up with new strategies for positioning its products. Logically, a high number of similar products presents a ground for competition, thereby creating such phenomena as price wars and advertisement claims of superiority.
SWOT Analysis
Strength
Products: SADIC has direct access to high-quality, innovative production facilities and manufacturing know-how as compared to their competitors. The SABIC Innovative Plastic Specialty Film and Sheet business is the leading supplier of high-performance engineering film and sheet products. With its cutting edge performance of flame, smoke, and toxicity compliance, exceptional strength and modulus at elevated temperature, broad chemical resistance, and stiffness make the products fit for a wide variety of usage as has been shown by leading airline companies in Europe and the United States like British Airways and United Airlines respectively (SABIC 2008).
The Polymer Processing Development Center in the US is recognized as a center of excellence and is equipped with state-of-the-art laboratories and facilities for sophisticated analysis and advanced technology of processing (SABIC 2008). Its current twelve manufacturing sites across the US, Canada, the Netherlands, Italy, Austria, China and Japan, its ability to reach and serve customers around the globe with a wide range of products, in a tailor-made delivery system (SABIC 2008). Besides, its wide variety of resources makes it one of the best and highly recognized manufacturers of corrugated iron sheets, with the ability to deliver real-time business (IBISWorld, 2009). This is in no doubt why the Fortune 500 ranked SABIC as the Middle East’s largest and most profitable publicly-listed non-oil company, in terms of market capitalization in 2005, further placing it at number 331 on this particular year’s top Fortune 500 (World Cargo News 2009).
Support and Affiliations: SABIC has a strong portfolio presence in the major global market. The Saudi parent company will act as the supplier of skills in technology and resource base. Its wide range of experience in the industry rather looks like it is a familiar entrant in many world markets. Since its subsidiaries in Europe and North America have a wide and recognized establishment just like the Saudi Arabian headquarter, it will use the resources available to establish its competitive advantage in the Australian market. Besides, the 18 affiliates in Saudi Arabia will act as the resource providers, including highly skilled human resources (SABIC 2008).
Reputation: Many major buyers in other global markets already recognize SABIC as a market leader, thanks to the high ratings from major familiar brands like Fortune 500, Bloomberg (ranked SABIC 13th largest company in the world), and Forbes Magazines (ranked SABIC 145th the World) (SABIC 2008). These rankings are highly valued by buyers around the globe, and make SABIC’s reputation much easier to associate with. SADIC has excellent environmental conservation efforts. The company also offers a ten-year warranty for its Lexan corrugated sheet (SABIC 2008), hence extending its reputation with the clients. In order to cut into the Australian market, the company will have to use appropriate available data to get access to this potentially rich market, by building its public relations.
Weaknesses
Experience: Despite its heavy presence in main European and US markets, SADIC is little known in the Australian market. No major research has been done on the role its product will play in the Australian market and how it will be received, considering the harsh business environment prompted by the used-to-be-high regulations and fierce competition among the existing businesses.
Brand Identity: SADIC is highly recognized for its chemical production more than metal and sheet products. This kind of brand identity may work against it as compared to its potential competitors who deal in one line of business, steel and metal products.
Brand positioning: Most Australians are not aware of the SADIC brand. This may take longer to establish in a market full of skepticism about foreign brands. With an increased preference for local brands by the locals, it will cost more resources, financial and time, to ensure the brand is positioned at par with other similar products.
Costs: The cost of launching a new brand in the Australian market is likely to be sky high due to the high regard placed on quality and pride: consumers like taking pride and identify with products of high quality to symbolize class, hence the high costs of advertisement, especially during the TV prime time advertisement.
It will be therefore essential to have a well-planned budget, with the use of low-cost PR techniques such as press releases and sending samples to key journalists, as well as combining advertising for possible discounts on larger total purchases.
Internal Obstacles: SADIC Saudi Arabia may object to its Australian market target, considering it a high-risk venture. Proper research must be done to establish the real threats and the possibilities of turning them into opportunities. This must be communicated to ensure a proper relationship is cultivated among the stakeholders.
Opportunities
Profits: The harsh climatic condition in Australia is likely to create a larger potential for huge profits. Excellent marketing and sales strategies like strategic pricing will create huge profits for the company.
Growth: the steady rise in population and the changing social trends means high potential for growth and expansion in housing demands. The demand is likely to generate a lot more interest in housing projects by both private developers and the government. This presents an opportunity for housing materials like SADIC products.
Threats
Competition: the two companies, BlueScope and OneSteel are well-established and recognized brands in some form of monotony in the Australian market. This kind of position is a potential threat to SADIC, whose entrance will mean new strategies for competitive advantage by these companies.
Government support: Due to their local affiliations, BlueScope and OneSteel traditionally get support from the government of Australia. For example, the provisions of subsidies and tax waivers have been traditionally given to local companies to encourage them to produce more with less and wade off competitors from outside the country.
Aggressiveness in competition: The present competitors, BlueScope and OneSteel, are expected to be more aggressive when a new market entrant comes in to compete with them. The competition may result in price wars, war of superiority claims, etc.
Limited emerging skilled labor: The Australian skilled labor is diminishing, putting a lot of pressure on the companies to pay more for fewer working hours. This is likely to be a real challenge to SADIC, with an option of importing skilled labor from outside Australia, at an extremely high cost.
Strategic Implications
This analysis indicates that launching an own-brand of Lexan corrugated sheet in the Australian market will certainly be challenging due to the number of factors posing threats. An effective marketing plan will be essential to evaluate potential target segments and determine one specific group to focus on according to market size and growth and needs the company can best meet. There seem to be some specific target markets that may be lucrative like the agricultural sector and service industry.
Brand positioning will be essential since it will be a key factor in successfully establishing the new brand name. Taking into consideration the threat of SADIC (manufacturing and resource base) it should be in a position to launch an effective brand identity in the Australian market.
Marketing MIX
There is a need for proper inclusion of all marketing. For example, the product will need to be tailor-made to the Australian market. Where and how it can be purchased will also be important, especially regarding positioning. The answer to such questions as: which distribution strategies should be used? What type of distributors will work effectively?
Launching the Product
A complete and comprehensive should be followed with an effective launch, taking into consideration, the place and time of launch. The company must be certain it can meet potential demand within a reasonable timeframe.
Reference List
ABS, 1973, Australian Standard Industrial Classification (ASIC) 1969 Edition, Cat. No. 1201.0, Mimeo: Canberra.
Aspen, C. (1990). Estimates of Multi-factor Productivity, Australia, ABS Occasional Paper, Cat. No. 5233.0, Mimeo: Canberra.
Gorrill, R, 2007, Doing business in Australia: Australian social and business culture. Canberra: CIA World.
IBISWorld, (2009), Iron and sheet manufacturing in Ausralia: Australian Industry Report. Web.
Jackson, C, 2009, “Strengthening Australia’s steel industry”, Ministry of Innovation, Industry and Research, Vol.67, no.1, pp. 18-29.
OneSheet, 2009, Company profile and Status [Online]. Web.
SABIC, 2008, Lexan polycarbonate sheet: a solid portfolio. Web.
World Cargo News, 2007, “PN wins Steel Deal” [Online]. Web.