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Discussion of Saudi Aramco Company

Introduction

Saudi Aramco is a Saudi Arabian state-owned business, and it is a dominant player in the oil and gas business, actively engaged in petroleum commodity exploration, manufacturing, marketing, and processing. It is responsible for the planet’s largest crude oil deposit, with a volume of 260.2 billion barrels, and the globe’s fourth-largest gas reserve, with 388.4 trillion cubic feet (Weijermars & Moeller, 2020). In addition, it is the leading producer of natural gas, owing mainly to its massive proven gas reserves. This paper analyzes Saudi Aramco Company’s external environment using Porter’s five forces and identifies its primary stakeholders.

Porter’s Five Forces Analysis of Saudi Aramco Company

Competition

Saudi Aramco faces minimal competition in the local market because it is a state-owned firm that consistently receives precedence in essential gas and petroleum transactions. However, except for processed goods such as hydrocarbon products, it confronts stiff competition from domestic alternatives such as SABIC (Weijermars & Moeller, 2020). As a result, it competes in worldwide marketplaces against global heavyweights such as Shell, BP, and Exxon (Weijermars & Moeller, 2020). Since it is state owned, legal regulations that may affects the operations of business within Saudi Arabia may not apply to it, hence providing it with a competitive advantage.

Possibilities of New Entrants

Oil and gas sector activities have historically been extremely intense, particularly in the Middle East. Exploration efforts in the oil fields and the establishment of manufacturing infrastructure and supply chain facilities are a rather time-consuming and challenging task that requires substantial investment and cooperation from government enforcement agencies. Although the Middle East has a plethora of oil and gas services providers, the entrance obstacles filter out smaller businesses, allowing the more giant corporations to monopolize the market. It is evident that obstacles differ according to the organization’s environment.

Specific sectors of the refining sector make highly trained personnel to manage the equipment and make critical operational judgment calls based on knowledgeable judgments. Saudi Aramco works in an environment with extremely high entry barriers compared to companies that just provide drilling services (Weijermars & Moeller, 2020). New entrants do not threaten Saudi Aramco into the indigenous market due to these previous capital requirements and state help necessary to start a presence in the oil and gas business. Therefore, economic factors such as the demand and supply of its oil are not affected by these new entities.

Bargaining Power of Suppliers

While Saudi Arabia has many oil companies, most of the petroleum business is dominated by a few companies such as Saudi Aramco and Royal Dutch Shell. The vast capital inputs required to operate the firm tend to eliminate several vendors of oil and gas activities, for example. While there is no rivalry amongst these corporations, they have a significant advantage in terms of power over lesser mining and service organizations. Saudi Aramco has no supplier-related issues because it manufactures and sells its own products and services (Weijermars & Moeller, 2020). In addition, the corporation is responsible for all exploration functions and mines its oil. As a result, Saudi Aramco has no significant disadvantage in terms of supplier power.

Bargaining Power of Consumers

Due to its substantial proven reserves and government-backed hegemony in the regional economy hold the largest share and enjoys a significant advantage over clients. Saudi Aramco is a significant partner of the Organization of Petroleum Exporting Countries (OPEC), which regulates the amount of oil generated daily and dictates oil and gas prices (Weijermars & Moeller, 2020). Customer preference is a social factor that affects the external environment of a business. As a result, the consumer’s authority has little consequence on the corporation. Since the corporation does not confront considerable bargaining authority from its consumers, along with the reality that new competitors face a significant barrier to entry, the corporation’s leading position is its greatest asset. Additionally, demographic factors such as the higher population growth rate offers the company a wider market of its oil products.

Threat of Substitutes

The deteriorating oil reserves have hastened the hunt for alternate energy sources such as biodiesel, renewable power, and nuclear power plants. Consequently, the energy infrastructure required to replace crude oil products completely has not been developed to a substantial scale. However, it is critical to remember that the changeover will ultimately occur. Additionally, new oil replacements such as fossil energy and natural gas and renewable technologies such as photovoltaic, wind, hydropower, and even nuclear all pose credible threats to the company’s performance (Weijermars & Moeller, 2020). As the world gradually transitions to sustainable power, such oil and gas corporations’ positions continue to deteriorate.

Main Stakeholders

The key stakeholder of the Saudi Aramco Company is the Saudi kingdom. The state first enticed Saudi Aramco asset managers by paying a one-for-ten share incentive to those who kept the securities for six months. After that, Saudi citizens, corporations, and a few Wall Street businesses share the remaining fragments. And, perhaps most importantly, it is adhering to its vow to pay a minimum of $75 billion in dividends yearly until 2024 (Weijermars & Moeller, 2020). Furthermore, equities yield around 4% to ensure repayment to minority owners until then (Weijermars & Moeller, 2020). Therefore, with the government owing to a more significant percentage of its shares, it enjoys a monopolized market.

Conclusion

In conclusion, Saudi Aramco is a world-renowned oil producer and leading exporter. It remains the Middle East’s largest oil company, having vast proved oil reserves. Saudi Aramco’s activities are entirely state-controlled and financed, forcing prospective entrants to endure lengthy approval processes to gain a portion of the market. However, oil substitutes such as fossil fuels and natural gas and renewable energy sources such as solar, wind, hydroelectric power, and even radioactive energy all offer credible challenges to the organization’s growth.

References

Weijermars, R., & Moeller, J. (2020). Saudi Aramco privatization in perspective: Financial analysis and future implications. Journal of Finance and Economics, 8(4), 161-170. Web.

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