Business Strategy Term Paper
This study will examine strategic theories and models, which have been applied in the construction company known as the Saudi Binladin Group (SBG). This Group is a multinational company with its headquarters in Jeddah, Saudi Arabia. The company also has its Group offices in Dubai and several other GCC regions. In addition to being a multi-billion-dollar construction conglomerate, the SBG is also involved in real estate development across the globe. Founded in 1931, SBG has grown to encompass manufacturing, engineering and telecommunications and has won tenders to construct a variety of projects in the Middle East including roadworks, ‘bridges, tunnels, housing and airports’ (D&B Hoovers 2018) among other projects.
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The company also expanded its interests by opening up a marble manufacturing company in China in 2013 and operates several subsidiary companies. The majority of SBGs customers are from the GCC, its employees are primarily GCC members but foreign employees also work at the company with the total workforce component being at around 200,000 employees (Al Jazeera 2018). Raw materials are typically sourced from the region and surrounding countries such as the European Union, CIS countries, Asia, China and the USA.
Porter’s Five Forces Model and Porter’s generic strategies have been selected as strategic analysis tools used by large conglomerates such as SBG. Porter’s Five Forces will be discussed first in relation to this theory’s role in the company, followed by a discussion of some of Porter’s generic strategies.
Porter’s Five Forces Model
Porter’s Five Forces model has survived several decades of criticism but remains a favourite business tool to assess the industry environment. In addition to the SWOT model, Porter’s Five Forces model can become a useful analysis technique to determine where the company’s strengths, opportunities, weaknesses and threats lie. Other than the five forces traditionally employed, Grundy (216) advises that the factors present in the PESTEL analysis are extremely interdependent with those of the Five Forces model and should be included in this analysis. The government’s role in awarding massive tenders to Dubai and UAE companies is significant since this support contributes substantially towards achieving the 2030 Vision created for this region. Despite the apparent difficulties in applying the Five Forces model, Dobbs (33) avers that much of Porter’s analysis sheets have been removed from current text books making the typical use of this model superficial and lacking in insight. Due to this diffusion of information over time this study will attempt to provide further depth to the use of this tool in analysing the five forces present in SBGs environment.
The Threat of New Business Entrants into the Industry and Competitive Rivalry
According to D&B Hoovers (2018), SBGs primary rivals are the Bechtel Group, Inc. in the USA, Bouygues and Vinci in France. Other major companies in this industry with whom SBG competes are Kiewit, Granite Construction, ACS in Spain and China State Construction Engineering and Swedish-based Skanska (D&B Hoover 2018). Being a massive conglomerate SBG competes on an international platform, thus the threat of new entrants into the construction industry is low. Because the market became saturated and due to the 2008/2009 financial crisis and other obstacles, SBG was forced to rethink its corporate strategies. Expanding into the Chinese market became a strong option and in 2013 SBG purchased a marble manufacturing company in China. SBG further expanded its interests into related diversification of its portfolio by making inroads into the industrial and power sectors. Despite high barriers to new market entrants the construction business is highly-reliant on the economy, which supported SBGs move to expand its operations into other countries over time.
Even though the threat of new entrants is minimal, strong competition also lowers profits in the industry (Gupta 36) forcing companies to use corporate strategies to expand their business operations. A government ban on SBGs tenders for a year from 2015 after a construction accident resulted in over 400 employee deaths caused significant losses for SBG (Gulf Business 2018), making the use of earlier corporate strategies in global expansion critical for the sustainability of SBG over time (Rothaermel 242). The extent of competitive rivalry faced by SBG is another factor that forced a global expansion strategy, which has been ongoing to enable the company to compete against international rivals in a highly-competitive industry where the similarity of service offerings and company competencies are high, making rivalry intense in this industry sector (Majumdar and Bhattacharya 150). The global expansion corporate strategy used by SBG has ensured that the company has spread its risks across different, unrelated industries including advanced technologies and investments (Argaam 2018) and country economies, which has supported the company’s growth and sustainability for more than 80-years. Unfortunately, the recent ban on SBG and an anti-corruption drive may force the company to transfer a portion of its shares to the government after some executives had corruption charges laid against them (Gulf News, 2018). Additionally, oil price fluctuations have led to a decline in the construction industry resulting in approximately $1.1 billion US dollars being owed to the state (Gulf News, 2018).
Disadvantages associated with the Five Forces model are linked to a lack of strategic thinking, insight and impracticalities linked with the implementation of this model along with a lack of quantitative data, making most analyses superficial according to Dobbs (33-34). These disadvantages are also attributed to misapplication of the model rather than a fault with the theory (Dobbs 33). Porter’s generic strategies are discussed next in relation to the corporate strategies developed by SBG.
Porter’s Generic Strategies
Differentiation, focus and cost leadership strategies are the generic strategies formulated by Porter to enhance the company’s competitive position in relation to its rivals. These strategies may be used in isolation or together to acquire a competitive advantage. According to Omsa, Abdullah and Jamali (11) these approaches have led to mixed results in the performance of different companies in the past. Pulaj, Kume and Cipi (274) explain cost leadership as a concentration on saving costs to enhance organizational efficiencies enabling the company to produce their product at reduced prices in relation to competitors. These cost savings can be achieved through ‘economies of scale, the experience curve, new technologies and by reducing administrative costs’ (Pulaj et al. 274). SBG failed to control their costs during the oil crises experienced in the region and were further impacted by the 2008/2009 global financial crisis, with corruption allegations further affecting their business operations.
Porter’s differentiation strategy refers to distinguishing elements within the company’s products and services, which makes them a preferred provider. Differentiation can occur in many different forms. One of these is branding and reputation. Unfortunately, SBG has not distinguished itself through building on its past reputation due to corruption allegations, which have damaged the company’s reputation significantly. Additionally, the construction accident that occurred in 2015 and which claimed the lives of so many of the company’s employees also destroyed a lot of trust in SBG. Despite this crane accident having been caused by unexpectedly strong winds, the government still held SBG responsible and banned the company from placing tenders for a year. Obviously, this move significantly added to the financial woes of the company and impacted its global reputation. Prior to these unfortunate occurrences, SBG had been operating since 1931 and had developed a strong reputation in the construction industry, attracting significant client loyalty and trust as a differentiator from its rivals (Pulaj et al. 274). Successful differentiation strategies typically allow the company to command higher prices for its products and services, which SBG was able to leverage during previous decades prior to recent disastrous events, before customer perceptions changed dramatically (Pulaj et al. 274).
The third generic strategy created by Porter is the focus strategy. As the name suggests, the focus strategy concentrates on a niche market aimed at servicing a particular narrow segment of the target market (Pulaj et al. 275). SBGs market was primarily focused on international governments and corporates who could afford the large item construction services provided by the company through building, industrial and energy services. This focus strategy may also combine both the differentiation and low-cost approaches mentioned above. A focused strategy may be especially successful when the niche market is extensive and offers good potential for growth and profits, is not recognized as profitable by competitors who also cannot divide their resources between current customers and the niche market or when several niche market options are present to exploit (Pulaj et al. 275). SBG leveraged its local markets in the GCC countries and expanded its operations to leverage profits in developing economies such as China and countries in South America. Pulaj et al. (275) maintain that some scholars do not recommend a hybrid of these strategies within one company, while others are convinced that a combination of these generic approaches is necessary. SBG undoubtedly implemented all three simultaneously or separately during different periods to leverage opportunities and avoid environmental threats to support its operations. Recent developments, however, suggest that many of the company’s assets will be sold off and downsizing will occur together with organizational restructuring leading to significant financial and job losses, which will also be accompanied by a name change to extend the life of SBG (Argaam, 2018).All free term paper examples and essay samples you can find online are plagiarized. Don't use them as your own academic papers! If you need original term papers, research papers or essays of the highest quality, don't hesitate to contact professional academic writing services like EssayLib. Here you can order your custom paper written according to your specifications. A team of highly qualified writers are available 24/7 for immediate help:
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