Comment: Apt time for new strategiesby Arabian Oil & Gas Staff on Dec 14, 2016
To quote Harvard’s Michael Porter, the leading authority on competitive strategy, “national pros-perity is not created, nor inherited. It does not grow out of a country’s national endowments, its labour pool, its interest rates, or its currency’s value, as classical economics insists. A nation’s competitiveness depends on the capacity of its industry to innovate and upgrade.”
It is a timely statement, given the long-term challenges facing the region today. Home to almost a third of the world’s proven oil reserves and more than a fifth of proven global gas reserves, the Arabian Gulf has for decades enjoyed a focal role in the global energy picture. Now, however, lower energy prices and the global economy’s eastward shift demand that the GCC producers change their strategy to remain competitive in the region and the world.
Despite current market uncertainty, oil price volatility, slow economic growth and persistent macroeconomic headwinds, opportunities continue to abound. And no other region is better positioned than the Arabian Gulf to capitalise on these radical changes and ride the new market waves. The GCC chemical industry has demonstrated its maturity and resilience during the recent macroeconomic headwinds, outpacing GDP growth – the GCC economies grew by 4.6% between 2008 and 2015, while chemical capacity jumped 8.5%. Yet, it is in the throes of a fundamental transition that will take it to the next stage of development.
With more focus on efficient resource utilisation, higher asset productivity and improved horizontal integration of supplier and customer networks, the sector can better understand demand and improve efficiency. An important first step to ensure smooth and seamless transition would be to lower variable costs through vertical integration, followed by restructuring, upgrading production facilities and deploying more energy efficient technologies. The industry should also leverage digitisation to maximise the potential of its physical and intellectual resources.
To unleash its true economic power, boost growth and create jobs, the industry needs to ‘partner’ with the national governments to develop ‘Competitive Industrial Clusters’, which are robust and well-integrated in terms of logistics and derivative units. A key enabler is creating smart policies and efficient services that nurture SMEs and strengthen an entrepreneurial ecosystem. Overall, the industry should optimise functional excellence across manufacturing, marketing, supply chain and procurement, as well as sourcing and service functions. As always, talent training and development would be key to achieving business excellence in these important areas.
The petrochemical industry has often seen periods of profound changes; starting with the transition from inorganics to organics, introduction of plastics to launch of material science, change is unavoidable. Instead of making an effort to predicting change, it would be much more meaningful to build the capabilities to quickly adapt to it.
In the future, competitiveness will depend on the industry’s access to leading-edge technologies and markets. To this end, companies will need to cement long-term partnerships with new and existing global leaders as well as build local innovation capabilities. An increased focus on Open Innovation that welcomes external ideas will also help leapfrog knowledge intensity and bring the emerging technologies to market. M&A should also be leveraged to create critical mass and build capabilities in key areas.