The world's top 500 company, Saudi Basic Industries Corporation (SABIC), which originated in the Arabian Peninsula, is increasingly relying on the Chinese market. As the leader of this chemical giant, the global CEO Yusuf Al-Bayyan (referred to as "Yusuf") attending the 2017 Guangzhou Wealth Forum in China expressed SABIC's vision of further expanding its investment in China. He told reporters, "In the future, SABIC will focus on improving its business in China and increasing the scale of its fixed asset investment there."
From official data, it is known that China has become one of SABIC's more important strategic markets. Currently, the Chinese market contributes nearly 20% of SABIC's global sales revenue. The China Petroleum and Chemical Industry Federation released data showing that as of August 2017, the Chinese chemical industry achieved an output value of 961.5 billion US dollars, a year-on-year increase of 14.2%. From this perspective, the Chinese market has sufficient potential and momentum and continues to be a growth engine for SABIC's global business development.
SABIC is a global leading diversified chemical company with its headquarters in Riyadh, Saudi Arabia. Globally, SABIC is the fourth-largest chemical company after BASF, Dow, and other multinational giants. In 2016, SABIC's net profit reached 17.8 billion riyals (4.8 billion US dollars), with a total sales revenue of 132.8 billion riyals (35.4 billion US dollars), ranking 299th in the 2017 Fortune Global 500 list. As of the end of 2016, SABIC's total assets reached 316.9 billion riyals (84.5 billion US dollars). SABIC's total output in 2016 reached 72.7 million metric tons. Currently, the Saudi Arabian government holds 70% of SABIC's shares, while the remaining 30% is publicly traded on the Saudi Arabian Stock Exchange.
Continuously strengthening efforts in the Chinese market
Starting from just having a single business representative office at the beginning, after 35 years of development, SABIC in the Greater China region now has a mature research and development center, factories in Shanghai, Guangzhou, and Chongqing, and business operations in 14 cities.
The total number of employees exceeds 1,500, and the total fixed asset investment exceeds 1.8 billion US dollars.
Yusuf used a set of data to show that China will still be an important investment destination for SABIC in the future: Compared with 2017 and 2016, China achieved an increase in foreign direct investment (FDI), further confirming that the current investment environment in China still has great appeal to foreign enterprises. In addition, 50% of the top 500 companies listed on the New York Stock Exchange have business operations in China, and 41% of these companies' total revenue comes from the Chinese market.
Strong data support has made SABIC confident in the Chinese market. Yusuf told reporters, "We will continue to make commitments and increase SABIC's development in China, further expanding its business in China." According to Yusuf, SABIC's future investment focus in China will be on several core products, including polyethylene, polypropylene, methanol, ethylene glycol, and polycarbonate, as well as the business of polycarbonate.
Currently, this chemical enterprise from Saudi Arabia has completed the joint venture construction with Sinopec Group. In 2009, Saudi Basic Industries Corporation and Sinopec Group announced the joint construction of the China-Saudi (Tianjin) Petrochemical Co., Ltd. (SSTPC), which was fully put into operation on May 8, 2010. And they have reached a principle agreement on further promoting the construction of the joint venture enterprise with Shenhua Ningxia Coal Industry Group and the Ningxia Autonomous Region Government. In the future, there is a possibility of jointly building a joint coal chemical integrated factory. The Saudi Basic Industries Corporation (SABIC), which has successfully won two major contracts from state-owned enterprises Sinopec and Shenhua Group, has attracted the attention of the industry. As of now, SABIC is continuously expanding its business into China.
On December 8th, SABIC just signed a memorandum of understanding with the Guangzhou Nansha Development Zone for further cooperation. The SABIC Nansha Factory, located in the Nansha Development Zone of Guangzhou, was established in 1994 and has a total investment of 248 million US dollars. Currently, this factory has become SABIC's largest mixing plant in Asia and occupies an important position in the entire Chinese and global industrial chain. The signing of this memorandum indicates that Nansha, Guangzhou has become the preferred destination for SABIC to consider further expanding its investment in China.
The success of a multinational enterprise often depends on the performance in several key markets, especially as SABIC strives to become the third-largest petrochemical company in the world by 2025. Clearly, in Yusuf's perspective of the global business landscape, the Chinese market, with its 18% revenue share of the total, is of crucial importance.
The survival strategy of cyclical industries
The reliance on outstanding performance in key markets means that SABIC will make large-scale, long-term asset investments in key markets such as China and the United States. The reporter from SABIC's official source learned that currently, SABIC has three major long-term investment projects in progress, including the OTC project between SABIC and Saudi Aramco for directly manufacturing chemicals from crude oil, the 1.8 million ton ethylene cracking project established by SABIC and ExxonMobil in Texas, and the coal chemical project with Shenhua Ningxia Coal Industry Group in China.
Will launching multiple projects bring significant financial pressure to SABIC? Because the chemical industry has a cyclical nature, how to ensure the stable growth of a chemical company and balance the relationship between long-term investment planning and cyclical uncertainties is by no means an easy task.
As the head of a Fortune 500 company, Yusuf clearly has his own insights. He told the reporter that in order to minimize the uncertainty brought by such challenges, SABIC often chooses to implement bottom-up investments at low points and wait for the industry to recover to make profits. "We have made many successful attempts in this regard. We can't say it's 100% successful, but at least it can achieve a 75% success rate," Yusuf said.
As a multinational enterprise, SABIC has its business operations in over 50 countries around the world and approximately 35,000 employees. SABIC's manufacturing plants are located worldwide, including the Americas, Europe, the Middle East, and the Asia-Pacific region. In Yusuf's view, this is both the inevitable choice for the company's global business expansion and one of the means for SABIC to cope with cyclical fluctuations in the industry. Yusuf told the reporter that due to the time lags in the responses of different markets such as China, Saudi Arabia, or the United States to industry cyclical fluctuations, SABIC chooses to diversify asset investments worldwide, thereby significantly reducing the risks brought by cyclical fluctuations to the company's normal operations.
In addition to macro strategic choices, SABIC will also approach the issue of cyclical fluctuations from a more technical perspective. "We need to further expand SABIC's business in specialty fine chemicals, because bulk chemicals are more susceptible to the cyclical fluctuations of energy prices such as crude oil, resulting in larger fluctuations, while fine chemicals have smaller fluctuations. This can reduce the impact of cyclical fluctuations on SABIC's business," he added. Moreover, Yusuf also highly values SABIC's strategy of diversifying raw materials. He told the reporter, "Currently, SABIC mainly relies on natural gas, and in the future, it will also introduce shale gas and coal. This way, we can fully utilize the ups and downs of each raw material price to reduce the impact of market raw material prices on SABIC's production and operation."
As a global chemical giant, SABIC's strategy for coping with industry cyclical fluctuations is undoubtedly worth learning from. However, it is easier said than done. After the interview, Yusuf told the reporter, "When it is just talked about, it is a very ingenious, very complex and very good strategy. But for a Fortune 500 company, implementing it is not so easy."
