In the era of rapid globalization, companies must expand internationally to continue thriving. However, Multinational corporations like SABIC must contend with challenges due to the differences in the economic, legal, and political systems in the countries they operate. They must adapt rapidly to situations that are vastly different from their mother countries. A country’s political, legal, and economic aspects intertwine, creating a complex and challenging business environment. SABIC, a Saudi Arabian company operating internationally, has overcome the globalization challenges and established a thriving business in Europe, including the UK.
National differences in political Economy between Saudi Arabia and the UK
The UK and Saudi Arabia share some commonalities and vast differences. One of the similarities between the two countries is that they are both Monarchies. In the UK, the king is the head of state. It is a constitutional monarchy in that the position of the sovereign authority is almost ceremonial as they do not engage in the daily running of the country. Instead, the government is run through policies and legislations enacted by an elected parliament (British Parliament, 2014). The monarchy provides a sense of stability in the country and provides a national identity. In Saudi Arabia, the monarchy has executive powers and is head of the government and state. It combines the executive, legislative, and judicial functions.
The UK and Saudi Arabia differ significantly in all other areas, including politics, culture, and the management of the economy. While the king is the head of the Anglican Church in England, he does not impose religious laws on the populace. The country practices democracy, where legislative functions are through people’s representatives (Kraft, 2013). The United Kingdom ranks among the countries with the highest accountability and voice (Yu, 2021). In other words, the citizens are highly involved in managing the country’s affairs. Before the enactment of the legislation, a bill passes through many legitimation stages, including robust public participation, discussion in the Commons and House of Lords, and eventual voting and signing into law.
In contrast, Saudi Arabia is an authoritarian theocracy, with the monarchy closely tied to the Islamic religion. Managing the country’s affairs is primarily based on the Islamic laws. The people have limited say in managing the country’s affairs, as the king has absolute control over the citizens. The king makes all the policies in a process that is not accessible to the people (Yu, 2021). Indeed, the monarchy in Saudi Arabia has curtailed most freedoms, and the country ranks among those with the poorest performance in the voice and accountability index. The country does not have political parties, and the king exercises overarching authority on all matters.
Company Profile
Saudi Arabia’s Basic Industries Corporation (SABIC) is a multinational petrochemical company operating in various countries. It is a Saudi Arabian company headquartered in Riyadh. While it is a public company, the Saudi Arabian government holds 70% of its shares (SABIC, n.d.). The Saudi Arabian King is its chairperson. In effect, the government controls most of its operations. Since its inception in 1976, the company has grown from a small oil drilling firm in Saudi Arabia to a global multinational company. It specializes in the manufacture of petrochemicals, metals, and fertilizers. In the United Kingdom, the company operates as SABIC Petrochemicals UK.
Cultural Impact
SABIC operates in countries like the United Kingdom, with vast cultural differences from Saudi Arabia. Saudi Arabia has a collectivist culture, while the UK is individualist. Collectivist cultures value society, and the community needs trump those of the individual (Hofstede, 2009). In Saudi Arabia, the collectivist system is tied to Islamic traditions and values, including respecting the elders, protecting the face, and pursuing a virtuous path. Other elements include compassion, forgiveness, humility, and obedience. In Saudi Arabia, kinship and tribal affiliations are valued cultural elements that can determine a person’s success or failure at the workplace and in the community. Another cultural aspect affecting SABIC in Saudi Arabia is the position of women in society. In the country, women and men work separately, with the workplace dominated by the latter and the domestic spheres left to the former. Indeed, in some companies, such as SABIC, men occupy most visible leadership positions.
Further, there is a clear demarcation of leaders and subordinate roles in the workplace. SABIC is a hierarchical organization, with the leaders making all the decisions without involving the subordinates. Therefore, there is a high power distance between the leaders and subordinates. The subordinates implement decisions cascaded to them from top management. Also, they defer to the leaders and do not question their decisions, even those affecting their lives. Further, the employees expect a high level of direct supervision and control from managers and are not likely to exhibit confrontational behaviors toward their leaders, whom they view as “fathers” (Cerimagic, 2010). The employees respect hierarchy, and companies such as SABIC will likely base their promotions to leadership positions on seniority.
Moreover, the hierarchical social structure of Saudi society finds its way into the workplace. Everyone is assigned a specific task with clearly defined duties and boundaries. Each individual feels the obligation to maintain the status quo, making the organization rigid (Cavanagh, 2011). Introducing changes and innovation to such a firm meets significant resistance. Also, the managers use an authoritarian leadership style, routinely discriminating between in-group and out-group subordinates.
Operating internationally poses a challenge to SABIC, especially in places like the UK with its individualistic cultures. It has to adapt to the cultural conditions abroad to be successful. SABIC adapts by entering into mergers, acquisitions, and joint ventures. For instance, the company establishes a different entity, such as the SABIC UK Petrochemicals Ltd. The company operates using the cultural models applicable in the country. SABIC UK Petrochemicals is horizontal, with a low power distance between the leaders and subordinates (SABIC UK, n. d.). The employees expect to be involved in all decision-making processes.
Moreover, the employees do not expect the managers to have all the answers; thus, their contributions are critical. Unlike in the parent company, subordinates in SABIC UK Petrochemicals question their leaders’ decisions and only implement those that progress the organization. Another adaptation present in the company is the employment of many female workers. In the West, there is decreased discrimination against women in the workplace. There is increased recognition that women are as capable as men and thus are given equal chances at the workplace. Therefore, one finds more female leaders in all aspects of business in the United Kingdom.
Political Economy
Politics and the economy are intertwined, significantly impacting business operations. The political economy of Saudi Arabia differs from that of the United Kingdom, potentially affecting a business’s profitability. Saudi has a command economy, where the government controls all business operations (Ericson, 2018). Also, in Saudi Arabia, most businesses are government-owned, with the private sector playing a minor role in the economy. SABIC started as a government-owned company before it sold its shares in an IPO. Even after selling some of its shares to the public, the government still owns a controlling stake in the company. Saudi Arabia is a theocratic totalitarian, with all the power enshrined in the monarchy headed by a king. The people do not exercise many of the freedoms experienced in democratic societies, including voting and public participation during legislation. Instead, the king and his selected people make all the decisions in the country. It is a theocratic totalitarianism as the Monarch’s power has religious roots.
Further, as politics determine the mode of economy, a totalitarian political system would exhibit a command economy. In a command economy, the country’s leader and government plan everything regarding the markets. They decide on the goods and services to be produced, their prices, and even the distribution. The government undertakes the activities “for the good of society” (Ericson, 2018). In such political-economic systems, all businesses are state-owned. The command economy does not provide incentives for innovations to try and serve the needs in a better way. Therefore, the private sector is almost nonexistent. Another factor that suppresses the emergence of the private sector in a command economy is the lack of a proper legal system to safeguard the proprietors’ rights. Business operation in a system that does not have legal mechanisms, such as contract laws, exposes a company to high risks. Theocratic laws in Saudi Arabia based on Sharia law may not safeguard private businesses, especially when dealing with products or services prohibited by religion.
However, the command economy in Saudi Arabia has enabled SABIC to survive and grow into a petrochemical giant that serves the global customer. As earlier stated, SABIC was a state creature. The government used its influence to ensure that the company grew and thrived. It injected capital into the business, slashed tax rates, and used protectionist measures to prevent the entry of competitors into the market. Also, the government levied heavy taxes on international firms trying to establish business in the kingdom. Further, the government has secured SABIC’s profitability through subsidies that keep the prices of its products cheap compared to its competitors.
The United Kingdom is a democracy with a mixed market economy. Ideally, business people would prefer the political economy in the country to be based on the markets. In a market economy, the government would not regulate business. The market forces would determine the supply and demand of products and services (Ericson, 2018). However, the UK government has realized that a pure market economy may not serve citizens’ needs. It would expose them to risks of unnecessary suffering as the markets adjust to different situations. While it would be good to let weak businesses go bankrupt to be left with only the strong ones, the employees, their families, and the shareholders would suffer. The mixed economy in the United Kingdom allows the government to intervene in the market during a crisis. For example, during the 2008 financial crisis, the government stepped in and bailed out big private firms, ensuring they did not collapse. Also, in a mixed economy like Britain, some sectors are state-owned while private entities dominate the majority.
Further, Britain has a robust legal system based on civil law. Such a political and legal environment encourages the development and perpetuation of private businesses. Its legal environment protects the customers from business operations and products. The contractual law is fundamental as it secures businesses against each other. The political economy provides a conducive environment for business operations. The favorable business environment enabled the SABIC to enter into a joint venture and establish a private firm in the UK. In a command economy, establishing a private company would have been challenging or impossible as all businesses are state-owned.
SABIC cannot survive in the international arena without adapting to different political economies. In its home country, the company’s success largely emerges from protection from the state. In Europe and the US, the company does not enjoy such support. It has to operate in the highly competitive global arena characterized by private businesses. It adapts by entering into joint ventures with local companies without taking up a controlling shareholding. In such cases, the core government operations of the subsidiary use the European model, with minimal interference from the parent company. The leadership in the subsidiaries such as SABIC UK Petrochemicals Ltd. is indistinguishable from local firms. It retains its competitiveness without expecting significant support from the Saudi State. However, the subsidiaries still benefit from government subsidies that keep their products cheap, giving them a competitive advantage.
Conclusion
Saudi Arabia and the United Kingdom are vastly different regarding their political, legal, and economic spheres. Saudi Arabia is a totalitarian theocracy with a command economy, while the United Kingdom is a democracy with a mixed markets system. A company operating in the two countries will face significant challenges and must adapt to thrive and defeat competitors. SABIC is a Riyadh-based petrochemical firm operating in a highly competitive global arena. It adapts primarily through joint ventures with local firms to tap into their operations and improve competitiveness. The company currently operates globally, with SABIC UK Petrochemicals Ltd. being the operation hub in the United Kingdom.
References
British Parliament (2014). How Parliament Work. Retrieved from http://www.parliament.uk/about/how/
Cavanagh, P. A. (2011). Comparison of male Saudi Arabian business managers’ selfrated leadership styles in one organization: Influence of education origin. Published PhD thesis. Business Administration, University of Phoenix
Cerimagic, S. (2010). Cross cultural project management characteristics between Australia and the United Arab Emirates. Paper presented at the Construction, Building and Real Estate research conference of the Royal Institution of Chartered Surveyors (RICS): COBRA, Paris, France.
Ericson, R.E. (2018). Command economy. In: The new Palgrave dictionary of economics. Palgrave Macmillan, London.
Hofstede, G. (2009). Dimensionalizing cultures: The Hofstede model in context. Retrieved from: http://www.geert-hofstede.com
Kraft, M. E. (2013). Public policy: Politics, analysis and alternatives. California: SAGE Publications.
SABIC UK Petrochemicals Ltd. (n. d.). Pioneer. Retrieved from https://thepioneergroup.com/company/sabic-uk-petrochemicals-ltd/
SABIC. (n. d.). Toward a vibrant future. SABIC. Retrieved from https://www.sabic.com/en/Images/SABIC-Annual-Report-2019-english_tcm1010-22074.pdf
Yu, A. (2021). The policy process model and the systems model in monarchy: The case of the United Kingdom and Saudi Arabia. The Journal of Open Political Science, 4(1), 40-44. https://doi.org/10.1515/openps-2021-0005
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