Abstract
The Saudi Aramco, formally called Saudi Arabian Oil Company, is one of the largest globally recognized power and petrochemical organizations in the whole world. In 1933, through a concession agreement between the Saudi government and the Standard Oil Company of California (now Chevron), the oil company was founded and grew to become a state corporation, managing the world’s second-largest proven crude oil reserves and fourth-largest gas reserves, and headquartered in Dhahran, Saudi Arabia. Saudi Aramco’s operations comprise exploration, production, refining, distribution, shipping marketing, and transportation of hydrocarbon, operating thus the biggest single hydrocarbon network, the Master Gas System. The refining processes of the company on its domestic and international scale lead it to prominence in the global market, which means that it is one of the major players that impact the dynamics of global energy and a major part of the energy industry revenue.
Introduction To Saudi Arabian Oil Company
In June 2020, SABIC, the key oil company of the world, Saudi Aramco, closed an important acquisition that thence into SABIC, the Saudi Arabian Basic Industries Corporation, from 70%. Here, it should be mentioned something other than a full merger, but rather a smart operation for Aramco to manage its position in additionally to crude oil production. With the SABIC acquisition, a large petrochemical company, Aramco was meant to spread its income to a certain extent and be no longer at the mercy of the volatile oil prices (AlGhamdi, A. et al.,2020). The know-how of SABIC, which involves chemicals, mainly fertilizers and plastics, offered an opportunity for Aramco to dominate the global markets due to the huge and evolving demand for these products. This brought the dynamism of being a sole super major in the chemicals market, thus making a more integrated oil and gas giant with bases along the hydrocarbon value chain.
Reasons for the Acquisition
Saudi Aramco’s performance of conducting the unification process following the acquisition of SABIC was a very intricate dance performed with maximal respect. By distinguishing culture encounters the possibility of clashes, Aramco decided to go slowly with merging the companies. This prompted the SABIC staff members to gradually train the new ownership structures with minimized disruptions, strengthening the sense of continuity. On top of this, companies asserted shared beliefs they valued, like safety, quality, and societal responsibility. Shining light on these comparable grounds created a shared sense of unity and direction, forming a basis for a joint working agreement.
On the other hand, Aramco did not simply impose its own culture. It was obvious that SABIC made such a process without drastic changes to preserve its own success in such a workplace environment. This meant that the staff of SABIC could keep a certain degree of independence in their activities if they found an effective and proper way. The knowledge transfer programs were developed through the knowledge gap-filling methods of Aramco and the avenue of collaborative work (Assiri W. et al.,2021). These schemes were the platforms for sharing capabilities where the two companies may have a win-win situation. Hence, the company was strengthened. These efforts encompass three important pillars: achieving a common understanding and ethos among Aramco employees and respecting SABIC’s distinct corporate cultural norms. The key to success was finding the right balance, and this way, Aramco avoided disruption of the employment and challenged the employees to give their best by leveraging on the added value of the combined workforce.
Management of Cultural Integration
Saudi Aramco’s cultural compatibility scenario with SABIC makes it a forecast of the good with some anticipated barriers. Being Saudi, where they are both active, promotes the feeling of national pride and a better understanding of the local environment in which they are active. They can bring the same oil and gas working ethics, translating the problem into the same safety protocols and easing the integration process( Kavthankar A. et al., 2021). Moreover, their size is an indicator of the acceptable structure of large-scale and established management.
However, challenges exist. Size of Aramco in comparison, SABIC employees could experience absorption, which will affect morale eventually. Leverage cultural diversity when dealing with Aramco’s staff that is of various nationalities compared to SABIC, which could be homogenous as far as the composition of the workforce is concerned. However, the independence of SABIC can be the reason for its dismissal from Aramco’s structure, which would cause great opposition.
Nevertheless, things like a common understanding of being one nation, shared industrial priorities, and similar internal structures indicate that these countries can get along perfectly. Aramco’s commitment to accommodate all the working and cultural differences and support training programs may close the gap and give birth to the integration of the two companies successfully.
Cultural Compatibility Assessment
The jury is still out on the ultimate success of Aramco acquiring SABIC, but early signs are encouraging. The transaction creates, among other things, a hedge against the notoriously gyrating oil prices, leading the company to establish a less risky position. SABIC’s chemical sector contributes to the strong financial stability of Aramco, as well as to a substantial and steady revenue stream generation. Moreover, the company opted for a creative combination of the departments. Coupling Aramco’s feedstock, the raw fuel used in chemical plants, with SABIC’s longstanding proficiency facilitates this integrated production system. This symbiosis would enhance cost savings and generate working efficiency within the combined enterprise. Also, the purchase facilitates the expansion of Aramco’s market stake. They are now crucial oil producers and factor into the hysteron value chain comprising oil and petrochemicals. With this extended role, they gain decisive superiority in Europe’s energy market.
However, challenges remain. As big companies may contain different cultures, integrating these organizations may be difficult (PARK, Y. E. et al .,2020). Aramco needs to pay special attention to the workforce morale and allocate the skill sets and expertise in an orderly way so as not to interfere with the process and ensure efficiency. Furthermore, the pile-up of debt to fund the purchase may become a burden if oil prices sink. Through servicing this debt, Aramco’s ability to determine the merger company’s financial health in the future will be a factor of relevance. Finally, the impact over the long term of these new chemicals on price competitiveness has still to be observed.
Generally, the SABIC takeover will substantially improve Aramco’s competitive advantage. They have turned into a company that produces a wider spectrum of products that are more diversified and integrated with a strong position, in this case, in chemicals. Nevertheless, the adeptness at which they can integrate, service the debt, and identify their market niche in the chemicals space will determine whether the acquisition will be a long-term success.
Reference
AlGhamdi, A. (2020). Saudi Arabia energy report. King Abdullah Pet. Stud. Res. Cent, pp. 19, 1–28.
Assiri, W. (2021). An Exploratory Study of Merger and Acquisition Activity in the Saudi Insurance Industry: The Role of Process, Resources and Executives (Doctoral dissertation, Jacksonville University).
Kavthankar, A., & Perepu, I. (2021). Saudi Aramco. IUP Journal of Accounting Research & Audit Practices, 20(4), 522–538.
PARK, Y. E. (2020). Saudi Aramco’s Global Expansion Strategy: Evidence from Korea. Journal of Distribution Science, 18(5), 71-81.
Wei, X. (2022). The Impact of Cultural Differences on Foreign Cooperation of Chinese Petroleum Companies——Take Sinopec Zhongyuan Petroleum Engineering Company, Saudi Arabia Company, and Saudi Aramco as Examples. Academic Journal of Business & Management, 4(18), 101–108.
Wei, X. (2022). The Impact of Cultural Differences on Foreign Cooperation of Chinese Petroleum Companies——Take Sinopec Zhongyuan Petroleum Engineering Company, Saudi Arabia Company, and Saudi Aramco as Examples. Academic Journal of Business & Management, 4(18), 101–108.
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