Executive Summary
Abu Dhabi Oil Company has distinct advantages that can propel it to new heights of growth. There are many opportunities that it can exploit to further its dominance in the local and regional market. The company is State-owned. The company, therefore, enjoys goodwill from the government. Additionally, the government possesses better and effective machinery that the company can deploy for growth. However, association with the government makes the company vulnerable to internal political developments. Abu Dhabi Oil Company has a large and highly competent workforce. This makes it easier for the company to innovate and remain ahead of its competitors. The vast natural resources and availability of new prospect in the sun and wind energy provide fresh impetus for growth.
Similarly, the company has embraced modern technology in its operations. The company enjoys legitimacy and goodwill of the people because of its commitment to corporate social responsibility. However, the company must deal with several threats and challenges. The oil and gas industry is very competitive, and entrants of new competitors mean that the company has to grapple with many threats. Additionally, the company must remain cognizant of the dynamic cultural issues that might hurt its image and reputation. It is recommendable that the company ventures into new and less competitive markets to reduce overspending through advertisement in an oversaturated market.
Introduction to Abu Dhabi Oil Company
Abu Dhabi Oil Company started in 1971 with operations in exploration and processing of oil and natural gas. Since then, the company has increased its activities to include transportation and shipping. The Supreme Petroleum Council runs Abu Dhabi Oil Company. The company has many local and abroad subsidiaries. It produces 2.8 million barrels of oil daily (Maguire, 2007). The broadening of operation has spurred growth, and the company ranks top ten in oil and gas production.
In the last three decades, the company has enhanced its competitiveness by increasing its operations. Maguire (2007, p.7) cites “transportation, shipping, marketing and distribution” as the new activities, that Abu Dhabi Oil Company has ventured. The company has intensified efforts in the exploration of new and unexploited resources. However, the management, led by H.H. Sheikh Khalifa Bin Zayed Al-Nahyan, has spearheaded efforts to maintain the balance between resources in the earth crust and people’s needs. ADNOC manages its reservoir prudently in accordance with HSE standards in the Arabian Gulf region. Other ADNOC subsidiaries as cited by Fleigh (2008, p.4) are “ADCO, ADMA-OPCO, GASCO, ADGAS, TAKREER, NDC, ESNAAD, IRSHAD, FERTIL, BOROUGE, NGSCO, ADNATCO and ADNOC Distribution.”
ADNOC produces gas and oil from six major fields. Maguire (2007, p.6) categorizes the fields as “Asab, Sahil, Shah, Bab, Buhaha, and North-East Bab consisting of Dabbiya, Rumaitha, and Shanayel.” The company’s strategy is to develop technical capacity to satisfy and exceed customers’ needs by providing energy, transportation and shipping solutions. ADNOC upholds business ethics and follows a set of core values.
These values include honesty and integrity, developing people, working together, excellence, accountability and communication. The company expects all stakeholders to follow the core values. The company has many employees, with 19,300 workings directly for it. It employs people from diverse cultural backgrounds. The United Arabs Emirates is cosmopolitan because of the high percentage of immigrants and expatriates. The employment policy at ADNOC reflects this diversity in culture.
External and Internal Analysis
PESTEL and Porters Five Forces Analysis provide the best model for the external analysis of a company. PESTEL is an acronym for political, economic, social, technological and environmental factors that affect the performance of a company. Five forces analysis, a tool developed by Porter, investigate how factors outside a company affect its performance. This section will employ the two tools to explore the current and future opportunities and challenges that face ADNOC.
PESTEL Analysis
As mentioned earlier, the UAE’s government owns ADNOC. Any political development in the country thus affects the company. In 1998, for instance, the government decided to reduce the number of expatriates in jobs that the local population can do. Low (2012) terms this process as Emiratilization. It sought to increase the number of Emirates natives in the company. The UAE government political decisions have affected overseas subsidiaries.
Whenever the government is in frosty relations with another country, there is always uncertainty over backlashes that may have consequences on the company. Additionally, political instability in some countries undermines expansion. Morocco and Libya, for instance, have had political upheavals that hurt ADNOC.
Economically, Abu Dhabi Oil Company has a big financial base. The company contributes over 65% of the UAE’s gross domestic income. This has allowed it to expand its operations to many places where there are vast natural resources. Additionally, financial capability has made it possible for the company to diversify its activities to include shipping and transportation. This decision cushions the company against losses when one sector of the economy is in turmoil. With the financial crisis facing the United States and many parts of Europe, ADNOC has experienced slow growth. Whenever the prices of oil fluctuate, the company has experienced stagnation.
Socially, Abu Dhabi Oil Company enjoys a cordial relationship with the communities surrounding it. Low (2012) argues that companies engaging in corporate social responsibility enjoy legitimacy and goodwill from the neighbouring communities. ADNOC engages actively with communities in areas of education scholarship, social amenities, and entertainment.
Technologically, Abu Dhabi Oil Company has continued to embrace new methods of oil exploration, production, and processing. At the basic level, ADNOC has launched an electronic service to interact with employees, suppliers, and other stakeholders. The company is the first in the Arabian Gulf to use visualization techniques. Pendlebury and Groves (2004, p.34) explain that this technology “assembles different technical disciplines to create a combined product that is greater than the sum of its parts”. The automation fields enhance coordination and speed in decision-making. Enhanced oil recovery technology allows the company to replenish its oil fields.
Environmentally, Abu Dhabi Oil Company continues to abide by the Kyoto protocol that controls the emission of carbon into the environment. The company has formulated Health, Safety, and Environment Policy to act as a blueprint in environmental conservation, prevention of occupational illness and adherence to local and international environmental laws. In spite of these efforts, the UAE is one of the most polluted nations in the world (Kapoor, Paul & Halder 2011). In 2009 alone, there were more than 40 oil spills in the UAE.
Legally, Abu Dhabi Oil Company faces little challenges. Because it is State-owned, it enjoys immunity against vexatious legal suits. However, the company does not enjoy similar immunity is its subsidiaries around the world. In the United States, for instance, labour and pollution laws are very strict. This opens ADNOC to thorough scrutiny from labour unions and conservation groups.
Five Forces Analysis
Porter Five forces analysis reveals that Abu Dhabi has many opportunities that can enable it to remains competitive. The first force is the threat of new entrants. Oil and gas market industry is highly profitable and thus attracts many new firms. The more firms there are in an industry, the less profitable the market becomes. Therefore, the incumbents in the market must devise strategies to bar the entry of new competitors or risk spiralling of profits towards zero. For the private sector, the best way to bar new entrants is to provide the highest quality in goods and services so that new entrants have nothing better to offer the market.
For a State-owned company like Abu Dhabi Oil Company, keeping off new entrants is easier because the government can enact legislation to limit competition. ADNOC has managed to bar new entrants without resorting to unfair practices. One such method is through a partnership with globally recognized brands. Abu Dhabi Oil Company has collaborated with Shell and British Oil, leading brands in oil and petroleum products. This presents an opportunity for current and future growth.
The second force is the threat of substitute products or services. Other fuels can serve as substitutes for oil and gas. The fact that oil is a leading pollutant is pushing people to alternative fuels. Manufacturing industries are using nuclear and electrical energy, which are far efficient and cleaner. The production and increasing popularity of green energy portend a big threat to Abu Dhabi Oil Company.
The third force is the bargaining power of customers. It increases when there are many companies producing the same goods and offering the same services. In the Arabian Gulf alone, there are many companies specializing in the same goods and services that Abu Dhabi Oil Company offers. Additionally, customers can compare prices through an internet search and move where they will have more value for their money. Abu Dhabi Oil Company is a high fixed cost company, and hence customers enjoy a bargaining advantage. The presence of Iran National Oil, China National Petroleum and Korean Shipping Company forces prices of goods and services down.
The fourth force is the bargaining power of suppliers. Johnston and Johnston (2006, p.34) argue that “suppliers of raw materials, components, labour and services to the firm can be a source of power over the firm when there are few substitutes”. Abu Dhabi Oil Company faces a high bargaining power of suppliers, especially through cost switching. Every time ADNOC increases prices of goods or service charges, suppliers follow suit, thus defeating the initial purpose of the increase.
The technological asset is the major area where suppliers have a great influence on distribution channels. The increasing power of suppliers remains a present and future threat that faces Abu Dhabi Oil Company.
The fifth force is the intensity of competitive rivalry. As mentioned earlier, the oil and gas industry is highly profitable, hence the many firms in the market. In the Middle East and Asia alone, Abu Dhabi Oil Company faces stiff competition from China National Petroleum, Japan Oil Company, and Iran National Oil. In shipping and transportation, the Korea Shipping Industry is the fiercest competitor. High competition forces a company to invest more in marketing and advertising. This leads to loss of revenue. China and Japan lead the Arabian Gulf in innovation and creation of cheap technology. It is therefore difficult for Abu Dhabi Oil Company to sustain its competitive advantage in the region. However, its large financial base provides an opportunity to invest in innovation and remain competitive.
National Culture and the Company
The UAE has a cultural policy that seeks to develop an infrastructure for cultural reference in all institutions. Locally, the country intends to preserve the local culture by shielding it from cultural homogenization. In the Gulf region, the UAE intends to play a leading and proactive role in regional politics. Internationally, the country is striving to attract creative talent from all over the world and diversify its economy.
In spite of the robust cultural policy, some of the UAE’s cultural practices are hurting Abu Dhabi National Oil. In the spirit of promoting local culture and talent, the company has adopted an employment policy that discriminates against immigrants. The Emiratilization practice has rendered many immigrants jobless. Additionally, there is criticism of slave labour in its oil fields. The UAE is a patriarchal country, and the employment policy favours men. The limited space in freedom of speech undermines women activists who speak against the blatant violation of women rights. These practices hurt ADNOC public image and reputation.
SWOT Analysis
SWOT is an acronym for strengths, weaknesses, opportunities, and threats. Internally, a SWOT analysis establishes the strengths and weaknesses of emanating from within the company. Externally, a SWOT analysis establishes the threats and opportunities that a company faces. Strength is that which contributes to better performance of a company. Weakness is that which undermines performance. Abu Dhabi National Oil possesses some strengths and opportunities that can spur growth. However, several weaknesses and threats may encumber growth.
Abu Dhabi National Oil’s first strength is its financial resources. The company’s revenue is very high, and it contributes to 70% of the UAE gross domestic product (Davidson 2011). The company, therefore, has the capacity to invest in innovation and a highly competent workforce that can spur growth. The second strength is brand equity. Abu Dhabi National Oil has been in existence since 1971, and over the years, it has established itself as a leading brand in oil and gas products.
It is easily recognizable and thus has a loyal customer base. Its corporate social responsibility has endeared it to local communities where it enjoys immense goodwill. The third strength is technological advancement. Abu Dhabi National Oil was the first company in the Gulf region to use 3D visualization technology. The formation of a special committee to spearhead innovation places the company ahead of other competitors in the region. Lastly, the company has a highly trained and competent labour force.
Like any other company, Abu Dhabi National Oil has several weaknesses that can hurt its present and future prospects. The first weakness is the management of the company. Political appointees with the right connection to power lead Abu Dhabi National Oil. This locks out potential candidates that may be equally competent. Furthermore, political office bearers wield immense influence over the operations of the company. The second weakness is a lack of accountability and transparency within the company. Until recently, the company was not making public its financial reports. This undermined the stakeholders’ confidence in the company.
Abu Dhabi National Oil has several opportunities that it can exploit to consolidate its local and regional dominance. The first opportunity is the availability of vast natural resources. Oil and natural gas resources are still unexploited. Solar and wind energy provide fresh avenues that the company can exploit. The other resource is human capital. There is a high percentage of educated youths in the UAE. The company can tap into the human capital to spur growth. Abu Dhabi National Oil can invest in technology to fill the large market void that multinationals are taking advantage to exploit.
Abu Dhabi National Oil faces several threats in the local, regional, and global market. There is stiff competition from other oil and gas explorers. Iran National Oil, China Petroleum and Japan Oil locks Abu Dhabi National Oil out of a big regional market segment. Secondly, environmental pollution is forcing people into alternative sources of energy. Thirdly, oil prices in the international market keep fluctuating. It is sometimes difficult for the company to meet its target because it has little control over international prices. The political instability in the Arabian Gulf region presents a challenge to the company.
Generic Blocks of Competitive Advantage
Hults, Thurber and Victor (2012) propound four generic building blocks of competitive advantage. There are efficiency, quality, innovation, and customer responsiveness. As mentioned earlier, excellence is one of the core values at ADNOC. The company has consistently been efficient in the delivery of quality goods and services. It has therefore won many awards in efficiency, quality of products and services, as well as innovation.
The state of customer service can, however, be improved so that it is more responsive and easily reached. In a study to determine customer satisfaction levels, Jenster and Hussey (2001, p.36) reveal that more than three-quarters of respondents are satisfied with efficiency, quality and innovation. However, only half of the respondents were satisfied with the customer service. Most of the respondents reported unanswered calls and difficulty in the accessibility as the poorest department in the company.
Distinct Competencies and Differentiation Strategies
Abu Dhabi National Oil Company possesses distinct competencies that contribute to its growth. The fact that it is State-owned cushions it against unfair competition practices. The fast financial and human resources provide the impetus for local, regional, and global expansion. The firm ratio of oil companies in the UAE is low, thus giving the shielding the company from intense local competition. The other competence is innovation.
ADNOC leads the Arabian Gulf in embracing technology. This presents the opportunity to remain ahead of other competitors. Additionally, collaboration with leading oil and petroleum brands such as British Petroleum protects the company against stiff competition in the international market. This has enabled the company to expand its operations in Europe and America. Furthermore, Abu Dhabi Oil Company has employed a differentiation strategy that has improved efficiency. Different departments specialize with different functions hence high efficiency.
Addressing Possible Problems
In spite of the competitive advantage, ADNOC has several problems. The company can address these problems through a combination of methods. In the customer service department, the company should automate most of its operations. This will ensure that customers get a prompt response to their queries. To solve the problem of discrimination in employment, the company should change its employment policy.
This is achievable through affirmative action to women and immigrants. To solve the problem of pollution, the company should continue to innovate in order to come up with technologies that reduce oil spillage in lakes. ADNOC enjoys a monopoly in the oil and gas sector in the UAE. This sometimes leads to complacency. The company should recognize that complacency could lead to poor services. With globalization, another company can take advantage of and establish very stiff competition.
Stakeholder Analysis
Jenster and Hussey (2001, p.23) define stakeholder analysis as the “identification of a project’s key stakeholders an assessment of their interests and the ways in which these interests affect the project and its viability.” A stakeholder analysis establishes the interests of various people and organizations vis-à-vis a company’s objectives. The rationale is to avoid conflict of interest in the course of a project’s implementation. Through stakeholder analysis, it is possible for a company to determine the non-financial impacts of a project. The table below shows how various stakeholders can work together in the Abu Dhabi National Oil Company to bring about better customer service and expansion.
Recommendations
In view of the above discussions, this paper makes the following recommendations: The Company should venture into the exploration of oil and natural gases in areas that have minimal competition. There are large reservoirs of oil and gas in countries of Africa and South America. Secondly, the company should venture into newer markets that are less saturated. Marcel and Mitchel (2005) aver that seven out of the world’s fastest economies are in Africa.
Therefore, ADNOC should venture into such markets where competition is low. Third, the company should review its hiring policy in order to take care of women and other marginalized groups. Fourthly, the company should review the hiring process of top management so that competence can take precedence over other considerations. Fifthly, the company should continuously improve its labour force in order to meet the changing needs of customers. Lastly, the company should diversify into manufacturing technological devices in order to take advantage of the large market void.
Conclusion
In conclusion, this paper has analyzed Abu Dhabi National Oil Company in details. The company enjoys a monopoly in the UAE. It ranks top ten in the world. It has distinct competencies like highly competent workforce, brand equity, and innovation. However, it needs to venture into new markets and diversify its operations in order to remain competitive. The business environment is increasingly becoming competitive. Companies that slacken are rapidly fading into obscurity.
To avoid such a situation, ADNOC should avoid complacency. Additionally, it should continuously innovate and develop its employees in order to meet the demands of an ever-demanding market. Finally, the company should diversify its activities to shield itself from the fluctuation of oil prices in the global market. There are immense opportunities in the area of solar and wind energy that the company can exploit.
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