Savola Group 2010 Case Notes Prepared by: Dr.

Victor Sohmen Case Author: Salem Al-Ghamdi

A.

Case Abstract

Savola Group (SG) (www.savola.com) is one of Saudi Arabias leading companies, with a strong presence throughout the Arab world and even beyond it. The company was founded in 1979 with market capitalization reaching SR16 billion by mid-2010. Savolas first business was in the edible oil industry in Saudi Arabia. Its market shares for edible oils and sugar in Saudi Arabia are 62 percent and 68 percent, respectively. Savola is now one of the most successful and fastest-growing multinational food groups in the Gulf and the Middle East region, also penetrating North African and Central Asian countries. It has evolved into a diversified foods and retail conglomerate. The companys portfolio of businesses includes edible oils, sugar, noodles/pasta, retailing, packaging, real estate, franchising, and investment. The food division includes edible oils, fats, and sugar. The retail division comprises supermarkets and hypermarkets, and the packaging division includes plastic manufacturing. The investment division has invested in the Herfy Foods Company and the Al Marai Dairy Company. Finally, the real-estate division includes Tameer Jordan and Kinan International. Today the group has a workforce of more than 16,000 employees, around 160,000 shareholders, and is listed in the top 20 companies in Saudi Arabia. Its 2009 sales were SR17 billion, which is about 70 percent growth over 2007. Savola is trying to increase its market share within Saudi Arabia and globally by pursuing a growth strategy.

B. Vision Statement (Actual)

Our vision at SG is to become the most successful and fastest-growing multinational group in the Middle East region, North African, and Central Asian countries.

C.

Mission Statement (Actual)

SG strives to be the most successful publicly listed strategic investment group in the MENA region, built on the four pillars of honesty, caring justice, conscientiousness and personal control with a diversified portfolio of businesses including edible oils, sugar, pasta, retailing, packaging, real estate, and franchising.

Mission Statement (Proposed)

Our mission at SG is to be the most successful (5) publicly listed (8) strategic investment (5) group in the MENA and Central Asian region (3) with a diversified portfolio of flagship (4) businesses with branded products (2) for discerning customers (1) in edible oils, sugar, pasta, retailing, packaging (4), real estate, and franchising (2) and with genuine commitment to Corporate Governance (CG) (5) Copyright 2011 Pearson Education Limited

and Corporate Social Responsibility (CSR) (8) based on ethical values and respect (6,7) for its workforce (9) of 16,000 highly talented, trained, and productive employees (9), as well as to the local communities (8) and the environment8. 1. 2. 3. 4. 5. 6. 7. 8. 9. Customer Products or services Markets Technology Concern for survival, profitability, and growth Philosophy Self-concept Concern for public image Concern for employees

D.

External Audit

CPM Competitive Profile Matrix The Competitive Profile Matrix (CPM) identifies a firms major competitor(s) and its particular strengths and weaknesses in relation to its strategic position. SGs relative strengths and weaknesses based on the case details are portrayed in the weighted scores. SG is currently the most successful publicly listed strategic investment group in the MENA and Central Asian region with a diversified portfolio of flagship businesses with branded products. The GCC competitors are Waitrose and Carrefour. As explicit data for these competitors are unavailable from the case, their weighted scores are based on their perceived strengths and weaknesses comparative to SG, and in terms of the critical success factors explicitly or implicitly reflected in the case. It can be seen that SGs Retail Sector is ahead of the competitors Waitrose and Carrefour with a score of 3.60, with Waitrose (2.84) trailing behind both. The main strength of SG is its variety of product lines, well-researched products, market leadership, and product image. However, SG needs to improve on its price competitiveness as this is usually the advantage of foreign competitors with global reach. SG could also face competition from other competitors in individual SBUs, especially in the areas of pricing, product lines, and product quality.

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Waitrose SG Rating ScoreWeighted GCC Competitor Rating ScoreWeighted

Carrefour GCC Competitor Rating ScoreWeighted 0.48 0.32 0.24 0.30 0.48 0.16 0.24 0.18 0.30 0.30 0.24 3.24

Critical Success Factors Price Competition Global Expansion Management Technology Product Lines Customer Loyalty Market Share Advertising Product Quality Product Image Financial Position TOTAL

0.12 0.08 0.08 0.10 0.12 0.08 0.08 0.06 0.10 0.10 0.08 1.00

Weight

3 3 4 4 4 3 4 2 4 4 4

0.36 0.24 0.32 0.40 0.48 0.24 0.32 0.12 0.40 0.40 0.32 3.60

3 3 3 3 3 2 2 3 3 3 3

0.36 0.24 0.24 0.30 0.36 0.16 0.16 0.18 0.30 0.30 0.24 2.84

4 4 3 3 4 2 3 3 3 3 3

Opportunities 1. Savola is trying to increase its market share nationally and globally by pursuing a growth strategy 2. The retail division of SG is the largest and fastest-growing national retailer in Saudi Arabia in terms of sales and selling area 3. Large volume purchases and distribution power are possible for the retail market 4. Buying power can be intensified by a willingness to seek lesser profit margins 5. The Arab Advisors Group estimates e-commerce users in Saudi Arabia to exceed 3.5 million consumers, representing nearly 15 percent of the Saudi population Threats 1. The real-estate industry is facing financial problems due to the global financial crisis 2. The financial crisis has affected customer income, which will affect target sales for Panda, Savolas retail giant 3. Raw material costs are expected to increase due to escalating oil prices, and consequently increasing the price of the final product 4. The increase in online shopping with home delivery poses a threat as Savola focuses on conventional shopping 5. There is threat of substitution of products such as glass, aluminum, and aspartame

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External Factor Evaluation (EFE) Matrix An External Factor Evaluation (EFE) Matrix allows strategists to summarize and evaluate economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive information. SG is in a comfortable position with its competitive stance in Jordan with a range of expertise in telecom products and services. With Jordan having the most competitive telecom sector in the Arab world, and over 100 percent penetration rate for mobile phone subscribers, SG needs to assess its external opportunities and threats carefully and strategize by building on potential core competencies. As the Internet penetration rate is still in its infancy, perhaps SG could capitalize on the opportunity presented by this promising sector. Inevitably, SG cannot compromise on quality and service to differentiate itself and consolidate its market share; and it certainly needs to penetrate underexploited areas such as the Internet market.

Key External Factors Opportunities 1. Savola is trying to increase its market share internally and globally by pursuing a growth strategy 2. The retail division of SG is the largest and fastest-growing national retailer in Saudi Arabia in terms of sales and selling area 3. Large volume purchases and distribution power are possible for the retail market 4. Buying power can be intensified by a willingness to seek lesser profit margins 5. The Arab Advisors Group estimates e-commerce users in Saudi Arabia to exceed 3.5 million consumers, representing nearly 15 percent of the Saudi population Threats 1. The real-estate industry is facing financial problems due to the global financial crisis 2. The financial crisis has affected customer income, which will affect target sales for Panda, Savolas retail giant 3. Raw material costs are expected to increase due to escalating oil prices, and consequently increasing the price of the final product 4. The increase in online shopping with home delivery poses a threat as Savola focuses on conventional shopping 5. There is threat of substitution of products such as glass, aluminum, and aspartame Total

Weight

Rating

Weighted Score

0.10 0.12 0.10 0.08 0.10

4 4 3 2 3

0.40 0.48 0.30 0.16 0.30

0.10 0.12 0.10 0.10 0.08 1.0

3 3 4 3 2

0.30 0.36 0.40 0.30 0.16 3.16

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The average total weighted score is considered to be 2.5. A total weighted score of 4.0 indicates that the entity is responding in an outstanding way to existing opportunities and threats in its industry. In other words, the firms strategies effectively take advantage of existing opportunities and minimize the potential adverse effects of external threats. A total score of 1.0 indicates that the firms strategies are not capitalizing on opportunities or avoiding external threats. The total weighted score of 3.16 suggests that SG has recognized the opportunities and threats it faces, and needs to embark on a serious review of its potential for dominance in Saudi Arabia and market leadership in the MENA and Central Asian regions, growth opportunities, and distinctive competencies of each SBU.

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Product Positioning Matrix After markets have been segmented so that a firm can target particular customer groups, the next step is to find out what customers want and expect. Many firms have become successful by filling the gap between what producers see and customers perceive, as good service. Product positioning entails developing schematic representations that reflect how a firms products compare with their competitors regarding dimensions most important to success in the industry. Two matrices are presented below for SG and the competitors. Product Positioning Matrix for Technology vs. Product Lines As depicted in the Product Positioning Matrix below for Technology vs. Product Lines, SGs Product Lines are wide and comparable to those of its close rivals, Carrefour and Waitrose. Whereas the two competitors carry other manufacturers products, SG has a broad range of proprietary products, especially in the retailing sector. The research-intensive culture of SG for each of its business units has ensured unassailable quality of the products targeted to a widespread customer base, mostly in Saudi Arabia.

Technology (High)

SG Carrefour Waitrose
Product Lines (low) Product Lines (High)

Technology (Low)

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Product Positioning Matrix for Global Expansion and Product Image It can be seen from the Product Positioning Matrix below for Global Expansion vs. Product Image that SG surpasses both Carrefour and Waitrose in Global Expansion with its aggressive mandate to stretch across the MENA and central Asian areas and currently exporting to 30 countries. Though SG has a strong base in Saudi Arabia, its mission is to be a leader in the retailing, real estate, and investment businesses across the Arab world and beyond. SGs product image also is impeccable due to its stress on quality backed by research and a highly trained employee force. Carrefour and Waitrose also have international ambitions in the GCC and beyond, but largely market other manufacturers products. The product image for Carrefour and Waitrose is therefore derived, rather than proprietary.
Global Expansion (High)

SG Carrefour Waitrose
Product Image (low) Product Image (High)

Global Expansion (Low)

E.

Internal Audit
Strengths 1. The Savola Group is one of Saudi Arabias leading companies, with a strong presence throughout the Arab world and beyond 2. It is now one of the most successful and fastest-growing multinational food groups in the Middle East, also penetrating North African and Central Asian countries 3. The 2009 sales were significantly higher than the 2007 level

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4. The group has a workforce of more than 16,000 employees, around 160,000 shareholders, and is listed in the top 20 companies in Saudi Arabia 5. It has long marketing experience in the Saudi market and understands Saudi consumers 6. The company is strong in marketing research to enhance quality and performance 7. The groups export operations cover 30 countries with strong marketing and distribution capabilities 8. The Savola Academy, a training institution for staff, is a professional human resources system in Savola 9. Savola has the capacity to expand in all business areas, especially in the petrochemicals area 10. Savola has plenty of cash that allows it to acquire more assets in the GCC region Weaknesses 1. Savola may not be able to compete against low-margin competitors such as Waitrose and Carrefour in a low-margin industry 2. Inflation, which results from linking the SR to the US$, may affect the companys narrow profit margin 3. The real-estate market is showing declining affordability, which could weaken Savolas ability to sell property 4. Savola is lagging behind in Internet-based marketing 5. Savolas unrelated business portfolio may curtail operational synergy Financial Information for SG* (Income Statement only) YTD December 31, 2009 Sales Operating Expenses Gross Operating Margin Other Revenues Total Revenues Total Expenses Net Income Zakat (Taxes) Net Income after Taxes Net Income % of Revenues Net Income % of Sales 17,917,202 14,809,887 3,107,315 750,792 3,858,107 2,843,219 1,345,487 115,463 1,230,024 31.9% 6.9% YTD December 31, 2008 13,821,377 12,007,054 1,814,323 593,680 2,408,003 2,152,258 255,745 53,387 202,358 8.4% 1.4% 33% YTD December 31, 2007 10,409,530 8,705,859 1,703,671 1,189,792 2,893,463 1,547,976 1,014,888 63,323 951,565 35.1% 9.1% -

Annual Sales growth % 29% Source: Adapted from Savola Annual Report, 2009. *Amounts are in SR 000s.

It is evident from the Income Statement results of SG for the years 2007, 2008, and 2009 that income has been positive throughout despite reorganization into SBUs, with over 30 percent net income over revenues during 2007 and 2009. In 2008 SG Copyright 2011 Pearson Education Limited

started acquiring competitors with notable market shares and was successful in acquiring Giant Stores, which added 17 stores in Saudi Arabia and 38 internationally (for example, the acquisition of Yudum Foods in Turkey in 2008). Also, Giant Stores and Panda merged in the last quarter of 2008. This reorganization took its toll on net income after taxes during 2008, resulting in lower profit percentages. Also, consolidated net profit in 2009 for plastics was SR103 million, up from SR56 million in 2008. However, sales growth has decreased from 2007 to 2009. This may be the result of a combination of a growing customer base, mergers and acquisitions, and market expansion. It would be better to see a steady increase in income representing real growth from consolidation, and this will need astute strategic planning and execution by the SBUs. Internal Factor Evaluation (IFE) Matrix A summary step in conducting an internal strategic-management analysis is to construct an Internal Factor Evaluation (IFE) Matrix. This strategy-formulation tool summarizes and evaluates the major strengths and weaknesses in the functional areas of a business, and it also provides a basis for identifying and evaluating relationships among them. Itemized below are the strengths and weaknesses of SG from the information provided, there are more strengths than weaknesses.

Key Internal Factors Strengths 1. The Savola Group is one of Saudi Arabias leading companies, with a strong presence throughout the Arab world and beyond 2. It is now one of the most successful and fastest-growing multinational food groups in the Middle East, also penetrating North African and Central Asian countries 3. The 2009 sales were significantly higher than the 2007 level 4. The group has a workforce of more than 16,000 employees, around 160,000 shareholders, and is listed in the top 20 companies in Saudi Arabia 5. It has long marketing experience in the Saudi market and understands Saudi consumers 6. The company is strong in marketing research to enhance quality and performance 7. The groups export operations cover 30 countries with strong marketing and distribution capabilities 8. The Savola Academy, a training institution for staff, is a professional human resources system in Savola

Weight

Rating

Weighted Score

0.08 0.07

4 4

0.32 0.28

0.05 0.05

2 3

0.10 0.15

0.07 0.09 0.07 0.06

3 3 3 3

0.21 0.27 0.21 0.18

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9. Savola has the capacity to expand in all business areas, especially in the petrochemicals area 10. Savola has plenty of cash that allows it to acquire more assets in the GCC region Weaknesses 1. Savola may not be able to compete against low-margin competitors such as Waitrose and Carrefour in a low-margin industry 2. Inflation, which results from linking the SR to the US$, may affect the companys narrow profit margin 3. The real estate market is showing declining affordability, which could weaken Savolas ability to sell property 4. Savola is lagging behind in Internet-based marketing 5. Savolas unrelated business portfolio may curtail operational synergy Total

0.07 0.08

4 3

0.28 0.24

0.08 0.06 0.05 0.06 0.06 1.00

3 2 3 1 2

0.24 0.12 0.15 0.06 0.12 2.93

Regardless of how many factors are included in an IFE Matrix, the total weighted score can range from a low of 1.0 to a high of 4.0, with the average score being 2.5. Total weighted scores well below 2.5 characterize organizations that are weak internally, whereas scores significantly above 2.5 indicate a strong internal position. In light of this, SGs position with a score of 2.93 reflects a moderate internal position. This may suggest that SG seek to consolidate its numerous assets and recent acquisitions to establish its market position and to build up its public profile and image. The SWOT Strategies analysis below will provide a more cogent picture of SGs strategic viability.

F.

SWOT Strategies

Any organization, whether military, product-oriented, service-oriented, governmental, or even athletic, must develop and execute good strategies to win. A good offense without a good defense, or vice versa, usually leads to defeat. Developing strategies that use strengths to capitalize on opportunities could be considered an offense, whereas strategies designed to improve upon weaknesses while avoiding threats could be termed defensive. Taking into consideration the above identified External Audit of the Opportunities and Threats (OT) and the Internal Audit of Strengths and Weaknesses (SW), a SWOT Matrix can be compiled and is presented below as: SO (strengths-opportunities) Strategies; WO (weaknesses-opportunities) Strategies; ST (strengths-threats) Strategies; and, WT (weaknesses-threats) Strategies. Matching key external and internal factors is the most difficult part of developing a SWOT Matrix, requiring good judgment and there is no one best set of matches.

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Strengths 1. The Savola Group is one of Saudi Arabias leading companies, with a strong presence throughout the Arab world and beyond 2. It is now one of the most successful and fastest-growing multinational food groups in the Middle East, also penetrating North African and Central Asian countries 3. The 2009 sales were significantly higher than the 2007 level 4. The group has a workforce of more than 16,000 employees, around 160,000 shareholders, and is listed in the top 20 companies in Saudi Arabia 5. It has long marketing experience in the Saudi market and understands Saudi consumers 6. The company is strong in marketing research to enhance quality and performance 7. The groups export operations cover 30 countries with strong marketing and distribution capabilities 8. The Savola Academy is a professional human resources system in Savola 9. Savola has capacity to expand in all business areas, especially petrochemicals 10. Savola has plenty of cash that allows it to acquire more assets in the GCC region

Weaknesses 1. Savola may not be able to compete against low-margin competitors such as Waitrose and Carrefour in a lowmargin industry 2. Inflation, which results from linking the SR to the US$, may affect the companys narrow profit margin 3. The real-estate market is showing declining affordability, which could weaken Savolas ability to sell property 4. Savola is lagging behind in Internetbased marketing 5. Savolas unrelated business portfolio may curtail operational synergy

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Opportunities 1. Savola is trying to increase its market share internally and globally by pursuing a growth strategy 2. SGs retail division is Saudi Arabias largest and fastest-growing national retailer in sales and selling area 3. Large volume purchases and distribution power are possible for the retail market 4. Buying power can be intensified by a willingness to seek lesser profit margins 5. The Arab Advisors Group estimates Saudi e-commerce users to exceed 3.5 million consumers nearly 15 percent of the Saudi population Threats 1. The real-estate industry is facing financial problems due to the global financial crisis 2. The financial crisis has affected customer income, affecting target sales for Panda, Savolas retail giant 3. Raw material costs are expected to increase due to escalating oil prices, and consequently increasing the price of the final product 4. The increase in online shopping with home delivery poses a threat as Savola focuses on conventional shopping 5. There is threat of substitution of products like glass, aluminum, and aspartame

S-O Strategies 1. SG should aggressively pursue the international market for its highprofile food products which are reputed for quality 2. SG could consider expanding its petrochemicals business 3. SG should make concerted efforts to enter the e-commerce market that represents over 15 percent of the Saudi population, and expand the market globally

W-O Strategies 1. SG could consider partnering with one of its competitors in the retail industry (Carrefour or Waitrose) to buttress volume purchases, distribution power, and realistic pricing

S -T Strategies 1. SG could combat the threat of substitutes for glass, aluminum, and aspartame by building up its successful plastics business 2. SG should capitalize its knowledge of the Saudi Arabian market to pick up retail sales in Saudi Arabia

W-T Strategies 1) SG should divest itself of its real estate business in view of the global financial crisis and declining affordability of real estate 2) SG should shift significant resources into Internet-based marketing of its consumer goods to economize on distribution costs and serve online customers

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SO Strategies use a firms internal strengths to take advantage of external opportunities. SG can capitalize on its large customer base and expansion drive to increase its clout in the food, retail, and petrochemicals businesses. Considering its cash-rich assets position, profit margins may be compromised to consolidate market shares in these areas. WO Strategies aim at improving internal weaknesses by taking advantage of external opportunities. By partnering with one of its competitors in the retail arena (such as Carrefour or Waitrose), SG could become the market leader through economies of scale and scope with better control over retail pricing. ST Strategies use a firms strengths to avoid or reduce the impact of external threats. SG needs to be cognizant of the threat of substitutes for its substitutable products such as glass and aluminum, and bolster its plastics business. The company could also capitalize on its long-standing knowledge of the Saudi Arabian market to consolidate its retail network on the home turf. WT Strategies are defensive tactics directed at reducing internal weaknesses and avoiding external threats. SG should divest itself of potentially risky real-estate investments. It should also shift significant resources into Internet-based marketing of its consumer goods to economize on distribution costs and serve online customers.

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G.

SPACE Matrix

The Strategic Position and Action Evaluation (SPACE) Matrix below indicates whether aggressive, conservative, defensive, or competitive strategies are most appropriate for a given firm. The axes of the SPACE Matrix represent two internal dimensions: (Financial Strength [FS] and Competitive Advantage [CA]), and two external dimensions: (Environmental Stability [ES] and Industry Strength [IS]). These four factors are perhaps the most important determinants of an organizations overall strategic position.

FS
Conservative
+7 +6 +5 +4 +3 +2 +1

SG
Aggressive

CA

IS
-7 -6 -5 -4 -3 -2 -1 -1 -2 -3 -4 -5 -6 -7 +1 +2 +3 +4 +5 +6 +7

Defensive

ES
4 3 5 4 5

Competitive

Financial Strength (FS)* Return on Investment Leverage Liquidity Working Capital Cash Flow (*These figures are best estimates based on SGs performance, market realities, and financial information available in the case) Financial Strength (FS) Average

Environmental Stability (ES) Risk involved in business Technological Changes Price Range of Competing Products Competitive Pressure Barriers to Entry

-2 -2 -3 -3 -1

4.2

Environmental Stability (ES) Average

-2.2

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Competitive Advantage (CA) Market Share Product Quality Customer Loyalty Product Life Cycle Technological Know-how Control over Suppliers & Distributors Competitive Advantage (CA) Average Y-axis: FS + ES = 4.2 + (-2.2) X-axis: CA + IS = (-2.7) + (3.9)

-2 -2 -2 -4 -3 -3 -2.7

Industry Strength (IS) Growth Potential Financial Stability Ease of Market Entry Resource Utilization Profit Potential Technological Know-how Productivity, Capacity Utilization Industry Strength (IS) Average

4 4 3 4 4 4 4 3.9

= +2.0 = +1.2

The directional vector of the SPACE Matrix above indicates that SG is in Quadrant I of the SPACE Matrix. Therefore, according to these results, it is recommended that SG embark on an Aggressive Strategy on a growth trajectory in the retailing, petrochemicals, food, and real-estate industries, availing of the opportunities presented by the countrys leadership and public image in the Arab world, specifically in Saudi Arabia. The company should thus balance all extant external and internal realities impinging on it. According to the SWOT recommendation, the company could avail of market penetration, market development, and product development . It would also be timely for the company to be horizontally integrated (acquiring similar competitive firms such as Carrefour or Waitrose towards oligopoly or monopoly), and possibly forward integrated (taking ownership of distribution channels), but not backward integrated (acquiring firms producing raw materials for manufacture of, for example, petrochemicals). It appears from the overall strategic thrust of the various analyses including the CPM, EFE, IFE, SWOT, and Product Positioning Matrix, that SG is unlikely to adopt further unrelated diversification as it needs to consolidate its core competencies. Related diversification is possible in tandem with horizontal integration, by SG acquiring competitors, particularly in the retailing industry. This will help in controlling prices and sharing technological know-how and brand image. To become the undisputed market leader, SG will certainly need to embark on a market penetration and market development strategy, together with product development to meet quality, price, and demand for various market segments for its promising and diversified SBUs.

H.

Grand Strategy Matrix

All organizations can be positioned in one of the Grand Strategy Matrixs four strategy quadrants. The Grand Strategy Matrix is based on two evaluative dimensions: competitive position and market (industry) growth. Any industry whose annual growth in sales exceeds 5 percent could be considered to have rapid growth. SGs sales growth is excellent at 33 percent and 29 percent respectively for 2007 2008 and 20082009, and its market leadership, financial stability, and distinctive competencies put the company in a healthy annual growth trajectory. Appropriate strategies for an organization to consider are listed in sequential order of attractiveness in each quadrant of the matrix. Firms such as SG located in Quadrant I of the Grand Strategy Matrix are in a strong strategic position with rapid market growth. For these firms, continued concentration on current markets Copyright 2011 Pearson Education Limited

(market penetration and market development) and products (product development) is an appropriate strategy (see also the SPACE Matrix above). As it would be unwise for a Quadrant I firm to shift notably from its established competitive advantage(s), SG should consolidate and expand its market. When a Quadrant I organization has excessive resources, then backward, forward, or horizontal integration may be effective strategies in the case of SG, a diversity of resources and proprietary technology should enable horizontal integration and related diversification. Quadrant I firms can afford to take advantage of external opportunities in several areas. It is recommended that SG take calculated risks for expansion and consolidation of its already substantial customer base (see also the SPACE Matrix above).
Rapid Market Growth

Quadrant II

Quadrant I

SG

Weak Competitive Position

Strong Competitive Position

Quadrant III Slow Market Growth

Quadrant IV

1. 2. 3. 4. 5. 6. 7.

Market development Market penetration Product development Backward integration Forward integration Horizontal integration Related diversification

According to its Quadrant I location in the Grand Matrix, SG is in a strong competitive position, and underscores the competitive stance reflected in the SPACE Matrix. SG has a broad product line (see Product Positioning Matrix above, with comments), and can integrate horizontally to combat the increasing competition. As a Quadrant I firm, SG can afford to take advantage of external opportunities in several areas; thus it can take risks aggressively to expand into the MENA and Central Asian markets.

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I.

The Quantitative Strategic Planning Matrix (QSPM)

The only analytical technique in the literature designed to determine the relative attractiveness of feasible alternative actions is the Quantitative Strategic Planning Matrix (QSPM), which comprises Stage 3 of the strategy-formulation analytical framework. This technique objectively indicates which alternative strategies are best. The QSPM uses input from Stage 1 analyses and matching results from Stage 2 analyses to decide objectively among alternative strategies. That is, the EFE Matrix, IFE Matrix, and Competitive Profile Matrix that make up Stage 1, coupled with the SWOT Matrix, SPACE Matrix, and Grand Strategy Matrix that make up Stage 2, provide the needed information for setting up the QSPM (Stage 3). The QSPM is a strategic decision-making tool that allows strategists to evaluate alternative strategies objectively, based on previously identified external and internal Critical Success Factors. Like other strategy-formulation analytical tools, the QSPM requires good intuitive judgment. The left column of a QSPM consists of key external and internal factors (from Stage 1), and the top row consists of feasible alternative strategies (from Stage 2). Specifically, the left column of a QSPM consists of information obtained directly from the EFE Matrix and IFE Matrix. In a column adjacent to the Critical Success Factors, the respective weights received by each factor in the EFE Matrix and the IFE Matrix are recorded. The top row of a QSPM consists of alternative strategies derived from the SWOT Matrix, SPACE Matrix, and Grand Strategy Matrix. These matching tools usually generate similar feasible alternatives. However, not every strategy suggested by the matching techniques has to be evaluated in a QSPM. Strategists should use good intuitive judgment in selecting strategies to include in a QSPM.

Strategy 1 SG should aggressively pursue the international market for its highprofile food products which are reputed for quality

Strategy 2 SG could consider partnering with one of its competitors in the retail industry (Carrefour or Waitrose) to buttress volume purchases, distribution

Strategy 3 SG should shift significant resources into Internetbased marketing of its consumer goods to economize on distribution costs and

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Key Factors Opportunities 1. Savola is trying to increase its market share internally and globally by pursuing a growth strategy 2. The retail division of SG is the largest and fastestgrowing national retailer in Saudi Arabia in terms of sales and selling area 3. Large volume purchases and distribution power are possible for the retail market 4. Buying power can be intensified by a willingness to seek lesser profit margins 5. The Arab Advisors Group estimates e-commerce users in Saudi Arabia to exceed 3.5 million consumers, representing nearly 15 percent of the Saudi population Threats 1. The real-estate industry is facing financial problems due to the global financial crisis 2. The financial crisis has affected customer income, which will affect target sales for Panda, Savolas retail giant 3. Raw material costs are expected to increase due to escalating oil prices, and consequently increasing the price of the final product 4. The increase in online shopping with home delivery poses a threat as Savola focuses on conventional shopping

Weight

AS

TAS

power, and realistic pricing AS TAS

serve online customers AS TAS

0.10

0.40

0.30

0.40

0.12

0.24

0.48

0.36

0.10

0.40

0.40

0.30

0.08

0.24

0.16

0.08

0.10

0.20

0.20

0.40

0.10

--

--

--

--

--

--

0.12

0.36

0.36

0.12

0.10

0.30

0.20

0.20

0.10

0.10

0.30

0.40

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5. There is threat of substitution of products such as glass, aluminum, and aspartame TOTAL Strengths 1. The Savola Group is one of Saudi Arabias leading companies, with a strong presence throughout the Arab world and beyond 2. It is now one of the most successful and fastestgrowing multinational food groups in the Middle East, also penetrating North African and Central Asian countries 3. The 2009 sales were significantly higher than the 2007 level 4. The group has a workforce of more than 16,000 employees, around 160,000 shareholders, and is listed in the top 20 companies in Saudi Arabia 5. 5. It has long marketing experience in the Saudi market and understands Saudi consumers. 6. The company is strong in marketing research to enhance quality and performance 7. The groups export operations cover 30 countries with strong marketing and distribution capabilities 8. The Savola Academy, a training institution for staff, is a professional human resources system in Savola 9. Savola has the capacity to expand in all business areas, especially in the petrochemicals area 10. Savola has plenty of cash that allows it to

0.08 1.0

0.24 2.48

0.24 2.64

0.08 2.34

0.08

0.32

0.24

0.32

0.07

0.28

0.21

0.21

0.05 0.05

4 --

0.20 --

3 --

0.15 --

2 --

0.10 --

0.07

0.14

0.28

0.21

0.09

0.36

0.36

0.27

0.07

0.28

0.14

0.14

0.06

--

--

--

--

--

--

0.07

0.28

0.14

0.07

0.08

0.32

0.24

0.16

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acquire more assets in the GCC region Weaknesses 1. Savola may not be able to compete against lowmargin competitors such as Waitrose and Carrefour in a low-margin industry 2. Inflation, which results from linking the SR to the US$, may affect the companys narrow profit margin 3. The real-estate market is showing declining affordability, which could weaken Savolas ability to sell property 4. Savola is lagging behind in Internet-based marketing 5. Savolas unrelated business portfolio may curtail operational synergy SUBTOTAL SUM TOTAL ATTRACTIVENESS

0.08

0.16

0.32

0.16

0.06

--

--

--

--

--

--

0.05

--

--

--

--

--

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0.06 0.06 1.00 SCORE

2 3

0.12 0.18 2.64 5.12

2 4

0.12 0.24 2.44 5.08

4 2

0.24 0.12 2.00 4.34

J.

Recommendations

Strategy #1: It is recommended that SG should aggressively pursue the international market for its high-profile food products which are reputed for quality.

K.

Epilogue

Following a multi-pronged analysis using judgment and reasoning coupled with numerical and graphical outputs, three strategic choices were presented for SG: (1) SG should aggressively pursue the international market for its high-profile food products which are reputed for quality. (2) SG could consider partnering with one of its competitors in the retail industry (Carrefour or Waitrose) to buttress volume purchases, distribution power, and realistic pricing. (3) SG should shift significant resources into Internet-based marketing of its consumer goods to economize on distribution costs and serve online customers.

Copyright 2011 Pearson Education Limited

According to the comprehensive and decisive Quantitative Strategic Planning Matrix (QSPM), Strategy #1, with the highest Sum Total Attractiveness Score (STAS) [5.12], has emerged as the best option among the three promising alternatives. This involves SG aggressively pursuing the international market for its high-profile food products which are reputed for quality. Even though Strategy #2 is a close second with a STAS of 5.08, it is not sufficiently compatible with Strategy #1 which involves international expansion in the MENA and Central Asian areas. Strategy #3 may be viable in the long run as e-commerce has become competitive for both overseas and domestic markets. The Savola Group operates its businesses through four core sectors: Savola Foods Sector, including edible oils, foods, and sugar Savola Retail Sector, including the retail outlets Panda and Hyper Panda Real Estate Sector, Kinan International Savola Plastics Sector

As one of Saudi Arabias most respected companies with a strong reputation for wellresearched, high-quality products, Savola Groups public profile has been enviable. The companys operational range, as diverse as Kazakhstan, Turkey, and Algeria, reflects an ambitious strategy across the MENA-Central Asia landscape. Since its inception in 1979, the Savola Group has undertaken grassroots projects, has acquired firms, set up manufacturing units overseas, divested unprofitable businesses, and strengthened its 16,000-strong employee force through intensive training and strategic deployment. SG is thus a seasoned regional player with legitimate global ambitions based on its excellent track record in Saudi Arabia. The future bodes well for SG group despite the somewhat unrelated portfolio of four SBUs it fields at this time. It appears that the most promising of these sectors are the Foods Sector and the Retail Sector. The Plastics Sector may serve to combat substitute products entering the market rapidly. The Real Estate Sector may be risky to continue or nurture, due to the economic downturn and the weakening of the realestate market. Overall, Savola Group appears to be a stable and mature conglomerate with proven capabilities and financial clout to aggressively pursue the recommended strategy of international expansion.

Copyright 2011 Pearson Education Limited