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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)
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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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Rating

ScoreWeighted

Rating

ScoreWeighted

GCC
Competitor

ScoreWeighted

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

GCC
Competitor

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

0.48
0.32
0.24
0.30
0.48
0.16
0.24
0.18
0.30
0.30
0.24
3.24

Weight

Critical Success Factors


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

Carrefour

Rating

SG

Waitrose

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

Weight

Rating

Weighted
Score

0.10

0.40

0.12

0.48

0.10

0.30

0.08

0.16

0.10

0.30

0.10

0.30

0.12

0.36

0.10

0.40

0.10

0.30

0.08

0.16

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

1.0
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3.16

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 (High)

Product Lines
(low)

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

YTD
December
31, 2008

YTD
December
31, 2007

Sales

17,917,202

13,821,377

10,409,530

Operating Expenses

14,809,887

12,007,054

8,705,859

3,107,315

1,814,323

1,703,671

Other Revenues

750,792

593,680

1,189,792

Total Revenues

3,858,107

2,408,003

2,893,463

Total Expenses

2,843,219

2,152,258

1,547,976

Net Income

1,345,487

255,745

1,014,888

115,463

53,387

63,323

1,230,024

202,358

951,565

31.9%

8.4%

35.1%

6.9%

1.4%

9.1%

33%

Gross Operating Margin

Zakat (Taxes)
Net Income after Taxes
Net Income % of Revenues
Net Income % of Sales

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
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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

Weight

Rating

Weighted
Score

0.08

0.32

0.07

0.28

0.05

0.10

0.05

0.15

0.07

0.21

0.09

0.27

0.07

0.21

0.06

0.18

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

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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

0.07

0.28

0.08

0.24

0.08

0.24

0.06

0.12

0.05

0.15

0.06

0.06

5. Savolas unrelated business portfolio may


curtail operational synergy

0.06

0.12

Total

1.00

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

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 lowmargin 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

SG
Aggressive

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

CA

IS
-7

-6

-5

-4

-3

-2

-1

+1

+2

+3

+4

+5

+6

+7

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

Defensive

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

Competitive

ES
4
3
5
4
5

4.2

Environmental Stability (ES)


Risk involved in business
Technological Changes
Price Range of Competing Products
Competitive Pressure
Barriers to Entry

Environmental Stability (ES) Average

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-2
-2
-3
-3
-1

-2.2

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

= +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
(market penetration and market development) and products (product development)
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4
4
3
4
4
4
4
3.9

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).

Quadrant II

Rapid Market
Growth

Quadrant I

SG

Strong
Competitive
Position

Weak
Competitive
Position

Quadrant III

Quadrant IV
Slow Market Growth

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.

I.

The Quantitative Strategic Planning Matrix (QSPM)


Copyright 2011 Pearson Education Limited

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
power, and
realistic

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

Key Factors

Weight

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
5. There is threat of
substitution of products

pricing
AS
TAS

AS

TAS

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

0.08

0.24

0.24

0.08

Copyright 2011 Pearson Education Limited

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
acquire more assets in the
GCC region

1.0

2.48

2.64

2.34

0.08

0.32

0.24

0.32

0.07

0.28

0.21

0.21

0.05

0.20

0.15

0.10

0.05

--

--

--

--

--

--

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

Copyright 2011 Pearson Education Limited

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

J.

0.08

0.16

0.32

0.16

0.06

--

--

--

--

--

--

0.05

--

--

--

--

--

--

0.06

0.12

0.12

0.24

0.06

0.18

0.24

0.12

1.00
SCORE

2.64
5.12

2.44
5.08

2.00
4.34

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.
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
Copyright 2011 Pearson Education Limited

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.

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