Saudi Steel Pipe Company – 2009

Case Notes Prepared by: Dr. Victor Sohmen

Case Author: Salem Al-Ghamdi

A. Case Abstract

The Saudi Steel Pipe Co. (SSP) (www.sspipe.com) has been recognized as Saudi
Arabia’s premier manufacturer of welded steel pipe since its inception in 1980. The
company started commercial production in 1982. It is the Kingdom’s most versatile
producer of high-frequency induction (HFI) welded steel pipe, serving the region’s oil
and gas, construction, and many other demanding markets. The SSP is engaged in
the production of galvanized and non-galvanized steel pipes, and square and
rectangular pipes. The company today has a production capacity of 160,000 metric
tons of high-quality HFI welded steel pipe, drawing from four distinct production lines
for a size range from 1/2 to 16 inches (1.3 cm to 40.6 cm). A commitment to quality
has been a key strength of the company as attested by several international
certifications. The SSP is currently in the process of becoming a publicly listed
company in the Saudi stock market. The company’s business lines include pipe
manufacturing and induction bending, and its markets are mainly Saudi Arabia, the
Gulf Cooperation Council (GCC), and the Middle East and North Africa (MENA) region.
The SSP has also exported its excess capacity to more than 20 countries around the
world. The recent increase in the demand for larger-diameter pipes suited for the oil
and gas market has led the company to increase its production of large-diameter
steel pipes that are produced as per quality specifications required by Aramco.
Through organization, production efficiencies, financial robustness, and strategic
planning, the SSP aims to become the market leader in their key segments.

B. Vision Statement (Actual)

“Our vision is to be a leader in the support industries for the oil and gas sector.”

C. Mission Statement (Actual)

“We excel in the manufacturing of the highest quality steel pipes used by the oil and
gas, water distribution, and construction industries, whilst adopting the latest
technology and investing in our employees’ future prospects.”

Mission Statement (Proposed)

With our skilled and dedicated workforce (9), our mission at Saudi Steel Co. (SSP) is
to be a producer of the highest quality steel pipes used by the oil and gas, water
distribution, and construction industries (2) targeted to customers (1) in Saudi
Arabia, the rest of the GCC, Middle East, and North Africa (3, 5) who value reliable
products and services (2), at reasonable prices (8) without compromising our long-
standing reputation for high quality (4, 7, 8), as we make the most of our knowledge
and experience (4) to expand and transform the company into the market leader in
the GCC and MENA (6, 7).

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1. Customer
2. Products or services
3. Markets
4. Technology
5. Concern for survival, profitability, and growth
6. Philosophy
7. Self-concept
8. Concern for public image
9. Concern for employees

D. External Audit

CPM – Competitive Profile Matrix

The Competitive Profile Matrix (CPM) identifies a firm’s major competitor(s) and its
particular strengths and weaknesses in relation to its strategic position. SSP’s
relative strengths and weaknesses based on the case details are portrayed in the
weighted scores. There are four main local competitors identified in the case, but
only three of them are tabled. These three competitors may be considered as
representative of the overall competition faced by SSP. Their weighted scores are
estimates based on their strengths and weaknesses in terms of the critical success
factors explicitly or implicitly reflected in the case, and from their websites.

The SSP’s main competitors in the small pipes market are Al-Jazera, Ateah Steel,
and Al Rajhi Steel Industries. On the other hand, local competition comes from the
Arabian Pipes Company (APC) only, which is involved in manufacturing steel pipes
with diameters from 6 to 20 inches with the same production capacity of 80,000 tons
per year.

Overall, it is seen that Arabian Pipes Company (APC) is a close competitor to SSP,
both having production capacities of 160,000 metric tons per annum. With a
production of 150,000 metric tons per annum, Al Rahji is close behind both SSP and
APC, but lacks in product lines, quality, and image. Al Jazera trails behind
significantly, with a production rate of 100,000 metric tons per annum. SSP is in a
strong position in terms of quality, advertising, management, market share,
inventory management, safety features, and financial position – comprising
practically all the critical parameters. Even though Al Jazera produces only 100,000
tons per annum compared to Al Rahji’s 150,000 tons per annum, it has shown slight
superiority in product quality and management efficiency. Thus, Al Jazera has
secured a higher overall score of 2.53 compared to Al Rahji’s 2.41. Arabian Pipes Co.
is comfortably ahead of both Al Jazera and Al Rahji, with a score of 2.80, mainly due
to a strong customer base. Though SSP is well ahead of its competitors, it would do
well to increase its customer base with a clear-cut market expansion and penetration
plan for the rest of GCC and MENA.

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 Arabian Al Rahji Al Jazera
Pipes Co. Steel Factories
SSP (160,000 (150,000 (100,000
(160,000 tpa) tpa) tpa)
tpa) LOCAL COMPETITORS

ScoreWeighted

Rating

ScoreWeighted

Rating

ScoreWeighted
Rating

ScoreWeighted

Rating
Weight
Critical Success Factors
Price Competition 0.08 3 0.24 2 0.16 3 0.24 3 0.24
Global Expansion 0.11 1 0.11 1 0.11 1 0.11 1 0.11
Management 0.07 4 0.28 3 0.21 2 0.14 3 0.21
Technology 0.09 4 0.36 3 0.27 3 0.27 2 0.18
Product Lines 0.10 4 0.40 3 0.30 2 0.20 2 0.20
Customer Loyalty 0.10 3 0.30 4 0.40 3 0.30 3 0.30
Market Share 0.09 4 0.36 3 0.27 3 0.27 2 0.18
Advertising 0.07 4 0.28 3 0.21 3 0.21 2 0.14
Product Quality 0.10 4 0.40 3 0.30 2 0.20 4 0.40
Product Image 0.10 4 0.40 3 0.30 2 0.20 3 0.30
Financial Position 0.09 3 0.27 3 0.27 3 0.27 3 0.27
TOTAL 1.00 3.40 2.80 2.41 2.53

Opportunities

1. Costs of materials needed to operate the production facility (oil, gas, and
electricity) are cheaper in Saudi Arabia than internationally
2. There is growing demand for large- and medium-sized pipes among the
petroleum and natural gas industries in Saudi Arabia
3. The high quality production of pipes by SSP in Saudi Arabia and a few GCC
countries is an incentive to expand overseas into other GCC countries and
MENA
4. There is scope for some backward integration by acquiring firms that process
raw material for the pipelines
5. The distribution network could be diversified to spread the risk of high
dependence on major customers

Threats

1. There is potential for competitive threat from other producers of pipes with
scope for growth and expertise in any of SSP’s product lines
2. The industry does not have sufficient research and development activity to
innovate more efficient manufacturing processes

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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. SSP is in a
comfortable position as the industry leader in Saudi Arabia with outstanding
reputation for quality; and this provides the necessary capability to harness
opportunities in the external environment because of a favorable industrial climate in
the GCC and MENA. Consequently, the threats facing SSP are far fewer than the
opportunities.

Key External Factors Weight Rating Weighted

Score

Opportunities
1. Costs of materials needed to operate the
production facility (oil, gas, and electricity) are 0.20 4 0.80
cheaper in Saudi Arabia than internationally
2. There is growing demand for large- and
medium-sized pipes among the petroleum and 0.18 4 0.72
natural gas industries in Saudi Arabia
3. The high quality production of pipes by SSP in
Saudi Arabia and a few GCC countries is an 0.16 4 0.64
incentive to expand overseas into other GCC
countries and MENA
4. There is scope for some backward integration
by acquiring firms that process raw material for 0.12 2 0.24
the pipelines
5. The distribution network could be diversified to
spread the risk of high dependence on major 0.12 3 0.36
customers
Threats
1. There is potential for competitive threat from
other producers of pipes with scope for growth 0.12 3 0.36
and expertise in any of SSP’s product lines
2. The industry does not have sufficient research
and development activity to innovate more 0.10 3 0.30
efficient manufacturing processes
Total 1.00 3.42

The average total weighted score is considered to be 2.5. A total weighted score of
4.0 indicates that an organization is responding in an outstanding way to existing
opportunities and threats in its industry. In other words, the firm’s 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 firm’s
strategies are not capitalizing on opportunities or avoiding external threats. The total
weighted score of 3.42 suggests that SSP has been proactive in identifying the
opportunities and threats it faces, and has embarked on a serious review of its

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potential for growth, its capabilities, and its limitations. Consolidation of existing
capabilities and markets, as well as expansion into new markets and diversification
strategies could well be on the cards for SSP.
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 firm’s products or services compare
with their competitors’ regarding dimensions most important to success in the
industry. Two such matrices are presented below for SSP and its three competitors
indicated above.

Product Positioning Matrix for Technology and Product Lines

Technology (High)

SSP

APC

Al Rehji

Product Product
Lines (low) Lines (High)

Al Jezera

Technology(Low)

As depicted in the Product Positioning Matrix above for Technology vs. Product Lines,
SSP has high technological prowess consistent with a range of pipeline products and
pipe bending technology – with the three competitors trailing behind in these two
bipolar parameters. This would again be consistent with variations in technology,
research and development, innovative human resources, and push-pull factors for
product lines based on market demand and organizational expertise.

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 Product Positioning Matrix for Quality and Market Share

Quality (High)

SSP

APC

Al Rehji
Market Share Market Share (High)
(low)

Al Jezera

Quality (Low)

It can be seen from the above Product Positioning Matrix for Market Share vs.
Quality that SSP is clearly ahead in a strong position on both dimensions, thanks to
its high prioritization of unremitting quality in its products, and consequent demand
by an expanding customer base. APC is also in the positive Quadrant I which
underscores its competitive stance for both market share and product quality –
though it lags behind SSP in both areas. The other two competitors, Al Rehji and Al
Jezera also trail behind both SSP and APC.

E. Internal Audit

Strengths

1. The Saudi Steel Pipe Co. (SSP) has been recognized as Saudi Arabia’s
premier manufacturer of welded steel pipe since its inception in 1980
2. SSP receives technical assistance from its South Korean joint venture
partner Hu Steel which also provides recommendations and evaluations for
new projects
3. SSP has excellent relationships with hot rolled coil (HRC) suppliers and
manufacturers even in times of shortages and market fluctuations
4. SSP is a highly reputed firm in the GCC and MENA with four distinct
production lines with a capacity of 160,000 metric tons of High Frequency
Induction (HFI) steel pipe
5. SSP’s welded steel pipes are of very high quality due to sophisticated
computer-controlled technologies

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 6. The company has a list of approval certifications from ISO, API, the Royal
Commission, etc., guaranteeing the quality of its products
7. SSP is credited with the pioneering installation of an induction bending
machine capable of producing high-quality bends in pipes
8. The company has made significant investment in training employees, as
well as in research and development of its employees
9. SSP is in the process of becoming a publicly listed company, which provides
additional financial clout and public profile
10. The company is run by well-experienced management with some stake in its
ownership

Weaknesses

1. SSP is planning to double the production of large dimension pipes without

increasing the production levels of small-diameter pipes
2. Sales of small-diameter pipes for export are primarily to other GCC countries
such as Qatar and Oman, and could be expanded to MENA countries
3. SSP is overly dependent on Aramco for sales revenues representing 4–6
times compared to those for other customers

Financial Information* (Income Statement only)

2008 2007 2006

Sales 816,873,952 727,810,983 565,414,641
Sales Growth from previous year 12% 28.7% -
Cost of Sales 644,069,04 571,739,422 453,962,457
Cost of Sales % of Sales 78.8% 78.6% 80.3%
Gross Profit 172,804,909 156,071,561 111,452,184
Gross Profit % of Sales 21.2% 21.4% 19.7%
Operating Income 141,699,161 130,229,744 75,803,975
Operating Income % of Sales 17.3% 17.9% 13.4%
Net Income 132,312,153 116,167,475 66,898,725
Net Income % of Sales 16.2% 16.0% 11.8%
Source: Adapted from Saudi Arabian Pipe Co. Financial Statements
*Amounts are in SARs.

It is evident from the Income Statement results of SSP for the years 2006, 2007,
and 2008 that gross profit is around 20 percent due to robust performance for all
three years. However, sales growth has decreased from 2007 to 2008 (12 percent)
compared to 28.7 percent for 2006 to 2007. This may be because of SSP’s
substantial dependence on Aramco as their major customer. The gross income
percent of sales and net income percent of sales are practically the same for both
2007 and 2008. This shows a remarkable stability and consistency in income; but it
would be better to see a steady increase in income representing real growth and
market expansion. However, during the financial years 2006–2008 the net margins
of the company increased from 11.8 percent in the financial year 2006 to 16.2
percent in 2008.
Internal Factor Evaluation (IFE) Matrix

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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 SSP
– from the information provided, far more strengths than weaknesses could be
identified.

Key Internal Factors Weight Rating Weighted

Score

Strengths
1. The Saudi Steel Pipe Co. (SSP) has been
recognized as Saudi Arabia’s premier 0.08 3 0.24
manufacturer of welded steel pipe since its
inception in 1980
2. SSP receives technical assistance from its
South Korean joint venture partner Hu Steel 0.10 3 0.30
which also provides recommendations and
evaluations for new projects
3. SSP has excellent relationships with hot rolled
coil (HRC) suppliers and manufacturers even in 0.10 4 0.40
times of shortages and market fluctuations
4. SSP is a highly reputed firm in the GCC and
MENA with four distinct production lines with a 0.06 2 0.12
capacity of 160,000 metric tons of High
Frequency Induction (HFI) steel pipe
5. SSP’s welded steel pipes are of very high
quality due to sophisticated computer- 0.12 4 0.48
controlled technologies
6. The company has a list of approval
certifications from ISO, API, the Royal 0.08 3 0.24
Commission, etc., guaranteeing the quality of
its products
7. SSP is credited with the pioneering installation
of an induction bending machine capable of 0.09 3 0.27
producing high-quality bends in pipes
8. The company has made significant investment
in training employees, as well as in research 0.09 4 0.36
and development of its employees
9. SSP is in the process of becoming a publicly
listed company, which provides additional 0.06 3 0.18
financial clout and public profile
10. The company is run by well-experienced
management with some stake in its ownership 0.05 2 0.10

Weaknesses
1. SSP is planning to double the production of
large dimension pipes without increasing the 0.07 3 0.21
production levels of small-diameter pipes

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2. Sales of small-diameter pipes for export are
primarily to other GCC countries such as Qatar 0.05 2 0.10
and Oman, and could be expanded to MENA
countries
3. SSP is overly dependent on Aramco for sales
revenues representing 4–6 times compared to 0.05 3 0.15
those for other customers
Total 1.00 3.15

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, SSP’s position with a score of 3.15 shows a strong internal position,
considering that it is in a planned growth and expansion mode with a focus on
respectable profits.

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.

Strengths Weaknesses
1. The Saudi Steel Pipe 1. SSP is planning to
Co. (SSP) has been double the production
recognized as Saudi of large dimension
Arabia’s premier pipes (from 80 to 160
manufacturer of tpa) without increasing
welded steel pipe since the production levels
its inception in 1980 (80 tpa) of small-
2. SSP receives technical diameter pipes
assistance from its 2. Sales of small diameter
South Korean joint pipes for export are
venture partner Hu primarily to other GCC
Steel which also countries such as Qatar
provides and Oman, and could
recommendations and be expanded to North

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 evaluations for new African countries
projects 3. SSP is overly
3. SSP has excellent dependent on Aramco
relationships with hot for sales revenues
rolled coil (HRC) comprising 4–6 times
suppliers and those for other
manufacturers even in customers
times of shortages and
market fluctuations
4. SSP is a highly
reputed firm in the
MENA with four
distinct production
lines with a capacity of
160,000 metric tons of
High Frequency
Induction (HFI) steel
pipe
5. SSP’s welded steel
pipes are of very high
quality due to
sophisticated
computer-controlled
technologies
6. The company has a list
of approval
certifications from
ISO, API, the Royal
Commission, etc.
guaranteeing the
quality of its products
7. SSP is credited with
the pioneering
installation of an
induction bending
machine capable of
producing high-quality
bends in pipes
8. The company has
made significant
investment in training
employees, as well as
research and
development of its
employees
9. SSP is in the process
of becoming a publicly
listed company, which
provides additional
financial clout and
public profile
10. The company is run by
well-experienced

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 management with
some stake in its
ownership
Opportunities S-O Strategies W-O Strategies
1. Costs of materials 1. Expand overseas into 1. Increase the production
needed to operate the other GCC and MENA level of small-diameter
production facility (oil, countries, availing of pipes to target more
gas, and electricity) SSP’s reputation for countries in the GCC
are cheaper in Saudi high quality, as and MENA
Arabia than attested by 2. Plan to become less
internationally international dependent on Aramco
2. There is growing certifications by increasing
demand for large- and 2. Acquire high quality proportion of sales to
medium-sized pipes steel producer(s) of other customers
among the petroleum hot rolled coils (HRC)
and natural gas in Saudi Arabia or
industries in Saudi overseas for backward
Arabia integration
3. The high-quality 3. Diversify the customer
production of pipes by base with large,
SSP in Saudi Arabia medium, and small
and a few GCC customers in order to
countries is an spread the risk of
incentive to expand fluctuations in profits
overseas into other
GCC countries & MENA
4. There is scope for
some backward
integration by
acquiring firms that
process raw material
for the pipelines
5. The distribution
network could be
diversified to spread
the risk of high
dependence on major
customers
Threats S-T Strategies W-T Strategies

SO Strategies use a firm’s internal strengths to take advantage of external

opportunities. SSP can capitalize on its strong reputation as a market leader with
high-quality products, and make concerted efforts to expand further into the GCC
and MENA markets.

WO Strategies aim at improving internal weaknesses by taking advantage of

external opportunities. Consistent with expansion capabilities, SSP could capitalize
on their successful small-pipe exports to Qatar and Oman, to include other GCC and
MENA countries.

ST Strategies use a firm’s strengths to avoid or reduce the impact of external

threats. SSP could build on its strength in producing high-quality pipes competitively

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by infusing dedicated research and development efforts into innovative production
lines.

WT Strategies are defensive tactics directed at reducing internal weaknesses and

avoiding external threats. SSP could take a defensive stance by giving autonomy to
each of its four production lines through setting them up as Strategic Business Units
(SBUs).

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 organization. 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 organization’s
overall strategic position.

FS
Conservative Aggressive SSP
+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 Competitive
ES

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Financial Strength (FS) Environmental Stability (ES)
Return on Investment 4 Risk involved in business -2
Leverage 5 Technological Changes -2
Liquidity 5 Price Range of Competing Products -2
Working Capital 4 Competitive Pressure -3
Cash Flow 6 Barriers to Entry -1

Financial Strength (FS) Average 4.8 Environmental Stability (ES) Average -2.0

Competitive Advantage (CA) Industry Strength (IS)

Market Share -1 Growth Potential 6
Product Quality -1 Financial Stability 4
Customer Loyalty -3 Ease of Market Entry 3
Product Life Cycle -3 Resource Utilization 4
Technological Know-how -2 Profit Potential 5
Control over Suppliers & Distributors -2 Technological Know-how 4
Productivity, Capacity Utilization 4

Competitive Advantage (CA) -2.0 Industry Strength (IS) Average 4.3

Average

Y-axis: FS + ES = 4.8 + (-2.0) = +2.8

X-axis: CA + IS = (-2.0) + (4.3) = +2.3

The directional vector of the SPACE Matrix above indicates that SSP is on an
aggressive growth trajectory in a stable industry. According to the results of the
SPACE Matrix, it is recommended that SSP embark on an Aggressive Strategy that
balances all extant external and internal realities impinging on the company.
According to the SWOT recommendation, the company could avail of backward
integration (acquiring raw material – hot rolled coils (HRC) – for production of steel
pipes). It may not be timely for the company to be forward integrated (taking
ownership of distribution channels and nodes such as warehouses and retail store
chains), or for horizontal integration (acquiring similar firms towards oligopoly or
monopoly). It appears from the overall strategic thrust of the various analyses
including the CPM, EFE, IFE, SWOT, Financial Information, and Product Positioning
Matrix, that SSP is likely to adopt a related diversification strategy as the company’s
mainstay is the production of high-quality pipelines, and it can acquire firms that
could help to innovate, strengthen, and extend SSP’s technological core competence.
SSP will also 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 that could be targeted in the GCC and MENA.

H. Grand Strategy Matrix

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All organizations can be positioned in one of the Grand Strategy Matrix’s 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
(SSP’s sales growth between 2007 and 2008 is a respectable 12 percent – down
from 28.7 percent from 2006 to 2007). Appropriate strategies for an organization to
consider are listed in sequential order of attractiveness in each quadrant of the
matrix. Firms 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) is an appropriate strategy (see also the SPACE
Matrix above). It is unwise for a Quadrant I firm to shift notably from its established
competitive advantage(s). When a Quadrant I organization has excessive resources,
then backward, forward, or horizontal integration may be effective strategies – in the
case of SSP, backward integration has been recommended. When a Quadrant I firm
is too heavily committed to a single product, then related diversification may reduce
the risks associated with a narrow product line. SSP has a successful product line,
which could be further extended through related diversification. Quadrant I firms can
afford to take advantage of external opportunities in several areas. They can take
risks aggressively when necessary – as recommended for SSP (see also the SPACE
Matrix above).

Rapid Market
Growth
Quadrant II Quadrant I
SSP

Weak Strong
Competitive
Competitive
Position Position

Quadrant III Quadrant IV

Slow Market Growth

1. Market development
2. Market penetration

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3. Product development
4. Backward integration
5. Forward integration
6. Horizontal integration
7. Related diversification

According to its Quadrant I location in the Grand Matrix, SSP is in a strong

competitive position, and underscores the competitive stance reflected in the SPACE
Matrix – with the possible addition of Related Diversification by branching into
various strategic business units located in various countries to optimize production,
market expansion, product diversification, and overall profits. When a Quadrant I
firm is too heavily committed to a single product, then related diversification may
reduce the risks associated with a narrow product line. As a Quadrant I firm, SSP can
afford to take advantage of external opportunities in several areas; it can take risks
aggressively when necessary.

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 Strategy 2 Strategy 3

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 Expand Acquire Create four
overseas into high-quality autonomous
other GCC steel Strategic
and MENA producer(s) Business
countries, of hot rolled Units
availing of coils (HRC) (SBUs) to
SSP’s in Saudi aggressively
reputation Arabia or market the
for high overseas products
quality, as for throughout
attested by backward the GCC
international integration and MENA
certifications

Key Factors Weight AS TAS AS TAS AS TAS

Opportunities
1. Costs of materials
needed to operate the 0.20 4 0.80 4 0.80 4 0.80
production facility (oil,
gas, and electricity) are
cheaper in Saudi Arabia
than internationally
2. There is growing demand
for large- and medium- 0.18 2 0.36 3 0.54 2 0.36
sized pipes among the
petroleum and natural
gas industries in Saudi
Arabia
3. The high-quality
production of pipes by 0.16 4 0.64 3 0.48 3 0.48
SSP in Saudi Arabia and
a few GCC countries is an
incentive to expand
overseas into other GCC
countries and MENA
4. There is scope for some
backward integration by 0.12 3 0.36 4 0.48 2 0.24
acquiring firms that
process raw material for
the pipelines
5. The distribution network
could be diversified to 0.12 4 0.48 2 0.24 3 0.36
spread the risk of high
dependence on major
customers
Threats

1. There is potential for

competitive threat from 0.12 3 0.36 2 0.24 3 0.36
other producers of pipes
with scope for growth
and expertise in any of

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 SSP’s product lines
2. The industry does not
have sufficient research 0.10 -- -- -- -- -- --
and development activity
to innovate more
efficient manufacturing
processes
TOTAL 1.0 3.0 2.78 2.60
Strengths
1. The Saudi Steel Pipe Co.
(SSP) has been 0.08 4 0.32 4 0.32 4 0.32
recognized as Saudi
Arabia’s premier
manufacturer of welded
steel pipe since its
inception in 1980
2. SSP receives technical
assistance from its South 0.10 4 0.40 1 0.10 3 0.30
Korean joint venture
partner Hu Steel which
also provides
recommendations and
evaluations for new
projects
3. SSP has excellent
relationships with hot 0.10 4 0.40 03 0.30 4 0.40
rolled coil (HRC)
suppliers and
manufacturers even in
times of shortages and
market fluctuations
4. SSP is a highly reputed
firm in the GCC and 0.06 4 0.24 3 0.18 3 0.18
MENA with four distinct
production lines with a
capacity of 160,000
metric tons of High
Frequency Induction
(HFI) steel pipe
5. SSP’s welded steel pipes
are of very high quality 0.12 4 0.48 3 0.36 3 0.36
due to sophisticated
computer-controlled
technologies
6. The company has a list of
approval certifications 0.08 4 0.32 2 0.16 2 0.16
from ISO, API, the Royal
Commission, etc.,
guaranteeing the quality
of its products
7. SSP is credited with the
pioneering installation of 0.09 4 0.36 3 0.27 3 0.27

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 an induction bending
machine capable of
producing high-quality
bends in pipes
8. The company has made
significant investment in 0.09 2 0.18 1 0.09 3 0.27
training employees, as
well as in research and
development of its
employees
9. SSP is in the process of
becoming a publicly 0.06 2 0.12 1 0.06 2 0.12
listed company, which
will provide additional
financial clout and public
profile
10. The company is run
by well-experienced 0.05 3 0.15 2 0.10 4 0.20
management with some
stake in its ownership
Weaknesses
1. SSP is planning to double
the production of large- 0.07 2 0.14 3 0.21 2 0.14
dimension pipes without
increasing the production
levels of small-diameter
pipes
2. Sales of small-diameter
pipes for export are 0.05 4 0.20 1 0.05 3 0.15
primarily to other GCC
countries such as Qatar
and Oman, and could be
expanded to MENA
countries
3. SSP is overly dependent
on Aramco for sales 0.05 -- -- -- -- -- --
revenues representing 4–
6 times when compared
to those for other
customers
SUBTOTAL 1.00 3.31 2.20 2.87
SUM TOTAL 6.31 4.98 5.47
ATTRACTIVENESS SCORE

J. Recommendations

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Strategy #1: It is recommended that Saudi Steel Pipe Co. (SSP) expand overseas
into other GCC and MENA countries, availing of SSP’s reputation for high quality, as
attested by international certifications.

Strategy #2 and Strategy #3 would be excellent sequels to Strategy #1 after the

company becomes publicly traded, with corresponding increase in its financial clout.

K. Epilogue

Saudi Steel Pipe Co., based in Saudi Arabia, is well established and highly regarded
as the leading manufacturer of a select range of industrial pipes primarily targeted at
the lucrative oil and gas industry. As the industry leader in Saudi Arabia, SSP is
versatile, innovative, and recognized as the premier manufacturer of welded steel
pipes since 1930. It is now poised to expand further into the GCC and MENA
countries, carrying with it an outstanding reputation for quality, safety, personnel
training, management competence, and efficient upstream and downstream
operations.

Following a multi-pronged analysis using judgment and reasoning coupled with

numerical and graphical outputs, three strategic choices were presented for SSP:

(1) Expand overseas into other GCC and MENA countries, availing of SSP’s reputation
for high quality, as attested by international certifications.

(2) Acquire high quality steel producer(s) of hot rolled coils (HRC) in Saudi Arabia or
overseas for backward integration.

(3) Create four autonomous Strategic Business Units (SBUs) to aggressively market
the products throughout the GCC and MENA.

According to the comprehensive and decisive Quantitative Strategic Planning Matrix

(QSPM), the first choice, with the highest weight (6.31), has emerged as the best
option among the three promising alternatives. As the Sum Total Attractiveness
scores for the three possible and related strategies are significantly different from
the above score of 6.31, Strategy #1 will be adopted forthwith. However, as SSP is
planning to offer public shares, there should be sufficient financial clout consequently
to embark on Strategy #2 for backward integration to ensure a steady supply of high
quality hot rolled coils (HC) fed into SSP’s pipe factories. When the GCC and MENA
markets expand further, Strategy #3, recommending creation of four autonomous
SBUs could be optimal.

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