Challenges of Reduced Competitiveness

Executive Summary 

This report is an analysis of the problem of reduced competitiveness in Oman Gas Company. Competitiveness refers to the organization’s ability to develop a set of attributes to enable it to achieve its target and compete well in the market. Hence, this paper will explore the issue of reduced competitiveness in Oman Gas Company (OGC) using the appropriate analytical tools. It will begin with brief information about OGC and the reduced competition challenge, before exploring different aspects of the concept of competitiveness using fishbone analytical tool. Factors within the internal and external environment have played a role in the creation of the problem; some of those factors include high costs of production, lack of skilled labor, poor strategies, and external environmental challenges. Different economic theorists have different explanations regarding organizational problems, for example, contemporary theorist like Michael Porter posits that organizational problems occur due to ineffective internal strategies. The discussion shows that the issue of reduced competitiveness at OGC is a multifaceted issue, to solve the challenge, different concepts and economic theories must be applied.

Introduction 

Oman Gas Company (OGC) transmits and distributes natural gas across Oman. OGC was formed in 2000 as a closed joint stock company, with the Oman’s government through the ministry of oil and Oman Oil Company. OGC supplies gas to different stakeholders in the economy involved in the manufacture of petrochemical, cement, steel, and power plants. Apart from the transmission of natural gas, OGC offers project management services on pipeline construction. OGC helps clients to plan all stages of constructing a pipeline and to meet their project goals.

The last few years have been challenging for the gas industry. According to Corbeau (2016) Oman’s substantial natural gas reserve is virtually exhausted. Almost half of the existing liquefied natural gas (LNG) is tied to long term contracts, while 22% powers oil production, and the rest is consumed locally. OGC is incapable of meeting the demand for gas, and the fact that the remaining gas is deep and expensive to produce make it hard to remain productive and deal with competition from other gas companies such as Petroleum Development Oman and Dolphin Energy Limited (OGC, 2016). Aside from the declining gas reserve, the prices of gas have dropped drastically in the past few years. Corbeau (2016) notes that the global prices for gas have declined drastically, by the end of 2014, imported LNG price was above $14MMBtu yet in 2016 the price was at $4.23MMBtu. Lastly, OGC is a government owned enterprise, and it also struggles with poor management and inefficiencies that have affected its ability to compete.

This report aims to explore the issue of reduced competitiveness in OGC from different perspectives to find solutions for the problem. Hence the objectives of this paper are to explore the different determinants of “competitiveness” and explore different solutions for OGC’s problem.

Economic Theories 

According to Siudek & Zawojska (2014), competitiveness is a ubiquitous term; it is hard to define it, the same way it is difficult to understand its measurements. Competitiveness is a multidimensional concept affecting different levels of business. Siudek & Zawojsak (2014) claim that competitiveness is synonymous with terms like innovation and productivity; it refers to the company’s ability to sustain high rates of growth. Various economic theories have different perspectives about competitiveness that can be applied to Oman Gas Company. The classical economic theories, like Adam Smith’s concept of the invisible hand, focus on competitiveness at the macro level. Adam Smith states that organizations will remain competitive in international trade if it exports the goods it produces at lowest costs. On the other hand, neo-classical theories tend to focus on factors within the internal environment that affect competitiveness, for instance, financial aspects, people, and marketing (Jambor & Babu, 2016).

Neoclassical economic theories assert that an organization’s competitiveness is affected by internal factors more than the external factors. Under the neoclassical school of thought, the problem of reduced competitiveness in OGC will be associated with the organization’s market segmentation, marketing, product development, and innovation (Hakro & Omezzine, 2016). Therefore, OGC's poor competitiveness will be associated with poor market segmentation, ineffective marketing, and lack of innovation regarding the product (Jahan-Parvar & Mohammadi, 2009). OGC markets oil and gas, being a government-owned oil industry, the company has not focused on marketing itself rigorously to compete with local and regional gas companies.

Wang (2014) contrasts market-based view (MBV) and resource-based approach (RBV) towards organizational competitiveness. The market-based view borrows from the classical economic theories; it claims that the industry and external markets are responsible for the organization’s performance. Porter’s theory focuses on five factors within the industry, particularly supplier power, buyer power, competitive rivalry, the threat of substitution, and the threat of entrants (Hakro & Omezzine, 2016). The external factors focus on the market, rather than the organization. On the other hand, the resource-based approach focuses on the internal environment and the organizational strategies created by the organization (Wang, 2014).

Contemporary economic theories such as Michael Porter’s theory of competitiveness underline the conditions or rather the sources of competitive advantage for business (Hildago & Albors, 2008). Porter came up with four generic competitive strategies to help the organization attain competitive advantage in the long run. The strategies are low cost, cost leadership, differentiation, and focus. An organization can choose to focus on cost strategy or differentiation to secure customers. For example, OGC can concentrate on differentiating its product by coming up with various gas brands and marketing it to local and international customers as price differentiation will not work since the oil prices are already low (Berezinskaia & Mironov, 2006).

The economic theories claim that external and internal factors cause organizational problems, but the theories acknowledge that the organization is only in control of the internal factors (Khvostina & Pisak, 2015). OGC is incapable of changing external factors such as the existence of other oil and gas producers or the volatile prices of oil, but it can adjust the internal factors to respond better to environmental changes. OGC must come up with better internal processes and strategies to guide its finances, employees, marketing, strategy creation, operations management, and project management. These are critical components that have contributed to the problem of reduced competitiveness, and yet they are a part of the solution.

Economic Tools-Fishbone 

There exist a host of economic tools that can be used to analyze an economic problem in detail to identify causes and solutions. The issue of reduced competitiveness in OGC can be visualized better through economic tools and concepts like the Fishbone diagram, five why’s, force field analysis, and the pareto chart. Five why’s is used to analyze an issue by asking the pertinent questions to discover the root of the problem. Five why’s involves defining the problem and testing different hypothesis. Alternatively, the force field analysis operates under the assumption that situations are maintained in equilibrium by forces that drive and resist change.

This report uses a fishbone analytical tool because it provides a visual representation of the problem to allow a real evaluation of the different aspects of the problem, and team consensus on the issue, and the way forward. The Fishbone also is known as cause and effect diagram identifies and groups the causes of a problem into different perspectives. When applied to OGC’s situation, the diagram will identify problems within the different units of OOC. According to Hekmatpanah (2011) in analyzing an oil and gas organization using the fishbone, each aspect of the organization must be analyzed equally to identify all the causes of the problem. A fishbone is conceptualized as shown in the diagram below:

The fishbone diagram identifies the different categories of the causes of business problems to be: method, man, management, measurement, material, and machine (Desai et al., 2015). The six categories are not fixed, and they can be changed to suit OGC. Therefore, the categories of causes of poor competitiveness at OGC are people, financial aspect, marketing, strategy, operations management, and project management.

The six categories identified as the key components of the fishbone can be applied to the individual causes of problems in OGC. For example, operations management problems in OGC can be classified as production line problems and distribution line problems. Regarding, the production line problems, a lot of inefficiencies can be observed in the production line at OGC. The production line problems stem from a lack of skilled labor, poor management, and poor utilization of resources (Saleh & Alaluoch, 2015). OOC is about to exhaust its natural gas reserve due to poor mining practices. OGC is losing productivity in the production line due to poor management and lack of accountability measures for production line employees.

Causes and Solutions to Reduced Competitiveness 

The first category is people since employees are a crucial resource for OGC. OGC has employed many specialized employees in different departments to engage in productive activities meant to bring profit to the organization. With the increasing challenges facing OGC and the gas industry in general, employees are now facing greater pressure to perform and maintain efficiency. All staff members at OGC do not necessarily have the skills or the motivation to perform better. Additionally, lack of effective performance measures to evaluate employees only makes the situation. As a government-owned entity, OOC still relies on traditional aspects of management whereby employees are micromanaged instead of being empowered (Hokroh, 2014).

Khvostina & Pisak (2015) suggests a change in human resources approach as a way of encouraging productivity and competitiveness. A properly developed human resource approach will ensure that employees understand their role in organization performance and competitiveness (Buyar, 2015). The HR approach will focus on seeking the best talent for OGC, and train them to work towards the attainment of organizational goals. The new human resources will equip OGC managers on how to support, motivate, empower, and hold employees accountable for their actions. Employees must be made accountable for their performance during this challenging time. Additionally, a talented pool of employees must be properly managed and encouraged to be creative and innovative. Lastly, for OGC to regain its competitiveness, the organization must be guided by a strong leader capable of implementing organizational changes in all levels to revamp productivity. The leader must have the managerial skills and the business skills to develop strategies and bring all people on board to implement the strategies. Buyar (2015) notes that effective leader must be aware of all the problems affecting employees and address them to encourage productivity.

The second cause of competitiveness problems at OGC is the financial aspect. OGC operates in a capital-intensive industry regionally and globally. The gas industry faces intense competition for both large and small scale gas companies. Big companies like Saudi Aramco have ample financial resources and technology to engage in highly profitable ventures. OGC does not have adequate financial resources in comparison to the large oil and gas businesses in the region. Additionally, OGC has failed to put in place proper financial measures to encourage accountability and competitiveness. Papulova & Papulova (2006) claim that a major problem for oil companies in today’s industry is the management of cash flow. The cost of drilling oil has increased drastically over the years, while the prices of oil keep declining. Without effective cash flow management policies in place, the company can easily go bankrupt.

OGC is a profitable government-owned business; hence it takes advantage of government resources. However, to remain competitive, the organization must set clear financial objectives and stick to its financial strategy. A good financial strategy will make sure that OGC is accountable for all its financial resources to eliminate waste. The strategy will also ensure that OGC invests in ventures that will generate profit and increase the organization’s capacity to explore and extract more gas to meet the demand.

Reduced competitiveness also has an impact on the marketing dimension. Marketing entails all the activities conducted by a firm to communicate with the consumer about a product. OGC has not engaged in aggressive marketing in the past. Instead, it relies on already established relationships with stakeholder. However, with the decline in the gas prices, the organization must engage in aggressive marketing to attract new customers (Herrera- Echeverri et al., 2015). Failing to put in place an effective marketing strategy has only worsened challenge of reduced competitiveness. The organization is not in a position to respond properly to the external challenges.

The organization must refurbish image in the market through the creation of a brand. OGC must develop a brand that differentiates it from other oil and gas companies by highlighting the strong points of OGC. For example, as a small-scale government-owned gas company, OGC is in a better position to offer better customer service than the large scale oil and gas companies. OGC can also market itself as a leader in sustainable gas production to attract customers that are conscious about the environment. Apart from developing a brand, the organization must engage in consistent marketing efforts made up of advertising, public relations, and direct marketing (Alfadly, 2011).

Alternatively, strategic management refers to the process of creating and implementing strategies to enhance performance, competitiveness, and growth. The reduced competitiveness problem can be attributed to poor strategic planning at OGC. Strategic planning for gas organizations is more challenging than other industries because of the volatile nature of the industry. A business must continually assess the external environment and create strategies to take advantage of the opportunities in the external environment. SWOT analysis, PESTEL, and Porter’s five forces are some of the strategic tools that guide strategic management. Akinyele (2010), notes gas companies must pursue growth strategies to enhance its chances of survival in the long-term due to the challenge of price volatility. The strategic challenge of gas pricing shows that a gas company can easily lose its profitability unless it expands or diversifies to other sectors. OGC has diversified to project management services in gas production projects in an effort to diversify its services (OGC, 2016).

To enhance competitiveness, Akinyele (2010) encourages gas companies to create sound strategies about its core business areas like exploration, corporate growth, new energy segments, and gas. For example, OGC can create a strategy to guide its new exploration ventures; the strategy must aim optimizing exploration by taking advantage of modern technology that reduces the cost, processes, and time involved in gas exploration. Strategic management is a source of competitive advantage; it will allow OgC to develop unique competencies in marketing, exploration, processing among other sectors. For example, a strategy for processing gas is efficient production strategy that makes use of lean manufacturing principles; this will improve efficiency and competitiveness of the business (Asrilhant et al., 2004).

Lastly, the concepts of operations management and project management have played a significant role in the creation of OGC’s problem. Without proper operations and project management, an organization will face a lot of problems with managing resources, maintenance of available equipment, and meeting production deadlines (Regan, 2014). Projects in the oil and gas industry are increasingly becoming complex, the budgets are tight, there are insurmountable safety concerns, and it involves a lot of stakeholders.

Regan (2014) suggests that the organization must implement proper operations and project management strategies through proper planning. There are new supply chain, procurement, and operational management strategies that optimize performance. According to Yusuf et al. (2012), oil and gas companies must partner with transport companies that will offer affordable, fast, and reliable transport solutions while supporting organizational objectives. There are new models and technology to support procurement, supply chain, and other operations. Alternatively, OGC must adopt effective project management principles. Large projects should be divided into small phases that are easy to handle and come up with measures to ensure that the project implementation is by the planned quality, budget, and schedule.

Conclusion 

The aim of the report was to analyze the challenge of reduced competitiveness in Oman Gas Company (OGC). OGC is Oman’s government-owned gas company that transmits and distributes gas. Like most Gulf nations, Oman economy is heavily reliant on oil and gas; hence the challenge of reduced competitiveness has taken a toll on Oman’s economy. Reduced competitiveness of OGC can be understood from different perspectives as suggested by the different economic theories and techniques, for instance, contemporary economic theorist Michael Porter suggests that a company looses its competitiveness when it fails to adopt effective cost or differentiation strategies. Alternatively, neo-classical economic theories argue that internal factors within an organization affect competitiveness. Ineffective approach to internal factors like employees, finances, operations management, and strategy development lead to reduced competitiveness.

Through a comprehensive review of studies, the report identified the factors that led to reduced competitiveness at OGC, and they must be addressed at length. Some of the factors that lead to reduced competitiveness in OGC are people, finance, marketing, strategy, operations management, and project management. Each factor is unique, but it can be addressed through application of economic principles. OGC must engage in proper planning to address all the causes of reduced competitiveness by taking advantage of existing economic tools such as Fishbone and Six Sigma. Fishbone provides a visual representation of the problem by classifying the causes of the problem into six categories. The causes are further classified into smaller causes, for example, the aspect of employees can be further classified into the lack of skilled employees, lack of motivation, and poor management. Fishbone technique makes it easy to address the problem because it is visual in nature. It identifies all the causes of the problem making it easy to establish patterns and brainstorm solutions for the problem. For the fishbone technique to be effective, it must be supported by effective strategies from relevant economic theories.

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