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In Saudi Arabia, there are several retail industries. These retail industries are specialized in different areas. There are several key issues that affect these industries but the dominant issue is the oil price (Ramady, 2010). This is because the economy of Saudi Arabia and most countries in Middle-East mainly relies on oil to support their economy. This means that a fall in the oil industry would result to an economic recession in the country. In this study, our focus shall be on four retail industries which include: Abdullah Al Othaim Markets Company, Aldrees Petroleum and Transport Services Company, National Agricultural Marketing Company and the Saudi Automotive Services Company. As we shall notice in our study, these companies are affected by almost the same issues they are all located in the same political, economical and social environment.
Abdullah Al Othaim Markets Company
According to Tadawul (2010), Abdullah Al Othaim Markets Company is a company that specializes in selling foodstuff and other consumer products both in retail and wholesale. According to Johany et al (1986), this company was established by Suleh Al-Othaim trading in the year 1956 and the company is located in a city called Riyadh in Saudi Arabia. This company has several supermarkets from where food stuffs and other consumer products are distributed from. The company has several stores too. According to Johany et al (1986), other services offered by Abdullah Al Othaim Markets Company include catering, mechanics, electronics repair, computer maintenance, storage services and building.
Macro Analysis of the Company
Macro-analysis of industry is carried out using the five forces in the Porters model. They determine not only the attractiveness, but also the profitability of a given industry. They are therefore very important to an aspiring entrepreneur. The five forces include: the supplier power, buyer power, threat of entry, threat of substitutes and competitive rivalry.
To start with, the company has a favorable buyer power. This is so because Saudi Arabia has a large population hence a higher demand for products in the company. Moreover, the company gets more customers during the month of Ramadan. This is because the Saudi peoples expenditure tends to rise during this month due to the fact that most people spend a lot on food compared to other times of the year. Given the high demand for food, food prices increase during this time. Spending on food by most customers increases double during the Ramadan month. Thus, Abdullah Al Othaim Markets Company in Saudi buyers power is increased during this period.
Secondly, Abdullah Al Othaim Markets Company has great supply power. This has been achieved by the expansion of its stores and good pricing. At the same time, the company makes use of the retail industrys online website www.souq.com to make most of its supplies. Thus, most customers are able to pay for products by use of credit cards.
Thirdly, the threat of entry into the company is high. It is possible to penetrate into the company because in Saudi market, monopolistic tendencies are not encouraged. Besides, the differences between conventional and Islamic fiscal practices continue to become slim and as such barriers to new entries into the retail business are reducing.
Fourthly, the threat of substitutes in the company is high. This is because there is much importation of software programs, electrical appliances as well as food by other companies. The importation of various substitute goods has a way of reducing the prices for the local products especially when they come at low costs making consumers to prefer them. The domestic retailers will thus be forced to adjust their prices so as to compete effectively.
Finally, there is much competition rivalry. The Abdullah Al Othaim Markets Company faces much competition from the National Agricultural Marketing Company, Saudi Fisheries Company and Penn Traffic Company. This is so because these companies provide the same commodities as the Abdullah Al Othaim Markets Company hence competes for the same customers.
Apart from the five forces explained by Porters model, we have other key issues that affect the company. These issues include: oil prices, the political and environmental concern, the economic concern at the local and global level, sentiments from investors, influence of the US dollar and the new laws and policies.
First, we have oil prices. Since Saudi Arabia leads in the production and exportation of oil, the Saudi economy is largely affected by any fluctuations in oil prices. Apart from affecting the nations economic growth, the effect is also experienced at the Stock market. The stock prices in the country rise and fall when oil prices increase and decline respectively. What may result to these fluctuations in price are basically two aspects. First is because the Saudi Stock Market has a bi-directional causal or mutual predictive relationship with daily changes in the oil prices. Second, there is global demand for oil. The oil prices in Saudi Arabia affects the stock prices of the Abdullah Al Othaim Markets Company to a large extent.
Secondly, there are political and environmental concerns in Saudi Arabia and the world at large. Any changes either politically or environmentally easily affects Abdullah Al Othaim Markets Company.
The thirdly, economic concern at both the local and global level the company. Any major shock or incident in the world wide market will have a great impact on the price of the products. How the global market perms and grows greatly affects and relates to the growth of the Saudi Stock market thus affects the Abdullah Al Othaim Markets Company.
Fourthly, sentiments from investors can also affect the stock market performance, thus directly affecting the Abdullah Al Othaim Markets Company. Therefore, it is important for the investors in the Saudi economy to exercise caution with regard to the stock market. The market value can easily be propelled above our fair value estimate due to an investors sudden shift in sentiments.
Consequently, the influence of the US dollar has much impact on Abdullah Al Othaim Markets Company. Related to this is the US short term interest rate, the strength of the dollar, the global capital market and their impact to the domestic interest rate. Both local liquidity conditions and global prices of products are greatly affected by the US interest rates. The Abdullah Al Othaim Markets Company raises or lowers its prices depending on the interest rates of the US Dollar.
Finally, the new laws and policies also affect the Abdullah Al Othaim Markets Company. Three years ago, foreign investors could utilize the Saudi Stock through the swap agreement. However, the inflows that foreign investors brought were below the expectations. Within a period of about one year, foreign investors had purchased approximately 2.3 % of the total market capitalization. This was partly caused by improper timing following the crash of most global markets in 2008 as a result of a global economic depression. Another reason is due to lack of interest by foreign investors in the market access method. This is because it does not guarantee them the rights to profits or losses due to their own transactions.
Micro Analysis
The stock price for the company can be found using the following formula:
P= D/(k-g), whereby p is the estimated stock price, D is the last dividend paid , k is the discount rate and g is the growth rate of the dividend as follows:
- P=$19.93
- D=$2.5
- g=3.85%.
This implies that, $19.93=$2.5/k%-3.85%.
From this, K=3.98%. The last dividend paid was $3. So, P (estimated stock price) will be $3/3.98%-3.85%= $23.
Assumption
- k (discount rate) is constant.
- G (growth rate of the dividend) will be consistent, hence little or no change.
Comparing this value ($23) with the theoretical value which is 19.93, we see that there is an increase in the estimated stock value, hence it is overweight.
Recommendation
Since the estimated stock sale is overweight, stocks are supposed to be sold with the assumption that these stocks will fall.
Aldrees Petroleum & Transport Services Company
According to Johany et al (1986), Aldrees Petroleum & Transport Services Company was founded in the year 1957 and the company deals with retailing petroleum and providing transport services. The company has several petrol stations and vehicles that serve both the public and private sector. The company is situated in the city of Riyadh in Saudi Arabia. Over the years, the company has experienced rampant growth and has managed to gain a lot of customers.
Macro Analysis
As stated earlier, macro-analysis of industry is carried out using the five forces in the Porters model. They determine not only the attractiveness, but also the profitability of a given industry. They are therefore very important to an aspiring entrepreneur. The five forces include: the supplier power, buyer power, threat of entry, threat of substitutes and competitive rivalry.
To start with, the company has a favorable buyer power. This is so because Saudi Arabia has a large population hence a higher demand for petroleum and transport services that are provided by the Aldrees Petroleum & Transport Services Company.
Secondly, Aldrees Petroleum Transport and Services Company have great supply power. This has been achieved by the availability of well distributed petrol filling stations and many tractor heads with cargo careers to offer transport services. At the same time, the company makes use of the retail industrys online website www.souq.com to make most of its supplies. Thus, most customers are able to pay for products and services by use of credit cards.
Thirdly, the threat of entry into the company is high. This is because it is possible to penetrate into the company because in Saudi market, monopolistic tendencies are not encouraged. Besides, the differences between conventional and Islamic fiscal practices continue to become slim and as such barriers to new entries into the retail business are reducing.
Fourthly, the threat of substitutes in the company is high. This is because there are other companies that have come up with substitutes for gas and diesel. There is also a possibility that other means of transporting cargos rather than use of tractors could be invented.
Finally, there is much competition rivalry. Aldrees Petroleum Transport and Services Company face much competition from the National Gas and Industrialization Company and the United International Transportation Company. These companies provide the same commodities as the Aldrees Petroleum Transport and Services Company hence competes for the same customers. It is also worth noting that currently, oil with low production costs in Saudi Arabia is being put to question by some geologists (Cooper, 2011).
Apart from the five forces explained by Porters model, we have other key issues that affect the company. These issues include: the political and environmental concern, the economic concern at the local and global level, sentiments from investors, influence of the US dollar and the new laws and policies.
First, there are political and environmental concerns in Saudi Arabia and the world at large. These changes could be due to diplomatic issues. Any changes either politically or environmentally easily affects Aldrees Petroleum & Transport Services Company.
Secondly, the economic concern at both the local and global level affects Aldrees Petroleum Transport and Services Company in Saudi Arabia is. Any major shock or incident in the world wide market will have a great impact on the price of the products. How the global market perms and grows greatly affects and relates to the growth of the Saudi Stock market thus affects the Aldrees Petroleum & Transport Services Company.
Thirdly, sentiments from investors will also affect the stock market performance, thus directly affecting the Aldrees Petroleum & Transport Services Company. Therefore, it is important for the investors in the Saudi economy to exercise caution with regard to the stock market. The market value can easily be propelled above our fair value estimate due to an investors sudden shift in sentiments.
Consequently, the influence of the US dollar has much impact on Abdullah Al Othaim Markets Company. Related to this is the US short term interest rate, the strength of the dollar, the global capital market and their impact to the domestic interest rate. Both local liquidity conditions and global prices of products are greatly affected by the US interest rates. The Aldrees Petroleum & Transport Services Company raises or lowers its prices depending on the interest rates of the US Dollar.
Finally, the new policies and regulations are another key aspect that affect Aldrees Petroleum & Transport Services Company. Three years ago, foreign investors could utilize the Saudi Stock through the swap agreement. However, the inflows that foreign investors brought were below the expectations. Within a period of about one year, foreign investors had purchased approximately 2.3 % of the total market capitalization. This was partly caused by improper timing following the crash of most global markets in 2008 as a result of a global economic depression and due to lack of interest by foreign investors in the market access method. This is because it did not guarantee them the rights to profits or losses due to their own transactions.
It is worth noting that most developed nations are experiencing an economic slowdown as a result of high oil prices. Therefore, while supplies are fluctuating, the demand for oil is rising signaling high oil prices. Studies from economic experts show that the cost of oil per barrel may not stop climbing. The world may need to be prepared for a third oil shock. The economy of most industrialized countries is weakening though there is not yet an outright recession. It may therefore be worth drawing the conclusion that unless the industrialized nations run into trouble, Saudi Arabia and the rest of the Middle East will continue experiencing good economic times as a result of success of Aldrees Petroleum Transport and Services Company as well as other retail industries that deal with oil and products.
Micro Analysis
The stock price for the company can be found using the following formula:
P= D/(k-g), whereby p is the estimated stock price, D is the last dividend paid , k is the discount rate and g is the growth rate of the dividend as follows:
- P=$15.74
- D=$ 2.0
- g=4.18 %
From this, K=4.31%. The last dividend paid was $1.5 So, P (estimated stock price) will be $1.5/4.31%-4.18%= $11.54.
Comparing this value ($11.54) with the theoretical value which is $15.74, the estimated stock price went down. Thus, the estimated stock was underweight.
Recommendation
Since the estimated stock sale is underweight, stocks are supposed to be bought with the assumption that these stocks will rise.
National Agriculture Marketing Company
According to Ramady (2010). this company is also known as Thimar. Tadawul (2010) notes that, The National Agriculture Marketing Company was established in the year 1987 and that the companys activities involve marketing products of agriculture as well as service provision in agriculture project management and market maintenance. This company is situated in Riyadh, Saudi Arabia.
Macro Analysis of the Company
As stated earlier, macro-analysis of an industry is carried out using the five forces in the Porters model. They determine not only the attractiveness, but also the profitability of a given industry. They are therefore very important to an aspiring entrepreneur. The five forces include: the supplier power, buyer power, threat of entry, threat of substitutes and competitive rivalry.
To start with, the company has a favorable buyer power. This is so because Saudi Arabia has a large population hence a higher demand for products in the company. Moreover, the company gets more customers during the month of Ramadan. This is because the Saudi Arabia people tend to buy a lot of agricultural products during the month of Ramadan, hence the need to create more marketing on agricultural products.
Secondly, the National Agriculture Marketing Company has great supply power. This has been achieved by strategic distribution of its accessories. At the same time, the company makes use of the retail industrys online websitewww.souq.com to make most of its supplies. Thus, most customers are able to pay for products by use of credit cards.
Thirdly, the threat of entry into the company is high. This is so because in Saudi market, monopolistic tendencies are not encouraged. Besides, the differences between conventional and Islamic fiscal practices continue to become slim and as such barriers to new entries into the retail business are reducing.
Fourthly, the threat of substitutes in the company is high. This is because there are several other agricultural and marketing companies that are coming up. At the same time, the importation of various substitute goods has a way of reducing the prices for the local products especially when they come at low costs making consumers to prefer them. The domestic retailers will thus be forced to adjust their prices so as to compete effectively.
Finally, there is much competition rivalry. The National Agriculture Marketing Company.
face competition from: Abdullah Al Othaim Markets Company, Qassim Agricultural Company and Saudi Research and Marketing group. This is so because these companies provide the same commodities as the National Agriculture Marketing Company hence competes for the same customers.
Apart from the five forces explained by Porters model, we have other key issues that affect the National Agriculture Marketing Company. These issues include: oil prices, the political and environmental concern, the economic concern at the local and global level, sentiments from investors, influence of the US dollar and the new laws and policies.
First, we have oil prices. Since Saudi Arabia leads in the production and exportation of oil, the Saudi economy in general and the National Agriculture Marketing Company is largely affected by any fluctuations in oil prices. Apart from affecting the nations economic growth, the effect is also experienced at the Stock market. The stock prices in the country rise and fall when oil prices increase and decline respectively. What may result to these fluctuations in price are basically two aspects. This is because the Saudi Stock Market has a bi-directional causal or mutual predictive relationship with daily changes in the oil prices and the global demand for oil. The oil prices in Saudi Arabia affect the stocks prices of the National Agriculture Marketing Company.
Secondly, there are political and environmental concerns in Saudi Arabia and the world at large. Any changes either politically or environmentally easily affects the National Agriculture Marketing Company.
Thirdly, the economic concern at both the local and global level affects the National Agriculture Marketing Company. Any major shock or incident in the world wide market will have a great impact on the price of the products. How the global market perms and grows greatly affects and relates to the growth of the Saudi Stock market thus affects the National Agriculture Marketing Company.
Fourthly, sentiments from investors can also affect the stock market performance, thus directly affecting the National Agriculture Marketing Company. Therefore, it is important for the investors in the Saudi economy to exercise caution with regard to the stock market. The market value can easily be propelled above our fair value estimate due to an investors sudden shift in sentiments.
Consequently, the influence of the US dollar has much impact on the National Agriculture Marketing Company. Related to this is the US short term interest rate, the strength of the dollar, the global capital market and their impact to the domestic interest rate. Both local liquidity conditions and global prices of products are greatly affected by the US interest rates. The National Agriculture Marketing Company raises or lowers its prices depending on the interest rates of the US Dollar.
Finally, the new laws and policies also affect the National Agriculture Marketing Company. Three years ago, foreign investors could utilize the Saudi Stock through the swap agreement. However, the inflows that foreign investors brought were below the expectations. Within a period of about one year, foreign investors had purchased approximately 2.3 % of the total market capitalization. This was partly caused by improper timing following the crash of most global markets in 2008 as a result of a global economic depression. Another reason is due to lack of interest by foreign investors in the market access method. This is because it does not guarantee them the rights to profits or losses due to their own transactions.
Micro Analysis
The stock price for the company can be found using the following formula:
P= D/(k-g), whereby p is the estimated stock price, D is the last dividend paid , k is the discount rate and g is the growth rate of the dividend as follows:
- P=$3.35
- D=$ 0
- g=0 %
From this, K=0 %. The last dividend paid was $ 0.5 So, P (estimated stock price) will be $ 0.5/0 %-0%= $0.5.
Comparing this value ($0.5) with the theoritical value which is $ 3.35, the estimated stock price went down. Thus, the estimated stock was underweight.
Recommendation
Since the estimated stock sale is underweight, stocks are supposed to be bought with the assumption that these stocks will rise.
Saudi Automotive Services Company
According to Johany et al (1986), Saudi Automotive Services Company was established in the year 1988 and this was done in accordance to a previous ministerial decree. Tadawul (2011) states that, this company offers car services, restaurant services and beverages. According to Ramady (2010), other services offered by the company include: fuel transportation, sale of construction materials as well as purchasing and leasing of real estate. Johany et al (1986) also notes that, the company also owns an international automobile association which offers international driving licenses custom transit books. The Saudi Automotive Services Company is a public shareholding company located in Saudi Arabia.
Macro Analysis of the Company
As stated earlier, macro-analysis of industry is carried out using the five forces in the Porters model. They determine not only the attractiveness, but also the profitability of a given industry. They are therefore very important to an aspiring entrepreneur. The five forces include: the supplier power, buyer power, threat of entry, threat of substitutes and competitive rivalry.
To start with, the company has a favorable buyer power. This is so because Saudi Arabia has a large population hence a higher demand for products in the company. Moreover, the company gets more customers during the month of Ramadan. This is because the Saudi peoples expenditure tends to rise during this month due to the fact that most people spend a lot on food, leisure and recreation as compared to other times of the year. People are also frequently in need of car services as they tour many places. Given the high demand for these products, prices increase during this time. Thus, the buying power of Saudi Automotive Services Company increases during this time.
Secondly, Saudi Automotive Services Company has great supply power. This has been achieved by providing all the needs for travelers, building many motels at strategic places, and offering frequent workshop services. At the same time, the company makes use of the retail industrys online websitewww.souq.com to make most of its supplies. Thus, most customers are able to pay for products by use of credit cards.
Thirdly, the threat of entry into the company is high. This is because it is possible to penetrate into Saudi Automotive Services Company because in Saudi market, monopolistic tendencies are not encouraged. Besides, the differences between conventional and Islamic fiscal practices continue to become slim and as such barriers to new entries into the retail business are reducing.
Fourthly, the threat of substitutes in the company is high. This is because there is much competition by other companies; hence these companies may introduce substitute products. There is also much importation of substitute products. The importation of various substitute goods has a way of reducing the prices for the local products especially when they come at low costs making consumers to prefer them. The domestic retailers will thus be forced to adjust their prices so as to compete effectively.
Finally, there is much competition rivalry. The Saudi Automotive Services Company faces much competition from the Food Products Company and Red Sea Housing Company. This is so because these companies provide some common commodities as the Saudi Automotive Services Company hence competes for the same customers.
Apart from the five forces explained by Porters model, we have other key issues that affect the company. These issues include: oil prices, the political and environmental concern, the economic concern at the local and global level, sentiments from investors, influence of the US dollar and the new laws and policies.
First, we have oil prices. Since Saudi Arabia leads in the production and exportation of oil, the Saudi economy is largely affected by any fluctuations in oil prices. Apart from affecting the nations economic growth, the effect is also experienced at the Stock market. The stock prices in the country rise and fall when oil prices increase and decline respectively. What may result to these fluctuations in price are basically two aspects. First is because the Saudi Stock Market has a bi-directional causal or mutual predictive relationship with daily changes in the oil prices. Second, there is global demand for oil. The oil prices in Saudi Arabia affects the stock prices of the Saudi Automotive Services Company.
Secondly, there are political and environmental concerns in Saudi Arabia and the world at large. Any changes either politically or environmentally easily affects the Saudi Automotive Services Company.
Thirdly, economic concern at both the local and global level affects the Saudi Automotive Services Company. Any major shock or incident in the world wide market will have a great impact on the price of the products. How the global market perms and grows greatly affects and relates to the growth of the Saudi Stock market thus affects the Saudi Automotive Services Company.
Fourthly, sentiments from investors can also affect the stock market performance, thus directly affecting the Saudi Automotive Services Company. Therefore, it is important for the investors in the Saudi economy to exercise caution with regard to the stock market. The market value can easily be propelled above our fair value estimate due to an investors sudden shift in sentiments.
Consequently, the influence of the US dollar has much impact on Saudi Automotive Services Company. Related to this is the US short term interest rate, the strength of the dollar, the global capital market and their impact to the domestic interest rate. Both local liquidity conditions and global prices of products are greatly affected by the US interest rates. The Saudi Automotive Services Company raises or lowers its prices depending on the interest rates of the US Dollar.
Finally, the new laws and policies also affect the Abdullah Saudi Automotive Services Company. Three years ago, foreign investors could utilize the Saudi Stock through the swap agreement. However, the inflows that foreign investors brought were below the expectations. Within a period of about one year, foreign investors had purchased approximately 2.3 % of the total market capitalization. This was partly caused by improper timing following the crash of most global markets in 2008 as a result of a global economic depression. Another reason is due to lack of interest by foreign investors in the market access method. This is because it does not guarantee them the rights to profits or losses due to their own transactions.
Micro Analysis
The stock price for the company can be found using the following formula:
P= D/(k-g), whereby p is the estimated stock price, D is the last dividend paid , k is the discount rate and g is the growth rate of the dividend as follows:
- P=$11.39
- D=$ 0.5
- g=3.82 %
From this, K=1.97 %. The last dividend paid was $ 1.0 So, P (estimated stock price) will be $1.0 /1.91 %-3.82%= -$0.52.
Comparing this value (-$0.52) with the theoretical value which is $ 11.39, the estimated stock price went down. Thus, the estimated stock was underweight.
Recommendation
Since the estimated stock sale is underweight, stocks are supposed to be bought with the assumption that these stocks will rise.
In conclusion, the key issues that affect retail industries in Saudi Arabia revolve around the porters model as well as the oil prices, the political and environmental concern, the economic concern at the local and global level, sentiments from investors, influence of the US dollar and the new laws and policies. Oil industries are the key determinants of Saudi Arabias economy. Thus, success in these industries means that there will be economic growth in the country while their decline will result to the countrys economic recession. Any changes in the political and environmental concern will impact retail industries in Saudi Arabia. On the other hand, the economic concern at both the local and global level means that any major shock or incident in the world wide market will have a great impact on the stock price. How the global market perms and grows greatly affects and relates to the growth of the Saudi Stock market. Sentiments from investors can lead to the market value being propelled against Saudi Arabias retail industries fair value. The value of the US dollar also affects the stock price of retail industries in Saudi Arabia. Policies and regulations also affect the stock price of retail industries in Saudi Arabia. In this study, three companies namely; Aldrees Petroleum Transport and Services Company, National Agricultural Marketing Company and Saudi Automotive Services Company estimated stocks value was found to be underweight while Abdullah Al Othaim Markets Company estimated stock value was found to be overweight.
References
Cooper, P.J. (2011). Just where is the Middle East Business Cycle?
Johany, A. Berne, M. & Mixon, J. (1986). The Saudi Arabian economy. London: Taylor & Francis.
Ramady, M. (2010). The Saudi Arabian economy: policies, achievements and challenges. London: Springer.
Tadawul (2011).Saudi Arabian retail industries.Web.
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