Corporate Overview
Introduction to EGA
Emirates Global Aluminium (EGA) belongs to the largest UAE companies. It is a publicly traded entity which produces premium aluminum, the most malleable metal, and other products for over 350 global customers, who transform it into diverse products. The company is located in Abu Dhabi and diversifies the UAE industry where gas and oil production prevails. A total number of employees is over 8,000, including 1,200 UAE nationals. The company manages its strategic vision of partnership with stakeholders. EGA supplies their products to customers from over 60 countries. Nowadays, EGA is ranked as the fifth largest company that deals with aluminum in the world. Since the UAE aims to explore its natural potential to boost the national economy and international trade image, EGA follows this course. It belongs to the largest exporters of aluminum. The company is responsible for nearly 4% of global production of aluminum (2.6 million tonnes of aluminum were produced in 2017) (EGA, 2018). As this large business is a strategically vital industry for the UAE, EGA plays a major role in the diversification of economic portfolio and the enhancement of industrial path of the country. It highly positions international industrial image of Abu Dhabi and the entire UAE. However, even such a huge manufacturer has to resolve strategic challenges. It should decide whether to continue international expansion or to develop corporate social responsibility focused on local stakeholders.
Ownership Structure
EGA is owned by Investment Corporation of Dubai and Mubadala Development Company (Abu Dhabi). EGA is a conglomerate with interests in aluminum production and perspectives of international expansion and business growth. The core assets of EGA are Emirates Aluminium and Dubai Aluminium. These corporate components have enlarged the scope and value of the business, positively influencing the operational profits of EGA in the UAE. These components have been constantly updated. For example, health and safety changes were introduced. The organization of HR and communication with community has improved. Moreover, reduction of negative environmental influence and investment in socioeconomic development have become the main priorities. These interests reflect the elements of corporate culture and attempts to shape corporate social responsibility so that it is possible to improve international relations.
EGA governance framework consists of a solid framework that includes the board of directors, the board committees, finance, legal and compliance departments, and Emirates Global Aluminium’s external auditor (EGA n.d.). The Board of Directors of EGA comprises ten strategic managers and supervisors who make final decisions on business success and value in the long term. The company has special departments responsible for internal control, finance, risks management, and compliance. Therefore, the necessity to demonstrate fair and responsible performance is vital for strategic and common management of the company that expects to gain more international partners in the framework of a new international strategy.
Key Products
The company is the leader in producing premium aluminum. It is the first-priority product of EGA, which is supplied abroad and used for further internal markets in the B2B sector. The premium aluminum products are re-melt ingot used for aerospace and electronics, billet used for transportation and construction, and slab ingot used for packaging food and lithographic sheets. EGA also makes bus and anode bars. The major part of EGA products has a high value. However, the company lacks the strategy to develop unique products, to expand internationally, and to stabilize its reputation.
Corporate Objectives
EGA aims to provide the world economy with a sustainable and competitive product of high quality and at an affordable price for internal and external needs. This is supported by a strategic vision of high-performance delivery of premium aluminum to global customers, use of advanced technologies, commitment to well-being, prosperity of the UAE community, and innovative profitable performance. EGA promotes the following core values:
The protection of safety, integrity, transparency, fairness of business operations, and external environment;
The provision of development and career opportunities, sustainable relationships with stakeholders, and positive influence on global communities;
The performance aimed at nurturing excellent work culture, enhancing empowerment through accountability and ownership, reaching profitability, and maintaining continuous improvement (EGA n.d.).
According to the strategic objectives and the vision of the company’s international relations, EGA is engaged in international relationships with customers and partners worldwide, which requires the development of a new strategy of international market expansion. However, being engaged in heavy manufacturing in the framework of acute ecological demands for eliminating the greenhouse effect, EGA is still challenged by the choice of appropriate strategies to improve social responsibility in the world community.
Financial Situation
EGA net income was AED 3.3 billion, which increased by almost 60 % compared with the previous periods (EGA 2018). The revenue was AED 20.5 billion in 2016; the trend a stable 20-percent increase (EGA 2018). Adjusted EBITDA of EGA exceeded AED 6 million in 2016 (EGA 2018). The revenue grew by AED 20 million in 2017 compared with the previous year.
EGA Achievements
Over 82% of all EGA products are highly value-added, which makes the company the world leader in premium aluminum production. The company provides over 350 customers (mostly businesses) with own products in over 60 countries. EGA uses green building materials in its operations (Sustainability Report 2018). Locally, the UAE companies use 10 % of EGA products for internal needs and sustain a long-term relationship in terms of national economic development. EGA built a powerful supply chain, the estimated cost of which is AED 2.9 billion (Sustainability Report 2018). The company has employee suggestions by 38% higher in comparison with 2016. EGA contracted over 10,000 entities in construction and over 3,000 in Guinea in 2017. In terms of education initiatives and the creation of opportunities for community, EGA trained more than 100 trainees in the programs that lasted 18 months. Approximately 180 students on the scholarship study in the UAE and other countries. Despite the engagement in heavy industry, EGA reduced carbon emission by 36% and developed 21 environmentally-related programs (Sustainability Report 2018). The company has been cooperating with more than 1,400 volunteers in environmental projects.
Current Generic Strategy
According to the focused production of premium aluminum which is highly popular in a wide range of countries, EGA follows a focus strategy. Since EGA has occupied a narrow market with an evident advantage of its product, this strategy corresponds perfectly to the operating activity of EGA. The differentiation advantage of EGA premium aluminum excludes other market segments in the industry. It means that this focus strategy provides EGA with cost and differentiation advantage in this target segment (Porter 2008). However, this strategy does not guarantee a long-term competitive advantage in the industrial market. This strategy should correspond with corporate social responsibility delivered to the international partners, customers, and suppliers. The company should focus on the relationships with stakeholders before continuing the expansion throughout the regions. Therefore, these strategies allow EGA to preserve strong partnership and to boost supply chain management even with the primary product.
Industry’s Rivalry
One of the main competitors of EGA is a Chinese manufacturer. It gains its momentum because of low-cost products. Important aluminum smelters are Aluminium Bahrain, Alamos Gold Inc., Qatalum, and Sohar Aluminium, among other companies. They demonstrate technological strengths, modern environmental protection, and wide international recognition. The examination of rivalry and the common influence of industry on EGA in the market may be based on Porter’s model of five forces (see fig. 1). This model demonstrates how the forces of competition affect a company and its industrial environment. If these competitive forces are strong, a company is challenged to gain less. The aluminum industry has high barriers to entry, few strong suppliers, and numerous buyers. However, there are many substitutes which are highly competitive and more attractive to customers. The industry is promising as it is associated with high profits and high bargaining power. Nevertheless, competitors are large international players that have managed to sustain their positions and to develop strong competitive advantages.
Figure 1: Porter’s Five Forces Model, Jurevicius, 2013.
The threat of new entrants is low because the market and industry are sophisticated in terms of a technological approach used by large international companies. As the industry is profitable, rivalry intensifies in the Middle East region. A low number of organizations compete for the same market product. Therefore, profits remain to be high due to the low bargaining power of buyers.
Furthermore, the bargaining power of suppliers is low. As the premium aluminum production largely depends on supplies of raw materials and their quality, suppliers are contracted and managed through a favorable supply chain in the UAE. There are no substitutes for raw materials of EGA production.
The bargaining power of buyers is high because EGA set their prices to respond adequately to domestic and foreign demand on its premium product. While entering the international market, EGA products are influenced by the changes in the demands and requirements of international customers. As EGA can set a lower price on premium and appreciated products due to high quality and production costs, it is conditioned to contract customers in the B2B sector and keep an affordable price. This fact is especially undeniable if taking into account a wide presence of EGA’s competitors worldwide and the scope of their daily operations and supplies. The future market expansion would enhance market control over global markets and improve the forecasts of demand on EGA products.
The threat of substitutes is high because buyers may find alternative products at more attractive prices and of the same quality. Therefore, some buyers may opt for the competitors’ products. It would reduce the company’s profit and diminish the corporate image.
Undoubtedly, rivalry among competitors is essential. The most dangerous competition occurs in the regional markets since the UAE and its neighboring economies have relatively equal natural resources. However, EGA may diversify its influence on the industry to differentiate own activities and products. As the company plans to enter the global markets, it has to respond to intensive competition.
Case Study Questions
1. What is the new strategy that EGA should follow for future expansion into international markets?
2. How can EGA improve corporate social responsibilities?
Teaching Notes
1. What is the new strategy that EGA should follow for future expansion into international markets?
To identify expansion opportunities for EGA in the international market, students may choose to apply various international business management strategies. Understanding the differences between national and global preferences, students will be able to fully characterize and justify the strategy developed by EGA. They should also take into account the company’s features and the competition in the Emirates and worldwide. Good students can choose a multinational strategy related to the strategic behavior of EGA, which sacrifices the efficiency in Abu Dhabi to respond to the requirements in other countries within the same market segment (Tulung 2017). They may justify their choice by addressing the internal needs of international markets in EGA’s products and initiatives (over 10% of EGA products). The advantage of this strategy is its direct relation to international expansion and strategic talent management (Morris, Snell Björkman 2016). However, a disadvantage can ensue due to possible losses in the internal markets that EGA might neglect while supplying numerous global customers.
In order to demonstrate the understanding of diversity in strategic management and to provide recommendations for the company to adjust its business processes to the needs of international customers, students may select and examine one of international strategies. They can choose a transnational strategy if they think that EGA should both expand international strategy and demonstrate social responsibility. They may select this strategy due to its concentration on international consumption of EGA products and its adoption to the local needs of foreign stakeholders. With a transnational strategy aimed at international expansion, students may link the appropriateness of EGA products to expand successfully in the foreign markets. These students may decide whether EGA may enter the market of other countries, understand its customer behavior and specific culture, and meet own corporate needs.
It is expected that students may explain the benefits and advantages of a transnational strategy as the most favorable to win international markets. It requires the company to change own products and to localize them to the domestic needs of its customers. However, smart students may also suggest this strategy fits best sustainable urban development projects developed by EGA (Bartlett Beamish 2018). The same category of students should be aware that it limits EGA opportunities to diversify in the UAE as its products for exports will be adapted to foreign markets. They may consider the strategy’s goals to engage EGA with other communities and networks and to hone internal competitiveness in internal markets as the advantage of this international strategic management tool (Özveren 2017). Other students may choose an acquisition strategy to keep external leadership and market expansion. These students should demonstrate the example of how EGA may acquire other related businesses of the same industry to enlarge the scope of its business, to eliminate SMEs – competitors, to increase supply chain management value, and to improve integration quality (Anand Lee 2016; Angwin Meadows 2015). Students may decide to vary this strategy or extract valuable benefits of its implementation for EGA in the international market.
Students may use Dunning’s OLI model to formulate the adjusted strategy based on advantages of EGA in the international expansion (see fig. 2.)
Figure 2: Dunning’s OLI model
Students should understand the opportunities for EGA after the identification of these core advantages. They should discuss how these advantages should correspond to internal markets. If they determine ownership and location advantages, students may indicate that each of these advantages should serve a role in honing corporate competitiveness of EGA abroad. Highly skilled students may discuss the ownership, location, and internationalization advantages of EGA and the opportunities they have to compete with the main product lines. These students may determine advantageous characteristics for EGA regarding its ownership structure, support by the UAE government, brand name, technological novelty, and successful business model, among other factors. By gaining favorable industrial benefits of economic growth and having a low number of competitors, EGA may be considered by smart students as a strong player in international expansion. Consequently, the company is promised to succeed when expanding the geography of own sales. Other students may indicate that internationalization advantages are the most beneficial for expansion in the world market. As this fact is obvious, these students may easily explain how EGA should benefit from these advantages to earn more. They should also mention how the delivery of the same high-quality products can lead to the establishment of new rapports in the global market.
2. How can EGA improve the corporate social responsibilities?
Before identifying ways to improve EGA corporate social responsibility (CSR), students should analyze the current state and achievements of the given company. Good students can use Joko Oakland model for total quality management; it can serve as an alternative approach to the quality assessment (see fig. 3).
Figure 3: Total quality management model, Arikkök 2017.
Students should apply analytical and critical thinking in order to interpret this model because it requires the adaptation of the specificity of EGA to this model’s fragments and links. Good students can provide details on the integration of teams, tools, and systems for quality assurance and total quality management (Calvo-Mora, Picón-Berjoyo, Ruiz-Moreno Cauzo-Bottala 2015). In addition, they need to specify how the management of production processes guarantees the company's responsibility to stakeholders (Neyestani Juanzon 2016). Other students can describe the general algorithm of the model due to the interpretation of communication, culture, and commitment in the company's activities.
Regarding the determination of EGA behavior and approaches to improve the corporate social responsibilities, good students may choose McKinsey’s 7S Framework model (see fig. 4)
Figure 4: McKinsey’s 7S Framework model, Guenzi Storbacka 2015
These students should analyze how EGA may explore the elements of the model to increase social recognition of its stakeholders, improve organizational structure, and make organizational changes (Ravanfar 2015; Teh Corbitt 2015; Aldairi, Kha Munive-Hernandez 2016). If students understand the meaning of each S for the establishment of corporate social responsibility by EGA, they will be able to offer the unique way to improve it. Highly intelligent students will be able to distinguish important components of the social responsibility of a large business from numerous stakeholders in this model. Firstly, students may analyze the company's external environment in order to form a vision of how each S will influence the implementation of this model. The next step is the formation of each S in the internal environment and its compliance with the internal key success factors and peculiarities of the expansion strategy. If students define the relationship between hard and soft Ss as the drivers of improving social responsibility, they will show an appropriate understanding of the roles of each S in the overall system of strategic goals, common structure, and concept of relationships with stakeholders.
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