Every day the entrepreneurial market transforms or changes from the way it is. New aspects are developed in a matter of seconds making the entire business scenario different to financial institutions and companies. Amongst the changes, are factors that the firms can control and those that fall beyond their regulation known as the systematic elements. The systematic factors are prevalent in the external surrounding and a greatly influence the corporations. Hence, it is fundamental for the businesses to invest money and time in identifying the primary trends and forces in the external environment that can affect their operations. For this reason, this essay attempts to develop a comprehensive analysis of the external environment of the Saudi Arabia banks to highlight how various factors influence the financial institutions’ strategies and functions.
The appropriate techniques for external environmental examination are the PESTLE Model and SWOT analysis. The PESTLE paradigm identifies the political, environmental, social, technological, legal, and economic factors that affect the operations of an industry. The SWOT analysis, on the other hand, is utilized in pointing out both the external and internal elements that impact the activities of a business. The SWOT model capitalizes on the strengths, weaknesses, threats, and opportunities of the enterprise. Saudi Arabia ranks as the leading authority in the OPEC and the largest exporter of oil in the globe. Therefore, the primary revenue of the country comes from the oil sector (Bank Audi, 4).
The dependence on oil means that all the factors within the PESTLE model are rooted on the availability of the mineral. For instance, oil provides the royal family in the country with its political and economic power. The strong global reserves of the mineral also maintain low debts and healthy export returns to support the well-being, technological advancement, and soundness of the banking sector. During and after the emergence of the international financial crisis between 2007 and 2009, growth and profitability in the Saudi Banking system continued to portray stability and strength owing to high liquidity and good capitalization of operational efficiency and asset size. The level of rivalry of the banking market also became more pronounced with aggressive and exceptional business standards (Al-Kandi, Asutay, and Dixon, 1).
The leadership in the banking sector in Saudi Arabia sought to employ innovative tools, techniques, and strategies to survive the new financial climate introduced by the 2009 depression. The strategic implementation has assisted some financial institutions to thrive in a highly competitive surrounding regardless of external and internal threats (Al-Kandi, Asutay, and Dixon, 1). The prominent problem that continues to affect the external environment of the banking sector in the nation is the centralized political power. Most of the public and private financial institutions are owned and dominated by the princes. The aspect indicates that the social, political, and legal freedom of the banks is suppressed following the succession lineup of banks’ ownership from one prince to another (Bank Audi, 15).
Centralized political authority weakens the transparency of making reforms and substantial policies in the Saudi banking sector. It also results in power struggles within the royal family that are reflected in the financial operations. Using the SWOT evaluation, the banks in Saudi possess strengths in terms of strong reserves, soundness, good international relations with the United States, stable business environments, etc. The weakness in the external surrounding of the banking sector are the high unemployment rates, regional uncertainty, lack of transparency, overreliance on the oil mineral resulting in poor economic diversification, amongst others (Bank Audi, 9). The stability of the banks provides them with the opportunities to tap international resources and expand easily.
Possible threats to the Saudi Banking Sector are macro-prudential regulations required to conduct foreign business operations and high competition in the global and national environment (Bank Audi, 11). The PESTLE and SWOT analysis develop a better understanding of the external environmental factors that influence the operations of the Saudi Banks. It thus becomes easier to diagnose and anticipate predictable and unpredictable environmental issues. An external evaluation helps the leaders to create business strategies, processes, and policies that adapt the firm’s products and operations to the changes in the surrounding. The banking sector will seek to capitalize on its strengths, capture the opportunities, and identify the weaknesses that may introduce threats from the environment.
Works Cited
Al-Kandi, Ibrahim; Asutay, Mehmet, and Dixon, Robert. FACTORS INFLUENCING THE STRATEGY IMPLEMENTATION PROCESS AND ITS OUTCOMES: EVIDENCE FROM SAUDI ARABIAN BANKS. Journal of Global Strategic Management | V. 7 | N. 2 | 2013-December | isma.info | 5-15 | DOI: 10.20460/JGSM.2013715662.
Bank Audi. SAUDI ARABIA ECONOMIC REPORT CONTINUING ROBUST MACRO DRIVE DESPITE GROWING DOMESTIC AND EXTERNAL CHALLENGES. Economic Saudi Arabia., 2015. Web. <http://www.bankaudigroup.com/GroupWebsite/openAudiFile.aspx?id=2673>
