Abstract: give us a better understanding to
Abstract:Properbusiness requires a clear and detailed analysis of the business strategies, andhow that effect on the performance of the firm. Analysing the highlights andthe growth of the business by covering the SWOT, Porter Five Forces criteriaand a critically analyse, all of those prospective will give us a betterunderstanding to the strategies of the enterpriseExxonMobiland British Petroleum, being big multinational oil enterprises with a highgrowth and a top ranking in the oil industry, with their successful businessstrategies.
However, those companies are facing several number of threats andweaknesses, in addition to their competition with each other. This report is deliveredto examine and analyse the key factor of the growth wither is internal orexternal. In contrast the report shall clarify the weaknesses and theapproximate recommendation to face the challenges, and accelerating the modelbusiness into a growing opportunity.
Introduction:EarlierBritish Petroleum is globaloil and GasCompany was headquartered in London,United Kingdom. In revenues BP is measured as the third largest energy company and the fourth largest Company in the world and is one of the six oil and gas “super majors”.It is been operated over 80 countries which produces around 3.8 million barrels of oil equivalent per dayand runs with 22,400 service stations worldwide. The largest divisionBP America is the biggest producer of oil and gas in the United States and headquarter lies in Houston, Texas. On 31 December 2009 it had total proven commercial reserves of 18.3 billion barrelsofoil equivalent. The name “BP” derives from the initials of one of the company’s formerlegal names, British Petroleum.
” (Ferrier, 1982).On the other hand we have ExxonMobil, which wasformed in 1999 and has realised consistent growth in sales and profitability tobecome one of the largest producers in the word. The company now handled 3% ofglobal energy output. The company is also the second largest listed firm in inthe US (Vassilou, 2009).
ExxonMobil operate in most of the world’s countries, and are best knownby our familiar brand names: Exxon, Esso and Mobil. They make the products thatdrive modern transportation, power cities, lubricate industry and providepetrochemical building blocks that lead to thousands of consumer goods. (Exxon,2007).As two leading corporations in the petroleum sector, theirgrowth has depends on their way of implementing the business strategy with asuccessful formulation. From analysing the strength, weakness, opportunitiesand threats, we could identify the key factors and the focuses of thecompanies, from the analysis the strategy of the companies has a long termfocus, heavy fixed cost and low margins, and huge economies of scal.
ExxonMobil Strategy:”ExxonMobilhas two main operating segments namely upstream and downstream. Upstreamoperation include all activities involved in exploration, drying and pumpingfossil fuels from beneath to the surface for onward processing. Down steamoperations involve the processing distribution and marketing of hydrocarbons.”(Vassilou, 2009).”Thecompany has capacity to produce 6.5 million barrels of crude daily, a relativehuge amount relative to the other players in the industry. The company hasoperations in more than 100 countries under its various brands and has 37refineries” (Exxon, 2007).”Thefirm’s annual growth in capacity stands at 17% and has enough resources toinvest in efficient production” (Exxon, 2009).
The corporation had aconsistent growth in sales and profitability, the company strategy is based on developupstream units which mean the core operation of the company, due to thecompetition in the petroleum industry, all the firms play to gain the customerloyalty so they insure their sustainability of their sales. So Exxon emphasisesto maintain their customer service, to move forward in maintaining theirtechnological strategy, which is one part of Exxon business strategy. Internal Analysis of ExxonMobil:Strengths:PrivateownershipExxonMobilis a private company, so the government has minimal government control. (Omeje2008).Leadershipin environmental conservationTheorganization need negligible violations about environment set of principles aslaid down by those Different environment organisations in Different businesses.Concerns the global warming have brought about the expanded examination of itsgeneration operations particularly profound ocean penetrating what is moreemanations.
This displays the organization with no quick operational issues.Strongresearch and development teamTheorganization need a solid asset base. This is essential in the business owingof the high fixed operational costs in the market. The organization reinvest anormal about 16% from the benefits of the boosting capacity for the developmentand research. The firm need those ability to get guaranteeing benefits of thebusiness operational units should develop its benefits of the business.
Competitivelabour forceHumanresource offers the organizations a powerful structure for competitiveadvantage. The organization attracts young talent ability. Weaknesses:Litigation”Thecompany’s 1989 Alaska oil spill and its sponsorship of research publicationshurt the firm’s image and resulted in numerous law suits and other contingentliabilities that could cost the firm billions in claims. The company’s salesexperienced a dip following concerns of irresponsibility. The oil spill alsopushed the firms’ operational costs up by 11%. This led to the company’sadoption of new, more expensive technologies to gaud against such violations”(Porter 2008). Risingproduction costs”Followingthe firm has aging oil wells and its new oil finds are deeper and moreexpensive to drill” (ExxonMobil, 2009).
“Thismeans that the per unit production cost continues to rise over even as othercosts such as marketing and distribution rise” (Vassiliou 2009). Theenergy prices and taxes have increased, so it rise the production costs. High fixedcosts”The initialcost of production is very high. Exploration, drilling and maintenance of oilwells makes firms incur excessive costs. The company has to recoup the highcosts by operating in large scale. The firm cannot sell at high prices due tocompetition and therefore it has to rely on economies of scale to drive itsprofitability. High fixed costs mean that the company experiencesdisproportionate fall in profits if sales decline” (Porter 2011).Limitedhuman resource poolThere isa shortage of qualified talent in the oil industry, the lack of human resourceis critical to firm’s productivity.
“Most of the firm’s new hires require excessivetraining to orient to the training environment.” (Mondy, Noe & Gowan 2005).Externalanalysis of British Petroleum:Economic – US dominating Iraq and their political instability and also greater demand from India and China made the rise in oilprices. To ensure the company stability and capacity to avoid further happening in disaster BP have to invest more on oil and gasproduction and also in infrastructure too. Social – BP promotingmethodologies gets influenced toward the figure climb in the domestic oil Andgas cost and they searching for good suppliers.
Change Previously,environmental will be an alternate variable influences the benefits of thebusiness about BP. Environmental change need been an alternate component thatinfluences a great deal on BP’s benefits of the business. The point when thereis increase of population the oil interest will develop despite the fact thatthere is no change done wage dissemination in this way that risk may be low toBP. Technological – The interest to elective vitality increases,coordination with business sectors needs to make accomplished for thoseinnovation organization. Researches indicate that innovation organization maybe the way figure to the rival in the elective vitality showcase. To decreasethe greenhouse gas emanation BP need with contribute ton. Should enhancesub-sea oil innovation BP need will contribute on the engineering organizationfor oil What’s more gas creation techniques.
Environmental – Climatic change will influence the oil commercialenterprises a considerable measure. To decrease the Greenhouse dischargesorganization need will set a greater amount deliberations. Should keep up thosefoundation Furthermore to evade further harm in the oil wells and pipelinesreasonable financing has to a chance to be done. With reduced the greenhouseemanations for around 40% BP need situated a objective Toward pushing theutilization of atomic force. Legal –Taxation and fuel obligation aboutadministration demonstrations influences those value for oil.
Those one gestureabout renewable transport fuel commitment weights those consumers to utilizebio-fuels that camwood weaken those bargains in the oil industry. BP if makemindful On Comprehending the first parts of the EU outflows exchanging planwill be should think over those carbon emanations. Externalanalysis of ExxonMobil:OpportunitiesTaxbreaks”Energycompanies earn tax breaks from the government. Being a private listed company,ExxonMobil qualifies for annual tax breaks and subsidies by the federalgovernment” (Pennell et al. 2008).
Improvementsin drilling technology to lower costs and conserve environmentThecompany has the capability to ensure environmental safety, more technologicallyadvanced operations. The company has to implement a new technology to extractoil in previously to the surface at lower cost.ThreatsUncertainpolitical climate”Changesin political leadership can have market impact on the firm’s operations. Forinstance, a change of government in the US can result in denial of licences todrill in offshore areas where the company derives significant oil deposits.
“(Reinecke & Strobenreuther 2008; Mondi & Gowan, 2005; Powel, 2013).Increasedcosts of Global warming”Thefirm’s costs of operation are likely to rise as the effect of global warmingtake their toll. This will be more pronounced especially in the low-lying areaswhere the firms drilling operations are more exposed to extreme weather.”(Environment, 2012; Coll 2012; Vernon, 2012; Prahalad & Hamel 2010; Smith2012).Technologicalknow how”Theenergy industry depends heavily on technological advancements to driveproduction and efficiency” (Powel, 2013). PorterFive Forces for ExxonMobil Company:Power ofsupplier: half of the host countries of the reserves areunstable, and that could lead to limit on the production and a rise on theprices, however, Exxon assets now is stable and benefiting from dealing withthe OPEC which controls 40% of the global supply of oil. Power ofbuyer: there is a high demand for the product due to itsimportance in the daily work, so it is mandatory to purchase the product.Threat ofnew entrants: a high Fixed cost levels, and high levels ofindustry with a strong competitiveness, high capital cost.
Threat ofsubstitute: the renewable energy could replace theconsumption of the fuel, due to the geographic availability of the raw materialand the unstable of most of the countries, the oil industry would be replacedby a new source of energy, cheaper and more efficient. Competitive Rivalry: competing with other industries suchas renewable energy and hybrid, having high competitors such as BritishPetroleum. Porterfive forces of British Petroleum:”Threatof new entrants – Asthere is a strong competition in the oil industry and there is a strong threat for new entrants into this industry. Low pricing and the strong competitionmakes others to come into the industry and Albeit BP is a leader of market. In differentlocations of solar industry, the rate ofthreats for BP differs. There is an example in US forsolar business there is very less profitable market and very few big companies that needs tocome into this industry because of legal backup. Soon after BP will become a market leaderin US with veryless new entrant threat. Buyer Bargaining Power – Buyer bargaining power is moderate due to there is increasedemand from the consumers because there is no other alternative fuel for the motors and thisshows the moderate bargaining power ofthe buyer.
Due to high expense on production,marketing and advertising the products and brand image is minimal because ofthe high demand. Supplier Power – When considering the high number of supplies and maximum size of the supplies and there were a high switching cost for few independent retailer as BP have a very strong supplier power. From the fuel supply chain the big companies are able to do everything. Due to there were not many suppliers the view of solar industryshows that supplier power is huge.Threatof substitutes – Since the oil price is hike there is a weak threat of substitutes for BPin the oil industry.. To develop new technologies for its solar industryBPis investing a lot on it Competitive Rivalry – In solar industrythe competition for BP is moderate due to the huge switching cost and high size of BP and other same companies like Shell and Chevron. There is no chance for small companiestoenter in the solar industry asthe rivalry price is huge and there are very few large competitors.
Due to technology expense, huge switching cost the competition is not that much strong inthe aspect of solar energy and demand inthe market is less. Competitive RivalryCompetitive rivalry is highas in the world there are many Oil and gas companies ( Shell, Exxon-Mobil, PDVSA, Saudi Aramco, Pemex, Emirates Oil,Gazprom etc) competing for access to the same oil producing fields but BP is one of the six oil and gassuper majorsand is highly competitive.”(Lydia, 2015). Recommendationand conclusion:To lead asuccessful business strategy on the oil industry, each company need to take themain factors into consideration: operation and oil discovery, manufacturing,technology, finance, Marketing and distribution. Thechoice of an appropriate strategy dependson various factorslikethe positioning of the company in the market,financial stability and its competitive advantage.
As a wideindustry, each company is facing many strategic Problem, and each try to avoidor respond to that obstacles, but the major problems are in case any companytake the risk to maintain its leadership, can give the chance to thecompetitors an opportunity to gain some dominance. One more problem is facingthe changes in the gulf area and around is a real issue for the industry ingeneral, and that lead to either lower the profitability or less quality ofproduct.As aresponds to those issues, it is recommended in the short term that the firmsneed to focus on rising their sales and manage to refresh the retail sale,invest more on the oil exploration and production. On the long term they mustinvest in natural gas exploration that could give the firms a step ahead oftheir competitors, investing in renewable energy sources will give them achance to avoid getting off the sales by another company, so it will be oneplayer dominating two field.
Diversificationis a successful strategy would help the corporation to generate more profits byinterring new markets with new product.Feasibilityis an important factor on studying the switch of merge if the companies wantsto invest in development and research, so each company must provide the rightfeasibility to avoid risks. From theanalysis and the identification of the strength and weaknesses the companyshould use its strengths should avoid its risks by establishing more operationsin emerging markets.
Besides, the company should take into consideration to investin green energy to avoid the environmental disasters. Lastly, “the companyshould invest in staff training to boost performance as well as in research anddevelopment to drive down operation costs and raise efficiency” (Everard &Burrow, 2010). References American Petroleum Institute (2010), http://www.api.org/aboutoilgas/ .BP(2009) BP and AAR sign deal to align interests and boost value of Russian joint venture.Available at: http://www.bp.
com/sectiongenericarticle.do?categoryId=3&contentId=2006926Everard,K & Burrow, J 2010, Business principles & management, South-Western Pub, Cincinnati.Exxon Company 2007, U.S.A.’sEnergy outlook, 1977-1990, ExxonCorp, Houston.
Exxon Company 2009,U.S.A.’s energy outlook, 1980-2000,Exxon Corp, Houston.Mondy,R, Noe, M & Gowan, M 2005, Human resource management, Pearson Prentice Hall, Upper SaddleRiver, NJOmeje,K 2008, High Stakes and Stakeholders: OilConflict and security in the World, Ashgate Publishing, BurlingtonPennell, N, Lavery, G & Fowler, R2010, TheLow-Carbon World Is Already Here Five Imperatives for Succeeding in an Era ofCarbon Constraints. Booz and Company,New York.
Porter, M 2011, ‘From competitiveadvantage to corporate strategy’ HarvardBusiness Review, vol. 65, no. 3, pp. 43–59.Porter, M 2008,’The Five CompetitiveForces That Shape Strategy’,Harvard business Review,Vol.
5, no.2, pp. 23- 37.Powell,T 2013, ‘How much does industry matter?An alternative empirical test’, StrategicManagement Journal, Vol. 17, no.
4, pp. 323–334.Reinecke, N, Sohn, M &Strobenreuther, H 2008, Sustainability:The carbon imperative, CharteredInstitute of Purchasing and Supply, New York.Vassiliou, M 2009, HistoricalDictionary of the Petroleum Industry,Scarecrow Press, Lanham, MD.Lydia harell 2015, otago polytechnicAuckland International campus.