British Petroleum Company Term Paper

British-Petroleum-Strategic-Management

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by Jerry

22 May 2018

The British Petroleum company was formed back in 1909, at that time going by the name Anglo-Persian Oil Company. It was established as a subsidiary of the Burma Oil Company.  The main goal of forming the company was to primarily exploit oil reserves in Iran. In 1935, it was renamed to Anglo-Iranian Oil Company and later to British Petroleum in 1959.  By the year 1965, the company had expanded beyond the Middle East to Alaska, becoming the first company to strike oil in the North Sea.  The company went ahead to acquire other companies like Standard Oil of Ohio in 1978. The company was later privatized.

External Analysis

The threat from New Entrants

The British Petroleum Company in the recent past has faced stiff competition from new entrants into the Petroleum industry.  The companies, which are seen as a threat to the giant petroleum and gas producer, include Shell Gas, Esso Gas, and OILLIBYA among others. The British Petroleum has initiated several ways to control this threat and retain its profits.

The British Petroleum Limited has placed entry barriers to ensure that entry into the market for new companies is extremely difficult and only non-performing companies can exit the market. The company has acquired this goal by drawing patent on different products and technologies, which are common in the market. This ensures that the companies entering the market have a limited range of products and thus limited market. This also ensures that the British Petroleum Company is paid tariffs by any company that exploits the products or technology. This way, the company ensures high profits and minimum competition.

The British Petroleum Limited has exploited this marketing and sales phenomenon to its advantage. The company continues to use a large share of its profits towards advertising and marketing and ensure its products remain a household name. This has ensured that the company retains a good number of its royal consumers who believe in its products. This makes new consumers feel and think that the products are the best for the simple reason that they are well-known. This helps the company fight well over new entrants who have a difficult time penetrating the market with their new and unpopular products (Fowler).

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The threat of Substitute Products or Services

The development of alternative of products manufactured and distributed by British Petroleum has led to lowering of its profits and markets. The development of generic products has seen the company lose business to the new and old companies as the consumers prefer them as they are cheap. There has also been the development of other sources of energy like the solar energy, nuclear energy, wave energy among others. This has led to the buyer’s propensity to the substitute products.

The intensity of Competitive Rivalry

The intensity of the competitive rivalry has been the major determinant of the level of competition that BP should engage in. The company has had the competitive advantage by continuous innovation and improvement of its products as well as the development of new ones. This has seen the company compete well with both the online and offline companies, which are engaged in the same line of production. The company has also engaged the media, sports, and other social events for maximum advertisement. Though it has cost the company a fortune, it has helped maintain some of its markets to a reasonable level. The company has also tried to remain transparent in its dealings to ensure that the consumers and the shareholders have retained their faith in the company and its products (Mitchell, Marcel, and Mitchell).

Bargaining Power of Suppliers

British Petroleum Company has experienced the rise in the bargaining power of suppliers of labor, expertise, components, raw materials, and other services. The firm has had to grip with the challenge, especially in regions where there are minimal or no substitutes at all. This has led to increase in the production cost in relation to output, which directly interprets to reduced profit margin. This has been experienced when the suppliers change their prices in relation to the change of prices of products and services offered by the company. This has led to retained profit margins despite the firms’ efforts to raise the bar. This has further led to other strains on the production and distribution channels of the firm. The rise in employee solidarity leading to increased cost of labor pushed up by the creation of labor unions has further led to increased cost production, thus lowering the profit margins targeted by the company and the stakeholders. This situation has been accelerated by the monopolistic nature of the suppliers markets and the patent and rights owned by some of the dealers (BP).

Bargaining Power of Customers (Buyers)

British Petroleum Company has had to adjust some of its prices, change the quality of its products, or even adopt new technology and manufacturing skills just to fit into the consumers’ wants and demands.  The consumers can be described as knowledgeable on the quality, quantity, and prices of different products due to longtime experience in their usage, education from the media and other groups of interest, and rise in the level of technology. This has made the consumers sensitive to change in quality, price, or even existence of subsistence. They have also become sensitive to the general behavior of the firm and its management. This has led to the ability by the consumers to force down prices of products, break the single dependency on one manufacturer and the supply chain, and seek of commodity information and analysis of its aftermath among other issues of interest.

The existence of substitutes of products can be termed as the main cause of this trend. The British Petroleum can be termed as a manufacturer of quality products but seems slow to adopt new trends and ways of appeasing consumers. The company also needs to introduce economy package where products are packed in different quantities and levels to accommodate a wide range of consumers from different economic classes and levels (“The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis”).

Internal Analysis

Financial Capacity

British Petroleum limited financial capacity is a real force to reckon in the market. This is a conclusion drawn from several facts, which include its market size in different parts of the world, its popularity among consumers, it’s rating in different stock markets, as well as its mergers across the globe.

In the recent past, the company has ventured into other business with the aim of getting more consumers into its market net. The company has ventured into shipping, trading, and production of alternative and renewable sources of energy.

Today, BP is termed as the fifth largest energy and energy Products Company by market capitalization standards. The company was ranked as the fifth largest company in terms of revenues and the sixth in terms of production in December 2012. The company’s revenue at the marked period stood at US$388,285 billion, while the operational income stood at $19,733 billion. The company was at this time employing about 85,700 people in its production, distribution, and management units. The company has expanded to form some of the biggest mergers in the world. The company was operating in more than 80 countries in the world as of December 2012. The company produces about 3.3 million barrels of oil per day with the total proved reserves running to 17 billion barrels. The company is also said to have about 20,700 service stations worldwide. The largest company division is the BP America (Fowler).

The company ranks among the top five companies in the New York Stock Exchange and the London Stock Exchange with a share index of about 2 to 4 %. The company has an annual turnover of about 3 billion shares annually and a high ranking market capitalization.

Capabilities and Resources

The company is a big employer with over 85,700 members of staff both in the technical and administrative divisions. The company has a wide range of technology and technological devices used in the production and distribution lines. The company enjoys the use of the old and new technology in its mining sites, making it economical and friendly.

The company being local enjoys the support of the European Union, ensuring that it is in a position to secure foreign deals and markets easily through intergovernmental bidding. This has seen the company secure deals in Asia and Africa where the market is still widely untapped.

The company owns large wells and plants on the different continents where it operates. These include Africa, Asia, America, and the Australian sub-continent. This has ensured the company remains in business for a long time.

Strengths

The company is strong in that it has been able to merge with some of the industry giants to make one of the strongest mergers with outstanding performance. The company has been able to secure strong deals and mergers with several motor companies ensuring it has a stable and ready market.

The company has a strong financial muscle, allowing it to penetrate new markets and introduce new ventures and products. For this reason, the company has been able to venture into shipping, construction among other emerging trends and products in the market.

The company has also partnered well with governments and trade blocs in most continents, including Africa and Asia. This has enabled the company to secure large manufacturing and mining deals in the host countries in exchange for employment and technology. This has allowed the company the opportunity to make new markets and interests over time.

Weaknesses

The company has been associated with several disasters and disagreements with firms it had formerly merged with. The biggest environmental scandal that left the company waging in a negative image is the Mexican Gulf Oil spillage of 2010 that led to the spillage of thousands of tons of crude oil into the ocean leading to massive environmental destruction.  This led to critics and financial loss in the cleaning exercise.

The company was started during the early colonial years and was widely blamed for the oppression of workers, especially at the mining sites in the African and the Asian continents. Some communities still harbor the grudge against the company as they view it as an extension of the colonial power. This has made it difficult for the company to compete against local companies in the areas of interest.

Strategic Challenges Facing the Organization

Technological Competition

The company is currently facing stiff competition from new and old companies who have come up with new and better technology of producing different products. This has gone beyond the patent and rights owned by the British petroleum company, which means Bp itself has to go seeking the same technology from the small companies who did the same in the past. This has proved to be expensive for the company as it is losing some of its old markets to the newcomers. A good example of this is the introduction of different engine oils by such companies as Shell, which are built on a better technology than those produced by BP.

Availability of Substitutes

The availability of other products considered safe to the environment and to the consumers and their wares proves to be a headache to the company BP. The adoption of use of electricity, nuclear power, solar power, and other renewable sources of energy is hitting hard on the market initially owned by BP. Some governments have been formulating legislations that have seen increased taxation of petroleum products to discourage their usage. Countries such as China, the United States of America, Japan, South Africa among other strong economies have gone ahead to introduce the use of nuclear and electricity power in their industries, snatching a big market from the once powerful giants. This has seen the development of electrically run trains, solar run motor vehicles among other implements. This has forced BP to close some of its markets in these countries while reducing business in others (Baskin).

Drop in Capital Share

British Petroleum Limited is known to enlist in high ranking stock markets like the Frankfurt capital market, the New York Stock Market, and the Frankfurt Stock Market. Here, the company generates billions in capital, allowing expanding its operations and products markets. In the recent past, this has greatly changed for the worse especially as the company finds itself in the economic mess. The most recent of the happenings is the Mexican Gulf-Texas coast oil spillage, which spelt large losses for the company plus a bad reputation that led to the poor market rating. The legal repercussions of the spillage led most shareholders to withdraw as they feared the company would collapse. This led the company to drop its capital share leading to a stall in most of its operations. The attempt to bring back the shareholders to the company has not been successful; thus, the company though stable is below par in its capital holding on the market.

Drop In the Market Price of Products

The drop in the market price of the company’s products in relation to the price of the raw materials given by the suppliers is a unique strategic challenge to the company. This has been attributed to the increase in the bargaining power of the consumers. The exposure of consumers to a wide range of products has led to a wide knowledge and options to the consumer increasing their bargaining power. The pressure exerted by the consumers has forced the company to drop its price to a marketable level, thus bringing its profits down to a smaller margin. This has increased the decrease in dividends among the shareholders, leading them to withdraw or otherwise hesitate to invest with the company (Hartung).
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Advices

The British Petroleum Limited can take up the following recommendations in order to counter the strategic challenges that it is facing in trying to regain control of the market in different parts of the world.

Technological Development

The British Petroleum Company should work towards the improvement of its technology in manufacturing and in the production of its products. This means that the company should try as much as possible to match with the current trends in the markets. The company should also upgrade its already existing products to make sure they match the new trends in the markets. This improvement in technology should be displayed in the manufacturing, packaging, distribution, and marketing of its products. This way, the company will stay afloat technologically.

Development of Substitute Products

The British Petroleum Company should work towards the development of a wide range of products that are allowed and usable in parts of the world where petroleum gas is being faced out. This will entail development of the source of energy, environmental friendly fuels, and highly efficient range of products. The company should also carry out a feasibility test to determine the extent to which its products affect the environment and the consumers and try to eradicate them. The company should adopt environmental friendly mining, distribution, and packaging approaches.

The increase of the Market Share

The BP Company has experienced a sharp decrease in its capital share due to the withdrawal of strong and able capital holders from its list. This has widely affected the company and its expansion programs. The company needs to enlist in more capital markets, including small markets to ensure it is in a position to gain and inject more capital into its system. The company should also consider selling of some of its holdings to other company. This will go ahead in ensuring the company partners with companies and organizations with a good capital and market base and which will go a long way in ensuring the company reduces its capital deficit pressure. This will see the company engage in other areas of production leading to improved capital standing by the company (Helman).

Price Control

The drop in price has been a major challenge for British Petroleum Company as it affects the balance between the production cost and the returns attained from the product. The attempt to maintain or increase the prices is no option as the consumers have a voice in pricing and their pressure is present in the price control system. BP has several options to maintain its profits while balancing the production cost and the output.


The company should first consider adapting capital intensive output method rather than a labor-intensive one. In this approach, the company should acquire more technology and less labor. Though the process is expensive at the short term and the initial stages, it is the way to go if the company wishes to stay afloat in the stiff competition. By adopting more technology, the company will get rid of recurrent expenditure, which may prove to be a burden for the company’s budget.

The company should further consider negotiating for cheaper, but standard raw materials from the suppliers. This will ensure that the company continues to produce quality products, but t a lower cost. The company will require studying other companies’ products to determine the type of material that is cheap, yet competitive. This will ensure the company operates on a fair platform in terms of competition with other firms producing similar goods.

Conclusion

The British Petroleum Company can be termed as one of the oldest companies venturing in the petroleum trade and exploitation. The company can also be termed as fit to stand the test of times, especially the market revolution experienced over the years. The company has withstood many challenges, including stiff competition, economic disasters like oil spillage and change in technology among others. The company has however adopted the five force model approach to retain its shape and position in the market by working on both its internal and external factors that have the great impact on its production, supply, and marketing lines. The company can be said to have evolved well in this changing turbulence and retained most of its markets so far.

Works Cited:

Baskin Jonathan Salem. “BP Should Talk About Risks Instead Of Promising Safety.” Forbes, 2013. Web. 29 Nov. 2013. BP – SlideShare. The Asian Wall Street Journal. 2010. Web. 30 Nov. 2013.

Fowler, Tom. “BP Faces New Bout of Spill Liability.” Wall Street Journal, 2013. Web. 30 Nov. 2013.

Hartung Adam. BP’s Only Hope For Its Future, 2010. Web. 29 Nov. 2013.

Helman Christopher. “Two Years After The Spill, BP Has A Secret: It’s Booming.” Forbes, 2012. Web. 30 Nov. 2013.

Mitchell, John, Valerie Marcel, and Beth Mitchell. What Next for the Oil and Gas Industry?‎ London: Chatham House, 2012. Print

The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis. n.d. Web. 30 Nov. 2013.