BP PLC

History and background

British Petroleum Company is a Public Limited Company that Operates as an oil and gas company worldwide. Its operations are conducted through   Rosneft, Upstream and Downstream segments. The Rosneft division is concerned with exploration and production of hydrocarbons in the Canada, United States, Vietnam, Brazil, Venezuela, Algeria, Turkmenistan, the United Arab Emirates and Norway.  This segment also owns and operates refineries in Russia and Germany. It owned and operated approximately 2,500 retail service stations in Russia as of December 31, 2014.  The upstream segment deals in natural gas and oil exploration, production, field development, storage, transportation, processing, marketing, and trade. It also owns and manages natural gas and crude oil pipelines extraction business, transportation, processing amenities and export stations.

The Downstream segment is involved in manufacturing, refining, marketing, transporting supplies, and trading in crude oil and petrochemicals products and related services to customers. It also operates a lubricant and related business under the BP, Castrol and Aral brands to the industrial, automotive, and marine and energy markets.  The downstream segment also produces Petrochemicals products. Other activities of BP involve sugar, bioethanol, biobutanol and power production.  The company is headquartered in London and was founded in 1889. (BP, 2015)

Competitors

Some of its major competitors include Exxon Mobil Corporation, Total S.A, and Chevron Corporation.  As of Dec 2014, ranked by sales, BP P.L.C was the largest energy companies in the world.

Company performance

According to the company’s financial records, it recorded Total revenue of $ 353568000 for the financial period ending 31st December 2014. The Net income for the particular period was $ 4003000. (Yahoo Finance, 2015)

Key events

One of the key events in the company’s history is the 2010 oil spill that occurred when the deep water Horizon drilling platform blew out along the Gulf of Mexico.  Approximately 4.9 Million barrels of petroleum were released covering an area of 130 miles by 70 miles. The incident caused reputation damage for the company as major stakeholders blamed it on negligence on the part of the company. (Mole, 2015).

BP Porter’s Five Forces Analysis

Threat of Substitute Products

The threat of substitute is low as alternative energy solutions are either not available in large quantities or are uneconomical to use compared to crude oil. The major substitutes for oil and gas energy are solar energy, coal, wind energy, nuclear energy, and hydroelectricity.  The threat is low as the alternative energy solutions are characterized by increased cost of production of which are not as cost effective.  Additionally, the substitutes do not give the same efficiency that characterizes oil and gas. Currently, organizations are investing in making the other alternatives as efficient as oil and gas. A limitation that arises is that the maintenance and switching cost is very high when dealing with the alternatives. This makes them unattractive.  Another factor that lowers the threat of substitute is that crude oil is not only used for energy purposes but also as a raw material for other the fuel but also the raw material industries such as petrochemical industries.

Threat of new Entrants

There is a low threat to new entrants due to various industrial factors. In most cases, the entry of new entrant depends on entry and exit barriers that characterize a particular industry. The main barriers to entry for entrants in this industry are a capital requirement to start a business, regulatory and government policies, brand equity, economies of scale and access to distribution channels. Also, the barriers to entry are considerably high because a high level of technical knowledge is required to enter in the industry. Therefore, there is minimal entrant threat in the industry

Intense Rivalry among Existing Players

The intensity of rivalry is not very high despite many companies operating in the industry. Many companies in the energy industry are either involved in the refining, exploration and distribution of oil and gas or related products.  However, not all companies are involved in the exploration of oil and gas. BP is one of the few companies involved in the exploration of crude oil and natural gas. Often, the Intensity of rivalry is dependent on the number of existing competitors, their potential and competencies. However, the intensity is high as there are a number of equal competitors who lack differentiation as well as the existence of high exit barriers. The energy industry is characterized by big companies including BP, Shell, Total, Exxon Mobil, Chevron, and Conoco Phillips. Another factor that contributes to the degree of rivalry is the high fixed cost and slow industrial growth.

Bargaining Power of Suppliers

 The bargaining power of suppliers in the oil and gas industry is very high. BP Company’s suppliers are countries with oil fields and oil reservoirs. Companies interested in exploration have to bid for the oil field explorations. This factor raises the bargaining power of suppliers as they get to choose the contractor.  Secondly, the bargaining power of suppliers increases when they are few available substitutes. The substitutes for oil and gas energy are solar energy, coal, wind energy, nuclear energy, and hydroelectricity.  This heightens the bargaining power of suppliers as there are no equal alternative energy solutions or are not as cost effective.  Thirdly, the existence of a well-organized market increases the bargaining power of suppliers. The main suppliers of oil are under the OPEC umbrella including countries such as Saudi Arabia and Iran. BP has to focus on low production cost and resulting economies of scales associated with main supplier countries. Another factor is that the switching cost associated with getting another supplier is high. Additionally, suppliers require a high level of technical competencies hence further increasing their bargaining power.  The more the supply they make, the higher the economies of scales and the cheaper the commodity becomes, thus shifting the supply curve to the right.

Bargaining Power of Buyers

In this industry, the buying power of buyers is moderate.  The bargaining power of buyer is dependent on the level of control that buyers can have on the product price.  The level of buyers bargaining power is mainly influenced by the oil demand in the market. The demand for oil and related products is high thus lowering the bargaining power of buyers. On the other hand, given the lower differentiation in the market, customers can easily switch to other products.  These factors lead to a moderate bargaining power for the buyer. (Chevalier & Trigeorgis, 2011)

Strategies

Leadership

BP company leadership and corporate governance drive its corporate strategy. The strong leadership of BP influences the achievement of company’s goals placing it as one of the world largest companies.

Achieving Competitive Advantage

BP Company uses various strategies to achieve its competitive advantage. First, the company has a diversified range of products in the market.  Secondly, it focuses on IT outsourcing to energy efficiency, stakeholder management, leadership building and application of resources and technologies to achieve its competitive advantages. The company’s capabilities are not easily imitable. These capabilities are the key to the success of BP.

Resource-based view of the firm

BP Company focuses on knowledge and knowledge management as assets that leverage its competitive advantage.  It is continuously involved in research and development activities to come up with new ideas in response to changing market conditions.

Value chain analysis

The company promotes low-cost energy pathways through gas and power generation. BP strategies are also directed towards energy efficiencies example investment in research and technology.

Strategic alliances

BP Company operates through strategic alliances in countries of operations.  The company engages in agreements between national and international oil companies to explore, sell and distribute its products.

Portfolio management and BCG matrix

The Company has prioritized investment towards the upstream segment.  The investment has continued to be subject to a rigorous capital allocation review process.  The company has divested billions to constantly optimize our portfolio. (Stonehouse & Campbell, 2004)

Course of action recommended

The business strategies the company has been mainly geared towards profitability, corporate responsibility, innovation, cost leadership, focus, and differentiation.  However, the changing market conditions require additional strategies. BP Company should potentially expand its reach and operations across various new regions and continue to add resources and capabilities to fulfill its strategic directions.

Opinion

BP Company has the capability to remain one of the world’s leading Companies. However, competitive environment points towards new capabilities to maintain competitive advantage

References

 Stonehouse G. & Campbell D. (2004) Global and transnational business: strategy and management.  Wiley

Chevalier R. & Trigeorgis L. (2011) Competitive Strategy: Options and Games MIT Press, 2011.

Yahoo Finance (2015) BP: Financial statements 

BP (2015) Company website:  

Mole, B. (2015). An Oil Spill’s Aftermath. Science News, 187(8), 22-26.

Sherry Roberts is the author of this paper. A senior editor at MeldaResearch.Com in custom essay paper writing if you need a similar paper you can place your order from custom research paper services.