Strategic Profile

ONGC is not only the number one Exploration and Production Company in Asia
today, but is also the number 3 E&P Company in the world. It is in the Oil and Gas
Drilling and Exploration Industry. In the oil and gas industry ONGC does a lot of
research and development as well as refining and marketing. In 2007 they entered
the energy field researching and developing alternative fuels.
The company is currently recognized as the “Best Oil and Gas Company in
Asia”, by the ‘Global Finance’ magazine. In 2007 it was ranked 369th by the
Fortune Global 500 list of largest corporations by turnover. This is only a small
measure of their performance thus far. By looking at this and many other
achievements it is obvious that ONGC is not slowing down any time soon. When
taking into account that it is doing business in what will soon be the most
populated country in the world, they will only be growing from here. Our analysis
will look at the internal and external factors that affect the business. It will show
how strong they are in the Oil Industry but also focus on what they need to do to
stay competitive.
 Brief History

In 1955 the Government of India created the Oil and Natural Gas
Directorate. Due to lack of financial and administrative power it was raised to the
Oil and Natural Gas Commission. The original goals of the company were to “to
plan, promote, organize and implement programmes for development of
Petroleum Resources and the production and sale of petroleum and petroleum
products produced by it, and to perform such other functions as the Central
Government may, from time to time, assign to it”.

Due to a liberalized economic policy in the early 90’s, the ONGC was re-organized
as a limited company in February of 1994. Since then the Government of India has
sold some of its share in the company to become the Indian Oil Company OIC and
Gas Authority of India Limited GAIL. These companies all agreed to have cross
holding in each other’s stock which gave ONGC a long term strategic alliance in
foreign business markets supply chain.
ONGC has an 84 percent market share of crude oil and gas production in India.
This is a staggering lead over any competitor in India, but on a global market
ONGC is not the largest oil and gas producer.

In 2002, ONGC purchased 37.39 percent equity of Mangalore Refineries and

Petrochemicals Limited (MRPL) to diversify into the downstream business of
refining and retailing. Then in 2003, ONGC purchased more shares and now has
71.5 percent equity of the company.
P.E.S.T. Analysis

Political Environment

The political environment in India is one of a federal republic. ONGC is state-

owned but this does not mean that the GoI is good for ONGC or doing things in the
best interest of ONGC right now. The proposed mergers of HPCL, BPCL with
ONGC, and Oil India with IOC were the GoI’s ideas. This produced an uproar and
the mergers we set aside, but not without the GoI stating that the government will
have to restrict the respective companies to their core businesses. ONGC is also
being made by the GoI to focus on exploration and production (E&P) of oil and
gas. ONGC had been starting to move downstream and diversify its business by
going into the refining and retailing business but the GoI put a halt to this. The
positive side of having the political backbone of ONGC is that it gives the
company stability and some security. When ONGC started they had multiply
protection policies in place that kept them safe from global competition. As the
years went by, the GoI deregulated the industry and took away the state protection
policy that kept ONGC safe. This has lead to new opportunities but it has also
opened the door to a lot more threats.

With the GoI focusing so much on oil and gas E&P and forcing ONGC to focus on
it as well, it is seemingly making E&P a core rigidity for the company. September
25, 2007 has found the GoI saying to ONGC that they need to “produce or perish”
and that they will become a marginal player in the industry if they don’t comply.
These are harsh words by the government and could be a fatal blow to ONGC for
future business ventures and success. The GoI also recently blocked ONGC from
bidding on a Nigerian oil field that would’ve helped increase their gas and oil
assets outside of India. The GoI did not feel this was a good choice and blocked the
decision. Through all this it shows a highly influential “owner” of ONGC who is
commanding them to do things and not do things and not really knowing what’s
best for the company. This is a huge hindrance to ONGC.

Economical Environment

India is one of the largest and fastest growing countries in the world right now.
India’s population has already reached over one billion people and continues to
grow rapidly. India is a part of the B.R.I.C., which stands for Brazil, Russia, India
and China, which are four of the fastest emerging and rapidly growing countries.
With all these economic developments have also brought about a huge demand for
energy, in which ONGC is the main player in India. This gives them a great
advantage because there is a huge economic demand for oil and gas.

Sociological Environment

Sociologically the environment in India is one of growth and advancing

intellectually. As mentioned before, the country has over one billion people and
continues to grow. This creates a huge pool to pull from. India has been a major
country for companies in other countries to outsource to. This is not only due to
cost advantage, but also to an education advantage. The Indian people are
emerging as a learning people and the potential for success in this kind of
environment creates a strong foothold for any company.

It’s interesting to note that ONGC employs approximately 40,000 workers in India.
Compared to the amount of people that India has this number is not staggering. But
this is still a large workforce under one company and could be used for leverage
when making decisions with the government. This does not mean the company has
been good to work for though. The company was recently scrutinized by the GoI
because “attrition over the last one year has been the highest in the past five years
and 328 professionals have left the organization.” And that “the main reason for
this was the inability of ONGC to meet compensation packages being offered by
the industry.” This is not a good spot for ONGC to be, not only because they are
losing valuable workers, but also because it is getting them into even more trouble
with the government.

Technological Environment

The technological environment in India is rapidly increasing. As the country

continues to grow, so also is the technology. With respect to the oil industry,
ONGC was behind technologically, but has since put much needed money and
focus on technology. ONGC realized that they were behind in the technological
environment and this was creating a huge weakness with respect to their
competitors. ONGC has turned what once was a weakness into a strength though.
One such example was the acquisition of technology to meet Euro II standards
through the purchasing of MRPL. ONGC also implemented advanced technologies
such as Increased Oil Recovery, Enhanced Oil Recovery and Supervisory Control
and Data Acquisition. Another great technology that they implemented, that really
gives them a competitive advantage is the Virtual Reality Interpretation Center,
which is regarded as “one of the ten best such systems in the world for applications
in exploration.” This greatly enhances their ability for oil recovery and also for a
competitive advantage. Other great technological advances was the
implementation of an ERP, MIS and inventory control system. ONGC also
implemented a completely digitized magnetic media seismic library, which is
considered the one of the best in the world. This was a much needed improvement
in technology over all their previous years to help compete on the world market. It
cannot be emphasized enough how important technology is in a large corporation
like this battling in a market that is very tough and depleting.

Global Environment

The global environment is a very competitive environment with respect to oil and
gas exploration. With the continued depletion of these non-renewable fossil fuels
the competition to secure oil and gas reserves is very intense. In 2005, ONGC lost
a bid to the Chinese company China National Petroleum Corporation to secure oil
reserves in Canada and has since lost more battles such as this. On the world
market ONGC is not the biggest player. Globally, the giant oil companies have
seen an integration into other downstream elements of the oil industry to create a
competitive advantage. ONGC not only faces competition from the global market,
they also are in a race with each other with regards to integration and the way these
major oil companies are run.
 PORTERS 5 FORCE MODEL

Threat of new entrants:

Due mostly to the industry that ONGC is in, it’s hard for there to be many new
entrants. The only real threat that might arise would be another government funded
Oil and Gas company. The reason for this is that a government would not have as
hard a time raising funds and gaining access to resources. This is assuming that the
company would be researching and developing on domestic soil. The only other
threat may not be from new entrants but from smaller competitors who already
have access to resources and distribution channels. There is really not much of a
threat because there are two main barriers to entry that would be stopping
potential threats. These would be very high capital requirements as well as access
to Cost disadvantages independent of scale.

Even though this industry if very attractive because of the high profits it would be
very hard for a company to have enough capital to get in the market. Every part of
Oil and Gas Exploration and Development is costly and not something that would
be worth the costs as a new entrant into the industry. Going along with the high
cost of capital are the cost disadvantages. The companies already in the industry
already have the access to raw materials as well as desirable locations. This is
something that would be very difficult for a new entrant to try and gain.
Bargaining Power of Suppliers:

ONGC is a vertically integrated company that really deals in all areas from finding
the product to refining the product to selling the product. With this being said
there is not much to worry about the bargaining power of the suppliers. Supplier
power is high as the net margins are strongly dependent on the price of the crude.
Due to crude price volatility and supply risks, a lot of the Indian companies are
integrating backwards into E&P activities

Bargaining Power of Buyers:

Not too critical for most companies as refining operations are a part of the
complete supply chain, with the refining operations supplying the product to the
marketing company. However in case of standalone companies (which may no
longer apply) long term contracts have to be signed with the marketing companies.
The margins in such cases are dependent on such long term contracts.

The industry that ONGC is a part of is different than many other industries. It is
different in the fact that people really cannot go without their product. While over
a long period of time it may be possible to find other fuels it is not really feasible
in the short term. This has been seen in the US in the last few years. Gas
companies can keep the prices high and consumers will still pay the high prices.
When looking at the individual buyer they have almost no bargaining power
because they are only buying such an extremely small portion of the industries
total output. Another reason for this lack of bargaining power is that as of right
now there is not a real alternative to Oil. All of these reasons make it very hard for
the buyer to have much bargaining power at all.

Threat of Substitutable Products:

Although gas, solar power etc exist as substitiutes , none of them are big enough to
impact the demand of the petroleum products.

As stated above there is not a real alternative to oil at this time. There is research
being done to try and find substitutes. With the price of oil as high as it is at this
time, it is only giving more reason to try and find other fuel sources. This is where
the main players in this market must be careful. The prices are staying fairly high
now because people really don’t have a choice and must pay. If other fuel sources
do come out that are less costly, many people will go towards those alternatives. It
does not seem that at this time there is a huge threat of this happening but it is
definitely a possibility that any player in the market must be aware of.

Intensity of Rivalry among Competitors:

The rivalry in the industry was low till as the industry was tighlty regulated by the
government. However, the level competition has increased with Reliance and other
MNC becoming more aggressive.

The largest competitors in this industry for ONGC are Exxon Mobile and Royal
Dutch Shell. ONGC is currently in 14 different companies whereas Exxon Mobile
is in 20 different countries. While Exxon may be a larger company now ONGC is
growing and is becoming a very important global player.