Industry Analysis Using Porter's Five Forces Model: Threat of NEW Entrants

Industry Analysis Using Porter’s Five Forces Model
Porter's Five Forces is a model that identifies and analyse five competitive forces that shape
every industry and helps determine an industry's weaknesses and strengths. Five Forces
analysis is frequently used to identify an industry's structure to determine corporate strategy.
Porter's model can be applied to any segment of the economy to understand the level of
competition within the industry and enhance a company's long-term profitability. The Five
Forces model is named after Harvard Business School professor, Michael E. Porter.
The five forces identified are:
THREAT OF
NEW
ENTRANTS
RIVALRY
BARGAINING BARGAINING
POWER OF
AMONG POWER OF
SUPPLIERS EXISTING BUYERS
COMPETITORS
THREAT OF
SUBSTITUTE
PRODUCTS
OR SERVICES
In order to make an industry analysis, the Porter’s five- forces method. This framework will
be used to assess and evaluate the competitive strength and position of Petron Corporation.
The concept of Porter’s five forces is to determine the competitive intensity and attractiveness
of the market. Porter’s five forces help to identify where power lies in the situation of Petron.
This will be useful both in understanding the strength of an Petron’s competitive position, and
the strength of a position that the company may look to move into. Strategic analysts often
use Porter’s five forces to understand whether new products or services are potentially
profitable. By understanding where power lies, the theory can also be used to identify areas
of strength, to improve weaknesses and to avoid mistakes.
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We can see in the case of the Malaysian Oil and Gas Industry for PETRON Malaysia as per
below:
Threat of new entrants

The threat of new entrants is a function of both barriers to entry and the reaction from
existing competitors. The major barriers to entry in the industry are economics of scale,
consumer switching costs, government regulations, product differentiation, capital
requirements and access to distribution channel. The degree of threat of potential entry of
new competitors is moderate. For the consumer switching costs, Petron has customer loyalty.
The buying habits of the customers does not easily shift when there is a new product and it
increased effective price of the new product. For the product differentiation, the products of
Petron is unique and with its world-class formulation. Government industries, these are the
barriers that protect the petroleum industry from competition or protect the consumers from
the industry. Petron must obey policies regarding oil products and LPG, importation and
exportation. In capital requirements, this industry requires large financial outlay. For the
refining and transportation of goods. For the distribution channels, Petron has over 3,000
outlets in the Philippines and has branched out to other countries. The more outlets, the more
places to sell the product.
In the energy industry primarily on oil ad gas products, the company’s management strategy
reduced the fiction of threat among its new competitors in the business by increasing
minimum efficient scales of operation, its cohesive and good status with suppliers and
distributors, retaliation tactics, protection of property and establishing a competitive and
trustful image to the consumers.
Bargaining power of suppliers

This framework refers to the ability of the providers if inputs to determine the price and terms
of supply. Suppliers can exert power over the firms industry by raising prices, reducing the
quality of purchased goods and services, so reducing profitability.
Petron Corporation is the country’s leading oil company and the only and the biggest Filipino
refiner with the local capability to formulate world – class products. Unlike other industry
players who rely on imported fuel, Petron as a Filipino-based company has its refinery in
Bataan. The Petron Bataan Refinery (PBR) is the country’s largest integrated crude oil
refinery and petrochemicals complex with the capacity of 25,000 barrels per day and has
grown to its current capacity of 180,000 per day and its sources bulk of its crude oil s from
Saudi Aramco in the Middle East. As a strategy of developing non-traditional revenue
resources and taking advantage of overseas market opportunities, Petron formed an expanded
strategic partnership with the leading fuel additives supplier, Innospec Incorporated.
Bargaining power of buyers

Consumer power is the ability of the buyer of the industry to influence the price and the terms
of purchase. This is very significant in that buyers can force process down, demand higher
quality products or services and in essence, play competitors against one another, all resulting
in potential loss of industry profits. The bargaining power of consumer is low. Petron
Corporation tends to induce customer’s loyalty by giving the customer’s perceived quality
that meets the needs of our countrymen from the simple tricycle driver to high performance
luxury vehicles. The buyers do not easily switch to the other competitor because of its
reputation of giving serving quality products thereby having patronage to the company and
their products.
Threat of substitute
In this force, the competing corporations of Petron in the industry are offering substitute
products or services that may be used to fulfil the same need. The more these substitute
products exists, the larger the company’s competitive environment and the lower the
profitability.
On the good note, although potential development imposes as a threat to Petron Corporation,
the threat is weak. Since Petron Corporation has been serving the fuel needs of Filipinos for
80 years; the Petron’s products have continuously met the diverse fuel needs of Filipino
Motorists with its unique world-class products.
Based on the market share of petroleum products in the Philippines, Petron captured 38. 5
percent, which is higher among all of its competitors. Even though there are substitute
products, there is still a preference for Petron’s petroleum products.
Rivalry among existing competitors

This refers to the extent how the organization responds to the competitive strategies of the
rival organization in the industry. In this part of the Porter’s five forces, the rivalry among
existing firms may formulate strategies such as lowering price, enhancing quality, providing
and features, extending warranties, increasing advertising, better networks of wholesale
distributors and increased level of customer service. Two principles of competitive rivalry are
particularly important: (1) a powerful competitive strategy used by one company intensifies
competitive pressures on the other companies, and
(2) the manner in which rivals employ various competitive weapons to one another shapes
“the rules of competition” in the industry and determines the requirements for competitive
success. EVALUATION:
The degree of threat among rivalry among competing firms is high. The top rival companies
of Petron Corporation are Philipinas Shell Petroleum Corporation and Chevron Philippines
Incorporated (Formerly Caltex). Based on the data gathered, the market share of the
competing companies is very high and Petron Corporation being on the number one spot of
having the highest market share on Petroleum products and LPG.
In order to maintain its number one spot, Petron Corporation formulate strategies such as
lowering price or oil price rollback, continuously upgrading its world-class petroleum
products, increasing its advertisements through product promotions and campaigns and
increasing its network by producing more outlets annually and wholesale distributors of
petroleum products and LPG. In the past two years, Petron embarked on an aggressive
expansion to serve a wider market thereby providing over 2,000 Petron stations all over the
country and being the largest service station network. From mega stations with many
convenience facilities and partner establishments along the expressways, to small,
strategically-located stations in remote, rural locations.
Using the main principles of competitive rivalry, Petron Corporation intensifies competitive
pressures on rival companies and employ various competitive weapons to try to outmaneuver
its rival by continuously providing products that meets the diverse needs of Filipino
motorists. Having served the fuel needs of the country for more than 80 years, Petron has a
deep understanding of the unique driving conditions on Philippine roads. Its R&D team is
constantly striving to create diverse products that will deliver optimum efficiency for every
type of vehicle. Created by Filipino engineers, Petron fuels and lubricants are designed to
meet the motoring needs of everyone.
SWOT Analysis/Tows Matrix
A SWOT analysis is a compilation of a company's strengths, weaknesses, opportunities and

threats. The primary objective of a SWOT analysis is to help organizations develop a full
awareness of all the factors involved in making a business decision.
SWOT ANALYSIS OF PETRON
STRENGTHS
WEAKNESSES
-One of the biggest company in the energy
sector -Cost of environmental hazards
-Wide geographic presence -Oil spill at Marina Bay
-High quality operations -Negative public perceptions
-Strong brand name -Decline in production
-Vertically integrated operations
OPPORTUNITIES
THREATS
-Increasing fuel/oil prices
-Government regulations
-Increasing natural gas market
-Risks concerning environmental
-More oil well discoveries regulations
-Expand export market -Highly competitive industry
-Investments in alternative energy business -Increasing cost of operations
Strength
In the retail segment, Petron’s consolidated volumes grew by 8 percent as a result of its
continuing network expansion in the Philippine and Malaysian markets coupled with
marketing programs. Lubricant sales, meanwhile, jumped 15 percent as the company’s high-
performance engine oils remain a top choice among motorists. Gasoline and Jet A-1 likewise
saw double-digit volume increases at 15 percent and 11 percent, respectively (Lucas, D.
2017)
Petron Corp., the Philippines’ top oil refiner, has completed its biggest project yet —the $2-
billion Refinery Master Plan 2 (RMP-2). Projects of such magnitude as Petron’s refinery
upgrade take about 60 months or five years to complete but the Philippine oil company was
able to complete the project in just 44 months from inception to completion (Olchondra, R.
2014)
Petron was conferred the honour “for integrating environmental performance into the
company’s sustainable development strategy and delivering proven business benefits.” The
3rd Global CSR was attended by more than 100 delegates from Hong Kong, India, Indonesia,
Malaysia, Pakistan, the Philippines and Singapore (Philippine Daily Inquirer, 2011)
Weakness
Petron said it has pulled out all its equipment and branding materials, and ceased deliveries to
the eight dealer-owned stations to stop the respondents from cheating the public and curb this
illegal practice.
Petron claims it has evidence these dealers were getting fuels from illegal sources and then
passing them off to unwitting consumers as Petron products. This practice, also called
dumping, is a form of unfair competition punishable under the Intellectual Property Code of
the Philippines, or Republic Act (RA) 8293, according to the company (Lectura, L. 2016)
Philippine Coast Guard divers have found a leak in a submerged pipeline of the giant oil firm
Petron Corp. off the coast of Cavite, indicating it was the source of last week’s oil spill that
turned parts of Manila Bay red and adversely affected at least four coastal towns in the
province (Esplana, J. 2013)
Opportunities
Petron Corp., the country’s largest oil firm, wants to build a new refinery with the help of a
foreign partner to meet the growing domestic demand for finished petroleum products,
according to its chief, Ramon Ang (Philippine Daily Inquirer, 2017)
The country’s leading oil distributor and refiner, Petron Corp., is preparing to invest more to
nearly double its refining capacity in Malaysia to produce petrochemicals and aromatics
(Philippine Daily Inquirer, 2017)
Threats
About one in every three liters of gasoline or diesel sold in the country is smuggled, resulting
in P30 billion to P40 billion in yearly forgone revenue on the part of the government,
according to the head of the country’s biggest oil refiner (Gabacungan, G. 2013)
Petron Corp. has terminated the contracts of 21 service station dealers for erring practices,
such as obtaining their fuel supplies from other sources with questionable quality. These
fuels, according to Petron, are being passed off as Petron products “to the detriment of the
consuming public who unwittingly load their vehicles with substandard products.” According
to Petron, it discovered the illegal activities of these service station dealers after a thorough
investigation backed by regular readings of the station’s dispensing pumps, which showed
that the quantity of products sold at the stations was greater than the quantity purchased by
the dealers from Petron (Remo, A. 2013)
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Industry Analysis Using Porter’s Five Forces Model

The five forces identified are:

Threat of new entrants

Bargaining power of suppliers

Bargaining power of buyers

Rivalry among existing competitors

A SWOT analysis is a compilation of a company's strengths, weaknesses, opportunities and

SWOT ANALYSIS OF PETRON

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