UNIVERSITY COVER SHEET

NAME: SURINDRA MAHARAJ

STUDENT ID: 1822279

UNIT TITLE: STRATEGY AND GLOBAL COMPETITIVE ENVIRONMENT

(CTS)

UNIT CODE: BSS058-6

ASSESSMENT TITLE: ASSIGNMENT 1

DATE OF SUBMISSION: 18TH OCTOBER 2019

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 REPORT TITLE
REPORT OF THE CONTEMPORARY EXTERNALSTRATEGIC ENVIRONMENT

TO UNIVERSITY OF BEDFORDSHIRE

FROM SURINDRA MAHARAJ

DATE 18TH OCTOBER 2019

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Table of Contents
1.0 Introduction ................................................................................................................................. 4
2.0 External environment Analysis .................................................................................................. 5
3.0 Assessing the strategic position of BP & SHELL ....................................................................... 8
4.0 Implications of external environmental changes ........................................................................... 9
5.0 Conclusion .............................................................................................................................. 10
References ............................................................................................................................... 11
Appendices………………………………………………………………………………………………………………………………………… 12

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1.0 INTRODUCTION
This report seeks to explain the purpose of strategic management and how it plays an
integral role in the success of organizations in the petroleum industry. As the name
strategic management implies, this is the process of whereby companies in the petroleum
industry use to meet their objectives, define steps and bring vison to reality igniting
business growth. Strategic management can be used to create a competitive advantage
for organization or companies within the same industry.

A further overview of this report will identify and outline in detail how the following tools
PESTEL, 5 Forces and SWOT will be used to analyze organizations in the industry to
meet their goals and objectives by having a thorough understanding of the external
factors that impact the petroleum industry. PESTEL seeks to examine the organizations
operating environment in the industry whilst 5 Forces focuses on internal and external
factors influencing business operations whilst lastly SWOT analyzes the organizations
strengths, weaknesses, opportunities and threats.

Two companies will be carefully analyzed to show a comparison in strategic positioning

and the implications of the external environment and how it impacts both companies.

Data will be gathered from several sources such as book, journals, articles, you tube
videos, webpages and newspapers to produce the validity of this report. This report also
comprises of five (5) different sections which are;

1.0 Introduction

2.0 External environment Analysis

3.0 Assessing the strategic positions of companies BP & Shell

4.0 Implications of external environment, changes for company BP & Shell.

5.0 Conclusion

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2.0 EXTERNAL ENVIRONMENT ANALYSIS.
Firstly to analyze the external environment, strategy must be explored hence Appendix 1
shows how strategy can be explored and designed to emphasize non – linear nature of
strategy positioning, choices and actions. Strategic positioning will be analyzed closely to
evaluate the impact of the macro – environment, the industry, the organization capabilities
(resources and competences), stakeholders and culture. (Gerry Johnson, 2017)

For the analysis the PESTEL and 5 Forces tool will be used to identify the factors of the
external environment of the market and which could influence organizations or the
industry competitive environment. PESTEL is made up off the following six (6) macro-
environmental factors; political, economic, social, technological, environmental and legal.
As seen in Appendix 2. These factors include market and non-market aspects. (Gerry
Johnson, 2017)

The following factors from Appendix 2 has the greatest effect on the macro- environment
of the oil and gas industry.

Political – Political factor plays an integral role in the determining factor that can impact
the Oil and gas profitability in the market. The role of the state is often important and acts
as a direct economic actor. (Gerry Johnson, 2017)

There are several trends that affects the political factor of the Oil and Gas industry in both
positive and negative ways. These include government support (opportunity), trade tariffs
(Threat), and global instability (Threat). (See Appendix 2)

Environmental – In assessing the environmental factor from an ecological point of view,

three (3) criteria must be taken into consideration of pollution, stewardship and
sustainability. (Gerry Johnson, 2017) Although companies are under immense pressure
they are willing to respond because after assessing the pros and cons it would seem
viable to invest in the country. As seen in Appendix 2 there are trends which affects the
environment, for instance climate changes, laws regulating pollution and attitudes

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towards ecological green products. By responding to ecological issues puts a company
at a competitive advantage. (Gerry Johnson, 2017)

5 Forces Framework
To analyze the competitive environment, (Gerry Johnson, 2014) suggest using the 5
forces framework. The five forces are measured to determine the attractiveness of the
industry, the higher the measurement, the less attractive for competition. The sole
purpose of the organization is to yield profit hence with low competition levels the greater
the outcome of profit.

Rivalry among Firms

The more rivalry there is the worse it is for the incumbent. Competitive rivalry is an
organization in the same line business, in this case BP and Shell.
Five factors that defines the extent of rivalry are: 1.Competitor concentration and balance
2. Industry growth rate 3. Higher fixed cost 4. High exit barriers 5. Low differentiation.
(Gerry Johnson, 2017)
In the event to gain competitive advantage one of the either companies will take measures
from one of the above to drastically move ahead to be more competitive. Level of rivalry
is high.

Threat of new entrants

The greater the threat of new entry the more difficult it is for an incumbent to enter the
industry. An attractive industry their exist barriers to reduce entry of new competitors.
Factors that affect new entrants companies in the oil and gas business is: Huge capital
required, innovative technology by bigger companies, bigger companies diverting more
money to R&D to boost production. Threat is low.

Threat of buyer (Gerry Johnson, 2017)

Buyers are the organizations immediate customers and those who are hardcore in the
support of a company. When buyers have the potential they can make any demands with
the expectation of getting thru. They can demand lower prices on costly products or

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service improvements. Buyer power is high when there is concentrated buyer, lower
switching cost, buyer competition, low buyer profits and impact on quality. (Gerry
Johnson, 2017)

The bargaining price of buyers in oil and gas are relatively small due to the nature of the
industry.

Threat of Substitute product

The main source to substitute for oil and gas for producing electricity, transportation and
heating is minimal since the only substitutes may be coal, hydrogen and nuclear energy.
For this to be possible to replace oil and gas the price and quality has to be good, also a
substantial sum of money will have to be invested in the area of R&D in order to dominate
the market. This makes the substitute product low. (pitatzis, 2016)

Threat of Supplier
The ability for supplier in the oil and gas industry to affect oil prices is high due to the
business involvement within segments of the oil and gas industry, therefore there
bargaining power will be more. Suppliers have moderate bargaining power.

Table 1: Five Forces Analysis and threat level

Force Threat Level

Threat of New Entrants Low
Threat of Buyer Low
Threat of Substitute Low
Threat of Supplier Moderate
Rivalry Among Existing Competitors High
Source: Created for this report

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From the above table 1, it can be seen the factors that are working for attractiveness
and those that are not.

3.0 ASSESSING THE STRATEGIC POSITION OF BP & SHELL

SWOT Analysis

BP SHELL
STRENGTHS  BP has a number of
brands including
Amoco, Burma Castrol,
BP connect, ARCO
 BP Amoco has a strong
brand loyalty
 BP has worked on
repairing the recent
accidents on a social
and corporate level
trying to be transparent
 Superb performance in new
markets
 High level of customer
satisfaction
 Strong distribution network
strong cash flow
 Strong dealing with
community

WEAKNESS  Company faced many  More investment needed in

oil spill new technology
 Executive dishonest  Not good product
and poorly handle forecasting
disasters which tarnish  Need to invest in R& D
there reputation  High attrition in work force
 Massive penalties and
law suits.
 Ongoing climate
changes puts pressure
on them to move to
alternative energy
 Close many oil wells
and lay off during poor
economic cycle
 Competition more
positioned because of
mishaps
OPPORTUNITIES  Potential to become  Stable cash flow provides
leader in alternative opportunity to invest
energy if they can invest  Opening of new markets
in R&D because of government

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  Opportunities to expand agreements and taxation
into new geographic policy
territories

THREATS  Environmental issues  New technology by

may continue if competitors can cause
company doesn’t disruption
formalize social  Currency fluctuations
responsibility because in different
 BP to face penalties and countries
fines in not addressing  Lack of regular innovative
environmental issues products
 BP brand tarnish
 Faces increase
pressure from shell
whose is dealing with
environment issues
better

Appendix 3

4.0 Implications of External Environment Changes for Company A and B

From the comparison above in the SWOT it can be seen that both BP & SHELL has their
own advantage s and disadvantages which will work in their favor or not for creating
competitive advantage.
BP has the ability to invest in R&D and exploring new technologies and product
enhancement, and diverting into alternative energy whilst SHELL lack in those areas.
SHELL however good political affiliations social responsibility has and conforms to
environmental laws and regulations while BP is having trouble coping with the
environmental aspect.
Both companies has strengths and weaknesses and opportunities that can be capitalized
on.

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5.0 Conclusion.

It can be concluded that both companies have strengths and weaknesses which
eventually will lead to advantages and disadvantages in the strategy for the fight for
gaining competitive advantage.

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References
Eberhart, D., 2019. CNN busniess, Perspectives. [Online]
Available at: https://edition.cnn.com/2019/10/14/perspectives/trade-war-china-us-oil-gas/index.html
[Accessed 17 10 2019].

Elatab, M., 2012. 5 trends in oil and gas technology. [Online]

Available at: https://venturebeat.com/2012/03/28/5-trends-in-oil-gas-technology-and-why-you-should-
care/
[Accessed 17 10 2019].

Frian Aarsen, P. L., 2012. Fossil Fuel at what Cost? Government support for upstream Oil & Gas
activities., Manitoba, Canada: International institute of sustainable development.

Gerry Johnson, K. S., 2014. Exploring Strategy Text and Cases. 10th edn. 10th ed. United Kingdom:
Pearson Education Limited.

Gerry Johnson, R. W. K. S. D. A. P. R., 2017. Exploring Strategy. 11th edition ed. United Kindom: Pearson
Educational linited.

Haher, A. H., 2019. The US energy situation. Science Direct, 1(1), pp. 123-136.

Lioudis, N. K., 2019. Investopedia. [Online]

Available at: https://www.investopedia.com/ask/answers/06/oilpricesinflation.asp
[Accessed 17 10 2019].

Overholt, M., 2016. Tiger General. [Online]

Available at: https://www.tigergeneral.com/the-importance-of-oil-and-gas-in-today-s-economy/
[Accessed 17 10 2019].

pitatzis, A., 2016. Energy Routes. [Online]

Available at: https://energyroutes.eu/2016/05/23/porters-five-forces-model-for-oil-and-gas-industry/
[Accessed 18 10 2019].

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Appendix

Appendix 1 - Exploring strategy framework. (Gerry Johnson, 2017)

Appendix 2 : PESTEL Analysis Oil & Gas Industry

Factors Key Drivers Significance of Trends

P- Political  Government Support  Government subsidies for

 Global instability
 Trade regulations and
tariffs according to
regulations
 Pricing regulations
 Industrial safety
regulation in oil and gas
oil and gas industry. (Frian
Aarsen, 2012)
 Escalating Tariffs has
increased the cost of
importing equipment for
example from china to US.
(Eberhart, 2019)

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  Product labelling and
other products in Oil &
Gas
 Tax Policies
E – Economical  Slow world economic
growth
 New growth regions
 Business mergers
 Skill level of work force
 Education level of
economy
 Inflation rate
 Unemployment rate
 Exchange Rates and
stability of country
currency.
S - Social  Lower car usage
 Demographics
 Attitudes (Health,
Environment)
T-  New production
technology
Technological
 Fuel efficiency technology
 Technological
advancements by
competitors
 easier & safer. (Elatab,
E-  Climate changes
 Weather
Environmental
 Laws regulating
environmental pollution
 Waste management in Oil
& Gas sector
 Endangered species
 Attitudes towards green
and ecological products
 Attitude towards
renewable energy.
 Recycling
 Pricing regulations to
protect consumers from
escalating world prices.
(Haher, 2019)
 Oil and Gas will assist in
economic growth by
bringing money into the
country. (Overholt, 2016)
 Oil and gas also lowers the
price of fuel and energy
cost to the consumer.
(Overholt, 2016)
 As oil prices fluctuate so
does inflation and this
affect the economy
(Lioudis, 2019)
 Companies attitude
towards health and
environment
 Oil and gas contributes to
the social development of
communities, technology,
and use of local
manpower.
 Technological
advancements would give
the competitive advantage
over rivals.
 New Technology to make
fuel efficiency cleaner,
2012)
 Environmental regulations
can incur cost on oil and
gas companies and
protects the environment,
endangered species and
people.
 Companies are
encouraged to move
towards green,
environmental friendly
products, renewable
source of energy which
can prevent depletion of
the ozone.
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L - Legal  Pollution liabilities  Oil & Gas industry to abide
 De-carbonization by laws set by
 Health & Safety law governments to protect the
 Employment law environment & people
 Anti-trust law in Oil & Gas
 Consumer protection and
E commerce.

Appendix 3

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