Essay on British Petroleum Company (BP)

BACKGROUND AND HISTORY

The course project organization I focused on in week 2 and the one I am going to shine a light on is British Petroleum Company (BP). The company’s website is www.bp.com and it operates in the oil and gas industry. The London-based British Petroleum Company (BP) operates across the globe in over 80 countries, and it ranks third globally in energy supply. On a daily basis, 3.8 million barrels of oil are supplied by the Company to over 20,000 stations. Additionally, the Company serves over 100 countries across the world with retails services and petrochemical products. In 1909, the Company was founded by William Knox D’Arcy and named Anglo-Persian Oil before its name change in 1954 to BP. Solar panels, Aral service stations, ARCO gas stations, BP petroleum products, AIR BP aviation fuels, BP service stations and Castrol motor oil are among BP Company products. An investment of $80 million in energy alternatives such as biofuels, natural gas, solar power, and wind reinforces the Company’s commitment in the provision of suitable and clean energy (Bamberg, 2009). In 2019, the London-based energy giant registered a $1.8 billion profit which is a sharp contrast to the $16.8 billion loss that was reported in the second quarter of 2020. In 2019, a $2.8 billion net profit was reported compared to the $6.7 billion net loss posted by the company this year. An $8.5 billion loss was expected by analysts. The current Chief Executive Officer of the oil giant is Bernard Looney who replaced Bob Dudley in February 2020.

BP’s ANALYSIS VIA PORTER’S FIVE FORCES MODEL

Industrial rivalry

Petro China, OMP, Texaco, Gulf Coast, Total and Shell represent BP’s major competitors. Variable and fixed costs, economies of scale and product differentiation are some of the factors that different players in the energy industry base their competition on. Profitability of these companies in the industry is based on these factors. Just like in other industries, the oil and gas industry has a big number of small-scale companies and the major companies are in the minority. With each passing year, competition is becoming more intense among these big companies in the industry is they struggle to keep hold of their share in the market. As companies in the industry try to capture their fair share of the market, the oil taps are running drying. Consequently, in a bid to gain competitive advantage over other players, BP and other big companies are merging with small companies. Therefore, industrial rivalry is very high.

Threat of new entrants

The threat of new entrants is very minimal despite the substantial profits associated with this industry. An energy resource company needs to be established which requires a huge financial outlay and which would serve as an impediment to new entrants. Additionally, big companies in the industry already claim a lion’s share of the market and it is difficult bordering on impossible to knock these brands off their perch. Thus, the threat of new entrants is very low.

Threat of substitutes

The profitability of any business is affected by the substitutes present. In a gas and oil industry, substitutes can be in the form of renewable resources and biofuels. The threat of substitutes is still minimal since oil resources replacement will take some time due to the development work still ongoing to come up with the substitutes. In the case of BP, the threat of substitutes is moderate.

Bargaining power of suppliers

Technicians, other management, engineers and suppliers of oil fields are the BP’s suppliers. Since suppliers cannot afford to lose business with BP, the company has an edge over their suppliers.

Bargaining power of buyers

The global demand for oil determines its price in the oil and gas industry. Products from huge companies like BP can be bargained for by countries like Japan, China and USA due to their power to bargain. Buyers have alternatives they can switch to in order to suit their own requirements and hence the bargaining power of buyers is very high.

STRATEGY USED

The London-based oil giant has a significant financial might and also has strong brand recognition. The high-quality petroleum products from BP are acknowledged globally thereby making the company maintain its position among the elite energy companies in the world. Expansion to new markets, development of alternative energy, and introduction of new products is a possibility for BP due to its strong financial position. Another notable strength and competitive edge of the company

THE COMPANY’S UTILIZATION OF SPECIFIC COURSE CONCEPTS

Competitive rivalry, power of buyers and potential industry entrants make up the competitive environment of the Company. Low switching costs, high taxation, government policies, access to distribution channels in the industry, requirements of capital expenditure, and economies of scale are barriers of entry that many new entrants in the petroleum industry have to contend with (Grant, 2005).

SUBSTITUTES THREAT

Substitute products of oil have been demanded due to the upsurge of conservation activities and environmental awareness. Atmospheric pollutants such as the ones emitted when oil products are used are being avoided as people become more environmentally aware and petroleum Companies, BP included, are identifying products that do not introduce any contamination to the atmosphere while conserving natural resources in the environment. Coal, solar power, biofuels, nuclear power, hydro-electricity, and power generated by wind are the recommended substitutes of oil by environmentalists. However, substantial capital investment is required to make the switch from oil to its aforementioned substitutes (Raut et al., 2017).

COMPETITIVE INTELLIGENCE

Total, Conoco Phillips, Exxon Mobile, Shell, and Chevron are among the major competitors of BP Company in the gas and oil industry. A competitive edge for BP Company is achieved through adjustment of its prices of oil and petroleum to make them lower than their competitors, e.g., Shell. Also, the Company has established distribution channels that are dissimilar to those found in the oil industry, such as transport trucks and pipelines of oil. Additionally, activities of product differentiation have been significantly improved by the enhancement of retail brands to reflect the logo of the BP Company (Shuen et al., 2014).

VALUE CHAIN ANALYSIS

This entails analyzing activities of the Company that result in the manufacture and production of oil-based products and oil and the value addition that has occurred in the chain. Support and primary activities are performed based on BP’s value chain. Oil exploration and production are the Company’s primary activities. These activities comprise oil fields extraction of crude oil and natural gas and inbound logistics. Private activities are carried out with the help of support activities, such as networks of distribution and logistics, the technology used and experienced employees (Gereffi & Fernandez-Stark, 2011).

MANAGERIAL IMPLICATIONS

As a consequence, in the course of exploration and production of oil, scientific research is incorporated in product development strategies to achieve differentiation. Alternative energy technology and alternative energy sources research and development investment by the Company are very vital. As a result of efficient channels of distribution for the transportation of crude and refined oils, BP is able to assume cost leadership in the industry. Additionally, BP has embarked on the production of less harmful energy and consequently lowered its cost of production in comparison to its competitors.

REFERENCES

Bamberg, J. H. (2009). The History of the British Petroleum Company. Cambridge Books.

Gereffi, G., and Fernandez-Stark, K. (2011). Global value chain analysis: a primer. Center on Globalization, Governance & Competitiveness (CGGC), Duke University, North Carolina, USA.

Grant, R. M., (2005). Contemporary strategy analysis. 5^th Edition. Oxford, UK: Blackwell Publishing. 548.

Raut, R. D., Narkhede, B., and Gardas, B. B. (2017). To identify the critical success factors of sustainable supply chain management practices in the context of oil and gas industries: ISM approach. Renewable and Sustainable Energy Reviews, 68, 33-47.

Shuen, A., Feiler, P. F., and Teece, D. J. (2014). Dynamic capabilities in the upstream oil and gas sector: Managing next generation competition. Energy Strategy Reviews, 3, 5-13.