Analysis of the British Petroleum (BP) industry environment

Table of Content

Introduction

BP Petroleum operates in different countries. It faces many threats. according to Porter’s

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Five Forces Model. The threats according to Porter comes from suppliers bargaining power, buyers bargaining power, threat of substitutes, threat of new entrants in the market and threat of competition. These forces vary in its power and depend in different time periods for the same industry and the significant forces and its type differ for different

Industry. There fore a particular company must identify the significant threat in the near future and concentrate on that threat and devote energy and resources and combat it or leave the industry and embark on industries where these threats are minimal or given its strengths it can be able to withstand the treats posed by these five forces.

Analysis of the threat of new entrants to BP or Petroleum Industry
According to porter the key barriers to entry are economies of scale, capital expenditure requirements, customer switching costs, access to industry distribution channels, and the threat of retaliation by the existing Industry players. Considering these factors for the Petroleum Industry the economies of scale is very high because of its capital-intensive nature of operations there fore new entrants face economies of scale as a barrier to entry in to Petroleum industry. As explained above the capital expenditure requirements are very high there fore it is a key barrier to entry on this ground. As well very few multinational companies such as Shell control the market and Mobil the new entrants face sever threat of retaliation. The switching costs and access to industry distribution channels may be lesser barrier than the other barriers of entry. However the other barriers are so powerful compared to the switching cost and access to distribution channels the new entrants to Petroleum Industry faces significant barriers and there fore the threat of new entrants is probably is not that significant threat which enhances competition.

Analysis of the threat of substitutes to BP or Petroleum Industry

In Porters view the threat of substitutes is high when the buyers are willing to substitute, relative price performance of substitutes and the switching cost of substitutes. In the era of environmental awareness and the government regulations there is propensity for buyers willingness to buy substitutes to oil. However the price of other fuels compared to

Oil is high and buyers may incur more cost and there for reduce demand. There fore price performance of substitutes compared to oil and oil products is not a substantial to BP and Petroleum Industry at least in the short and medium term even the high price of oil in recent times compared to historical price of oil in earlier periods. As well the cost of switching to substitutes is sustancial to many buyers or buyers segments. There fore BP and Petroleum industry do not face intense threat of substitutes even there exist substitutes for the Petroleum Industry products. In summary based the above analysis the threat of substitutes is not significant in the short-term as well as in the medium term. However it may become a significant threat if the price comedown and new substitutes are discovered, which are more competitive in price performance and switching cost in the medium term by the Current Petroleum Industry players.

Analysis of the bargaining power of suppliers of BP or the Petroleum Industry

According to Porter the bargaining power of suppliers is high if there are many buyers and few suppliers, the suppliers have highly valued undifferentiated products, suppliers threaten to integrate forward in to the industry, the buyers do not threaten backwards in to supply and the industry is not a key customer group of the buyer. In Petroleum industry there are few buyers than the number of suppliers there fore on this basis the bargaining power of buyers is not significant. The suppliers may have undifferentiated highly valued products however the number of suppliers compared to buyers in less there fore the industry players have more negotiating power as well they have the capacity to produce those products there fore the highly valued undifferentiated products is not a significant bargaining threat to the BP by the suppliers. As noted above it is very difficult to enter

Or integrate forward in the industry by suppliers because of capital requirements and retaliation by the Petroleum industry players. There fore even they can integrate the degree and extent of integration is not feasible to suppliers. There fore on this basis of

Integration of suppliers in to the industry based on the above argument is not a significant threat to BP. The Petroleum Industry players can threaten to integrate backwards in to supply as they have the power to do so because they have the economic power and financial power to integrate backwards. There fore on this basis the bargaining power of suppliers will not threaten the BP. In summary bargaining power of suppliers is not a threat to BP or the Petroleum Industry.

Analysis of the bargaining power of buyers for BP or Petroleum Industry

The bargaining power is higher when there are few dominant buyers and many sellers, products are standardized, buyers threaten to integrate backwards in to the industry, suppliers do not threaten to integrate forward in to the buyers industry and the industry is not a key supplying group to the buyers. In Petroleum Industry there are few dominant players as discussed above and there are many buyers and there exist some dominant buyers. However the number of Petroleum players very few and the dominance of the buyers is not that significant the bargaining power of buyers is not significant based on this factor. In Petroleum Industry they have brand names and there fore the products are not standardized even though some products are however many products are not standardized. There fore based on this factor the bargaining power is not significant as Petroleum Industry has substantial differentiated products. As discussed above even buyers tend to integrate in to the industry due to economies of scale capital requirements and retaliation by the existing petroleum industry players it can be said based on this factor the bargaining power of buyers is not significant. In addition the suppliers can integrate in to buyers industry because they may have the skill and technical know how to enter in to the buyers industry, There fore based on this factor the buyers bargaining power is not significant.

Intensity of rivalry within the Petroleum Industry and the threat of rivalry to BP

The intensity of rivalry is higher where in an industry one has many small participants or equal size participants and do not have an industry leader high fixed cost which leads to price competition, if degree of differentiation is low, switching costs are low, industry is not mature and industry participants are having growth strategies and exist barriers such as closing down of factories is high. All these factors are positive in a sense structure of competition, Industry cost structure, degree of differentiation, switching costs and the strategies adopted by the industry participants satisfy most of the rivalry factors, which exist in the Petroleum Industry and may exist in the future.

Conclusion

Based on the Porter’s Five Factor Model as discussed above the Rivalry between the Petroleum players are a major threat to BP than other factors to survive and grow in the future.

Bibliography

Fuel for the Future: Finite Supplies of Hydrocarbons Political Instability in the Middle East are Prompting the Major Oil Companies to Turn Their attention to Renewables. Ultimately, It Will be these Oil Giants That Drive through the changes Needed for an Energy Revolution 2002,Geograhical, 74, 6, Retrieved February 17, 2007, Available at: http://www.questia.com/PM.qst?a=o&d=5000771868&er=deny

Strategy – Analyzing Competitive Industry Structure, Retrieved February 17, 2007, and Available at: http://www.tutor2u.net/business/strategy/porter_five_forces.htm

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