Competition is inevitable in market; however its degree or intensity might vary according to market, geography, customer and industry. Competition makes it difficult to survive; therefore organizations need to implement different strategies to ensure sustainability through competitive advantage. It require market understanding and development of high level plan that help in achieving set goals under difficult and unknown scenarios (Henry, 2008). This is a strategic analysis paper on ExxonMobil and British petroleum, aimed towards evaluation of present business scenario and making recommendations for future actions. It includes internal, external and competitive analysis on both brands, including opportunities, challenges and competition encountered. Further, it states strategic objectives for both companies and ways to achieve the same.
ExxonMobil
It was formed with the merger of Standard Oil Company of New Jersey and Standard Oil Company of New York i.e. Exxon and Mobil in the year 1999. It is an American organization that ranked 9th worldwide in terms of revenue. Separated companies were formed in the year 1859. It operates in different products such as oil, crude oil, natural gas, petrochemical and power generation. It has 37 refineries in 21 countries, there are 69000 employees working worldwide; its total revenue for the year 2017 was US$237.1 billion (exxonmobil.com, 2018).
The British petroleum company is London based multinational oil company, operating global market in 70 countries and produce 3.6 million barrel oil per day and there are 18,300 service stations. It is among top seven oil companies in the world established in the year 1908 (bp.com, 2018). In the year 2012, with increasing revenue it become sixth largest oil company worldwide. Its biggest operating market is United States, followed by Russia. Company has evolved with rime, started with coal, to oil to gas and now it is also manufacturing different form of energies. Company has a diverse portfolio of businesses and geographies. It operates in different markets to get new resources. Different products and services offered by the brand include oil and natural gases, fuel, lubricants, petrochemicals, alternative energies such as biofuel, bio power, Wind ENERGY, solar energy (bp.com, 2017). There are 74000 employees working for the brand and its annual revenue for the year 2017 was US$ 244.58 billion.
It aims towards evaluating internal power and problems of the organization so that they can be balanced with market opportunities and threats to gain maximum advantage. Further, it also tries to evaluate internal strategic position of various business units of the brands to understand best and worst performing business so that corrective actions can be taken.
Strengths
High brand value
Key strengths include high brand value; graph below shows brand value of both BP and ExxonMobil in US million dollars for the year 2018. According to graph, BP has brand value than ExxonMobil. BP rank 5th in term of brand value whereas ExxonMobil ranks 7th with brand value worth $13449 million dollar.
Both brands have strong market position with global ranking of 7th and 9th position. They are considered as super majors oil companies. ExxonMobil has 37 refineries in 21 countries. In terms of project portfolio and operations both brands have diversified their business. BP has a number of subsidiaries such as AMOCO, ARCO, and BP Express, connect etc. It has a diversified portfolio of oil, natural gas etc. ExxonMobil invest extensively into research and development, it is not dependent on any one or two region for its major revenue like BP, and instead it has strong presence in large number of market which helps in diversifying risk. (bp.com/, 2018)
Major weaknesses of ExxonMobil include weak financial position, in the year 2015 its revenue decreased by 34 percent impacting its profitability adversely. Further there are number of litigations which causes both financial and non-financial losses to company. Company is in huge debt, in the year 2016 it suffered major debt of 56 billion and presently it is $40 billion (ycharts.com, 2018).
In case of BP, it has encountered several oil spill cases therefore there is negative publicity in terms of safety, it also causes huge environmental damage. Further analysis also states poor management by company professionals which caused huge penalties and litigations on the brand. Being an oil company, it is also encountering environmental challenges due to climate change and focus to move towards clean energy options.
Market opportunities for BP include its diversification towards alternative energy options, company is entering into various new energy productions such as wind, solar which help in reducing carbon footprint. Strong presence in alternative energy segment also help in gaining competitive advantage. It can also enter in developing market and take first mover advantage in new regions by creating infrastructure for alternative energies.
Major market opportunities for ExxonMobil include rising demand for oil and other energies in global market, it can develop first mover advantage by entering new market and diversification. It can also reduce its dependency on oil by diversifying its business in other segment and expand them.
BP is encountering various environmental challenges such as carbon footprint, workplace safety issues, oil leakage; risk of several litigations due to sensitive industry operations, it causes huge financial loss to brand. Another is raising completion from companies who are operating better than BP. Negative publicity impact future growth, government and economic pressure also impose challenges in business growth (Henry, 2008).
Major risk and market challenges for ExxonMobil include increased competition, strict government regulations which cause hindrance and increase cost of operations. There is also supply risk of crude oil due to various man made and environmental challenges. Natural saturation in wells impact supply adversely with rising competition and drift in government regulations (Kelland, 2016).
The Boston Consulting Group (BCG) Matrix is used to evaluate organizational different product and brand rage, it aims to evaluate different products and services offered by organizations and take decisions in context of continuing with them, discarding them or improving them by investing further. It also facilitates in evaluating different business opportunities available to business and allocates resource optimally. There are four cells to this matrix that include two strategic element market share and growth. BCG matrix for BP and ExxonMobil is discussed below.
According to above diagram, BP has huge market share in oil industry, it has expanded its business in more than 80 countries, and there is large market share living low scope for further growth. Therefore company should expand it in developing new market. Its fuel business is widely present in worldwide market, therefore there is high market share and high growth, there is no more scope for expansion, and it needs to maintain its position to reap benefits in long run. BP is entering into new market for renewable and alternative source of energy, there is high future growth but presently company has low growth, therefore business development strategies are required in this segment. Markets to supply diesel to locomotives are in dogs states.
ExxonMobil is mainly into oil and gas business only, according to analysis its exploration and oil production business is operating in Star position which means high market share and growth. It needs to make strategy to ensure market sustainability in long run. However, its chemical business is cash cows as they giving high profitability at low investments; manufacturing and refinery business is under dogs category because of low margin and less attractive than other businesses. E&P gas business is question mark as it requires new technology and investment to grow in future.
Companies operates in competitive environment there are several external forces that impacts its business growth and development. This section aims to evaluate those external elements in context of given organizations. Key model used here include Porter and Pestle.
Political
There are several oil spill accidents causing environmental disaster; further Gulf was most profitable business unit for BP. Lack of professional ability to tackle the spill caused political pressure on the company. Presently there is stability in political context in different market but government is pushing alternative source of energy. Exxon also operates in various countries, it requires political stability, and USA has strong trade relation with various countries that might help Exxon to expand its business. Other factor that might impact business includes tax rate, trading regulation, antitrust law etc.
Developing market does not have strong impact on company progress. However, there is increasing demand from developing markets such as India, China which impact oil prices significantly. While entering into new foreign market, company needs to consider inflation rate, exchange rate etc. High interest rate makes investment costly. US favor oil industry growth with increasing production and reduction in trade deficit. US GDP in second quarter of 2018 rose by 4.1 percent showing increase in personal consumption expenditure, export, nonresidential fixed income, there was increase in investment in oil and gas industry also (Paraskova, 2018).
Income and expenditure power has significant impact on oil demand ass rise in income leads to high demand and vice-versa. Further increasing population also leads to rise in demand for oil. In context of UK, total population is 6.6 cores, median age is 40.3 which shows ageing population, it might cause reduction in energy use. Further, US population is also ageing, there is rising awareness regarding nature friendly fuels, people might tend to shift towards natural gases. Further, there is rising dilemma for oil companies to strike balance between energy security and environment protection.
Various alternative energies are being produced by oil and gas companies, it aims to reduce carbon footprint, reduce greenhouse emission. There is need to invest more on building infrastructure for alternative energies in various markets. Technology and innovation are required to address major challenges on oil and gas companies that include uncertainties, labor shortage, price fluctuation etc.
Oil industry has dramatic impact on environment, climate change and green house emission influence surroundings and life adversely. To avoid such damage government made strict policies and regulations for oil companies, there is need to provide alternative energy power also.
Different legal factors such as Taxation and Fuel duty (1993), Transport Fuel Obligation (2005) impact oil prices and sales.
Competitive rivalry
Presently it is a highly completion oriented industry with high investment and low differentiation products.
Suppliers also have medium impact on industry and companies as there are several suppliers in market and such big oil companies are opting for vertical integrations.
Oil of one brand is not different from oil of another brand, however due to oligopoly nature of market there is same price of oil for retail segment. However, in terms of wholesale or country deals buyer will opt for low price and better contract terms. Therefore buyer power has medium impact.
Threat of new entrant is low in this industry due to high capital investment and regulations by government. There is use of expensive equipment’s, there is intense infrastructure cost. BP total assets is dollar 236 billion, which shows high barrier to entry.
Threat of substitute is very low in market, as alternative energy is still at developing stage and both organizations are entering into production of alternative energy. Still majority of vehicles and other transportation relies on oil and fuel. Alternative energy will not be able to meet oil demand at recent stag due to high cost of production.
Oil and gas industry is competition intensive, major players in oil and gas industry include BP, Valero, Conoco Phillips, ExxonMobil, Repsol, Chevron, Marathon oil, Devon and Total. Valero is the main competitor for BP and Chevron is the biggest rival for ExxonMobil. If ExxonMobil and BP are compared then BP revenue is $295.5 billion (www.bp.com, 2018) whereas ExxonMobil revenue is $260.7 billion.
Chevron Corp is second largest oil producer in US market and closest competitor for ExxonMobil, its market capitalization is $217.61 billion. It deals in petroleum, chemical, mining and power generations. Next competitor is ConocoPhillips which is a Houston based oil and gas exploration and Production Company with market capitalization worth $81.76 billion. Valero is the main competitor for BP, it is a manufacturer of transportation fuel, and it is a Texas based company.
Apart from this, both the company encounters intense competition from oil industry, natural gas industry and chemical industry. Global oil market is dominated by government controlled organizations, it include national oil companies working as corporate with support from government like Petro bras; another is national oil companies as government extension such as Saudi Aramco, another is investor owned oil companies such as BP and ExxonMobil, such companies form a smaller part of world oil market. The natural gas industry is widely headed by small and independent companies, however presently big companies are entering into natural gas market. However, still this segment is highly fragmented and dominated by local players from each region without any major control by single player
Key challenges encountered by ExxonMobil and BP include oil price fluctuation is a major challenge for oil companies, lowering of oil price might help in making refining and drilling process cheap but in long run it impact profitability adversely. It also impact maintenance of reserve, there are oil and gas grounds maintained by companies and everyday production is just causing reduction for future demand, therefore it is crucial to replace this oil produced. When oil price are low it become hard for companies to get profitable oil to replace the pulled up one. It is a long term problem that requires capital investment. Companies are trying to shift in little less expensive projects, for example ExxonMobil acquire Permian to increase its exposure to onshore US drilling. It aims to provide flexibility in operation but there is risk of poor return. There is increased focus on short term projects, investment in downstream projects which lead to less margins impacting lower return.
However, analysis also stated number of market opportunities to both the companies. There are ample market opportunities lies in alternative gas production. There is immense demand for this segment in global market, therefore these companies can expand in both developed and developing market, build infrastructure and also gain first mover advantage in few markets. ExxonMobil is increasing its stake in LNG projects, building its own project in British Columbia; it is also focusing on developing turbine technology to get cost leadership in LNG. British Petroleum is aiming to improve its portfolio since oil crash incident. It is also aiming to increase its cash flow from operation.
Strategic objectives
After analyzing internal, external and other market scenarios, key strategic objective of both companies are listed below.
|
Particulars |
ExxonMobil |
British Petroleum |
|
Finance |
It has strong financial position, in the year 2017 its total income was 19,710 million dollar, with high market valuation of 354,561 million dollars. (exxonmobil.com, 2018) |
In the year 2017 total revenue for BP was 240 dollar billion. Its market valuation was dollar 141 billion. (www.bp.com, 2018) |
|
Human resource |
Presence of globally integrated workforce, technological innovation and operational excellence. (Duvall, 2006) |
Human resource system is partially centralized, globalized work force, motivation using both financial and non-financial methods |
|
Information |
It focus on developing new energy technologies, its research centre include more than 170 PhD. Scientist; partnership with Singapore university to find solution for cost effective and lower emission technologies. (corporate.exxonmobil.com, 2018) |
Developing new technologies to produce energy in efficient manner. Investing in artificial intelligence and renewable energy projects (Esty & Winston, 2009) |
Conclusion
Above analysis helped in understanding market position of two big oil companies in global market i.e. ExxonMobil and British Petroleum. Though BP is back in business but its brand image got adversely impacted after deep-water oil spill case. Its strategic goal is to improve its market sustainability, improve risk and business safety to improve business performance and brand image. ExxonMobil is also highly committed in its business and continuously working towards launching innovative products and technologies. It also states that in future demand for energy is going to rise, there are huge market opportunities for natural gas and alternative forms of energy but presently still oil industry is premier and is in ability to meet industry demand successfully. However, oil and energy business involve financial and safety risk, there is need to improve business and production approach continuously to remain competitive in market.
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