BP is one of the largest multinational corporations in the world. According to CNN (2011), BP is the fourth largest multinational corporation in the world and employs over 80,000 people and making annual revenue of $392 Billion. BP has massive influence on the global economic climate and has the operation capacity to affect stakeholders. This essay will analyse BP’S current stance using Porters five forces. It will also establish who are the most important stakeholders and suggest strategies that can be used in future.
3. Porters Five Forces
This looks at he external factors that can affect which include new entrants, buyers, suppliers, substitutes and competition and can affect productivity of a business as seen in appendix A.
3.1 Threat of New Entrants
The threat of new entrants into the oil and gas industry is relatively low. This is a result of the high capital costs and technology, distribution channels, economies of scale, regulations and geopolitical barriers and the high levels of expertise required for exploration and extraction. (Mascarenhas, 1997) This makes it relatively easy for the oil and gas industry to fend of potential entrants; however the investment in relation to profit returns with suitable environmental and technical environment is relatively high.
Rivalry in the oil and gas industry is relatively high because of the resource based nature of the business. There is severe competition to locate and secure drilling licenses between the major players and the cost of expedition and production is relatively high. The main source of competitive advantage in his industry is to cut down the costs of production per unit produced.
3.3 Substitutes for Oil and Gas Products
The threats of substitutes for oil and gas products are low and come from wind, nuclear, hydroelectric and biomass. Wachsmith et al (2013) states that solar power, wind power and other substitutes for oil and gas products are not yet efficient enough to challenge oil and gas products as they can be affected by environmental factors. Other substitutes such as Nuclear power can cause devastating harm to the environment in the event of unprecedented spillages and reparations would be extremely costly. However, BP is currently embarking on projects to diversify the range of their energy production sources into wind power and biofuels which yield less carbon emission.(BP, 2014)
Buyers are both industrial and individual consumers. Consumer power is relatively low because suppliers have an incentive to keep supply low in order to control oil prices. Also OPEC has the power to limit the amount Oil in the market and can alter this to the benefit of the producer to achieve the highest possible price. (Radetski, 2012) The consumer is the price taker.
Supplier power in the oil and gas industry is high. This is because of the constraints attached to the supply of the output by OPEC and countries resource management levels. (Radetski, 2012) This enables suppliers to control oil prices to an extent while working in unison to the regulations of overseeing organisations and countries of operations they can decide to seize BP’S output if terms and conditions of resource exploitation are not met.
The major BP stakeholders are suppliers, environmental organisations, countries of operation and oil production governing organisations.
This essay has given a short account of BP’s stakeholders using Porters five forces as a model and identified the major stakeholders. This study has shown that suppliers, countries of operation and governing bodies play a major role in the success of BP. These finding suggest several courses of action for BP which include: •Abiding by the rules and regulations of both countries and governing organisations.
•Maintaining a frugal means of production and investing in more efficient methods of production
•Maintain good relationship with government to secure more oil blocs. •Caution should be taken when mining to reduce hazardous environmental effects as they will call for reparations and damage government relationship.
Appendix A: Porters Five Forces (own source)