Total S.A. Company - Essay Example

? PESTEL Analysis of Total S.A. Company and Three Key challenges that The Company Faces Within its External Environment (Tutor) (Date) Company Profile of TOTAL S.A. The TOTAL S.A. is considered to be one of the largest natural gas, oil and specialty chemical companies in the world (Plunkett and Plunkett Research, 2008). The company’s main operations have been carefully organized into three main categories, these are downstream, upstream and chemicals (Ibpus.com and International Business Publications, 2008). The company’s upstream sector is seen to mainly consist of the company’s vast exploration projects for the production of natural gas and crude oil; this is done alongside various gas and electricity developmental activities and coal mining operations. TOTAL’s downstream unit is seen to mainly focus on trading of petroleum products, their marketing as well as refining operations while its chemical division is seen to include the production of various rubber products that are made by its Hutchinson subsidiary. The bulk of the rubber products produced by this subsidiary are usually mostly targeted at the automotive industry. Other chemical products that the company produces include resins, adhesives, inks and paints (Reuters, 2013). When the company was initially formed in 1924 after the first world war, it was initially named as compagnie Françse des Petroles. At the time of its formation , the French government considered the company as being of critical strategic importance in the event that there happened to be another war with Germany. After the war, the French secured a 25 percent stake in the by then fledgling Turkish Petroleum company whose shares were mostly held by Germany’s Deutsche Bank. This French government shareholding was eventually transferred to CFP. In 1954, the CFP Company introduced into its African and European markets what was its main downstream product “Total” gasoline (History of Business, 2013). In an attempt to try and capitalize on the company’s gasoline brand, in the year 1985, the company was renamed to Total CFP. When Serge Tchuruk was appointed as chairman of the company at the beginning of 1990, he immediately took several steps designed to secure the company’s position. He incorporated some parts of Orkem chemical group into Total’s various chemical operations. The chemical division was responsible for the production of resins, inks, paints and adhesives. At the time of his taking over the company’s chairmanship, Total company had slowly turned into a complexly organized, extremely bureaucratic and sleepy company and as a result, the company had inadvertently ceded its coveted position of being France’s largest oil company to its rival Elf Aquitaine. Serge managed to turn the company into an aggressive, more modern and sleeker company by abolishing and estimated over two hundred Total company subsidiaries as well as closing down about one-seventh of all of the company’s service stations network (company-Histories.com, 2013), this effectively resulted in the elimination of about 6.500 jobs and saved the oil company hundreds of millions of francs in various expenses. The company also formulated new strategies that helped it defocus its production form the more unstable Middle East and aimed to shift about 50 percent of all its production to areas outside the Middle East. By 1995, the insistence of Tchuruk on ensuring that the company ensured that it beefed up its gas business was instrumental in causing the company to become the world’s third largest gas producer (company-Histories.com, 2013). The company’s name was later changed to Total in the year 1991 when company became listed as a public company and commenced trading on the New Stock Exchange. Tchuruk played a critical role in convincing the French government to ensure that it reduced its direct share holding investment in the oil to 5.4% which was an important move that helped the company increase its own independence as well as its ability to act in an aggressive and quick manner (company-Histories.com, 2013). Total is considered to be the largest business operation in France based on the company’s market capitalization and the annual revenue it generates, According to the fortune global listing for the year 2010. It has managed to spread its operation to an estimated over 130 different countries in all the five continents (company-Histories.com, 2013). It has grown its oils reserves to an estimated over 5,695 million barrels while is natural gas reserves are estimated to be standing at 26,218 billion cubic feet. Pestel Analysis of Total S.A. What is Pestel Analysis? PESTEL analysis is a useful tool in the scanning of a business enterprise’s general environment. PEST analysis refers to the Technological, Economic, Social, Environmental, Legal and political factors affecting a business. A PESTEL analysis is a simple tool that can effectively help a business enterprise or organization adequately detect and some of the weak signals that might potentially affect a business, all in the hope that the business enterprise will be able to work at correcting the fractures and discontinuities shaping its business environment. It can also help in the detection of various trends that might ultimately end up finding their way into an organizations’ competitive environment (Henry, 2008). As such, a critical PESTEL analysis of Total S.A. will provide various pointers in addition to helping us better understanding the condition of the external environment in which the business is operating. Political Factors Affecting Total S.A. There are several key political factors that can be seen to be affecting Total S.A. Company, key among these factors are the allegations against the company accusing Total company officials of actively bribing Iraqi officials. The bribing is claimed to have taken place during Saddam Hussein’s dictatorial regime. The company is accused of having given out the bribes so as for it to be able to secure the country’s oil supplies. Later United Nations reports were key in revealing that these Iraqi officials received several bribes from various oil companies aimed at helping the companies secure contracts that had an estimated value of over $10 billion. Recently, Total S.A. announced that it had reserved some 316 million Euros that it would use to help settle the long-running investigations against the Total S.A. Company by the United States government authorities in respect to the company’s various corrupt practices in Iran (Mathews, 2013). Another political factor that is adversely affecting Total S.A.’s global operations is the recent awareness surrounding global warming issues all over the world. Global warming has causing various climatic disturbances and this has resulted in some governments opting to create rather strong barriers limiting oil excavation in their countries. Various governments all over the world have also been seen to be actively encouraging industries in their countries to attempt and find more sustainable forms of energy (Beering, 2011). After the Rio Earth summit conference, most countries have been gradually switching to the use of energy forms that are perceived to being more sustainable and signing the biodiversity treaty that provides timetable targets for those countries to reduce the emission of green house gases (popular science, 1992). Some government policies such as the United Kingdom’s recent 3% increase in import tax have also served to greatly affect the country’s offshore oil industry. The increasing demand for oil in the global energy market has also resulted in the energy market becoming more volatile. Economic Factors Affecting Total S.A. The economies in most oil producing countries are found to be heavily reliant on the support that those economies receive from the sale of the diverse oil and gas products found in the energy reserves in those countries (Alnasrawi, 1991). The global financial crisis that affected nearly all the countries also affected Total S.A.’s and the whole oil industry’s profit margins as the consumer demand for oil was also seen to decline in what is estimated to be nearly all countries worldwide (Samson and Daft, 2011). Economic conditions are a key determinant in establishing the degree of difficulty or ease for a business enterprise to be profitable and successful. This is because economic conditions variously affect cost, capital availability and demand for the products and services of a given company. Various global markets in which Total operates were ravaged by the recent global economic crisis and have only recently started to emerge from ravages of the economic crisis (Hart and tindall, 2009). As a result of the global economic recession, the company’s sales were seen to drop by an alarming 32% while Total’s upstream business that consists mainly of its production and exploration segments recorded a 46% decline. The company’s net income was also seen to decline by about 35% compared to the previous year (Zacks, 2013). After the economic crisis, most banks in Total’s France and European markets were noted as attempting to try and avoid the funding of ventures in higher resources. Most of the projects that were being conducted by the oil industry were eventually stopped as a consequence of there being a rather insufficient supply of basic funds to fund projects. The use of public transportation by people as opposed to using their personal transportation due to the recession’s effect on their income has had an effect on the oil industry’s sales. Estimates by IEA are that the world’s energy markets can envision a future increase in demand. The IEA, also projects a future rapid increase in the demand for the supply of alternative energy, this increase is expected within the next few decades (TUSIAD, 2011). The Sociocultural Factors Affecting Total S.A. In a PEST analysis the sociocultural environment is seen to demonstrate the various tastes and demands that happen to change with disposable income and fashion trends. These factors can inadvertently pose several threats as well as provide various opportunities for various companies. Increasing awareness by society on the harmful effects of the use of petroleum products due to the release of carbon dioxide into the earth’s atmosphere has resulted in several governments advocating for the use of various renewable energy sources such as wind and solar energy. This has largely had a negative impact on the oil industry’s profit margin. Technological Factors Affecting Total S.A. Technology has been seen to be playing a vital role in the successful operations of almost all organizations. It has been seen to invariably offer a sustainably competitive advantage to various companies including Total S.A. over its competitors. Various innovative resources are being used by several oil companies inclusive of Total S.A. in the North Sea (Morschett, Schramm-Klein and Zentes, 2010). Total S.A. is also seen to actively involved in the development of various technological innovations such as photovoltaic solar power systems as well as the refining of biofuels. Total S.A. is a majority shareholder of Sunpower Photovoltaic solar Panel company. The company which produces an average of 150,000 solar panels each years with a combined annual capacity of 44 MWp, is a key contributor to the local employment (Total, 2013). Environmental Factors Affecting Total S.A. During the oil refining process, a lot of chemicals are used and subsequently extracted as waste products after the final production of the oil, similarly, petroleum and gas extracting has been seen to produce massive amounts of air pollution which is released to the atmosphere. These hazardous by-products produced by the gas and oil industry have for long been associated with severe environmental risk factors. (Abiri, Emiri and Deinduomo, 2009). Total SA was fined about € 375,000 in 1998 after an oil spill by one of its ships caused massive marine and environmental pollution. The oil spill was seen to stretch an average distance of about 400 kilometers from La Rochelle to the very western tip of Brittany. Total also spent about €200 million to clean up an oil spill that resulted after the ship Erika sank in 2008. After cleaning up the oil spill it was also forced to pay the victims compensations that averaged about €192 million (Saltmarsh, 2010). The company also experienced various environmental challenges after its AZF chemical plant located in the French province of Toulouse happened to explode in 2001. Legal Factors Affecting Total S.A. A legal factor is the fact that it has been reported that there is an urgent need by the gas and oil industry to ensure that it attempts to improve the overall safety of its workers working offshore. There has been a relative increase in the overall injury rate and a myriad of other serious accidents affecting employees who happen to be working on the gas and oil industry’s various offshore facilities. Over the previous five years from 2009, there have been an average number of 42 injuries recorded. But this number was seen to increase to 50 in the time period ranging from 2009 to 2010 (Lamblaw, 2012). Total company has also been faced with several lawsuits in regards to the company’s corrupt dealings in Iraq and Malta. It is also currently subject to an ongoing lawsuit due to its use of what has been termed as Myanmar’s civilian slavery in the construction of a pipeline from Burma to Thailand. The three Key challenges Affecting Total S.A. External Environment Lack of Sufficiently Skilled and Experienced Manpower to Replace the Large Number of Retirees There are several key challenges that happen to affect not only Total S.A. but also the world’s entire oil and gas industry. Key among these challenges is the insufficiency of enough skilled labor resources capable of replacing the large portion of various engineers who happen to be working in the industry. Most of the engineers in the oil industry are quickly nearing their retirement but there lacks enough graduate level engineers with about 5-15 years of relevant experience to replace them. According to statistics by the World Petroleum council, about 40-60 percent of petroleum engineers and various geologists, who all happen to belong to the baby boomers generation, are set to retire within a time period spanning over the next five years. This will result in a large skill gap. In order to deal with this challenge, Total S.A. and other oil companies can attempt to retain the baby boomers in professional employment for longer than the normal 55-60 years of age retirement age (PR Newswire, 2013). This will serve to give them time to attract more bright and younger people to various engineering and science discipline and then consequently into the oil industry where they will receive proper mentorship from the baby boomers. Climate Change Another huge challenge facing Total S.A. are the prevalent effects of climate change. Several countries in which Total S.A. sells its products have started implementing various polices designed to see them develop the use of renewable energy. This is especially so after the signing of he Kyoto protocol. The protocol sets several carbon emissions targets that all the protocol’s signatories must try to attain. Total S.A. has developed a Safety Health Environment Quality Charter that they use and only proceed to launch new projects only if they have carried out sufficient environmental risk assessments (Total, 2013). Legal Challenges Total S.A. has been implicated in a number of bribing commission scandals all over the world. Some of these include allegations that it bribed one of the government officials in a procurement scandal. The company also faces a lawsuit in regards to the use of civilian slavery in the construction of the Yadana natural gas pipeline that was designed to run from Burma to Thailand (EarthRights International, 2012). The most prominent corruption allegations facing the company involves the UN Oil-for Food Program that was designed to help Iraq. Total S.A. is accused of having bribed several Iraqi officials in an attempt to try and secure oil supplies. Conclusion As it has been clearly evidenced, there are a variety of different factors that happen to adversely affect not only Total S.A. but also the entire gas and oil industry in general. The factors affecting Total S.A. can be noted as being classified into several categories ranging from political, social and legal factors to various legal and environmental factors. These factors include unstable governments, global warming, and various additional taxes being imposed by the government. The global recession also had a massive effect on Total S.A. largely due to its large presence in several countries. Total S.A. has also been noted to be used several key technological advancements that have helped it gain an adequate competitive advantage over its main rivals. Such as its plans to diversity its operations into the production of nuclear energy via the one percent share it owns in Areva, the world’s largest nuclear power business. The company is also diversity into the production of Photovoltaic solar cells via its SunPower subsidiary. Bibliography Abiri, K., Emiri, F., and Deinduomo, G., 2009. Law and petroleum industry in Nigeria : current challenges : essays in honour of Justice Kate Abiri. Lagos : Malthouse Press. Alnasrawi, A., 1991. Arab nationalism, oil, and the political economy of dependency. New York : Greenwood Press, 1991. Beering, C., S., 2011. Building a Sustainable Energy Future: U. S. Actions for an Effective Energy Economy Transformation. 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