PESTLE Analysis of Gazprom - Coursework Example

PESTLE Analysis of Gazprom Table of Contents Introduction 1 PESTLE Analysis 3 Political 3 Economic 4 Social 5 Technological 6 6 Legal 6 Environmental 7 Conclusion 8 References 9 Introduction Gazprom is the “National Energy Champion” of Russia with massive political clouts faced in the overseas and home town. It is one of the biggest gas companies with the share price of 135.82 RUB (Bloomberg, 2013; Victor, 2008). In terms of present estimates made, Gazprom is lacking behind from the Arab countries only in the deliverance of oil and gases. In order to gain decisive market share, it operates, produces and explores gas in the Russian Federation and European countries. Gazprom contributes nearly 10% of the national Gross Domestic Product (GDP) of Russia and aims to make the company the leader in the energy sector (Green Peace, 2013). It supplies resources to the people of Russia and other countries and helps in generating electricity for the people. Much of the revenues of Gazprom are generated from exporting gas to the European countries. The prices charged from the foreign consumers are five times more than the Russian consumers. The growth of the company can be observed from its 5 Years Dividend Growth which is 17.63% with the current P/E ratio of 2.4931. Gazprom, in order to become the leader of the natural gas and oil segment, has explored its business in various European countries and thus has become a profitable corporation (Bloomberg, 2013; Victor, 2008). The objective of the company is to do a PESTLE analysis of Gazprom. The impacts of the political, economic, social and other factors on the operations of the company would be evaluated with a precise focus on the influence of Eastern Europe. PESTLE Analysis The business of Gazprom operates in an environment which is surrounded with several key factors. To evaluate the factors, to understand the opportunities and the threats of the environment PESTLE analysis is conducted. This analysis helps in understanding the environment and the future scopes of the company in the region owing to the social, economic and political perspectives along with the government policies of the region. In this regard, it is determined that Gazprom has its base in Russia and the maximum amount of revenue for the company comes from Eastern European economy. PESTLE analysis would enable to derive an understanding of the influencing factors which are or would affect the company’s performance especially in the Eastern European region. Political The government policies of Russia affect the business of Gazprom. Due to government policies, Gazprom enjoyed the power of monopoly for several years in its prices and distribution process of natural gas. The government of Russia submitted a proposal for the intergovernmental agreement which affected the cross border infrastructure. These treaties eradicated the monopoly of the company but made the trade easier. The political rationale behind the policy implication was to expand the business in Russia and in overseas. The traditional political policy was hampering the market share of Gazprom in European market and hence the need for the tie up with Qatar emerged to help the company and the country in gaining importance in Europe (Hulbert, n.d.). The investment from the Russia government would help in the development of Gazprom and the economy of the country as well. Moreover, it is also observed that the political dispute between Russia and Ukraine was affecting the gas prices and its trade. The use of gas by Moscow from the underground gas storage affected the transportation to Europe. The trade barriers and the high prices are affecting the business and the economy of Russia. To regain its market in the European countries, an agreement is being done by the government to lower the price of gases in Lithuania. Moreover, the Russian political environment used Gazprom as an instrument for foreign policy to remove gas supply to Georgia and Moldova. The financial report of Gazprom depicted a loss by nearly one third which was due to the political factors such as financial bailout, tax cut plans, Russia-Ukraine gas issue and Russia-Georgia conflict (RIA Novosti, 2013). Economic The economy of Russia is influenced massively by the highs and lows associated with the operations of Gazprom and its revenue generation from the export done in various countries located mainly in Europe. The domestic market of Russia has a great impact on the business of Gazprom. The company contributed nearly 10% in the GDP of Russia due to its expansion in the European market. Gazprom faced a loss of nearly 20- 40% in the revenue generation due to the inefficient practises. The government of Russia levied tax legislation which was applied on the natural gas to maintain the pricing strategy (Green Peace, 2013). This affected the policies of Gazprom and created a negative impact on the growth of the company as a monopoly leader. The GDP demonstrated a growth of 0.10% in 2012, which was due to the payment from the energy sector in the form of taxes and duties levied by the government (Gujarat Technological University, 2010). Moreover, the Central Bank of Russia was interfering in the exchange rate, which was allowing the Ruble to be more flexible and instable, thus affecting Gazprom on the monetary policy front. The decrease in the raw material cost assisted the economy and the company to grow. The support from the foreign reserves was helping the economy of Russia to grow and likewise influencing the growth and expansion of Gazprom (Aron, 2013). Social The social factor affecting the growth of Russia is its population size and the locations. The high population size of Russia helps the service sector by getting sufficient workforce to manage the industry within the country. Moreover, the supply and the consumption level of goods and services have been exhibiting a growth in the domestic region. This is due to urbanization which has augmented the need for energy and thus affecting the profit of Gazprom effectively. Due to the changes in the demographic of the developing country i.e. Russia, the country and the company have been incurring profit as the need for energy is increasing domestically. The increase in the literacy rate and the rise in the purchasing power of the people affected the business of the country for the better. Higher purchasing power of people signifies profit for the company and the economy. Increase in skilled people has also supported the growth of Russia as a prominent player in the Eastern European region along with the energy sector. The consumption pattern has increased in Russia with the rise in literacy and standard of living. This has facilitated Gazprom as maximum of the natural gas is being used by the households of Russia, thereby increasing its profit (Bright, 2011). Technological Russia was leading producer of oil and positioned in the second place in the production of natural gas in 2011. Russia focused on building up technological sector which would help the country and the business of Gazprom. The technological advancement of Russia has been assisting in the growth of the company and the related businesses such as Gazprom. The high technology machinery used by the country would help in the increase of production and high quality product. This will increase the profit margin of the company as the technological advancement would lead to innovation and development. The research and development segment in the nation has been coming up innovative ideas to minimise wastage and increase the level of production which has helped Gazprom immensely. In the year 2012, 7.7 billion RUB was invested for the technological advancement to increase the technical specifications (Gazprom, 2013). The alternative storage of energy by Russia is affecting the business of Gazprom as well. The technological advancement of Russia assisted in the export development of petroleum products in various countries with minimum expenses. The advancement helped in increasing the output capacity along with exploration and deliverance of services. Legal The legal aspect of a country affects a business and its growth. The implementation of the Foreign Investment Law by Russia has been creating certain limitations for the foreign investors, which was made for enhancing the security measures of the country. Moreover, the Russian government has adopted policies related to concession tax for the investors. This benefits the growth of Gazprom along with aiding its functioning. The regulatory compliance on the carbon emission had been implemented by Russian government for the benefit of the company and the people. These legal forces have been supporting the development of the company and helping its growth. The trade policies, international trade interventions and licencing tax levied are beneficial and crucial for the business to be carried forward. The international trade barrier has affected the export of the natural gas in other countries (Bright, 2011). Environmental Environment planning in Russia was a slow process as it was based on the general principles of environment. The country lacked to provide environmental improvement measures due to an absence of policies. Russia suffered from high level of pollution due to the lack of carbon emission policies. The implementation of this policy assisted in saving the environment along with making the people healthy. As one of the largest producers of natural gas, the Environmental Protection Act has helped the country and made the company careful regarding the safety measures to be implemented. The production of natural gas created a considerable effect on the atmosphere and hence supported global warming. The implementation of carbon footprint directive supported the environment to a large extent (Gujarat Technological University, 2010). Conclusion Gazprom, a global leader of natural gases, has had to face numerous issues regarding political factors to retain its market share without using unethical approaches. The monopoly of the company did not last for long due to the political turmoil within the government. This affected the business but the economy, social, technological factors helped the business to survive and gain profit. The analysis renders a precise understanding regarding the support of the government for the long-term survival and profitability of the company. Thus, it can be affirmed that Gazprom has made a profound and decisive impact on the Russian economy and has aided it to gain superiority amid other Eastern European nations. References Aron, L., 2013. The Political Economy of Russian Oil and Gas. American Enterprise Institute For Public Policy Research. [Online] Available at: http://www.aei.org/outlook/foreign-and-defense-policy/regional/europe/the-political-economy-of-russian-oil-and-gas/ [Accessed December 06, 2013]. Bloomberg, 2013. Gazprom OAO. Market Data. [Online] Available at: http://www.bloomberg.com/quote/GAZP:RM [Accessed December 06, 2013]. Bright, O., 2011. Strategic Business Report On The European Gas Industry. University Of Dundee, pp. 1-23. Green Peace, 2013. Northern Exposure ‒ Gazprom and Oil Exploration in the Russian Arctic. Media Briefing, pp. 1-12. Gazprom, 2013. Expected Efficiency Of Innovative Technologies Developed By Gazprom In 2012 To Amount To 2 Rubles For Every 1 Ruble Invested. Press. [Online] Available at: http://www.gazprom.com/press/news/2013/june/article164596/ [Accessed December 06, 2013]. Gujarat Technological University, 2010. Global / Country Study and Report on “Pestle Analysis And Sectorial Study Of Russia.” PESTLE Analysis, pp. 1-52. Hulbert, M., No Date. The Vital Relationship: Why Russia Needs Qatar. European Energy Review. [Online] Available at: http://www.europeanenergyreview.eu/site/pagina.php?id=3607 [Accessed December 06, 2013]. RIA Novosti, 2013. Gazprom Says No ‘Positive Dynamics’ in Ukraine Gas Debt Repayment. Politics. [Online] Available at: http://en.ria.ru/politics/20131114/184717289/Gazprom-Says-No-Positive-Dynamics-in-Ukraine-Gas-Debt-Repayment.html [Accessed December 06, 2013]. Victor, N.M., 2008. Gazprom: Gas Giant under Strain. Program on Energy and Sustainable Development, pp. 4-80. Read More