PESTLE Analysis of Lukoil Company - Case Study Example

? PESTEL ANALYSIS OF ‘LUKOIL’ COMPANY By Location Introduction As a gas and oil company, Lukoil is verticallyintegrated.The company engages in the discovery, exploration, and production of oil and gas products.There are also extensive productions and wide marketing of its petroleum products as well as the petrochemicals.The operations of Lukoil bases in Moscow and this spread to its market zones like Russia, Western and Eastern Europe, and USA (Marinova & Marinov 2003, p.129). In compiling its PESTLE analysis, would help provide for the theoretical and empirical study, crucial information required for business and competitor intelligence needs.It would also provide the understanding of the major internal and external factors affecting Lukoil Company. Theoretical view of LUKOIL In monitoring of the company’s macro-environmental or external marketing factors, the analysis would help in shedding light on some of the factors that have an impact on Lukoil Company. As a major market player, Lukoil Company operates through four operating segments. These are the exploration and production part, the process of refining, Marketing and Distribution, chemicals segment, and power generation segment (United Nations Conference on Trade and Development 2003, p. 23). This comes through exploration of natural resources in order to produce crude oil and natural gas. The expansion of this company extends its interests in operational zones by holding properties in Russia, Azerbaijan, Kazakhstan, Uzbekistan, South America, South East Asia, the Middle East, and North and western Africa (Kotok & Sciarretta 2010, p. 78). The success of Lukoil depends on its versatility to navigate the political, economic, social, technological, environmental, and legal factors surrounding its operations, since it is an international corporation cutting across the business world. PESTEL ANALYSIS Political and Economical factors The political factors stem from the extend of the government’s policies in intervening the economy by either through political stability or instability, foreign trade, tax policy, labour laws, in addition, trade restriction. Since Lukoil is an international corporation, its operation, and success cut through many political realms and may certainly influence how the company does business (International Business Publications, USA 2011, p. 23). It is therefore the mandate of the Lukoil Company to respond to the current and potential legislations in order to adjust their market policy accordingly. The profitability of Lukoil Company largely relies on its economic factors (Plunkett 2008, p. 120). There are macro-economical factors like economic growth, interest rates, inflation, and disposal income of consumers, exchange rates, and businesses. The oil product profits and losses that this company derives from diverse contexts of its markets come with the way the management of demand goes on in the respective economies of operation. This varies, as different countries especially in the East, cannot compare their economy with countries of the West like USA. How well Lukoil adjusts itself to the governments’ mechanism such as interest rate control, taxation policy and government expenditure determines their gain or loss in the economies of investments. Social and Technological factors There are also social cultural factors in the regions with the highest Lukoil investment, which influence a lot on its operations. Many regions have different beliefs, and shared attitudes within their population. Compare the social factors of Eastern Europe and those of East and South Asia and this would culminate in the way the consumption of products do range of different contexts (Marinova & Marinov 2003, p. 104). The large influence of this will depend on the region’s population growth, health consciousness, age distribution, and career aptitude. The marketers of Lukoil have no choice other than understand their global customers and their preferences. The way Lukoil markets its products have to go in line with the technological landscape changes. Technological factors have an impact on their marketing and the management in the way the distribution, communication, and production of goods and services operates. It is either new ways or the company struggles with outdated technological mechanisms. Environmental and Legal factors The diversification of Lukoil Company may have sourced out of the current trends in environmental factors. With the competition so stiff in the corporate world, there is an increasing scarcity of raw materials (Plunkett 2005, p. 88). There is also the global outcry that the multinational companies like Lukoil make their businesses in an ethical and sustainable measure. As a company dealing with refining of crude oil and natural gas, Lukoil multi-diversification means that it has to deal with carbon footprints set by the different governments’ in places where it is operational (Plunkett 2008, p. 71).This places the company’s operations in not only forced to meet the ethical status of the consumer preferred finished products but also operate within sustainable source. As a measure of improvement, the company has to operate within the mandated legal factors. Its operations ought to adhere to safety and health, advertising standards, consumer rights and laws as well as product labeling and product safety. Lukoil’s successful international trading relies on how well does its marketers is or not legal in their enterprise. The set of rules and regulation within each country, where Lukoil operates may prove to be a tricky in the attempt to maximize profits. This is because each country bears its own rules and regulation when it comes to the application of legal factors. Empirical Analysis Lukoil Company marketing strategy in Central and Eastern Europe and Russia gets much influence from the economic environment, which has undergone significant development over the past twenty years (Aslund 2013, p. 75). As part of the largest oil corporation, Lukoil influences significantly many national economies as well as global economy at large.A company of this multitude has a big financial power and in their profit-oriented corporate sector. The understanding of this is that the company’s investment serves as economic bulwarks in the countries they venture. This only comes through identification of the most appropriate strategies as well as the efficient methods of business management. Lukoil currently controls the oil market in Central and Eastern Europe in line with other big wings in oil production (Marinova & Marinov 2003, p. 73). The investment strategies and policies of Lukoil have seen the development and consolidation of the oil industry in the countries around this region. It is in this respect that the company influences national economies and the global economy. The success of Lukoil is an output of its long-term corporate strategies. Their focus is mainly on oil quality and diversification of products and the services (Black 2012, p. 66). All this has to go in line with the customer requirements, standards, rules, and the regulations mat national and international level.Factors such as location in the area, tax incentives, land cost, construction cost, transportation fuels, the cost of necessary technology, provision of competent personnel and operationing in safe environmental condition come as the strategic plan system from Lukoil Company.The opportunities that Central and Eastern Europe offer are of particular interest for a Lukoil Refinery Company. It is this macro-environment benefit that has seen Lukoil be the first company in Russian Federation that pioneered investment in Romania by 1988 (A?slund 2013, p. 85). This investment, like many parts where the company has its resources, creates an impressive and positive impact on the economies of such countries. For example, in the Romanian economy, Lukoil has employed over 5000 people in its premises around the network of 310 gas stations and 10 fuel depots it operates. This has seen its share in the Romanian economy rise to a surprising 25% of the local market as its filling stations are the second in that economy. This is an indication that the external marketing strategies of Lukoil meet the PEST expectation of Romania. Lukoil has a monopoly of controlling 1.3% of world oil reserves and 2.3% in the production of crude oil. With its main sources at Western Siberia, Lukoil remains the global leading corporation in confirming oil reserves of the private companies listed category. The operations of this company have a balanced chain in all three sectors of petroleum industry upstream, midstream, and downstream. This has given it power to participate in numerous international projects offering the possibility of benefitting from profitable assets. The securities of Lukoil trade in four countries of the world stock exchange and this sees them rank first in terms of the degree of liquidity in the shares among foreign companies trading in the London Stock Exchange (A?slund 2013, p. 112). It is there a foolproof that Lukoil bears biggest international diversification as well as development dynamics. The strategies of Lukoil have pulled in the modernization of refineries due to the need to obtain organic petroleum products.There has been also promising achievements which have seen the company develop its own infrastructure aiding in the export of oil and petroleum products. In Russia and other countries, Lukoil has increased the number of filling stations for its petroleum products. In the rapidly changing markets, Lukoil has been able to assemble and exploit appropriate combination of resources and continuously developing existing resources and this has given the company an edge in the competitive advantage (Black 2012, p. 78). Since 1998, investment in Romania, Lukoil Company has grown a lot on its economic policy on Capital market. There are also inputs like the Bulgarian refinery, in which Lukoil owns 100% of the oil processing market (Plunkett 2008, p. 68). The year 2000 saw Lukoil take over oil distribution in the USA, and the Caspian Sea profects, which help to anchor the company’s oil industry.The enactment of LITASCO (Lukoil International Trading and Supply Company) as the sole operator in international trade, and this milestone helps Lukoil implement its international marketing operations ((Williamson, Ramamurti, Fleury & Fleury 2013, p. 120). In Central and Eastern Europe, Lukoil has expanded its achieve up to 2009, when major investments started at the refinery PETROTEL-LUKOIL SA Ploiesti in ecologically feasible programs aiming at switching to euro 5 green fuels. SWOT Analysis Thorough analysis of the external environment by identifying opportunities and threats through the company may pass through its weaknesses helps to determine the most appropriate strategy. Lukoil has strengths, weaknesses, opportunities, and threats. The company has resources and capabilities that help it acquire the competitive advantage Black 2012, p. 102). These are strengths such as being the top ranked private oil and Gas Company, the second in terms of volume of crude oil extraction; its motor oils meet the international automotive and aircraft engineering requirements, and its strong position in the oil market in Central and Eastern Europe (Williamson, Ramamurti, Fleury & Fleury 2013, p. 98). In its weaknesses, there are some characteristics, which generate competitive disadvantage of Lukoil Company.The record of 23.3% net profit drop in the year 2009 as compared to the 2008 profits, Ploiesti refinery production drop declining by 7.4% in 2009, high production cost compared to its competitors' level, and the slow and bureaucratic communication within the company. There are opportunities that produce significant benefit and this comes out of Lukoil Central and Eastern Europe market, which provide absence of major companies’i.e. BP, CHEVRON, grasping new Europe markets for further development, the positive forecast of further increment in fuel consumption in the region and the non-wavering selling price of petroleum in the region. However, the most disturbing threat is the increasing competition in the area with OMV becoming the undisputed leader due to its extensive experience within the market region. The economic crisis hitting Europe countries such as Romania pose as threats to the profits Lukoil Company. Conclusion In conclusion, Lukoil market strategy connects firmly with the inclination of sustainable growth. Geographical expansion supplements all this, as the mission is to make Lukoil the pinnacle of oil production companies (Kotok & Sciarretta 2010, p. 106). The company aims to stick to the objectives of corporate businesses of providing products in view of sales volume, profitability, equity, product quality, competitive position, and the care of the environment. Bibliography A?slund, A 2013, How capitalism was built: the transformation of Central and Eastern Europe, Russia, the Caucasus, and Central Asia. Black, B 2012, Crude reality: petroleum in world history. Lanham, [Md.], Rowman & Littlefield Publishers. International Business Publications, USA 2011, Russia oil refining and gas processing industry handbook. Washington, DC, International Business Publications. Kotok, D & Sciarretta, V 2010, Invest in Europe now! why Europe's markets will outperform the U.S. in the coming years. Hoboken, N.J., Wiley. http://public.eblib.com/EBLPublic/PublicView.do?ptiID=495965. Marinova, ST & Marinov, MA 2003, Foreign direct investment in Central and Eastern Europe. Aldershot, Ashgate Pub. Group. Plunkett, J W 2005, Plunkett's chemicals, coatings and plastics industry almanac: the only comprehensive guide to the chemicals industry. Houston, Plunkett Research. Plunkett, J W 2008, Plunkett's energy industry almanac 2009 the only comprehensive guide to the energy & utilities industry. Houston, Tex, Plunkett Research. http://search.ebscohost.com/login.aspx?direct=true&scope=site&db=nlebk&db=nlabk&AN=332156. United Nations Conference on Trade and Development 2003, World investment directory. Volume viii, Volume viii. New York, United Nations. United Nations Conference on Trade and Development 2008, World investment report, 2007: transnational corporations, extractive industries and development. New Delhi, Published for and on behalf of the United Nations by Academic Foundation. Williamson, PJ, Ramamurti, R, Fleury, ACC & Fleury, M T L 2013, The competitive advantage of emerging market multinationals. Appendix on LUKOIL COMPANY Natural gas–A mixture of gaseous hydrocarbons, whose main component is methane. Natural gas is located in strata in a gaseous state, either as gas deposits or as a gas cap on oil & gas fields. Fuel oil-fuel oil, ship fuel oil, oil residues, and raw material for technical carbons. Read More