SWOT and PESTLE Analysis of British Petroleum PLC - Case Study Example

SWOT and PESTLE Analysis of British Petroleum PLC Introduction “BP is one of the worlds largest energy companies, providing its s with fuel for transportation, energy for heat and light, retail services and petrochemicals products for everyday items” (BP, 2010) The company was established in the year 1909 and since then the company witnessed several market conditions and formulated and reformulated several strategies to cope with such changes. And now the company is one of the well known brands in the world. But as always the market and economic situations keep on changing. Companies will have to constantly keep itself up-to-date inorder to guide the company to next level of activity. In this essay a detailed analysis of British Petroleum PLC is done using SWOT and PESTLE analysis. SWOT Analysis Strength: One of the greatest strength of BP is its strong brand image. A strong rebranding exercise was done by BP in 2001 which helped them to strengthen the brand name. BP has always received best rating from its customers and public. As per the company sources BP has received 8 out of 10 as rating from 78% of the respondents. The profit figure of BP in Q4 of 2009 shows its strength as a highly profitable organization. The Q4 profit of BP has jumped 70% to $4.4 billion from that of its 2008 figure. BP being the market leader coupled with its decades of experience in the industry has access to huge resources. Indonesia is a country which has huge coal reserves. But there is very less technology obtained in the country to commercialize these huge reserves. To take advantage of this BP signed a production sharing agreement with Indonesian government to explore the reserves. BP possesses patents in areas like production of synthetic gasoline, solar panel mounting system, and many other technologies that are related to the industry. This gives a comparative advantage for BP. Weakness: Inadequate safety system is one of the major weaknesses of BP. Failure in safety system has caused many accidents in BP sites. BP has been fined many times by the government authorities for not adhering to the safety standards. One recent instance was in Ohio. “The U.S. Department of Labors Occupational Safety and Health Administration or OSHA has cited the Toledo refinery with 42 alleged willful violations, including 39 on a per-instance basis, and 20 alleged serious violations for exposing workers to a variety of hazards.” (RTT News, 2010) The company was fined $3.04 million after the indecent. Opportunities: One of the major opportunities for BP is that it can capitalize on the coal exploration facility in Indonesia. Coal prices are increasing as the demand for coal is on a growth trajectory. As BP has access to one of the largest coal reserves, the company can make use of the opportunity. Demand for aviation turbine fuel is high and still growing. Another potential growth opportunity for BP is the growing demand in the LNG market. Globally, a 17% growth in demand for cleaner fuels is expected in 2010. The growth will be driven by UK, India, China, and Turkey. Threats: The main threat to BP is the loss of reputation due to frequent accidents occurred in the plant sites. Many accidents have occurred in various sites of BP and it had affected its reputation very badly. Indonesian Government has planned for increased regulation on cost recovery and income tax. This might cause some threat to the profitability of BP. Competition from other strongest players like Chevron, Shell, Exxon Mobil and Conoco Phillips is a major threat to the company. Another threat to the company is the strike by its employees in UK. Union members have threatened to strike against the company policy of employing cheap foreign labors. PESTLE Analysis Political factors: “The UK’s economic prosperity, political stability and business-friendly regulation make it a location of choice for investors from around the world.” (UK in Israel, 2010) The political instability rating of United Kingdom is 7.4 out of 10. This is comparatively a good rating. The European Union service directive, which came into force in the beginning of 2010, has created a favorable climate for companies and investors. Unnecessary barriers on businesses are removed. Therefore, the political condition of UK will have a positive impact on the company. Economic factors: UK economy grew by around 0.3% in the last months of 2009. Economists are expecting a 1.1% drop in the GDP in 2010. Interest rate of Bank of England will be lower than 1%. Inflation is also expected to stay under 1%. The budget deficit is expected to grow to 13% of the GDP. This will create great burden on the UK public debt. An increase in unemployment rate of about 8 – 10 percent of the labor force is expected for the year 2010. Overall the UK economy is expected to shrink in the year 2010. This shrinkage will reduce demand for energy in the country and will adversely affect the profitability of BP. Therefore, the economic condition of UK will be highly unfavorable for British Petroleum. Social factors: The people of UK are becoming more health and safety conscious. Government and other bodies are conducting widespread awareness programs about harmful emissions. These awareness programs have impacted the behavior of people in a great way. Therefore, BP will have to focus more on safety related factors. People are also highly conscious about their living environment. Technological factors: BP will have to invest more in cleaner and greener production technology. This is very crucial as government is imposing strict regulations on emission. More investments are required to be made in renewable energy sourcing. BP will have to focus more on cost reduction, which can be done only by developing low cost production techniques. Legal factors: UK Government has imposed strict regulations on environment protection in. Therefore, BP will have to incur additional cost for developing environmental friendly production techniques. Government has also imposed strict regulations on safer production techniques. Recently, the government published draft tax framework for businesses. “Developed in discussion with the Business-Government Forum on Tax and Globalisation, the document is intended to provide greater certainty for large businesses about the Government’s approach to the development of tax policy.” (Barbeau, 2010) The tax policy will thus be favorable for the company. Environmental factors: Energy industry is one of the major greenhouse gas emitters in the world. As such the regulations as well as public protests for environmental protection mainly targets energy companies. BP will have to invest more on waste management. BP has an advantage as it already has solar energy in its portfolio. Conclusion The above SWOT and PEST Analysis show that environmental and Economic factors are the major driving factors of the company. Economic factors are purely external to the company and the company will have to wait for the economic conditions to become favorable. But in case of environmental factors, the company should develop necessary action plans. Clean energy and lower emissions should be taken as the major objective of the company. This necessitates more investment in technology and human resource. Competition is high in the industry but BP should use its comparative advantage to compete in the industry. Works cited BP, 2010. BP at a glance. [Online] Available at: http://www.bp.com/sectiongenericarticle.do?categoryId=3&contentId=2006926 [Accessed 13 March 2010] RTT News, 2010. BP Faces $3 Mln Fine Over Safety Issues At Toledo Refinery – Update. [Online] Available at: http://www.rttnews.com/Content/BreakingNews.aspx?Id=1233811 [Accessed 14 March 2010] NSW, 2010. Political Stability. [Online] Available at: http://www.business.nsw.gov.au/aboutnsw/climate/A9_riskofpolinstabil.htm [Accessed 14 March 2010] UK in Israel, 2010. UK Business Environment. [Online] Available at: http://ukinisrael.fco.gov.uk/en/business/investment-in-uk/uk-business-environment [Accessed 14 March 2010] Paul, S., O., Barbeau. UK: Greater Certainty on Tax Policy. [Online] Available at: http://beg-law.com/lawblog/?p=238 [Accessed 14 March 2010] Appendix 1. SWOT Matrix Internal Factors External Factors Internal Strength 1. Strong brand image 2. Satisfied customers 3. Good profit figures 4. Access to resources Internal Weaknesses 1. Inadequate safety systems 2. Labor unrest External opportunities 1. Market potential of coal 2. Demand for ATF 3. Demand for LNG SO 1. Maintain good relationship with existing customers 2. Capitalize on the coal reserves available 3. Focus more on ATF and LNG WO 1. Develop systems that are highly safe 2. Meet the safety standards laid down by the government External threats 1. Government fines and loss of reputation 2. Competition from rivals 3. New regulation by Indonesian Government ST 1. Develop safety standards with the available profits 2. Bargain with the Indonesian Government fir tax concessions 3. Use the customer base to surpass the competition WT 1. Provide safety equipments to employees Read More