BP Africa Business Analysis - Case Study Example

BP Africa business analysis Contents Contents 2 Introduction 3 Advantage of first move 4 Advantage of deployment 6 BP Business analysis methods 7 Recommendations 9 Conclusion 10 Bibliography 10 Appendix 11 BP cash flow statement 11 Introduction Marketing strategies are the actions taken by a certain business to out do fellow competitors in terms of customers turn out, which increases returns (Brown, 2010). It can also be described as the optimal utilization of a business/ company resources to beat fellow competitors and increase the sales. The process begins with analyzing the current situation of a certain business then formulating ways to achieve specific goals. BP is a multi-million multinational oil and gas company with regional branches in almost every part of the world. The company has a head office in the United Kingdom. According to the latest version of Forbes magazine, the company is ranked in the third largest among the energy companies, while it falls in the fourth position among the largest companies in the entire globe (Monasa, 2008). The company has ventured in almost all major process in the energy sector; this includes exploration, refining, production as well as marketing and distribution among other processes. Currently, the company has its branches in about 85 nations. This work focuses on the BP analysis in Africa. BP has an established brand name, and this can be indicated by its fast growth rate. The company has its branches in several nations in Africa, but the African branch is headquartered in South Africa. The company has its billboards in major parts of Africa, this is a good indication that the company is still on the move to brand itself further. BP Africa is facing stiff business competition from other oil and gas companies like SNEPCO, Gulf Oil Company, sea petroleum and gas group of companies, Teresols Oil & Gas, The Hydra group and PetroSA among others. The company has adopted some business strategies to remain on top of the business among its competitors. These strategies are meant to attract and maintain more customers. The company has been on a business growing trend since the Africa Company was established. BP Africa ventures on oil and gas as its main products (Mark, 2007). These products are termed as global products since they are important in any part of the government. Oil is a very important commodity in the current generation where the automobile is part and parcel of human life. Gas on the other hand is another commodity current generation can hardly do with. Gas is majorly used as a source of fuel. BP Africa has adopted some business strategies to beat its competitors. The first move advantage is applied in several ways of the company’s operations. First Bp was among the first oil and Gas Company in the continent. This provided a humble ground for its marketing. The company reports indicate that little resources were used to market or advertise the company products. This is because very few related companies were already in the market. It took several years before African countries could establish their own oil and gas companies like PetroSA , Oil Libya and National oil among others. The pioneers in a certain business would always the overall control of the sector, since it sticks to the memory of majority for quite a long time despite the competitors (Schmenner, 2004). BP Africa created a business monopoly or emperor which would take a long time to be broken. The company has however advanced its operations to maintain the customers it captured when it came to Africa. The company also enjoys the fact that the majority of auto-mobile owners like to maintain fuel from a specific company. Using oil from different companies interferes with the efficient operations of engines. Advantage of first move The company took advantage of emerging first in the market by purchasing large amount of oil and gas from African companies at more subsidized price then repackage and sell at a more favorable prices to attract more customers but make profit in accordance to the company business plans or goals. BP London must have done a thorough business research before the decision to establish BP Africa. Africa as a continent is considered a great bank of oil and gas. Oil is drilled in Nigeria, Tunisia, Libya, Angola, Egypt and Algeria among other nations in the northern region of Africa produce million barrels of oil in a combined effort. A few decades, BP bought crude oil from such nations before packing it and selling back to Africans. The company bought the commodity at a reduced price since there were very few companies doing the refining process. Furthermore, African nations lacked the required technology and personnel to oversee the processes. Currently, there are many African companies which have ventured in all the processes involved in the oil business and this include, drilling, refining, production, packaging, distribution and marketing among others. These companies’ reputations cannot match that of BP Africa being the pioneer (Goyal, 2007). There were different business agreements that compelled BP Africa to sell its final oil products at a more reduced price to the countries that provided it with the crude oil. The company obeyed the agreement for a quite a long duration and this created a good relationship between the company and Africans in general, since they could also purchase the commodity at a subsidized price. Since then, even the old grannies have acknowledged BP Africa. The first BP Africa Company was located in South Africa. This was a wise business idea since the country was among the first to develop. Hence there was a good number of automobiles and industrial machinery that needed oil to operate. Some international oil companies could take the business risk on the assumption that Africa was still undeveloped hence there were no automobiles or machinery to use oil. History indicates that the majority of Africans purchased their first cars just to purchase their oil from BP. Another implication of first move was the ability of BP to set the initial prices of oil and gas several decades ago. The prices were fixed on the basis of lack of competitors and the prices remained the same for a long time until 2007, when there was a global financial crisis. Other companies set their prices in accordance to the previous ones determined by BP. Advantage of deployment BP is also enjoying the advantage of its vast distribution or deployment in almost all parts of Africa. Distribution is another business strategy for the more branches the more famous a certain company becomes. BP Africa used the South Africa head quarter to establish other companies in several regions in Africa. There were several factors considered before such decisions were made (Sharma, 2011). First, the majority of African crude oil is found in northern African countries like Tunisia, Libya, Morocco and Angola among others. It was a good business idea to establish BP regional companies in such destinations. Crude oil is the raw product in the oil business. Business research indicates that successful companies are those with reduced transport cost of raw materials and end products from their respective locations. BP Africa companies in the northern regions of Africa ensured the company stocked sufficient crude oil for refinery stages. Large deports were established to meet the demand of large barrels of crude oil drilled from northern African nations. The company also ventured in African nations with good transport and communication infrastructure. Most crude and refined oil was and is still transported through road and water as modes of transport. The company took advantage of good tarmac roads in eastern and northern Africa. The roads stretched from Egypt to the Kenyan port, in its coastal region. BP is still famous in a wider region of the continent. However, currently, the company has several competitors to reduce its business, unlike several decades ago. Each country has at least five or seven oil and gas companies. This is because of the great demand of the commodity. BP Business analysis methods BP Africa employs several analysis methods to ascertain the current situation with regards to its branding and marketing strategy. It considers both the internal as well as external environmental analyses in its business operations. Pestel analysis forms abbreviations for Political, Economic, Social, Technological, Environmental and Legal analysis. The company obeys tax policies, labor legislations and environmental requirements among other political requirements. Economically, the company has enjoyed the advantage of favorable exchange, interest and economic growth rates. Furthermore, it enjoys the advantage of the first move, since the current oil and gas business depends on the initial prices set by the company. The company capital is always on a growing trend since it seeks loans from regional and international lenders like banks at humble interest rates (Proctor, 2008). The company has used the acquired capital to expand its territories/ in the northern and central part of Africa. The social aspect is observed when the company codes and regulation require it to acquire workers or specialists from different ethnicities, races or academic background and be treated equally to promote workplace diversity within the company, its regional branches and associates. In terms of technology, the company has incorporated advanced and environmental friendly drilling, refining, packaging and distribution technology to beat its competitors like Oil Libya which depends on other companies when it comes to drilling (Morr, 2009). The company through its environmental department has ventured in its quality management system by going ISO, so that its products can be accepted in the entire world. The legality of the company is at par since it has never been involved in a serious legal pursuit with its internal and external stakeholders. Porter’s five forces is another important analysis method in business strategic management. This strategy implies that business is likely to be faced by five major influences, which must be economically and comprehensively handled for the prosperity of the business. The company handles the threat of new entrants by providing quality services to its customers at a friendly cost to disadvantage new comers in the same business. BP has a remarkable brand name being among the first oil and gas companies to be established in Africa. BP Established its regional companies in the northern and central regions of Africa to enjoy the advantage of good transport and communication networks and being close to raw materials (crude oil from Tunisia and Angola among other African oil producing nations (Bowie, 2004). BP offers free services like engine cleaning and car washing among others to attract and maintain more customers. Hence the analysis rates BP as medium to high pressure. The threat of substitute goods is handled by the companies producing electric cars which require no fuel or oil, however, this technology is not common in Africa. There other companies that produce different kind of fuel other than gas. These include biogas companies and solar heaters among others. This reduces the overall demand for BP Africa products. Furthermore, there are several oil and gas companies in the continent which sell their products in different packages. This has made the company lose customers to its competitors. However, there is no big difference in refining technologies employed by different companies; hence oil is either leaded or super among others in major companies (Cravens, 2009). There are no big differences of oil in the current market, and here the threat is rated as low. The company has a low pressure threat of bargaining power of customers. This is because the company deals with reputable companies like Toyota, Mitsubishi and Caterpillar among others. It has a low pressure of supplier bargaining due to its vast chain of crude suppliers. Finally, the company has a high pressure of rivalry among existing firms like National oil, Oil Libya and Gulf Oil Company among others. Marketing mix analysis uses the 4p’s principle to ascertain the feasibility or suitability of the business. BP Africa has a remarkable quality oil and gas products at affordable price. It has good distribution channel since their products can be found in almost all corners of the continent. It has a working and economic promotion strategy through free samples, gifts and advertisements. There are big and quality printed billboards in major roads of the African countries like South Africa, Kenya and Egypt among others. Recommendations BP Africa ought to adobt some businesss strategies to beat its numerous competitors in the continent. The 4 P’S analysis indicated the the company could lose of its customers from its pricing. Currently, Oil Libyais the cheapest company as far gas and oil sales are concerned. Bp Africa should introduce the 3kg gas cylinder to attract majority of the poor living in the continent. The gas would be used mainly for lightening. Furthermore, it should subsidize the prices of both 6kg and 13 kg to attract and maintain more customers. However, the company is well off as far as observation of regional business law and policies are concerned. To go global like other oil and gas companies, the company should go ISO to improve its environmental management system (EMS). This would increase it sales among other benefits and maintain the good cashflow trend as indicated in the appendix. Conclusion BP Africa is among the most successful companies because of its first move advantages. The company also established its branches in the northern and central and northern regions of Africa to cut transport costs on crude oil from mining nations. The company later transport its refined oil to its customers through defined deports. Business analysis methods portray that the company is at a comfortable business zone since it enjoys the advantages of its first move and strategic locations or deployments. However, the company decided to offer free services like car washing, engine cleaning, all to attract and maintain more customers. Bibliography Bowie,D., Buttle, F. 2004. Hospitability Marketing. Toronto: Elsevier. Brown, E. 2010. Compass Company. Company facts . Cravens, D. 2009. Strategic Marketing. New York: McGraw Hill Irwin. Goyal, A. 2007. Business Environment. New York: FK Publishers. Marks, B. 2007. Business competions. New York: Prentice Hall. Monasa, B. 2008. Business Today. New York: Wiley. Morr, E. 2009, December 14. Business Boosters. Retrieved March 24, 2013, from Marketing Strategies: www. entrepreneur.com Proctor, T. 2000. Strategic marketing: An Introduction. New Jersey: Routledge. Schmenner, R. 2004. Making Business location decisions. New Jersey: Prentice Hall. Sharma, G. 2011, May 12. Forbes. Retrieved March 24, 2013, from Marketing strategies: www. forbes.com Appendix BP cash flow statement For the year ended 31 December $ million Note 2012 2011 2010 Operating activities Profit (loss) before taxation 18,809 38,834 (4,825) Adjustments to reconcile profit (loss) Exploration expenditure written off 15 745 1,024 375 Depreciation, depletion and amortization 9 12,481 11,135 11,164 Impairment and (gain) loss on sale of businesses and fixed assets 5 (421) (2,072) (4,694) Earnings from jointly controlled entities and associates (4,419) (6,220) (4,757) Dividends received from jointly controlled entities and associates 2,210 5,381 3,277 Interest receivable (295) (198) (277) Interest received 181 216 205 Finance costs 17 1,125 1,246 1,170 Interest paid (1,154) (1,110) (912) Net finance expense (income) relating to pensions and other post-retirement benefits 37 (201) (263) (47) Share-based payments 156 (88) 197 Net operating charge for pensions and other post-retirement benefits, less contributions and benefit payments for unfunded plans (857) (1,004) (959) Net charge for provisions, less payments 5,340 2,976 19,217 (Increase) decrease in inventories (1,797) (3,988) (3,895) (Increase) decrease in other current and non-current assets 2,968 (9,913) (15,620) Increase (decrease) in other current and non-current liabilities (8,022) (5,767) 20,607 Income taxes paid (6,452) (8,035) (6,610) Net cash provided by operating activities 20,397 22,154 13,616 Investing activities Capital expenditure (23,078) (17,845) (18,421) Acquisitions, net of cash acquired (116) (10,909) (2,468) Investment in jointly controlled entities (1,530) (857) (461) Investment in associates (54) (55) (65) Proceeds from disposals of fixed assets 5 9,991 3,500 7,492 Proceeds from disposals of businesses, net of cash disposed 5 1,455 (768) 9,462 Proceeds from loan repayments 370 301 501 Net cash used in investing activities (12,962) (26,633) (3,960) Financing activities Net issue of shares 122 74 169 Proceeds from long-term financing 11,087 11,600 11,934 Repayments of long-term financing (7,177) (9,102) (4,702) Net increase (decrease) in short-term debt (674) 2,227 (3,619) Dividends paid BP shareholders (5,294) (4,072) (2,627) Minority interest (82) (245) (315) Net cash provided by (used in) financing activities (2,018) 482 840 Currency translation differences relating to cash and cash equivalents 64 (492) (279) Increase (decrease) in cash and cash equivalents 5,481 (4,489) 10,217 Cash and cash equivalents at beginning of year 14,067 18,556 8,339 Cash and cash equivalents at end of year 19,548 14,067 18,556 Read More