SWOT Analysis of British Petroleum - Case Study Example

The International Business Environment of the of the Introduction This essay discusses impacts of the policies of the European Union on multinational oil and gas giant, British Petroleum. The impact of the policies of the European Union on business environment has been a matter of debate quite often. The ones for the notion argue that the European Union policies try to promote competition and this is necessary for proper functioning of the market forces as well as enhancing business efficiency. On the other hand, the ones that are against the notion strongly believe that the European Union sometimes takes decisions outside their jurisdiction, which simply adds to the cost of the business and taxpayers. The proposed and current legislation of the European Union can affect the business either positively or adversely and this depends on the way in which the company can modify its policies so as to gain competitive advantage over the rivals (Hamilton & Webster, 2012). The European Union has come up with a host of social policy, regional policy, technological harmonisation and environmental policy, which have notable impacts on business. This essay proposes to conduct a SWOT analysis of British Petroleum to understand how policies of the management are able to create proactive approaches to place themselves in an advantageous position. SWOT Analysis Strengths: One of the primary strengths of the company is the size of it. British Petroleum ranks among the top three companies globally in terms of reserve and is the fifth largest company in terms of revenue. The company has a number of retail brands operating under it such as, ARCO, Amoco, BP Connect and BP Express, which operate in more than 80 countries of the world (Corporate Watch, 2014). The distinctive strengths of the company include: Exploration (Searching hydrocarbons) Deep water activities (including finding, producing and developing hydrocarbons) Prudent management of the giant fields of its operation Enhancing gas value chains Rising revenues of the company Weakness: There have been certain incidents in activities of the company, which have created both financial and reputation loss for the same in its course of operation. The Mexico Gulf oil spill, methanol spill in Prudhoe Bay and controversial business developments of the Baku-Tbilisi-Ceyhan pipeline are few instances, which had led to financial loss for the company coupled with loss of reputation (Ferrell & Hartline, 2010). Apart from these accidents, bleak condition of the global economy has also been diminishing profitability of the organization. The internal audit of the company has also revealed underlying weaknesses in the safety and environmental metrics (BP plc, 2013). Opportunities: The BP outlook 2030 has revealed that the global demand for energy will rise in the future and the company has huge opportunities in supplying this demand. Recently, the company has taken up strategic expansion programs in new areas to explore new avenues of profit. For instance, the expansion program taken by the organization in the North Sea can be seen as a source of new opportunities. Also, the company has been investing considerable sums in research and development programs for developing alternative sources of fuel such as, low-carbon power, natural gas and wind and solar power, which are believed to provide immense growth opportunities (BP plc, 2011). Threats: There are quite a large number of strategic and commercial risks faced by the company, which can pose potential threats in the near future. For example, future production of hydrocarbons by the company solely depends on the ability to renew its portfolio. As the oil and gas industry is extremely competitive, innovation and efficiency in the global market will be a necessary condition for survival. The new laws concerning climate change and carbon pricing can reduce the future revenue of the company. Additionally, operations of the company expose it to certain political and operational risks. Practices of the regulatory authorities can impact the profit significantly (BP plc, 2011). Policies of the European Union This section discusses briefly about several laws of the European Union that have relation to oil and natural gas companies: The Treaty of Rome 1957: This had no formal structure that could address to the legal grounds of environmental legislation, during its initiation. However, it had mentioned that disparities in living conditions should be eliminated. By 1972, around 100 environmental laws were recognized from this treaty that needed to be followed by oil and gas companies (Stajano, 2008). Single European Act: This Act was somewhat an extension of the Treaty of Rome, but with two new agendas. Firstly, environmental laws were to be treated as a component of the other EC policies; and secondly, adoption of “single market measure”, which promoted high level of environmental protection standards to ensure that environmental standards are given sufficient importance compared to economic matters. There were three main legislations that affected oil and gas companies; they are: focusing on the preventive action, controlling the environmental damage and making the polluting company pay (Gao, 1998). Treaty of the European Union 1993: This treaty formalized the legislations on a superior level and carried forward main arguments of the Maastricht treaty. To deal with regional and global environmental problems, this treaty had introduced promotional measures at an international level (König, Proksch & Tsebelis, 2012). These laws impact the oil and gas companies peripherally to some extent. Precisely speaking, few of the laws designed directly impact environmental issues of the energy sector. The member states have their own set of directives and regulations, which apply to the actions of oil companies in whose waters they operate. The following are few of the legislations that impact the oil companies, including BP (Gao, 1998): Environmental Impact Assessment: This includes evaluation of the impact that actions of the company will have on the environment. The implementation of this directive has been controversial as there are certain subjectivities regarding “effects of the environment”. In order to ease this crisis, this law was amended to include regulations more definitively. One important consideration of this act is the installations that deal with production of hydrocarbon. Hydrocarbon Licensing Directive: This directive was introduced with the purpose of increasing competitiveness of the internal energy market. This was done so that exploring activity of the companies in relation to hydrocarbon can be done in a non-discriminatory manner. This directive enforces the fact that no member state can discriminate among the applicants of licences for hydrocarbon production, under jurisdiction of the member state. The financial and technical considerations are also to be included for the licence distribution. Air Pollution Controls: This mainly stresses on minimum emission limits of combustion plants, waste incinerators and transportation vehicles. The oil companies are largely plagued by the presence of volatile organic compounds and polyaromatic hydrocarbons in their installations. The Directive on IPPC overlooks this aspect of air pollution and ensures that companies are adopting the best available technology. Water Pollution Controls: This has been the single biggest impediment for profitability of the oil and gas companies. This is because accidents such as, oil spill in the sea, generate extreme damages on aquatic as well as non-aquatic lives. The impact of the legislations on offshore operations is on the production and discharge of sewage from the platforms. The impact on onshore operations is that the costs of industrial effluent discharge and water surface drainage will appear to rise. Control of waste: The European Commission’s Waste Management strategy have imposed stringent restrictions on disposal of hazardous waste by the companies. The legislation clearly states that companies need to become self-sufficient in disposal of the waste. The practice of transporting the waste illegally to other countries has been a common practice among nations. EC has now declared this practice punishable. The offshore oil companies have been found to create most of the hazardous, chemical as well as other wastes. Effectively disposing the same can be a challenge. Modification of Management Strategy On analysis of the regulatory framework of European Union, it can be seen that in order to attain a competitive advantage over its rivals, British Petroleum must modify its management strategies. It had been observed that after Mexico Gulf Spill, image of the company was tarnished (Falola, 2005). This implies that the management must become more alert about avoiding any such events in future; this involves winning back trust of the stakeholders and public. Responsible and safe business practices need to be adapted by the company. The management has started the journey towards achieving this goal. It was observed that ever since the accident, there has been considerable emphasis on safety regulations of the employees. The following figure shows the impact of business activities of British Petroleum on people and the environment over the last few years: Figure 1: Environmental and Safety measures achievement (Source: BP plc, 2011) The number of oil spill accidents has been brought down successfully over the years; yet, the figures remain quite high. The management must focus on this aspect particularly to eliminate such events. The figures also show that fatality of the contractors remain high, which requires attention of the management. The analysis of environmental figures shows a constant rise in direct CO2 emissions and environmental fines paid by the company have also been quite high. This means that the company is violating some of the environmental standards, which are causing this problem. This directly imposes financial loss on the company and the management should focus on the key issues to resolve these problems. If BP needs to materialise its hydrocarbon exploration projects, then the management needs to concentrate on improving their activities. Negative image about the company in minds of the public, local governments and the partners can severely cripple profitability of the business. The rising environmental and carbon taxes indicate that the management must shift to alternative forms of energy use in order to comply with the regulations. These actions can be risky as they involve economic and reputational risk. This means that the management must consider intensive R&D work to find prospective options for alternative energy. Another aspect which demands attention of the management is improving efficiency of the company to create innovative products. This is required because current legislation of the European Union stresses that hydrocarbon licences will be provided based only on efficiency of the organization. So, if competitors come up with superior technologies, then BP can face problems. Keeping these issues in mind, the management has made some changes in the practices. They are (BP plc, 2014): Formation of a risk management group that would look into safety measures for the environment and the society. Improving upstream activities through safer drilling techniques to avoid chances of accident. The management is enforcing contractor’s safety measures so as to prevent the cases of contractor casualty. Working with the government regulators to realize the impacts of business activities and learning from the previous mistakes. Creating climate change models that can deal with climate change issues and make them available to the existing operations. The management has also been striving hard to improve water quality impacts. Conclusion This essay has focussed on the impacts of European Union Policy regulations on British Petroleum. The first part of the essay covers SWOT of the chosen company. In the next section, different policy adjustments that had been made in the European Union were discussed. The different directives with potential to affect the oil and the gas companies are discussed in the second section. These directives inevitably disturb the practices of British Petroleum. In the final section, modification of the management practices has been discussed. It has been observed that primary concern of the management at this point would be to improve the reputation, after Mexico Gulf Spill. This can resolve multiple problems for the company. The management has initiated the process and introduced a number of measures to improve environmental regulations and gain competitive advantage. References BP plc. (2011). Sustainability Review. Retrieved from http://www.bp.com/content/dam/bp/pdf/sustainability/group-reports/bp_sustainability_review_2010.pdf 4 BP plc. (2013). Annual Report and Form 20-F 2012. Retrieved from http://www.bp.com/content/dam/bp/pdf/investors/BP_Annual_Report_and_Form_20F_2012.pdf BP plc. (2014). How BP is changing. Retrieved from http://www.bp.com/en/global/corporate/sustainability/bp-and-sustainability/how-bp-is-changing.html Corporate Watch. (2014). BP plc. Retrieved from http://www.corporatewatch.org/?lid=287 Falola, T. (2005). The Politics of the Global Oil Industry: An Introduction. Westport: Greenwood Publishing Group. Ferrell, O. C. & Hartline, M. (2010). Marketing Strategy. Connecticut: Cengage Learning. Gao, Z. (1998). Environmental Regulation of Oil and Gas. London: Kluwer Law International. Hamilton, L. & Webster, P. (2012). The International Business Environment. Oxford: Oxford University Press. König, T., Proksch, S. O., & Tsebelis, G. (2012). Reforming the European Union: Realizing the Impossible. Oxfordshire: Princeton University Press. Stajano, A. (2008). Research, Quality, Competitiveness: European Union Technology Policy for the Knowledge-based Society. Berlin: Springer. Appendix Read More