International Business Strategy for British Petroleum Plc - Case Study Example

International Business Strategy for BP Plc.

British Petroleum Plc.

BP plc is the third largest oil and Gas Company that was formed as a merger between Amoco Corporation and British Petroleum Company to form BP plc (Li,et al. 2014). The company operates from 29 countries and has its products across the globe in over 100 countries. In the 29 countries, it works in BP produces over 1.97 million barrels of crude oil. It also produces 7.6 billion cubic of gas every day (Li,et al. 2014). It has made it among the biggest companies that deal with Oil and gas. However, being a big company or dealing with large volumes of crude oil and gas does not make it a top notch strategist the market. The company has to have strong international business strategies and unique competitive advantage (Fojcik,et al. 2015). The fact that the company operated globally makes the process of coming up with a business plan that will fit in all countries challenging. However, it’s no doubt to say that BP is performing well economically even though it has had its share of difficulties (Cavusgil, et al. 2014). In most cases, the challenges that BP faces are the ones that devalue its international strategic plans on the environment and social responsibility. The strategy used by BP must be compatible with the countries of operation as well as the objectives of the company. BP has a good record of keeping up with it goals when it comes to oil market trends. It changes its objectives every few years to suit the market conditions.

Current Situations

Since BP operates throughout the world in areas, climates and terrains that are diverse, it makes it a challenge for the company to come up with a stable international management system without considering the dynamic changes in these countries. BP has been facing a challenge of oil spills which has impacted the company negatively pertaining financial performance and shareholders reliability (Li,et al. 2014). For instance, in the Gulf of Mexico where oil spilled spreading an area bigger than Manhattan was a big challenge for BP and its leadership. Such are the challenges that are testing the core competence of BP in the international market. Oil spills are devastating for they destroy the environment and the surroundings. Wild marine animals are also affected in their natural habitats. After these challenges, the company has undergone through various states of restructuring trying to bring balance its management as well as its core values (Fojcik,et al. 2015). The spill steered a massive restructuring of the company as well as its management. It was a move aimed at trying to combat future oil spills due to negligence as well as being competitive in the market. The company is facing competition from other oil producing companies in the world. They had to restructure to handle the international competition. Its dwindling financial reports are a course of worry for the multibillion-dollar BP Company (Li,et al. 2014). Profits are a top priority and when the company spends more on environmental management and repairing broken bridges as a result of oil spills, an alarm has to be raised. It one of the major causes for a restructuring of the management. The company spend billions of money trying to clean up oil spills across the globe due to the negligence of its workers leading to massive debts. More especially, the Gulf of Mexico oil spill left the company drained of its financial capabilities which resulted in consecutive losses for the next two fiscal years.

However, the company has taken strategic measures to try and combat the various challenges it has been facing from oil spills, restructuring and its rocking finances. It aims at combating environmental pollutions by taking approaches that are systematic, disciplined and efficient by applying sophisticated risk assessment methods that speak out their international business plan. Therefore, BP is using environmental management systems in its overall operating management systems that help the company set priorities for it activities and operations based on the primary risks related o social performance and environmental management. Bp believes that integration of these systems will promote better performance and efficiency across the business spectrum. It has gone a step further to formulate a set of procedures that will conduct a formal process of identifying the risks and emerging issues annually in the social and environmental issues. It has made its objective to manage both social and environmental risks in the course of its operations. It has taken significant steps in launching new products, new projects and closing non-performing projects across the globe.

The oils spill it has encountered taught the company a big lesson regarding precise measures when undertaking drilling projects in mining and search of oil. It aims at minimising environmental hazards and impact by assessing risks in project set ups and at least reduce the cause of remedy for any impact or hazard that occurs (Greiner, et al. 2013). It has applied high-tech technology which guides in the drilling and any their operation that could be hazardous to the environment and it a social responsibility to the communities. The company has also launched new projects which advocate for the use of R&D and alternative energy (Li, et al. 2014). It is advocating for public support and funding to make these projects a reality. Reduction of carbon emissions is a major factor that has led to the development of these projects in a bid to safeguard the environment. The success of these projects will be vital in the change from fossil fuels which will be depleted in a few decades to come. BP faces the threat of climate change which is changing the way people use fossil fuels and changing opportunities and technologies. To protect itself from the falling oil prices, BP employs the tactic of including carbon price in all its new projects and applying the influence of its policies to safeguard its prices. Bp is also taking drastic measures of hedging against any changes that may affect the world’s energy mix.

Sustainable Competitive Advantage

Porter’s Theory

According to Michael Porter market strategies and competitive advantages are based on the process of identifying the various diverse forces and factors of intra-industry competition and resultant hurdles (Magretta, 2013). His assumptions to coming with this theory of strategic advantage were in the notion that a company will deliberately select a spot within the industry of operation and creatively combine it with a set of activities in different formulae to create a sustainable competitive advantage that will lead to the overall profitability and sustainability of competition (Wild, et al. 2014).

Porter was mainly concerned with how international business can come up with a sound business strategy that will catapult the business into a success. Having a competitive advantage that is sustainable was the core value of his research on basic strategies. The model required the management especially the top management to think in two broad ways, an external appraisal that stated the threats and opportunism of the company and an internal evaluation that focused on strengths and weakness of the company hence being able to evaluate the core competencies of the company (Magretta, 2013). According to the components of the strategy, strategic options are evaluated based on what the company can might pertaining market opportunities, what it can do about competencies and corporate resources. What the company would want to do by looking at the objectives of the top management and finally what the company should do in its social responsibility. Porter believed by answering all these questions, a company ought to come up with a competitive strategy that will outsmart its competitors (Magretta, 2013).

The ability of a manager to make an informed decision based on the competence of the company shows a manager who thinks from a strategic perspective in light of the future strategies that can be undertaken by the company. Anticipating future movements also help in setting up a stage for sustainable competitive advantages. According to Porter, positioning is still a brilliant way of shaping the advantages within an organisation finds it as rather an odd concept of trying to explain the shift patterns in competition and realises there is a misunderstanding that exists in distinguishing operational strategy and effectiveness (Magretta, 2013). He insists that the replacement of approach by the management tools being applied nowadays has improved operational efficiency but fails to translate the same to customer satisfaction and profitability. Companies are choosing techniques that offer more of customer value and less of profitability of the business (Magretta, 2013).

Operational Effectiveness vs. Strategy

Operational efficiency is performing better in what the company dies better than its rivals and incorporating strategic positioning of the business as a unique way of doing operations better than its rivals. According to Porter, a company can have operational effectiveness thus lowering the cost of doing business but cannot be translated to strategy (Magretta, 2013). Operational effectiveness is not a business plan because the effectiveness is not being converted to customer service, profitability as well as competitive advantage for the firm. About BP, they have tried their best to achieve operational effectiveness and it has yielded fruits (Li,et al. 2014). However, from their current state of predicaments, they are facing financial handles because the management cannot be able to translate the operational effectiveness entirely into a strategy that will rake in more profits. BP can only continue to rely on operational competence only if its competitors are using the same process. The moment theses practice is made typical within the oil and gas industry; it will become destructive with limitations and finally homogeneity at the end (Magretta, 2013).

Unique Activities Result to Strategies

According to Porter, for a company to achieve the best milestones in strategy, they should employ unique strategies in their business plans to up the game in the industry (Magretta, 2013). Choosing a different way to deliver a product mix of activities and values brings about competitive advantage. For instance, BP has a list of products from oils to lubricants which they have presented to the market in a unique way thus being able to create that competitive advantage as well as dominance in some countries (de Elía, 2014). Their way of presenting their product is a strategic position which they have taken up to beat up the competition which is increasing daily due to the lowering of the oil prices for the last one year (Robinson, 2014). Strategic positioning is a guiding factor that finds positions that are not already filled with products or new positions that the company can explore. According to porters variety based on positioning, products are chosen according to their superior value in chain optimization thus producing a special product in the industry. The reliability and uttermost performance of these products make it a favourable choice for customers thus having one product that outdoes all other products regarding sales and profitability. For instance, BP has applied need-based positioning to its clients effectively (de Elía, 2014). It supplies jet fuel to many airlines in the world making it’s a pacified part of the overall business.

SWOT Analysis for BP plc.

Strengths

BP is the third largest oil corporation ranked as a international oil corporation based in London. It has many strengths that are as a result of its massive structure and large scale business. The company takes advantage of its petrochemical business which is a worldwide business through its affiliates and well established trade brands (ARCO, ampm, BP connect and BP Express) (Verbeke, 2013). These retail brands supply chemicals all over the world making it a leading business for Bp. BP partakes in London stock exchange and it is recorded at 100 index of FTSE. Also, BP participates in IPO at new York stock exchange (Li,et al. 2014). The company that British Petroleum merged with Amoco has a strong brand loyalty in the oil business. The slogan beyond petroleum has made their brand stronger than before. It strong brand name sells across the world and people have come to trust its products more than any other oil supplier in the world (de Elía, 2014).

Weaknesses

The unveiling of the contentious business partnership with Baku-Tbilisi-Ceyhan pipeline which brought about a very controversial debate affecting its operations. Reduction in petrol prices per gallon has led to declining in revenue. The explosion of the oilrig and BP factory in Texas that triggered 15 deaths and 100 industries in 2005 was a devastating blow to the company (Greiner, et al. 2013). In 200, the company experienced an oils spillage in the Alaskan tundra amounting to 270,000 gallons of oil in 2006 which lead to criminal charges against the company injuring its reputation. Also, the company experience challenges in the spillage of methanol equivalent to 2000 gallons. The oil field is managed by BP. Another blow to the company is the closing of the Alaskan oil wells that led to a reduction in oil production (Li,et al. 2014).

Opportunities

An investment worth 8 billion US dollars for alternative fuel approaches which comprise hydrogen, naural gas, solar and wind for the coming decades. BP has realised future reserves the frontier of expansion in the pot soviet union territories. BP also has great opportunities for the addition of tactical oil and gas procurements in the North Sea regions (de Elía, 2014). The launch of price policy that is more flexible will be a good a numerous number to compete with main rivals in the oil and gas business. Other many are the prospects of developing carbon-free fuels to be used by the next generations.

Threats

BP faces numerous number of risks. Its environmental policies had been declared unsound due to the numerous toxic, oil spills and refinery explosions

• Corrosion of its pipelines that has led to leakage of oil in transit

• Competition from major competitors likes shell and chevron which take up a significant market share in the oil and gas industry (de Elía, 2014).

• Sale of stations that are corporately owned

• Dropping of fuel prices across the world affected by the Arab oil giants (Li,et al. 2014).

• Inflation in countries that the company has its operations

• Lawsuits against the company a because of the companies environmental activities.

From the SWOT analysis, it is clear that BP has a good opportunity to create itself a strategic opportunity in the market for oil and gases. The fact that the strengths outweigh the weakness do not mean that the giant is in a safe position to operate and do business without worry (de Elía, 2014). The company should consider making their weakness a strength because the major handles that the company faces are the environmental threats as a result of oil and another toxic spillage. Most of this spillage happen in the oceans making the company’s social responsibility be diminished (Robinson, 2014). In fact, it has been stated that the social responsibility policies of BP were no longer workable because of the constant oils spills which have caused devastating loses to diversity and loss of workers due to constant explosions (Greiner, et al. 2013). Crude oil is dangerous to the environment. Hence, when a pipeline leaks, it causes loses to the company as well as the loss of confidence in the company by the society and stakeholders since the company is taking fewer measures to protect them and their environment. BPs social responsibility has been put to test severally and it seems the Company has failed the tests thus creating a gap or weakness in its international business strategy hence rendering it ineffective.

Strategic Solutions

BP is well known for expiation and extracting oil from the earth surface. The whole process is very risky and dangerous. From the oil spill of the Gulf of Mexico in 2010 (Greiner, et al. 2013). The company learnt how the forces of nature can be a disaster both for human life and the environment. Since the company has had several spills, it has now changed its policies to put more emphasis on health and safety of the whole process (Robinson, 2014). Not only do these policies apply in the oil rigs but also in the refineries where crude oil is heated to get the different types of oils. The spill caused billions of dollars to clean, debts and lawsuits. To avoid any further occurrence of such scenarios, BP has invested millions in technology and high-tech equipment to help in risk analysis as extraction of oils and gases continues. In as much as the company is putting forth huge risk assessments routines and procedures (Leonidou, et al. 2015). It is evident that the corporation will never trade in high P/E rating because part of the shares account for the risk. They know the risk of an explosion or spillage can occur anywhere at any time. Changing of policies was one way of combating the strategic weakness to create a good image to the customers and that of the company as a whole.

At the moment, the pricing of crude oil is very low and it has taken a toll on the financial capability of the company (Robinson, 2014). Since the prices are very low, the company can now rely on commodity prices to ensure that its share prices stay constant without dwindling. BP has a variety of products which can be excellent investments if they are priced relatively high to rake in the profits. If the company cannot get enough profits from the oil. Products like petrochemicals can be priced higher to stabilise the market share of the enterprise. They should allocate investments of their assets about the demand for the commodities they sell

Disruptive technology and the emergence of solar power systems and energy efficient houses will soon outweigh the need for petroleum products rendering petroleum products useless. TO avoid such scenarios, BP should continue investing more money in fuel efficient technologies and fuels that will be used in the next decade (Li,et al. 2014). Such a strategy will prevent BP from collapsing the moment the demand for crude oil products reduces. It will be an advantage to the company because it will just shift the production of the new generation fuels which will be cost efficient and fewer carbon emissions. It means the company will not go out of business at any given point

The investment of the company in climate change, poverty and the demographic shift will keep the company in operations for the next decades. If it can manage to target the three top trends, then it will set a major corporate sustainability within the oil and gas business worldwide (Verbeke, 2013). A future energy mix that will meet efficiency, sustainability, security and sufficiency will be the ultimate goal for BP. Incorporation of these objectives will be one of the many strategic solutions to kerb on the company’s weakness. Also, the company should make partners and contracts with businesses that have the same objectives of independent energy sources as it has to spread the risk. It will not only be spreading the risk but creating an international strategy on future fuel sources. Moreover, it will also be positioning itself globally for the next few decades to take over the non-carbon emission fuels.