PEST Analysis for British Petroleum Plc - Essay Example

?PEST ANALYSIS FOR BP PLC. Introduction In ordinary language, winning teams do not reveal their secrets but this is not workable in the corporate world as international companies and businesses have scopes with which their operations: including their wins and losses are measured. One of these is the use of political, economic, social, technological, environmental and legal (PESTEL) analysis. British Petroleum (BP) plc is one of the world’s giant petrochemical companies. The company which was “formed by the 1998 merger of British Petroleum Company and Amoco Corporation, is the third largest oil company in the world” (Funding Universe, 2009). BP’s industry areas are vast; spanning to include Oil and gas exploration and production, refining, marketing and supply of petroleum products, manufacturing and marketing of Chemicals, Gas & Power generation and the manufacture of Photovoltaic (solar) cells (Corporate Watch 2008). Like any other international business, BP has its own strengths and weaknesses and can trace its achievements and failures to certain political, economic, social and technological factors. This report seeks to delve into the PEST analysis of the company; based on which a reflection of where the company is coming and its direction for the future shall be outlined. Method for growth and Reasons for choosing the method Seen as “one of the barometer companies of the British economy” (Corporate Watch 2008), facts and figures available from the company’s website indicates that as at the close of 2009, the company’s sales and other operating revenues excluding customs, duties and sales taxes stood at $239 billion. With a total of 16 refineries across the world, the company employed 80,300 as at 31 December 2009. With this, the replacement cost profit for the company over the same period 2009 was $14.0 billion (BP, 2010). BP’s key method that has seen the company through its rapid growth rate is the concentration on its present capital territories rather than starting new ventures and investments. For instance having 62% working interest in the Tiber prospect in the Gulf of Mexico, the company keeps “investing extensively in deepwater exploration and development, and through an aggressive entry into onshore natural gas” (Fox, 2010) of which its greatest concentration is the Tiber prospect is. The reason why the company has chosen this method can be justified by the global economic meltdown that was experienced the world-around. With the economic crunch, it was almost unwise to start anything new when one had old ventured to grow. PEST Analysis Current position of the company BP’s current position in the today’s economic climate is best illustrated by its annual reporting for the year ending 31 December 2010. The report touches on all three business segments of BP which are “Exploration and Production, Refining and Marketing and Gas, Power and Renewable.” (Aruvian’s Research, 2008). According to the report, the company’s total asset for year ending 2010 was $272,262m as compared too $235,968m for year ending 2009. With liabilities, the company’s total liability for year ending 2010 was $176,371m as against $133,855m for year ending 1999. This brings the net asset as of 31 December 2010 to $95,891m as against $102,113m for 2009 (BP Summary Review, 2010, p. 21). With regards to group cash flow, the cash and cash equivalent for end of year 2010 was $18,556m as against $8339m for the same period 2009. Generally, the company did not perform impressively well in 2010, which is a good yardstick of the company’s present state as against 2009. With regards to replacement cost for instance, the company recorded a loss of 26.17 per ordinary share (BP Summary Review, 2010, p. 17). Reasons for this performance can be traced from the PEST analysis of the company below. Political BP’s three business spectrums are Exploration and Production, Refining and Marketing and Gas, Power and Renewable. Coincidentally, these are aspects of petrochemical trade that is undertaken by governments directly on behave of the citizenry. For this reason, the flow of income is not determined by the direct economic situations of the ordinary person in the country. Again, all aspects of BP’s industry are of high demand by all countries and leave governments with very little options than ensuring that their citizenry have enough petrochemical products to run their industry. It is surprising that energy policies and issues always rank high in political campaigns in various nations. This situation whereby BP has governments as its largest customers however leaves the company with some weaknesses. For instance in countries where BP does exploration, the company’s activities are subject to public scrutiny and judgment. It is therefore not surprising that when a calamity such as the spillage in the Gulf of Mexico happened, the issue quickly became a national issue, costing BP some of the downward trend of progress it recorded in the year 2010. Economical According t the Guardian (2011), “The Bank of England held interest rates at 0.5%”. The implication for this rate is that for two years, borrowing costs has gone a record low for two years. In such an environment; especially in the current economic situation when some companies are now finding their feet from the shock of the global economic meltdown, doing business becomes comfortable. With special emphasis on the fact that due to the Gulf of Mexico spillage BP suffered financial setbacks, UK’s interest rate is a perfect means to see the rise of the company again by taking advantage of the low rates to borrow to undertake useful investments. According to the Office for National Statistics (2011), UK has an inflation rate that hovered around 5.1% as of January 2011. However the general trend, as according to the same source is that UK’s inflation could go as low as negative percentages. This is also a positive economic indicator for doing business in UK as it assures investors like BP of stable price of raw materials. Perhaps BP’s strongest economic concern would be from the fact that UK has high VAT rates on fuel and lubricants (Office for National Statistics (2011). This should be an economic concern to BP because it becomes a benefactor whenever prices of petrochemical products go up. Nonetheless, BP has to battle UK’s corporate tax rate which is quoted by HM Revenue & Customs (2011) for 2011 as 27% though in countries like the United States, corporate tax is as high as 35% (Tax Proof Blog, 2011) Social The social trend of people’s lifestyle is in a direction that has everything good to offer BP. Focusing on the social trend of people, BP admits a social responsibility, which is indirectly is an income earning strategy by claiming to “help the world meet its growing need for heat, light and mobility by providing sustainable, secure, diverse and reliable energy solutions” (BP, 2011). The complexity of technology demands that a lot more people use energy to access computers, television and other machinery and equipment. What is more, there is an upsurge in the increase of the use of vehicles all around the world as the 2008 Production Statistics of the International Organization of Motor Vehicle Manufacturers (IOMVM, 2009) report that there were a total of 52,637,206 cars produced in the year 2008 alone (Number Of. Industries are also being sprung up by the day. These are all social trends that BP as a petrochemical company can take great advantage of. Technological According to Management Paradise (2010), “Technology can reduce costs, improve quality and lead to innovation. These developments can benefit consumers as well as the organizations providing the products.” BP as a petrochemical company is not left out from this benefit at all. Today, e-business is becoming the watchword for international companies, trading in everything purchasable. With the internet as the world’s strongest technological tool, it is possible for BP to take advantage to increase the reach of its customer base. This can be done by taking advantage of online advertisement, promotion, and information determination. There could also be the use of electronic cards to make payments and purchase easier and faster. Monitoring all branches of the company by the use of a single computer is also something that can be made easier by the use of technology. Even on the field of operation, technology can be trusted; through the programming of software to make all three industry aspects of BP easier. Conclusion From every indication, BP has a bright future. This is because there is very evidence to show that the world’s need of the services of petrochemical industry would go down any time soon. Today, there are even more and more countries that are beginning to discover oil. Perhaps the latest was Ghana and still counting in other countries. In this direction, it is suggested that as the global economic crisis seem to be dying down, BP can shift from its method of growth which it has used over the past five years; which was to do with expanding what they have to seeking for new territories. As much as the discovery of oil would continue, BP must challenge itself to be found wherever oil flows. REFERENCE LIST Aruvian’s Research, 2008, Analysis of BP plc. Accessed 19 March 2011 BP Summary Review, 2010, Summary Review 2010. Accessed 18 March 2011. Available on line BP, 2010, annual reporting 2010, accessed 19 March 2011 Read More