Wide Product Mix of ConocoPhillips Company - Essay Example

The company is vertically integrated and is actively engaged in operations from upstream (oil exploration and production) to downstream (oil refining and marketing). From its vast operations base, ConocoPhillips has seen its revenues steadily increase over the past few years as shown in Figure 1 below:

Figure 1: Marketing Revenue trend for ConocoPhillips (“Marketing Revenue for ConocoPhillips (COP) - Wikinvest”)
Porter’s five forces model
The energy industry – in particular oil – has been experiencing slow growth which has led to intense competition among the existing companies. Also, its capital-intensive nature and the limited options for converting existing equipment to other use imply that even where a company is facing difficult times, there are high exit barriers to overcome. Probably the only viable alternative for companies in this industry is to merge or acquire others to derive economies of scale.

Nevertheless, despite the intense competitive rivalry, ConocoPhillips and its competitors are in an industry with minimal threat of new entrants to either its upstream business – which requires huge investment in equipment, research and technology, and strategic sites – or its downstream business – that requires huge investment in distribution, logistics, and marketing. The fact that the major players (ConocoPhillips, ExxonMobil, and BP) are vertically integrated increases the barriers to entry further.

Another great advantage of vertical integration to these three major players is that it gives them great bargaining power over both their suppliers and buyers. However, the latter may be significantly better placed than the former in the sense that oil is now considered a commodity. This means that oil products from BP or ConocoPhillips of ExxonMobil do not significantly differ thus the buyer has some leverage to seek lower prices and better contract terms (“The Industry Handbook: The Oil Services Industry”).

Finally, although renewable energy sources have been and continue to be the rave over the last decade or so, they still offer limited challenges to oil as substitute products. The energy demands in the United States and abroad far outweigh what the alternative fuel sources can support. It is also important to remember that oil is used for more than just running our vehicles; it is also used in the manufacture of plastics and other materials (“The Industry Handbook: The Oil Services Industry”).

Furthermore, big oil corporations such as ConocoPhillips are also investing in renewable energy technologies. This strategy means that if there reaches a time when alternative fuels offer a serious challenge to the oil cash cow, these major players will have developed the core competencies in renewable energy that will be the wellspring of new business development and shall sustain their competitive advantage at that future date (Hamel and Prahalad 14) Read More