Analysis of the British Petroleum (BP) industry environment

Analysis of the British Petroleum (BP ) industry environment

2007 Page : 1

Introduction

BP Petroleum operates in different countries . It faces many threats according to Porter 's

Five Forces Model . The threats according to Porter comes from suppliers bargaining power , buyers bargaining power , threat of substitutes , threat of new entrants in the market

and threat of competition . These forces vary in its power and depend in different time periods for the same industry and the significant forces and its type differ for different

Industry . There fore a particular company must

identify the significant threat in the near future and concentrate on that threat and devote energy and resources and combat it or leave the industry and embark on industries where these threats are minimal or given its strengths it can be able to withstand the treats posed by these five forces

Analysis of the threat of new entrants to BP or Petroleum Industry

According to porter the key barriers to entry are economies of scale capital expenditure requirements , customer switching costs , access to industry distribution channels , and the threat of retaliation by the existing Industry players . Considering these factors for the Petroleum Industry the economies of scale is very high because of its capital-intensive nature of operations there fore new entrants face economies of scale as a barrier to entry in to Petroleum industry . As explained above the capital expenditure requirements are very high there fore it is a key barrier to entry on this ground . As well very few multinational companies such as Shell control the market and Mobil the new entrants face sever threat of retaliation . The switching costs and access to industry distribution channels may be lesser barrier than the other barriers of entry . However the other Page : 2

barriers are so powerful compared to the switching cost and access to distribution channels the new entrants to Petroleum Industry faces significant barriers and there fore the threat of new entrants is probably is not that significant threat which enhances competition

Analysis of the threat of substitutes to BP or Petroleum Industry

In Porters view the threat of substitutes is high when the buyers are willing to substitute , relative price performance of substitutes and the switching cost of substitutes . In the era of environmental awareness and the government regulations there is propensity for buyers willingness to buy substitutes to oil . However the price of other fuels compared to

Oil is high and buyers may incur more cost and there for reduce demand There fore price performance of substitutes compared to oil and oil products is not a substantial to BP and Petroleum Industry at least in the short and medium term even the high price of oil in recent times compared to historical price of oil in earlier periods . As well the cost of switching to substitutes is sustancial to many buyers or buyers segments . There fore BP and Petroleum industry do not face intense threat of substitutes even there exist substitutes for the Petroleum Industry products . In summary...