Royal Dutch Shell is also known as Shell plc, is an independent organization, with the registered offices in London, United Kingdom. Its headquarter is in Hague, Netherlands. It is one of the world’s largest gas and oil company. It is known as the global group of petrochemical and energy companies with around 86,000 employees currently operating in almost 70 countries or more. It uses innovation and technologies to help in building the sustainable energy for future. The company’s operations are divided among three segments; Projects and the technology, upstream and downstream. Upstream segment deals in activities related to search and recovery, transportation and liquefaction of gas, oil and wind energy. Downstream segment deals with the distribution, marketing, and manufacturing, of oils and chemicals. And project and the technology deals with the critical functions of business objectives in both downstream and upstream segments (Shell, 2019).
The company is working in the competitive industry, where Valero, BP, HollyFrontier, etc. are present. It needs to analyze the industrial competition level, which can be analyzed with the help of Porter’s five forces model. Here is the detailed analysis of Shell;
Bargaining Power of Buyers
There are byers who are always demanding. Consumers need to buy best quality in low prices. This put pressure on the Shell plc profitability level in long run. The more powerful and smaller the consumer base is of Shell, the higher will be bargaining power of the buyers. Shell plc builds the large consumer base. This helps in two ways, as it reduces the bargaining power of consumers, and provide the opportunities for streamlining the production and sales process. The new products of the Shell plc will decrease the defection of the consumers (Wiki wealth, 2019).
Bargaining Power of Suppliers
There are many companies in gas and oil industry buy raw materials from different suppliers. If the suppliers are in the dominant positions, profit margins decrease. Powerful suppliers have the negotiating power for extracting the high prices from oil and gas fields. There are overall impact of the supplier bargaining power on the prices and profitability level of the company. Shell plc builds the efficient and effective supply chain, and gain benefits the multiple suppliers. it experiments with the product designs and use different materials so that it can gain benefits of different suppliers too (Rodrigo, 2013).
Threats of New Entrants
The new entrants in every industry is very common, however, oil and gas industry bring down the continuous innovation which pressurize the existing companies to lower down the prices, or to reduce the costs and give the value propositions to consumers. Shell plc manages the challenges and try to build the efficient barriers for safeguarding the competitive edge. Shell plc builds the economies of scale to lower the cost prices. It brings new and innovative services and products in the market. It focuses on attracting the new customers. Shell plc builds the capacities and invest in the research and development (Fernfort, 2019).
Threats from the Substitute Products:
For the Shell plc, threats from the substitute products are high, because of the chemicals, oil related products, and natural gases are produced by other companies too and there are highly substitutable. The major competitors’ items are used as the substitute for instance, total, BP, etc. produce same products. Shell plc deals with the situation by differentiating its services rather than being only product oriented. It also increases the switching cost so that consumers could not switch to other companies. Shell works hard to understand the demands of the consumers rather than producing what they are selling (Rodrigo, 2013).
Rivalry of Existing Players
If the competition level among the industry are high, the prices will be down, which will decrease the profit level of the company. Royal Dutch Shell plc also operates in the intense competitive gas and oil industry. But the long-term profitability level of the company will increase. Shell plc put its efforts on building the sustainable differentiation, so that its products should not be standardized. It also works in building the scale to compete efficiently in the industry. It also collaborates with the rivals for increasing the market share and size instead of competing for the small markets (Fernfort, 2019).
References
Fernfort university, 2019. Royal Dutch Shell Plc Porter Five Forces analysis. [Online], Available at: http://fernfortuniversity.com/term-papers/porter5/lse/1774-royal-dutch-shell-plc.php, [Accessed on: 10th April, 2019].
Rodrigo, 2013. SWOT and Porter Five Forces Analysis of Royal Dutch Shell. [Online], Available at: https://writepass.com/journal/2013/01/swot-and-porter-five-forces-analysis-of-royal-dutch-shell-plc/, [Accessed on: 10th April, 2019].
Shell, 2019. About us. [Online], Available at: https://www.shell.com/about-us.html, [Accessed on: 10th April, 2019].
Wiki wealth, 2019. Royal Dutch Shell – Five Forces Analysis. [Online], Available at: http://www.wikiwealth.com/five-forces:royal-dutch-shell, [Accessed on: 10th April, 2019].