British Petroleum was founded back in 1909 and is currently ranked as the third largest energy company in the world, with being in the fourth rank in terms of its revenue. It is located worldwide with headquarters in England and the United States. The company works in the global energy business providing fuel and power. Along with producing oil, it also works for renewable energy resources.
Porter’s five forces model will be applied on British Petroleum (BP) to analyze its current position in the market in terms of its competitiveness in the industry. This model will study how different external forces are acting on the company to affect its operations in the market.
Industry Rivalry
Major competitors for British Petroleum (BP) include Shell, Total, Gulf Coast, Texaco, OMP, Petro China and many more major players in this industry. The competitors in the energy industry compete with each other in this sector based on different factors including the product differentiation, economies of scale, and the fixed and variable costs for these companies. All these factors determine how profitable these companies can be in this industry. The energy industry is comprised of a very few strong, major companies and more small scale companies. For obvious reasons, the big companies have the major share in the market and the competition among these companies is becoming more and more intense with each passing year. The world is now moving towards a situation where the oil fields are drying up and the companies are trying to capture the fair share of the market. As a result, these big companies like British Petroleum have started moving towards mergers with small companies to have a competitive edge over their other big competitors. When it comes to renewable resources, these companies are in competition to build up the best possible ways to build up their ways of renewing resources.
Threat of New Entrants
Though this industry is very attractive due to major profits in this business and many more reasons, there is a less threat of new entrants into this industry because there are high barriers to entry including the high fixed costs involved in this investment of establishing an energy resource company. Moreover, it is not easy for companies to enter this industry and compete with big names that are already selling because of their names and have captured a larger share of the market.
Threat of Substitutes
The substitutes present in any industry affect the profitability of any company. Biofuels and other renewable resources can be the substitutes in an oil industry. There is still less threat from these because the companies are still working for their development and it will take them some time to replace the oil resources. So we can see that the threat from substitutes is moderate in case of British Petroleum. Other than that, the government policies that oppose the use of fossil fuel are a threat for any company working in the oil industry.
Bargaining Power of Suppliers
Suppliers for British Petroleum include the suppliers from oil fields, the engineers that work on it, other management and technicians. Big names like British Petroleum have an edge over their suppliers in this case as they can bargain with their suppliers because the suppliers will not be willing to lose such business. Moreover, the countries that possess these oil fields are also the suppliers so in that case, these countries have bargaining power over their buyers in terms of their policies.
Bargaining Power of Buyers
In the Oil industry, the price of the oil depends upon the global demand for it. The countries which have high power and are developed also have a bargaining power over their supplier. Countries like USA, China or Japan can use their power to bargain even with big suppliers like British Petroleum. Also when it comes to everyday consumers, the buyers have power too because it is very easy for them to switch to another oil supplier depending upon their own requirements.
Summarizing the effect of these five forces over British Petroleum (BP):
|
Porter’s five forces |
Intensity |
|
Industry Rivalry |
High |
|
Threat of new entrants |
Low |
|
Threat of substitutes |
Moderate |
|
Bargaining power of suppliers |
Low |
|
Bargaining power of buyers |
High |
References
What we do. Retrieved July 14, 2017, from http://www.bp.com/en/global/corporate/about-bp/what-we-do.html
British Petroleum (BP). Retrieved July 14, 2017, from http://www.petroleum.co.uk/british-petroleum
Marketing and trading. Retrieved July 14, 2017, from http://www.bp.com/en_us/bp-us/what-we-do/trading.html
Get insider info about BP competitors and the key people involved. Retrieved July 14, 2017, from https://spiderbook.com/bp-competitors.html