Economic Importance of Total Petroleum in Ghana

Using all the economic tools at your disposal, write a paper/report of not more than 2,500 words (preferably typed) on the company where you work by assessing its structure, its economic importance to the Ghanaian economy as well as its problems and suggested solutions.

Total Petroleum Ghana Limited ,(TPGL),an oil marketing company ,came into existence in November ,2006 following the merger between Mobil Oil Ghana Limited and Total Ghana Limited .The strong historical heritage of the company dates as far back as 1964 when the subsidiary was inherited from BP Ghana ,which was followed by a series of transitions from Elf Oil to TotalfinaElf. This, coupled with a great respect for quality, standards, achievements and safety, has propelled the subsidiary to the forefront of the industry.

The approval for the merger of the two companies occurred at separate shareholders' meetings. As part of the merger contract, Total Ghana Ltd. was put into members' voluntary liquidation and its entire undertaking and assets was transferred to Total Petroleum Ghana Ltd.

Thus, Total Petroleum Ghana Ltd. had to issue new shares to the shareholders of the liquidated company in accordance with their rights. The merged company remained quoted on the Ghana Stock Exchange, and still enjoys the world-class technical, product and management support from Total Outre Mer SA – its parent organisation and the world's fourth largest oil and gas conglomerate which owns 81.39 per cent shares in Total Ghana Ltd. Total Petroleum Ghana is listed on the stock index of the Ghana Stock Exchange, the GSE All-Share Index and operates 225 filling and service stations across Ghana with a significant 28% of the market.

With Total Petroleum’s leadership position, came a huge recognition of the Total Brand amongst the Ghanaian investing and consuming public. The company is more visible and very well represented across the ten regions of Ghana, having inherited some of the best locations in major cities and towns. TPGL operates the hierarchical or pyramidal type of organisational structure with a replicated representation in three (3) other regional offices namely,Takoradi for the western zone, Kumasi – for the Ashanti zone and Tamale – for the Northern zone. ORGANISATIONAL STRUCTURE OF TOTAL PETROLEUM GHANA LIMITED

Total Petroleum remains at the forefront of several innovations. For six years running, the company, the company has remained the only marketing company with an electronic card payment system in Ghana. To further ensure that its processes guarantee top quality customer service, Total Petroleum remains the only company in Ghana with an ISO quality management certification (ISO 9000:2001). To further enhance customer satisfaction, the company has embarked on a number of investments.

These include modernising and upgrading its Takoradi depot to receive direct imports of gas oil and super in order to satisfy the needs of its mining customers and growing fleet of high performance cars in Ghana. In partnership with private businessmen, Total Petroleum has embarked on the development of service stations to bring its services to the doorstep of customers. Recognising the growth in the fleet of high performance vehicles in Ghana, Total Petroleum has introduced onto the market

Super Plus (now Super Effimax) and Diesel Effimax, both high performance fuels guaranteed to ensure a smooth ride. Total Petroleum currently markets unleaded premium throughout the country and with the introduction of Super Plus(Super Effimax), the company has increased its range of unleaded fuels to satisfy the numerous needs of its various customer segments. Total’s quality range of Quartz and Rubia lubricants continue to be the favourite of the consuming public because of their sterling qualities of guaranteeing longer life to vehicles and reducing costs associated with buying inferior quality lubricants.

Total Petroleum is poised to take advantage of the favourable business environment which has experienced an impressive economic stability and growth. The company would continue to surmount challenges brought about by factors such as stiff competition in the retail market by ensuring that it brings only the best to its customers. Total Petroleum Ghana Limited operates in the following sectors of the Ghanaian economy, •Retail Network

•Mining and Exploration •Marine •Fleet and Transport •Agriculture •Manufacturing and Construction Total Petroleum offers a wide range of petroleum products that conform to international standards to ensure that customers are assured of optimum performance to include: •Premium – Unleaded gasoline

•Total Super Plus-High Octane gasoline •Diesel •House Hold Kerosene •Aviation Fuel •Bitumen •Lubricants –Industrial, Motor and Marine •Insecticides •Car Care products •Diesel Effimax •Super Effimax

The Total Group’s market is a world-wide one unlike its subsidiary ,TPGL’s which has a largely localised market for about 80% of its line of products and 20% for its international customers. Potential buyers and sellers or suppliers of petroleum products and related services come together for the purpose of exchange. As the market for goods and services in the Petroleum sector have become more internationally integrated, foreign markets and organisations are playing an increasingly important role in the in the viability of domestic industries or establishments.

To this end the market structure comprising elements such as the high number of firms (sixty two) coupled with very high entry and exit barriers has consistently determined the behaviour of TPGL which in turn determines its performance to remain in business to make normal profits.

Thus the opportunities for gaining profits has consistently depended on the highly competitive environment in Ghana within which TPGL finds itself. Until July, 2007, TPGL found itself operating in a monopolistic market with the Tema Oil Refinery (TOR) being the sole supplier or vendor of petroleum products in Ghana without close substitutes making it a price maker due its ability to adjust the price of its products up or down to pursue its objectives.

This stems from the fact that TOR could raise its price to some extent without losing all its customers. TPGL now however finds itself in a market that is neither a monopoly nor purely competitive but fall somewhere in between. This market has more than one seller of petroleum products with the emergence of suppliers or ‘traders’ such as Cirrus Energy Oil, Chase Petroleum and Sahara Oil Services. Thus pricing decisions in this oligopolistic or imperfectly competitive situation has to take into account rivals’ actions.

Under this market therefore, firms such as TPGL are aware that the outcome of any decision depends on the initial action and the consequent competitive reactions. TPGL is in collusive agreements or cartel with other firms in Ghana known as the Association of Oil Marketing companies (AOMCs) which seek to collaborate agreements pertaining to all aspects of production and trading.

The marketing plans of TPGL are wide and varied with the objective of reaching every sector of the economy with a very extensive distribution network throughout the country whilst maximising profit with its numerous range of products. It seeks to embark on a more rigorous campaign using the media as a launching pad to showcase its market leadership.

To ward off its competitors such as SHELL ,GOIL and the fifty nine (59) others known as independents, TPGL has adopted the Game Strategy which according to Schelling (1980) is defined as ‘a behaviour situation in which each player’s best choice of action depends on the action he expects the other to take, which he knows depends in turn on the other’s expectation of his own.’ The strategy or theory thus employed by TPGL is akin to the production theory which takes into account what other firms such as SHELL,GOIL and the fifty nine (59) others (independents) are doing.

Further to this, TPGL not only anticipate what its rivals have already planned to do but anticipates how it will react to any change in its own plan. In this regard, a strategy that involves both a sequence of moves and a set of reactions to moves that the competitors might take has been coined. TPGL cast perfectly in the mould of the definition of market leadership as espoused by Wilson & Gilligan,1997 which states that ‘In the majority of industries there is one firm which is generally recognised as the leader.

It typically has the largest market share, and by virtue of its pricing, advertising intensity, distribution coverage, technological advance, and the rate of new product introductions, it determines the nature, pace and bases of competition.

To this end TPGL refuses to be content with the way things are and leading the industry in new product ideas, customer services, distribution effectiveness and value to the customer by embarking on a mobile defensive strategy for market leadership to grow the overall market ,defend its position , acquire more market share and increase profitability so as to realise its set objectives by making use of a cocktail of the sales optimisation model and the satisficing models.

The satisficing model which seeks to buttress the desire of firms to maximise their rate of growth or managerial utility says that firms do not try to maximise anything but simply sets targets and are satisfied if those are reached. The targets principally relate to profits, sales or market share, worker productivity, or inventory/sales ratios, and can be seen to be either revenue- or cost-related.On the other hand, the sales optimisation seeks to look at the maximization of Sales in the short term, subject to the attainment of a certain minimum profit level.

Minimum Profit requirement is necessary for the value of the TPGL’s shares on the stock exchange which depend in part on the current profitability of the firm, since the expectation of dividend payments has a positive influence on the market value of the shares. TPGL since its inception has been apt with its corporate social responsibilities by adopting and making frequent presentations to the burns unit of the Korle-Bu teaching hospital as well as well as embarking on various campaign against malaria. T

he recent addition has been its contributions to the Otumfuo Education fund to help brilliant but needy students. In line with its corporate environmental policies,TPGL sensitises the general public about the need to work in clean and unpolluted environments. The company’s contribution to the Ghanaian economy has been immense spanning its use as a benchmark in discussions informing the promulgators of the petroleum policies. It has continued to chart the course of giving back to society very quality and affordable products without recourse to make excessive profits at the consumer’s expense.

TPGL however faces several challenges amongst which are the area of increased competition largely due to the insurgence of several local oil marketing companies. The Total number of companies has risen sharply from the traditional eight (8) in 1999/2000 to sixty three (63) in september,2008. It is common knowledge that the entry and exit barriers into the petroleum industry have been relaxed in recent times unlike in the past (before 2004) due largely to administrative inefficiencies in the industry in the area of lack of proper supervision and monitoring of entry requirements.

The mushrooming of Oil Marketing Companies (OMCs) stemming out of this has generated stiffer competition as all OMCs draw from the same unexpanded resource or source of supply. This in no small way has eroded TPGL’s market share from thirty one percent (31%) immediately after the takeover in 2006 to twenty four percent (24%) in recent times. Total’s complacent stance in the past and present in employing rigorous and sustained measures in entrenching its strong market positioning due to its market leadership has done it a great disservice. The way forward is to consider:

•Targeting non-users •Identify new uses of for the products/services •Increase usage rates (encouraging regular servicing of vehicles in order to buy more lubricants & serving oils) •Guarding against existing market by: -strong market positioning -development and refinement of competitive advantage -continuous product/process innovation -proactive stance -heavy advertising -strong customer relations -strong distribution relations -expanding price incentives TPGL needs to deliver higher customer value than completion. This means keeping promises. These promises are carried out by the people from the CEO to the fuel attendants at the filling stations for Generals need army to win battles and wars because they can’t win alone. It is believed that the painstaking adoption and implementation of these will gear towards a pronounced market dominance, innovation and Return on Investments.

The influx of sub-standard products on the market as substitutes is another challenge that has had a toll on TPGL and the market trends in general. The lack of product knowledge by a greater percentage of customers and consumers has fuelled the nefarious activities of some OMCs in the sale of adulterated products to the unsuspecting public. To deal extensively with this, TPGL will have to further improve on its product differentiation drive and customer education drive.

The enhanced and differentiated products must bear some physical traits such as unique colourations to be seen at a glance by the customers on contact. Though initially expensive, these tradeoffs will eventually lead to customer retention and loyalty with its attendant returns on investments and profits.

The availability of credit in the business landscape in the acquisition of the various lines of products has also been a serious operational challenge to TPGL and players in general. Though a multi-national company ,TPGL runs as a subsidiary on its own budget with a given or set target. To this end high operational costs will have a direct impact on the Total Cost (TC) of doing business and the Total Revenue (TR) to be derived. It will therefore make business sense if alternative sources of supply are sourced for the boost and improve the TR due to low or flexible credit terms. It will in this light not be out of place if TPGL negotiates with ‘Traders’ (importers and suppliers of petroleum products) directly for favourable credit terms.

Traders such as Chase Petroleum and Cirrus Energy services are prepared to further negotiate their credit terms of thirty and twenty days respectively as opposed to the Tema Oil Refinery’s (TOR) fourteen (14) days credit terms. This will in doubt totally eliminate TOR’s continual refusal to supply products to TPGL at will with the slightest operational or payment hitch and may as well wake them up from their slumber due to the monopoly they have enjoyed all these years.

In sum ,TPGL stands to gain immensely in all facets of its market leadership and overall performance when all these rather rough edges are smoothened very well to be a better beacon and yardstick in the oil industry in Ghana for its followers and untapped markets when employees are involved in strategy formulation, their welfare taken care off and are bought into the overall corporate mission.

References: Economics –seventh edition (David Begg,Stanley Fischer and Rudiger Dornsbush) Exploring Corporate Strategy-Fifth Edition (Johnson Scholes) Strategy, Process, Content ,Context-2nd Edition (Bob de Wit & Ron Meyer) Lecture Notes (Mr Agyabeng Antwi-Agyei)

The internet:www.mba.net