Industry analysis

I. Executive summary Company background Royal Dutch Shell, commonly known as Shell, is a Dutch–British multinational oil and gas company headquartered in The Hague, Netherlands and with its registered office in London, United Kingdom. It is the world's second largest company by 2011 revenues and one of the six oil and gas "supermajors". Shell is also one of the world's most valuable companies.

Shell is vertically integrated and is active in every area of the oil and gas industry, including exploration and production, refining, distribution and marketing, petrochemicals, power generation and trading. It also has major renewable energy activities, including in bio-fuels, hydrogen, solar and wind power. It has operations in over 90 countries, produces around 3.1 million barrels of oil equivalent per day and has 44,000 service stations worldwide. Shell Oil Company, its subsidiary in the United States, is one of its largest businesses. Shell global business structure

Shell is organised into: Upstream, Downstream, and Projects & Technology. With around 101,000 employees in more than 90 countries, Shell plays a key role in helping to meet the world’s growing demand for energy in economically, environmentally and socially responsible ways. Pilipinas Shell Petroleum Corporation-

A part of the Shell global group of oil, gas and petrochemical companies, makes a wide range of high quality fuels, lubricants and speciality products. Shell stations also deliver the merchandise for personal mobility - vehicle fuels, food and drinks, groceries and more - all available at the same point in a single purchase. Company:

Pilipinas Shell Petroleum Corporation Address: Corporate Offices Shell House 156 Valero street Salcedo Village Makati 1227, Philippines

Company Mission

Shell oil company mission is to manufacture and supply of oil product and services that satisfy the needs of their customers. And to also contribute to sustainable development helps create business value and reduce operational financial risk. Company Vision:

The objectives of the Shell Group are to engage efficiently, responsibly and profitably in oil, oil products, gas, chemicals and other selected businesses and to participate in the search for and development of other sources of energy to meet evolving customer needs and the world’s growing demand for energy.

II. RESEARCH DESIGN AND METHODOLOGY I. Data Gather Techniques * Internet (the given data’s are available in the internet) * Interview * Distributors * Dealers * Customers

II. Framework of analysis used * STEP analysis * Porter’s 5 Forces of Competition * Functional Areas of Management

III. Process/Activities * External Factor Evaluation Matrix * Competitive Profile Matrix * I-E Matrix * TOWS Matrix * SPACE Matrix * Grand Strategy * Summary of Matrices * QSPM * Industry & Company Analysis * Strategy Formulation * Prioritization of Strategies

* Strategy Implementation * Strategy Evaluation & Control * Balanced Scorecar

III. STEP Analysis: Social Segment: Petrol is a customer’s choice and it is also depending on the price, loyalty, quality and services. Every customer has their own preference when it comes to their petrol. Since the price of petrol today is too high, people tend to go to where the cheapest gas is. It does not matter if it would be out of their way, just as long as they could gas up in the cheapest station. Some customer, despite the high prices of petrol, they still have their loyalties to their chosen gas stations. The big three oil companies in the Philippines are Shell, Petron, and Caltex. Technological Segment

Today there are lots of ways to improve the product using the technology. Since the rise of petrol prices occurred all over the world, Countries have already started to develop a way where the light vehicles could use a diesel fuel. Before they say that diesel fuel are dirty and slow fuel suited only for trucks, but now they have develop a diesel fuel that is eco-friendly and can perform well on cars. Improvement of fuel also comes from technologies; every company tries to develop their own fuel depending on the wants of the consumers.

For example, the Petron “Extra Unleaded” gas which boasts that it can go the extra mile. The Caltex’s Gold fuel which could clean your engine as it runs, and of course the Shell’s V-Power, the gas being used by Ferrari in F1 which has the capability of speeding up your car.

Economic Segment

Petroleum is part of every-day living of the Filipinos; this is why the demand is increasing and so as the price. Before the 1500 bill can fill up your gas tank by almost full, but because of the high pricing today of the petroleum the 1500 can only just make half of the gas tank.

Political Segment

Clean Air Act against pollution made by the vehicle is also part of implementation made by the Government; we should take preventive solution in controlling the pollution, In order to protect the citizens and welfare. The law on taxation is the only thing that applies to the company as it is engage in business and follows where the market takes it to. Taxes are implemented on petrol as they are regulated by the government; it is required to pay 12% Value Added Tax or E-Vat. IV. Industry Analysis:

Petroleum Industry is considered to be the back bone of an economy because this is the main source till date. Any economy around the world would fail to precede a single step in the absence of petroleum industry. Petroleum is basically a non-renewable form of fuel which is to extinction from the world after a certain point of time. The Price of the petroleum is determined by the demand-supply mechanism, around the globe.

Car sales also increases so as the demand. Shell has rapid growth in market and has strong competitive position. Based on this grand strategy matrix, Shell is positioned in quadrant I, therefore it can consider to use strategies such as market development, market penetration, product development, forward integration, backward integration, horizontal integration and related diversification. Critical Success Factor

There are several factors that are critical for the success every player in the industry. These are the location of the station and especially the service and quality of the product; we need also to have a public relation to the customers so therefore they will be loyal to your company. This critical success factor sets the standards in the industry of Sales and Manufacturing Sector under Petrol and Crude Oil Industry 1. Location

The location makes it the main advantage of shell. Before they put up the gasoline the station they make sure the profit and target market is suitable for the location. They make sure the satisfaction of every customer with their service and product quality that makes the customers want to go back to refuel in the same place because they have customer satisfaction. 2. Name Brand of the Company

A brand name known internationally such as Shell petroleum makes it petrol products more saleable to the customers and may make the customers want to buy again to the same petrol company. 3. Competent Employees Shell gives training and incentives with their employees. Training competent employees can make the customers like the service of shell, so that they can return to shell.

4. Customer Relations By communicating with the customers politely, shell may become a better fuel retailing company and have a better service for the customers. 5. Customer Loyalty Getting customer loyalty if done right makes the company successful. As the words suggest if there is customer loyalty it is easier for the business to prosper. 6. Quality product Product Quality makes the customers want to go back to refuel in the same place because they have customer satisfaction.

Industry Structure:

The downstream oil industry activities include a) importation of crude oil b) processing and storing of intermediate and refined products at the refineries c) product distribution to different bulk plants/depots through tankers/bargers for shell and and new players and the Batangas-Manila pipeline for Caltex and . Petron. And to d) deliver of refined/ finished products through tank trucks from depots to the retail outlets and industrial consumers. Number of Cars per year 2002-2009 in the philippines

Item| 2002| 2003| 2004| 2005| 2006| 2007| 2008| 2009| Registered Motor Vehicles| 4,187,673| 4,292,272| 4,760,593| 5,059,753| 5,331,574| 5,530,052| 5,891,272| 6,220,433| Cars| 745,795| 739,170| 793,353| 784,437| 788,599| 744,830| 755,108| 776,155| Utility vehicles| 1,652,036| 1,685,896| 1,788,565| 1,791,284| 1,788,687| 1,788,625| 1,790,518| 1,865,575| Buses| 33,915| 31,347| 34,998| 30,968| 23,155| 30,113| 29,703| 33,006| Trucks| 257,747| 255,478| 267,930|266,854| 291,746| 281,128| 296,121| 311,496| Motorcycles/

Tricycles| 1,470,376| 1,552,570| 1,847,350| 2,157,707| 2,157,707| 2,409,286| 2,647,263| 2,982,296| Trailers| 23,734| 23,840| 23,117| 23,917| 23,894| 24,319| 27,104| 28,731| Diplomatic| 2,904| 2,816| 4,197| 3,284| 2,227| 2,406| 4,884| 3,902| Exempt| 1,166| 1,155| 1,083| 1,302| 3,980| 11,368| 5,538| 607| |  |  |  |  |  |  |  |  |

Strategic group map

| | Shell | | | Petron | | | Caltex | | | | | | | | High

Quality of gas/Oil

Low Low High Pricing

SWOT ANALYSIS

Strengths Strong brand name, Good product, Huge Capital, High quality work force, Maximize their refinery margins, they deliver structure cost reduction, Introduction of shell card, wide range of product and services

Weaknesses Corruption in oil businesses, explore new fields, Shell market research is not up to date, Crude oil price

Opportunities Extensive research development, Explore new Field, Increase in car sales, Location, Loyal Consumer/ Customers, Expansion

Threats New oil player, Ecological factor, continued negative image and publicity, price conscious, Government tries to control oil prices.

IDENTIFICATION OF STRENGTHS AND WEAKNESSES Strengths: Strong Brand name and financial position Shell Oil Company has very strong brand name which is well known all over the world. The brand name is been derived from the good will and the name recognition of the company which are earn over the years, which was translates into higher sales volume and higher profits margins against other competing brand in the oil industry. Strong financial position with income of about P26.5 Billion and capital investment of P129.699 Million. GOOD PRODUCT

The product of shell oil like shell fuel, gasoline are a very good product which attract more customer in buying the product all over the world which most of their competitor do not have.  HUGE CAPITAL about P129.699 (in millions)

This is another major strength of shell oil over their competitors that give strength to shell oil because of their huge capital the company have in building gas stations all over the Philippines HIGH QUALITY WORK FORCE

Shell Oil Company is one of the best companies in oil and petrol chemical industries that have highest number of work force, this has always associated to the success, and they also implement flexible working strategy to their staff.  MAXIMIZE THEIR REFINERY MARGIN

This is another area that makes shell oil have huge over the other player in oil industries because of their limited refinery and ability to manage their refinery to keep it in a standard way. THEY DELIVER STRUCTURE COST REDUCTION

Most of the customer of shell oil company believes that shell oil product is relatively cheap that other company in oil business.  INTRODUCTION OF SHELL CARD- This is another factor that give shell oil strength because of their introduction of shell card that allow their customer to pay directly to company via the shell card, and this also allow the shell company to monitor how much of shell product been used by various customer.

WIDE RANGE OF PRODUCT AND SERVICES- Shell oil products are wildly spread all over the world, and their product is a house hold name in oil and gas industries.

Weaknesses: CORRUPTION IN OIL BUSINESS- This is another factor of weakness in shell oil company, this corruption are majorly cause by the government of countries where been build and the employee of shell company.

SHELL MARKET RESEARCH IS NOT UP TO DATE The market research of shell oil are not up to date which serve as major weakness and which gives the other oil players advantage over them. CRUDE OIL PRICE The crude oil price doesn't stays in one point.

IDENTIFICATION OF OPPORTUNITY AND THREATS OPPORTUNITY Extensive research development Shell Oil Company has a quality research development that help in development of their staff, as a result of it give them more advantage over the other company in oil business.

Explore new Field Shell oil has a joint venture with Texaco and other multinational companies which increase their span of growth and development.

Increase in car sales When people buy more cars there will be more petrol products to be bought by the car users. If a lot of cars are sold to the market, there will be more potential consumer because the more cars are used the bigger the chances they fuel up. Location

Shell Company evaluates first the location before putting up its gas station they make sure the location is fit for its business. Loyal Consumer/ Customers Shell has established its name and branding they also establish a relationship with its consumers and customers. Expansion By expanding the branch it can support many car/s. Many car/s refilling by the branch could be the opportunity to have more income for the branch.

THREAT New oil player This is the major factor that bring treat to shell oil, when there new oil company that are production similar product and are ready to sell it at a lower rate. Ecological Factor These are pollution course by shell oil to the community.

Continued negative image and publicity These are the bad publicity by the media over the affair of shell oil, which reduce their reputations to the public. Price Conscious Now a day’s people are very much conscious about the price they consider first the price before buying things this could be a threat to Shell in selling their goods. Government tries to control prices

Now a day’s petroleum company cannot control the market government always tries to control their prices Threat of new Entrants Low capitalization in putting up a gas station

5 Competitive Forces Analysis

Baragaining power of Customers Other gas station Motorist

Bargaining Power of Supplier -Pandacan Depot -Bataan Depot

LOW

Pilipinas Shell Petroleum Corporation Rivalry of competitors:Petron Caltex Total Seaoil

HIGH

LOW

Threat of substitute products -NAIADSS, LPG

HIGH

Rivalry of competitors (LOW) In any business price competition is significant because it attracts customers, the less you price a product, the more customers you gain, yet, in competitive rivalry, in order to reduce it, avoidance to price competition is necessary in which the Pilipinas Shell observed. Their competition is not on price but on how to manage strategy that would best leverage a product. Pilipinas Shell uses different strategies to market their product and be competitive. Their differentiation and different segmentation of their products set an edge for them, moreover, their healthy communication with competitors contribute positively to the competition.

The competition should not be taken personally but a matter of business and professional work. Pilipinas Shell has a competitive advantage because on the ability of managing the whole process of the business. Good financial management and diversified course of business bring them enormous customers and stakeholders. There is only a bit that Pilipinas Shell is concerned and it is the same product and it was on the same price and quality. The only difference is the location spot of the station and the additive added on the product. Most of the customers will choose to go to the nearest gasoline station as possible and most convenient for them.

AS OF September 10, 2012 Petroleum PRICES: Petroleum Company| DIESEL(P/Liter)| UNLEADED (P/Liter)| REGULAR(P/Liter)| SPECIAL(P/Liter)| Pilipinas Shell| 44.98| 55.21| 53.57| 58.21| Petron| 45.32| 55.21| 54.23| 57.95| Caltex| 44.82| 53.98| 52.34| 56.62| Total| 45.20| 53.55| 52.37| -| Seaoil| 44.58| 53.38| 52.21| -|

Threat of substitute product (HIGH) There are a lot of Substitutes for petroleum products nowadays. There is LPG which issued for taxis and some owner cars, Cooking oil while it was just discovered people are no starting to convert their cars to accept cooking oil as their cars fuel, Biogas where it is made from manures, and there is water where in the country such as the Philippines is surrounded by water although it is just a project it can easily be a big hit in the Philippines as a substitute of petroleum products in the Philippines. LPG is cheaper, efficient and eco friendly.

Cooking oil where owners convert their cars to accept cooking oil as their fuel, cooking oil is very cheap, clean and eco friendly. Bio gas is also used where manure from animals goes into a process to be converted into a gas so that it can be used for cars. Threat of new Entrants (HIGH)

There are a lot of new entrants into this industry, it is expensive to start with but there are still many new entrants. In the rural areas, there are alot of competitions that arise because of the low capital in starting the business. In the urban areas, there are also new competitions even if the capital is high because it is major business and has high profits because there are a lot of car users in the area Bargaining power of Suppliers(HIGH)

There is high bargaining power of suppliers because in this industry there can only be a small differences in the prices in competition. Getting imported products from other companies or purchased by other companies and sells them at a higher price so that they can have a return on their investment. Bargaining power of Customer (LOW)

There is little choice for the customers to demand a little change in the gas prices. New competition tries to level with the prices of the competition while major competition tries to lower its prices to become more attractive to customers that may ruin the business of another gas station. Competitors Profile:

Petron Philippines

Petron Corporation is the largest oil refining and marketing company in the Philippines. Supplying nearly 40% of the country’s oil requirements, our world-class products and quality services fuel the lives of millions of Filipinos every day. We operate an integrated crude oil refinery and petrochemicals complex with a rated capacity of 180,000 barrels per day in Limay, Bataan. Our Integrated Management System (IMS)-certified refinery processes crude oil into a full range of petroleum products including gasoline, diesel, liquefied petroleum gas (LPG), jet fuel, kerosene, industrial fuel oil, and petrochemical feedstock benzene, toluene, mixed xylene, and propylene. Caltex Philippines

Caltex gained its foothold in the Philippines in 1917 when Texas Company (as Texaco was then known) began marketing its products in the Philippines through a local distributor, Wise and Co. Four years later, Texaco (Philippines) was formally established and opened its office in Binondo, Manila. Eleven years later, its Pandacan warehouse depot was converted into a key distribution terminal to bring products by barge to nearby provinces.

The dawn of the new millennium ushered in the merger of Caltex’s two parent companies to form ChevronTexaco—the second-largest US-based energy company and the fifth largest in the world, based on market capitalization. Currently celebrating its 125th anniversary, ChevronTexaco employs more than 50,000 working in about 180 countries around the world, producing and transporting crude oil and natural gas, and marketing and distributing fuels and other energy products. Its associated brands are sold in approximately 30 countries across Asia-Pacific, southern Africa and east Africa.

As its more recent accomplishment, Caltex operates a world-class finished product import terminal in Batangas with a storage capacity of roughly 2.7 million barrels. Starting 2006, in line with the change in its parent company’s name from ChevronTexaco Corporation to Chevron Corporation, Caltex (Philippines), Inc. became known as Chevron Philippines Inc. while the Caltex brand and logo that customers recognize as a symbol for quality fuels remain unchanged at service stations and retail outlets.

Also in 2009, Caltex Diesel with Techron entered the market, replacing Caltex Power Diesel. Caltex Diesel with Techron® D is a new and improved diesel which contains the exclusive Techron D additive to control deposits, help maintain fuel injector cleanliness and enable optimum engine performance. Competitive Profile Matrix

3 Majors players Oil/ Gas industry in the philippines SHELL PETRON CALTEX CRITICAL SUCCESSFACTOR| WEIGHT10-100| Rating1-4| Weighted Score| Rating| WeightedScore| Rating| Weighted Score| Location| 15%| 3| 0.45| 3| 0.45| 3| 0.45| Customer Loyalty| 20%| 4| 0.80| 3| 0.60| 4| 0.80| Product Quality| 25%| 3| 0.75| 3| 0.75| 2| 0.50| Name of the company| 20%| 4| 0.80| 3| 0.60| 4| 0.80| Competent Employee| 10%| 3| 0.30| 3| 0.4| 2| 0.20| Customer Relation| 10%| 3| 0.30| 4| 0.4| 3| 0.30| Total Weighted Score| 100| | 3.4| | 3.2| | 3.05| (1)-Major weakness (2)-Minor Weakness (3)-Minor Strength (4)-Major Strength The CPM identifies a firm’s major competitors and its particular strength and weaknesses in relation to a sample firm’s strategic position. The table that we shown are critical success factors between Shell, Petron and Caltex. In this table product quality, name of the company and Customer loyalty are the most important critical success factors, as indicated by a weight of 25%, Shell’s very well as evidenced by rating of 4; product quality of Shell is good as indicated by a 3 same as Petron but Caltex only got 2.

IFE(Internal Factor Evaluation Matrix)| Strength | Weights| Rating| Weighted Score| | 10-100| | | Strong brand name and Financial Position| 15%| 4| 0.6| Good product| 15%| 4| 0.6| Huge Capital about P129.699(in millions)| 10%| 3| 0.3| High quality work force| 10%| 3| 0.3| Maximize their refinery margins| 8%| 3| 0.24| Deliver structure cost reduction | 7%| 2| 0.14| Introduction of Shell Card| 5%| 2| 0.1| Wide range of Product and services| 10%| 4| 0.4| | | | | Weakness| | | | Corruption in oil business| 10%| 3| 0.3| Shell market research is not up to date| 5%| 2| 0.1| Crude oil price| 5%| 4| 0.2| | | | | Total Weighted Score| | | 3.28| (1)- Major weakness (2)-Major weakness (3)-Minor Strength (4)-Major Strength * Total weighted score is 3.328 it indicates that Pilipinas Shell Petroleum has above average to respond the Internal Factors V.

EFE(External Factor Evaluation Matrix)| | Weights| Rating| Weighted Score| Opportunity | 10-100| 1-4| | Extensive Research development| 8%| 3| 0.24| Explore new fields| 8%| 3| 0.24| Increase in car sales| 15%| 3| 0.45|

Location| 9%| 4| 0.36| Loyal Customer/ Consumer| 10%| 4| 0.4| Expansion| 7%| 3| 0.21| | | | | Threats| | | | New oil player| 10%| 3| 0.3| Ecological Factor| 9%| 2| 0.18| Continued Negative image and Publicity| 6%| 1| 0.06| Price conscious| 8%| 1| 0.08| Government control prices| 10%| 2| 0.2| | | | | Total Weighted Score| | | 2.72| (1)-poor (2)-below average (3)-above average (4)-superior

* Total weighted score is 2.72 it indicate that Pilipinas Shell Petroleum has slightly less than average to respond external factors VI. Company Analysis

VII. A. TOWS matrix TOWS MATRIX| Internal Strengths(Strengths)1.Strong Brand name and financial position income about of P26.5 Billion and capital investment P38.4 Billion2.Good Product3. Huge Capital about P629.699(in millions)4. High Quality Workforce5.Maximize their refinery margins6. Deliver structure cost reduction7. Introduction of shell card8. Wide range of product and services| Internal Weakness(weakness)1.Corruption in oil business2. Shell market research is not up to date 3. Crude oil price | ExternalOpportunity(Opportunity) 1. Extensive research development 2. Explore new Field 3. Increase in car sales 4. Location 5. Loyal Consumer/ Customers

6. Expansion| (SO)Extend line of service by putting up gas stations in rural and capture more market share(S1, O3, 04, 06)Promote renewable energy in the Philippines(S8, O2)Research for renewable energy and alternative energy(S8, O1,)| (IO)Relocate crude oil plants to more cost effective location to cut down operating expenses (W3. O4)Promote new policy energy as the most cost effective alternative to reduce oil corruption(W1, O3)| External Threats(Threats)1.New Oil player2.Ecological factor3.Continued band image publicity4.Price conscious5.Government tries to control prices| (SE). Promote alternative energy(S8, 02)| (IE)|

B. Strategic Position and Action Evaluation (SPACE) Matrix Strategic Position| Ratings| Financial Strength * Strong Brand name and financial position income about P26.5 Billion and capital investment P38.4 Billion * Huge Capital about P629.699(in millions)| 549| Industry Strength * Increase in car sales in the past 3 years * Extensive research development * Explore new Field| 44210| Environment Sustainability * Corruption in oil business * Ecological factor * Government tries to control prices * Crude oil price| -4-5-2-3-14| Competitive advantage * Good Product * High Quality Workforce * Introduction of shell card| -1-2-1-4|

Conclusion: FS Average is 9/ 2 = 4.5 ES Average is -14 / 4 = -3.5 IS Average is 10 / 3 = 3.3 CA Average is -4/3=-1.3 Directional Vector Coordinates: X-axis: 3.3 + (-1.3) = 2 Y-axis: 4.5 + (-3.5) = 1

Space Matrix

The company should pursue Aggressive strategy (Concentric Diversification, Concentration and Vertical Integration

C. Internal-External Matrix (I-E Matrix) EFE SCORE

Harvest or Divest

Grow and Build 4.0 Strong Average Weak

Hold and Maintain

EFE=2.72

1.0 4.0 1.0 IFE=3.28IFE SCORE * The I-E matrix tells us that Pilipinas Shell should hold and Maintain its position, Pilipinas Shell should pursue strategies focused on increasing market penetration and product development D. Grand Strategy Matrix:

Shell has rapid growth in market and has strong competitive position. Based on this grand strategy matrix, Shell is positioned in quadrant I, therefore it can consider to use strategies such as market development, market penetration, product development, forward integration, backward integration, horizontal integration and related diversification.

Summary of Tools Used: SUMMARY OF MATRICES STRATEGIES| IE| SPACE| GRAND| COUNT| Market development | 1| | 1| 2| Market penetration | 1| | 1| 2| Product development | | | 1| 1| Forward integration | | | 1| 1| Backward integration | | | 1| 1| Horizontal integration | | | | 0| Concentric diversification | | | 1| 1| Vertical Integration| | 1| | 1| Concentration| 1| 1| | 2|

The strategies that Pilipinas Shell needs to execute are Market development, market penetration, and concentration.

BALANCED SCORE CARD SHELL| OBJECTIVES| MEASURES| TARGETS| INITIATIVE| FINANCIALPERSPECTIVE| Decrease unnecessary investment, Lessen cost of operations| Invest only in important projects transfer refineries into more accessible place| Decrease unnecessary cost and maximize profit, effective and efficient transportation | Conduct a thorough studies in investing, Evaluate the location of the refineries | CUSTOMER PERSPECTIVE| Maintain or increase QualityEnvironmental concerns| Research for better quality productsHelp to save the Earth| Increase number of loyal customersFight against climate change| Continue produce quality productsRefrain of using hazardous chemicals| INTERNAL BUSINESS| To increase productivityDecrease Delay in producing and delivery|

Quality assuranceOperations research| More products to be distributed to dealers.No More Delays.| Conduct regular inspection | LEARNING AND GROWTH| distinctive competencesustainable competitive advantage| Manage the value chainImprove capabilities and strength| Gain competitive advantage| Manage training and financial programs that can help the employees.|