This is another framework adopted to evaluate the external environment of Royal Dutch Shell. According to Peng (2009), this framework introduced by Michael Porter is used to analyse the industry based view of competition. The five forces include: rivalry among competitors, threat of potential entry, bargaining power of suppliers, bargaining power of buyers, and threat of substitutes (See Table III). i.Rivalry among Existing Competitors – Rivals for Shell among its competitors is high such as ExxonMobil, BP, Total, etc. This is because there are many competitors offering similar products and having similar influence on the consumers.
Most of all the major players in the industry are of similar size. This then could reduce Shell’s level of profitability. ii.Threat of New Entrants – With significant government regulations, huge capital, complicated process and other barriers as stated in the table; these creates a strong entry barrier and low threat of new entrants. This is a positive indicator for Shell. iii.Threat of Substitutes – There is generally low substitute for oil but other substitutes include refining and marketing renewable energy, which could offer notable benefit on environmental impact and sustainability. Barriers like high switch cost and it being time consuming; makes threats of substitutes weak.
This is another positive factor for Shell. iv.Bargaining Power of Suppliers – These are suppliers of oil and gas equipments such as Schlumberger, Barker Huges, Smith International and Halliburton. They are limited in number and large, providing a wide product portfolio to the entire industry worldwide.
Hence, giving them a strong bargaining power. This is a negative factor for Shell. v.Bargaining Power of Buyers – Buyers including industrial and individual end users are many and find the industry product as top relevance for life weakens their bargaining power. On the other hand, low switch cost, lack of product differentiation and financial advantage of industrial companies strengthens their bargaining power. Hence overall buyers’ power is moderate. (Datamonitor 2008)