Shell is a global group of energy and petrochemical companies. Its headquarters are in The Hague, the Netherlands. It was founded in 1907. The parent company of the Shell group is Royal Dutch Shell plc, which is incorporated in England and Wales. They have around 93,000 employees in more than 90 countries and territories. The company has worldwide proved reserves of 14.1 billion barrels of oil equivalent. The company operates 43,000 gas stations (the world’s largest retail fuel network). Shell produces refined products and chemicals at 30 refineries, transports natural gas, trades gas and electricity, and develops renewable energy sources.
Shell helps to meet the world’s growing demand for energy in economically, environmentally and socially responsible ways. Shell Oil Company is the United States-based subsidiary of Royal Dutch Shell, a multinational oil company (“oil major”) of Anglo Dutch origins, which is amongst the largest oil companies in the world. Approximately 22,000 Shell employees are based in the U.S. The head office in the U.S. is in Houston, Texas. Shell Oil Company, including its consolidated companies and its share in equity companies, is one of America’s largest oil and natural gas producers, natural gas marketers, gasoline marketers and petrochemical manufacturers.
Shell is the market leader through approximately 25,000 Shell-branded gas stations in the US which also serve as Shell’s most visible public presence. Shell Oil Company is a 50/50 partner with the Saudi Arabian government-owned oil company Saudi Aramco in Motiva Enterprises, a refining and marketing joint venture which owns and operates three oil refineries on the Gulf Coast of the United States. It also holds 80% of an exploration firm called Pecten that explores and drills in various offshore locations including the oil basin near Douala, Cameroon in cooperation with the French government-owned Elf Aquitaine
Shell has five core businesses:* Exploration and production (the “upstream”).* Gas and power, refining and marketing (the “downstream”). * Chemicals, trading and shipping.
IDENTIFYING RELEVANT INDUSTRY FACTORS
1- Market Size and Growth Rate
It is the fifth-largest company in the world (and the second-largest energy company) according to a composite measure by Forbes magazine and one of the six oil and gas “super majors”. In 2010 its revenue was $368.056, its show the maximum market share. Shell has grabbed the market and gets the opportunity because of the demand. The year 2011 started well, with the start up of new LNG at Qatar gas 4, and the restart of refinery catalytic crackers at the Port Arthur at end-2010 and at Pernis in February 2011.
These projects, combined with the expected 2011 start-up of Pearl gas-to-liquids in Qatar, and new oil sands upgrading capacity in Canada, underpin Shell’s production and financial growth targets for 2012. Because of all these opportunities, shell grab’s its customer attention and get the maximum market share.
Comparison with its Competitors:
Shell:The oil sector accounts for about 13.3 per cent of FTSE 100 in the UK. SHELL is one of the largest players in this sector. Shell’s Crude oil production in 2000 stood at 2,274 thousand barrels per-day .Shell’s Natural gas production available for sale at 8,212 million standard-cubic-feet per-day .Shell’s oil product sales at 5,574 thousand barrels per-day.
BP:BP’s crude oil production in 2000 stood at 1,928 thousand barrels per-day, Gas production at 7,609 million cubic-feet per-day.
Total:Total’s crude oil production at 3,240 thousand barrels per-day. Gas sales at 14,471 million cubic-feet per-day.
Exxon-Mobil’s liquids production in 2000 stood at 2,600 thousand barrels per-day Exxon-Mobil’s natural gas production available for sale at 10,300 million cubic-feet per-day Exxon-Mobil’s refinery throughputs at 5,600 thousand barrels per-day Exxon-Mobil’s petroleum product sales at 8,000 thousand barrels per-day.
Shell at growth Stage:
Shell has wide range of industries in all over the world such as in Belgium, Netherland, Hong Kong, United Kingdom, Denmark, Canada, Indonesia, and also in various other countries. Shell is at growth stage because:
* Shell is widening its industry into various other countries such as Belgium, Netherland, Hong Kong, United Kingdom, Denmark, Canada, Indonesia, Pakistan it has become established in these countries. * It has growing number of customers.
2- Buyer needs and requirementsIn shell the customers’ comes first. In 2010 shell was ranked as 2nd in production and in revenue because of catering its customer demand and innovation. It continuously seeks to provide products with outstanding quality at a reasonable price to satisfy their customers’ needs. Shell is continuously investing a lot in its research and development department to cope up with the rapid change in technology and to enhance the quality of its products to satisfy its customers. Shell mainly focuses on providing quality products to satisfy its customers. Shell involved in two business activities Business to consumer
Business to businessThe customers are the individual person who use fuel for their vehicles to move on and other business are like transport companies or industries who need fuel to run their operation .And it is full filling both need with its quality products. Shell’s differentiated fuels are used in more than 40 countries to meet the individual needs of its customers. Different products are there for different needs of customer like: * Air Compressor oils =Shell Corena
* Bearing & Circulating oils = Shell Morlina* Gas Compressor oils = Shell Gas Compressor Oil* Gear oils = Shell Omala* Grease = Shell Gadus* Hydraulic oils = Shell Tellus* Motorcycle oils = Shell AdvanceShell specialists ensure that the full requirements of every application are thoroughly understood. Product and service recommendations are based on an integrated understanding of the interaction between the equipment, customers, its operating characteristics and the lubricant to ensure they are well matched for optimum efficiency.
3- Production Capacity:The petroleum industry is overcrowded because of its huge competition. The main competitors are:* Total* Exxon* Saudi Aramco* British petroleum* Local competitorsThey have competitive advantage than other because of their reasonable price,quality and innovative technology
4- Pace of Technology Change:New technologies mean new innovations for shell. The pace of changing technology plays a very important role in petroleum industry. Industry players like Exxon and total have advance technology but shell has competitive advantage because of: Innovation is the foundation for shell’s new technology concepts. Shell has introduced advance environmental technology products: * Shell Thermo plusBio10
* Shell Fuel Oil Plus* Shell is working to help meet the world’s rising demand for energy.Advanced technology is helping them unlock new energy resources and squeeze more from existing oil and gas fields. * New drilling technologies and techniques have extended the reach of wells to more than 10 kilometers. They have developed snake wells that are horizontal and can turn corners to asses’ small pockets of oil * Shell has also designed special metal casings called expandable tubular that help them to build longer wells. * Shell’s Smart Fields® technology integrates digital information systems with the latest drilling, seismic and reservoir monitoring techniques to better manage our operations.
5- Vertical IntegrationShell is vertically-integrated and is active in every area of the oil and gas industry, including from initial search for oil (exploration) through its harvesting (production), transportation, refining and finally trading and marketing.
6- Product InnovationShell developed more efficient fuels and lubricants that help their customers to go further on less.
Lubricant:Energy-efficient lubricants for vehicles improve fuel economy. Shell Rimula R6 LE is the latest lubricant. It reduces friction in the engines of trucks and buses, leaving a protective coating on engine parts.
Fuels:Cleaner engines with less friction are more fuel efficient. Their scientists have developed an advanced fuel economy that better prevents the build-up of engine dirt, reducing friction and raising fuel efficiency.
Home heating products:Shell Thermo Eco-Ultra is their Home Heating product designed for lower fuel consumption and cleaner burning. When you use it in a modern condensing boiler, it can reduce CO2 emissions by 30%
Shell from time to time produces new products for its customers. It invests a lot in its research and development department to produce innovative products for its customers.
7- Degree of product differentiationAs in oil industry the main products that all the companies provide are same. But shell differentiates its product on the basis of its quality and innovation. It also provide value added services like Gas and fuel cards, Route & journey planner and Gas and petrol station locator etc. They work to deliver cleaner burning and more efficient fuels. Their products and services are also designed to meet the needs of businesses from the construction industry to aviation, chemicals to shipping.
8- Core Competencies:The Shell is one of the largest and oldest firms operating in the petroleum industry. Shell has five core businesses: exploration and production (the “upstream”), gas and power, refining and marketing (the “downstream”), chemicals, and trading and shipping.
9- Economies of scaleThe cost advantage is that a business obtains due to expansion and due to its vertical integration. Shell has achieved its economies of scale for their customers in terms of quality and by performing its scenario analysis in 1980, but not in terms of cost because the cost of oil and lubricants is regulated by the government.
Comparison with its Competitors:Saudi Aramco’s:Saudi Aramco’s access to the world’s biggest and most accessible oil reserves give it an unassailable cost advantage over Shell, Exxon Mobil, whose production costs per barrel are at least three times those of Saudi Aramco.
ExxonMobil:With the competitive advantages of superior products, global scale, rapid deployment of best practices and focused marketing strategies, ExxonMobilFuels are a formidable competitor in the dynamic marketplace.
10- Experience and learning Curve:
Shell is one of the mature companies which keep on learning from its experiences and bringing innovations in its technologies to meet future needs. Shell is opening up new energy resources and squeezing more from existing resources to help power the world’s economies through its previous experiences and advanced technology.
1. Government stabilityWhen the government is unstable then it affects the oil companies adversely. World energy markets are becoming more volatile due to the threat of geopolitical instability. As far as SHELL is concerned, there has been government stability issue when it comes to countries like IRAQ and other OPEC countries where war has been going on for long but the rest of the countries it operates in experienced no such big off an event. As in UK the government is stable and supporting the oil industry and reducing trade barriers which helps to flourish the business. Taxation policy:
UK government’s imposed £2 billion tax raid on the UK North Sea oil and gas industry recent year’s Budget. Companies will now be taxed at between 62-81% on their UK oil and gas field profits. Industry body Oil & Gas UK claimed that it will decrease investment, increase import, high prices, and low demand, make travel and shipping more expensive, lower growth, low labor supply and drive UK jobs to other areas of the world.
2. Foreign trade regulation:Foreign trade regulations consist of tariffs, quotas, embargoes and export subsidies. This affects the decision making and sales of the company by creating hurdles in trade between two countries.UK trade consists of themovement of goods and services within the European Union (EU), of which it is a member, and to non-EU countries. International trade in the UK is assisted by UK Trade & Investment (UKTI). This government organization focuses on enhancing the competitiveness of UK companies through overseas trade and investments. It also aims at continuing to attract high-quality foreign direct investment (FDI).
Government, European Union, International laws, trade legislation all affects the way a company conducts business. For example the US, UK and Europe placed an embargo on trade with certain countries such as Iraq, which is rich in oil supplies. Therefore Shell is unable to extract, supply, or operate any kind of business operations in Iraq. Should Shell have any intentions to develop market growth strategies into this region such restrictions would impact the company’s business plan and Shell should neglect this as a possible objective.
1. Gross domestic product (GDP)It refers to the market value of all goods and services produced within a country in a given period. The Gross Domestic Product (GDP) in the United States contracted is 1.30%
Oil prices can be increased and it will also increase the price of other products.Shell stoked up the heated debate about the high cost of fuel on the forecourt today, after reporting it made profits of nearly 1.6m an hour over the last three months.
2. Interest Rates:The interest rates effect Shell that it increases the cost of the products. The interest rate of U.S.A is 0.25%. The Graph shows the fluctuation in the interest rate of U.S.A.
3. Inflation Rate:
The inflation rate in United States was 3.8 %t in January of 2011. The diagram below shows the inflation rate from year 2008 to 2011.
* In 2011 inflation increased which also increased the oil prices. * The demand or consumption of oil decreases with increased price of products and inflation rate.
4. Unemployment:In 2011 the unemployment rate in U.S.A is 9.1%.This highly effect on Shell, because as the rate of unemployment increased the purchasing power of people decreased and this effected on the consumption of oil. Because of the unemployment people don’t have that much income to spend and they only focus on the basic commodities to full fill their needs. This decreases the sales of petrol and other products which affected the oil industry badly. The graph shows the employment rate:
5. Disposable income:As the inflation rate increases the disposable income of UK citizens is decreasing year-on-year. The average family had £174 a week left to spend after meeting all of their essential outgoings, down from £183 due to inflation. If the disposable income decreases people will automatically stop spending on other luxury products, lessen their travelling which affects the sales of Shell. As we have seen the profit of Shell were reduced after the inflation.
6. Consumption based economy:The UK economy is more a consumption based economy. The more emphasize is on individuals not on family system. Because of which they don’t save more and spend on their own luxury and require cars which have larger engine sizes and therefore consume more petrol, enjoy more travelling and racing cars activities. Also the emergence of electronic money made the UK economy more consumption based as it allows customer to spend before although they don’t have need for the product.
Social and Cultural Factors:
In UK the income distribution is equal then other countries and they have usually small families. Both male/female earn for the family so they have enough to spend on the luxury items. So they purchase quality and costly products for their cars and consume more petrol by travelling.
2. Income distribution:
In UK the income distribution is equal and they have good pay packages. The companies also provide with the facility of fuel cards. This affects Shell positively by increasing the sales. 3. Life style Trends:
Lifestyle for example in the UK they possess are more luxury lifestyle and require cars which have larger engine sizes and therefore consume more petrol. People are more concerned about the quality of the products they are using for their cars and as well as people in these countries use petrol in their vehicle rather than CNG.
4. Attitude to work:
Shell has started its functions in different countries because: * The wage rates are less* More opportunities to grab the market share* People are devoted to their work* People are agree to work for more than 10hrs (the people of these countries has less job opportunities that’s why they are agree to work for longer period) * Low taxes and quotas* Flexible regulations
5. Level of education:
UK population consists of a large number being educated people they will have different preferences towards a more healthy society and ethicalenvironmental issues will determine their requirements. They focus on quality products for their cars and for safe environment so they prefer Shell which provides best products for them. Shell has mostly educated customer and the advantage is that they can understand the innovation, alteration and modification as well they easily adopt the product.
Shell has operated its functions more than the 90 countries and the most countries are new develop as well the labor has ability to learn new skills. Educated labor has vital role in the development of Shell because they can handle the advance technological machineries as well they can generate the innovative ideas as well services.
1. Government Focus:UK Governments have been supporting the expansion of the oil industry in one form or another for many years. They encourage the oil companies in research sectors and provide funds. They also introduce policies to save fuels for future. As petroleum sector is providing government with good revenues.
2. Speed of technological changeThe oil industry is rapidly adopting the technological changes. Shell is the largest investor in research and development among the major international oil firms. In 2009 Shell spent nearly $1.2 billion on the research and development of technologies that are used to produce: * More and cleaner energy
* More efficient fuels and products for our customers* Cost savings on labor, storage, payments and time.* Saves time as it is being a crucial element in business terms. * Sales and stocks are easily monitored, recorded and reported faster and easier. * New drilling technologies and techniques have extended thereach of wells to more than 10 kilometers.
Innovation is always being the foundation for shell’s new technology concepts. Shell was the first one to introduce advance environmental technology products like Shell Thermo plusBio10 & Shell Fuel Oil Plus. The new methods of exploring and extracting the resources are taking over rapidly. Traditional handling of pumps at the gas stations is replaced by digital handling. But still the technology obsolesce rate is low in oil industry as compared to other industries.
There are many laws related environmental issues in U.S.A:
Clean Air Act (1970):
Sets goals and standards for the quality and purity of air in the United States. By law, it is periodically reviewed. A significant set of amendments in 1990 toughened air quality standards and placed new emphasis on market forces to control air pollution.
Clean Water Act (1972):
Establishes and maintains goals and standards for U.S. water quality and purity. It has been amended several times, most prominently in 1987 to increase controls on toxic pollutants, and in 1990, to more effectively address the hazard of oil spills.
Shell, set up operations in the 1950s and since then, the land, water, and air has been polluted to such a great extent that the Ogoni people livelihood was threatened. After more than thirty years of Shell Oil threatening their way of life, the Ogoni people finally organized and began to protest. After that Shell had decided that the political unrest and badpress was not worth the effort and pulled out of Ogoniland. After the incident Shell emphasizes on environmental legislation, government permission and licenses. Shell try’s to follow the bureaucratic procedures and apply for licenses and permission from the government’s authorities before they can perform any drilling in the search for natural resources, such as fossil fuels.
As environmental issues are major concern for companies like Shell since their business is reliant on natural resources. Because materials such as oil cannot be replaced once used up. These materials are of limited supply. The burning of oil gives off harmful emissions and damages the environment.
1. Competition law:The competition laws which Shell is considering:* Shell company and in every Joint Venture company under control must follow the laws. * We seek to compete fairly and ethically and within the framework of applicable competition laws; we will not prevent others from competing freely with us. * Shell companies act in a socially responsible manner within the laws of the countries in which we operate in pursuit of our legitimate commercial objectives.
* Shell companies do not make payments to political parties, organizations or their representatives. * Don’t proceed with an import if there is any doubt about its legality * Don’t get involved in any aspect of business with a country that has been sanctioned by the country of your nationality or citizenship * Don’t attempt to take restricted goods into a country without properly declaring them to the Customs authority. * Don’t attempt to import prohibited goods.
Main legislations regarding competition laws are:
* Competition Act 1998* The Fair Trading Act 1973
2. Health & safety:
The health and safety procedures Shell using are:* Shell aims to do no harm to people and to protect the environment. You should treat others fairly and with respect. * In our downstream business we invested $1 billion in 2010 alone to improve the safety and reliability of our refineries, chemical plants and distribution facilities. * Procedures for making immediate reports of workplace injuries, unsafe work practices or conditions, or any other type of safety environmental hazard. * Shell has proper working environment in which employees can work for long time. * Shell has proper medical allowances as well health insurance of their employees * On their petrol pumps they don’t allow their workers to work more than 9hrs.
Main current legislation covering the downstream oil sector is:
* Control of Major Accident and Hazards (COMAH) regulations 1999. * Health and safety legislation (including licensing of petrol stations).
3. Employment law:
Shell has 93,000 employees in more than 90 countries. And the employment law varies from country to country differences such as wages, health and safety standards, redundancy policies etc.
Potential strengths:* Investment in exploration* Research in biofuels* Diversification in products* Use of scenarios for future* ReputationPotential internal weaknesses:* Search for replacement supplies* Environmentally unacceptable activities
* Political situation in Nigeria* Commitment to alternate requirements
Potential external opportunities:* New oil and gas reserves found.* Moving across rich areas in reserves.* Relationships with environmental groups.* Emerging economies.* Diversification into new products.Potential external threats:* Fuel prices* Political issues in Nigeria* Oil tanker strikes* economic downturn* WeatherDRIVING FORCES:
Are the driving forces causing demand for industry’s product to increase? Growing use of internet will increase the demand for products because more and more people will purchase products online. The shell company will grow more and more so it will operate in more and more countries so demand will be more. The industry growth rate will either decrease or increase the demand because if it grows demand will be more but demand will decrease if it decreases. Take the example of Pakistan where CNG has overtaken the oil industry. Product innovation like Caltex has brought oil which cleans the engine so this is a new product and the demand will be more and more.
This depends on the driving forces. The marketing innovation such ads can have effect on the demand of products. When majors firms enter there is demand for their products because they bring something new. So when they leave the demand for products of remaining firms increases. When there will be changes in cost efficiency then there will be more demand because the customers will get other items on less cost so if you are providing in our case if shell is providing products which are cost efficient so there will be more demand for products. When more and more firms will enter the market and when risk of doing business decreases there will be competition and demand for productsof new oil companies will increase.
The demand of products of shell will decrease a little because of other companies entering the market.
Are driving forces making competition more intense or less?Growing use of internet will make the competition more intense because companies selling on the internet will be more profitable. The shell company l will grow more and more so it will operate in more and more countries so the competition will be more and more intense. The industry growth rate will either make competition strong or weak if the industry is growing more and more companies will invest and they will try to give shell a tough time. Product innovation will make competition more intense because this depends on the driving forces.
The marketing innovation such ads can have effect on the demand new companies will come with more new and advanced products. When major firms enter there is intense competition. New firms coming will increase competition till they survive. If they fail and leave the competition will decrease .When there will be changes in cost efficiency then there will be more competition because the customers will get other items on less cost so if you are providing in our case if shell is providing products which are cost efficient so there will be more competition when more and more firms will enter the market and when risk of doing business decreases there will be competition.
Will driving forces lead to higher or lower industry profitability? Growing use of internet will lead to higher profitability because companies selling on the internet will be more profitable. The shell company will grow more and more so it will operate in more and more countries so the profitability will be more and more intense. The industry growth rate will either make profitability more or less because if the industry is growing more and more companies will invest and they will try to give shell a tough time. In the beginning the profitability will be less because there will be competition.
Everyone will be looking to be the best so they will lower their prices. Product innovation will make profitability less in the beginning because few customers will use the product in the beginning. When they use and when they feel it is well enough then they will buy it more often then profitability will increase. Advertisements and other marketing concepts can increase profitability because if those ads are attractive enough then people will buy the product but these ads cost a lot so the profitability achieved will be to overcome the cost lost in these marketing ways. When major firms enter there is intense competition.
New firms coming will increase competition till they survive so the profitability will decrease .When there will be changes in cost efficiency then there will be more less profitability in the beginning because the customers will get other items on less cost so if you are providing in our case if shell is providing products which are cost efficient so there will be less profitability because the prices are very low. when more and more firms will enter the market and when risk of doing business decreases there will be less profitability
ANLYZING THE NATURE AND STRENGHT OF COMPETITIVE FORCES:
1-Rivalry intensifies more frequently and more aggressively industry members take actions to boost market standing:
a) Marketing TacticsPromotion “Advertising is any paid form of non-personal presentation and promotion of ideas, goods or services by an identified sponsor.” Objective of Advertising: Shell Shell adopts the same strategy. It advertises both on electronic and print media to keep its customers well informed. The company has also started a magazine named “Spirit” to promote its products. Kinds of Advertisement:
There are different kinds of advertisements which a company may adopt during the PLC. Shell also requires advertising its products in order to create