Analysis of British Petroleums Methods of Growth - Essay Example

Analysis of British Petroleum Background Anglo-Persian Oil came into existence in 1909, and operated its interests under the flagship of this name for the next six decades. The company focused its activities in the middle-east region; however, British government nationalized the company in order to ensure complete control over the oil supplies during the World War 1 (Ferrier, pp. 24-32). After, the Iranian government nationalized its operations in 1951; the British Petroleum diversifies its operations in all other major oil-producing countries. After consolidating its operations, British Petroleum (BP) continued to expand its operations through mergers and acquisitions. In the United States, BP expanded its operations through the acquisition of US Standard Oil Company (Longhurst, 23-27). BP has made considerable efforts to make sure that it continues to diversify within the energy markets other than the petroleum products. It also has a 50 % stake in the solar energy company it purchased from Enron, the BP Solarex. The company markets its products to about a hundred different countries. Its turnover exceeded over US $ 239 billion in 2009 and it employs a diverse group of over 92,000 individuals. Structure British Petroleum (BP) became Britain’s largest and the world’s third largest oil exploration company, after its acquisition of Amoco. BP focuses on the exploration and production of natural gas and oil products. It has achieved economies of scale in various segments of its business and has vertically integrated over the last two decades. The company is involved in refining oil products, marketing its own products, and handling the transportation of its products to merchandisers. Moreover, the company also markets the by-products of crude oil produced during the refining process. It is involved in the production of acetyl products, aromatics and certain polyester intermediaries. The exploration business conducts research and locates oil and natural gas sites. Once located a cost-benefit analysis determines if drilling is feasible. Once feasibility has been determined, BP engineers work on field development, after which drilling of crude oil commences. Then the crude oil moves to the refining sites. BP performs all these mid-stream and up-stream tasks by itself. Alternative energy business segment focuses on developing new technologies. It is successfully catering energy needs through production of solar and wind energy. Research on bio-fuel products is also underway and other alternative sources of energy are being developed and marketed. Objectives A key objective of British Petroleum is to maintain a sustainable momentum towards growth. The strategy used by the company aims at focusing both at the current and future growth of the company. BP believes that taking safety, the human resources, and the company performance into account is a key to sustainable development for the company. Moreover, the company aims to be the best in its industry and to fill the competitive gaps in its markets. Methods of Growth British petroleum has expanded its operations through both organic and inorganic growth. The company strategically expanded its activities organically in the countries and regions of its expertise. It substantially intensified its exploration efforts in the middle-east countries and Southeast Asia. After, nationalization of its operations by Iran, the company focused on countries with lower political risk. However, the company could not meet all its growth needs organically. To intensify its expansion efforts it positioned itself in major markets through mergers and acquisitions. These mergers proved successful in sustaining the edge of BP over its competitors. BP expanded its operations through mergers in North American and European markets (Bamberg, pp. 172-179). Expansion into various markets was the result of efforts to diversify its operations. Growth into the alternative energy products and markets is another achievement of the company. In the last decade, BP has focused more on its core business functions, while agreeing to outsource functions in which it lacks expertise. The company has outsourced a number of its information technology related functions in order to improve its operating results and services. However, the company has growth its transportation networks over the last few years. The petroleum market is very volatile and experiences sudden shifts in demand and supply. To be able to maintain a competitive position in the market, BP as a company is very flexible. Operating agility provides BP with an edge over most other companies, since BP has its operations in six different continents, the mobility of its products is improved, and there has been effective handling of supply and demand. British Petroleum relies on its research capabilities where it is able to identify the best markets for oil exploration and growth. The expertise of the company and its competitive position has enabled the company to obtain licenses and contracts for oil exploration in various countries. By maintaining is ethical values, and by giving back to the society, BP has worked hard to maintain its image for the consumer. SWOT Analysis BP’s strengths includes its heavy presence in the global markets and its strong positioning in the US and the European markets. Since, these markets are the largest consumers of petroleum products; BP has developed long-lasting relationships in order to provide for a sustainable demand for its petroleum and industry products. Moreover, the company is well established and known for its drilling and exploration expertise in the middle-eastern markets from where it derives its supply of oil (Yergin, pp. 86-93). In addition, contracts and deals with local governments in the middle-eastern markets provide it with certain cost and efficiency related benefits. The company has however experienced certain safety lapses in the past adding to its weaknesses. This implies that the company can suffer major losses if such incidences continue to happen in future. Moreover, substantial losses can result from litigations and contingencies attached to lack of safety provisions. The company had to suffer major losses due to technical issues in the thunder horse project due to commence in the Gulf of Mexico. Increasing demand for fuel in both the developed and the emerging economies provide scope for further expansion and improvement in profitability. Opportunities continue to exist by increasing fuel demands in the transportation sector. In addition, the market for liquefied natural gas is increasing; this provides further growth opportunities to BP. The occurrence of hurricanes has substantially increased over the past few years. This exposes the company operations in the United States to various hurricane related threats. These may include looses due to temporary shutdown of operations leading to imbalance in demand and supply. In addition, it is important to note that the drilling costs in the North Sea region are continuing to increase drastically, resulting on a squeeze on profits from the region. PEST Analysis British Petroleum has its operations in six different continents and aims to diversify its business as much as possible. This reduces the political risks faced by the company. However, since petroleum remains a strategic asset, political risk can be minimized but not eliminated. The economics risks for BP involve the volatility in the prices and demand-supply of petroleum products. Furthermore, natural disasters such as hurricane pose risk of economic losses to the company. The current slowdown of most economies may also result is a slack in demand for some time. Social risks attached to the operations of BP are significant due to a lack of safety provision for its operations in various emerging economies. Investment in technical infrastructure can help the company reduce its social risks. Technological risks include replication of its technology by competitors due to a leakage of information, as a large part of the BP information technology work is outsourced. In addition, development of more efficient technologies by competitors can result in a loss of competitive position of the company. Conclusion British Petroleum is a success story in the global markets and it has a competitive position in its markets. However, improvement in the technical side of the business is required to improve the technologies used in the business and to ensure safety. In conclusion, the company must continue to diversify its operations and focus on its competitive strengths including refining and exploration businesses. Works Cited Bamberg, James. British Petroleum and Global Oil. Cambridge University Press, 2000. Ferrier, Ronald. The history of British Petroleum Company. Cambridge University Press, 1994. Longhurst, Henry. Adventure in Oil: the story of British Petroleum. Sidgwick and Jackson, 1959. Yergin, Daniel. The Prize: The Epic Quest for Oil, Money, and Power. Free Press, 2008. Read More