BP Malaysia External Environment

We expect you to select the company or organisation which you work for and answer the assignment in that context.

If you are currently unemployed you might choose a company which you used to work for.

You might wish to include an outline summary of the company in an appendix, which would be outside the assignment’s word count

You should ensure you address the following key areas:

1.General societal trends and their implications for the organisation (i.e. PEST analysis); 2.Industry competitive position/competitive dynamics (i.e. using Porter’s five forces) 3.Competitor analysis (comparative analysis of key competitors and/or strategic groups if applicable) 4.Market trend analysis (i.e. general trends, segmentation and emerging opportunities).

The application of the above should be characterised by underpinning evidence, interpretive/analytic approach (rather than mechanistic), and drawing of appropriate conclusions for your chosen organisation.

Concentrate on analysis rather than description!

Assignment Task:

Conduct a thorough strategic analysis of your organisation’s external environment – (or one with which you are familiar) – using the models covered in the course – and critically evaluate how the identified issues might impact on your organisation’s business strategy. Strategic Management is the set of decisions and actions that result in the formulation and implementation of plans to achieve a company’s objectives. Through the strategic management process, managers at all levels interact to produce the most desirable strategies. Strategic management enhances the company’s ability to prevent problems.

The implementation phase of strategic management consists of two parts: analysis and choice, which are vital links in the process. When conducting analysis and making choices, you set long-term objectives, analyze it and choose generic strategies – low cost, differentiation, focus (niche), that best fit your company mission and changing circumstances by using various techniques. By choosing the right strategy, your company will be more effective at building sustainable competitive advantages as well as maximizing shareholder value. The external environment consists of the factors and forces that influence the company’s strategic options and define the company’s competitive situation. An analysis of the external environment is an attempt to understand the forces outside organizational boundaries that are helping to shape the organization. The factors and forces in the external environment are so dynamic and interactive that the impact of any single element cannot be wholly disassociated from the impact of other elements. For instance, the increases in OPEC oil prices were caused by multiple factors, including economic, political and other factors. Assessing the factors in a firm’s external environment is important for strategic decision-making. It helps managers to narrow the range of available options and to eliminate options inconsistent with forecasting results.

There are three categories of factors and forces:
•Remote environmental
•Industry Environment
•Operating Environment

BP is one of the world’s largest energy companies, providing its customers with fuel for transportation, energy for heat and light, retail services and petrochemicals products for everyday items. BP started life as a pioneering company, at the frontier of what was possible. BP continue to push back the boundaries, from the giant finds in the Middle East, to the frozen tundra of Alaska, and by securing access to new resources and markets around the world. In Malaysia, since 1964, BP has been helping to fuel Malaysia’s amazing economic transformation. Four decades and $1.5 billion later, BP has a thriving lubricants business, solar energy distributors and four major chemicals plants with over 750 employees.

BP Main Business/ Product Line
Firm’s business line differentiates its overall business and products with their competitors and how they gain & maintain its competitive advantage. BP’s main business includes:

BP in Malaysia
Castrol, BP and Duckhams brands lubricants are a familiar sight on forecourts across the country, with a 32% share of the market. All three brands are produced and blended at its production facility in Port Klang. BP has a purified terephthalic acid (PTA) plant near Kuantan, and its co-own an acetic acid plant at Kerteh on the peninsula’s east coast. The acetic acid is mainly exported to other Far East countries for use in plastics, but some is fed back to Kuantan, where it’s a vital ingredient in its PTA production process. BP likes to keep things local. At the acetic acid plant, they’re working with the Malaysian company PETRONAS under the name BP PETRONAS Acetyls Sdn Bhd (BPPA).

At the end of this assignment project paper it will unveils the strategic planning performed by BP till it become the established, strong and well known Oil & Gas company in Malaysia and international level. It’s also reveals BP external factors evaluations, assessments and SWOT. The analysis conducted will show how effective BP strategic planning in their business.

Remote Environment
A firm is influenced by many factors, including those outside its operating situation. These factors comprise the remote environment, which presents a firm not only with opportunities, but also with threats and constraints. Despite the impact of remote factors, a single firm rarely has the power to affect the remote environment. For example, if the economy is in a slump and construction projects slow down, it is nearly impossible for a contractor to alter this situation. The economic, social, political, technological and ecological factors (PEST Analysis) are greatly affect a firm’s situation and therefore should also affect its strategic planning.

•Economic
Economic factors greatly influence the remote environment. These factors relate to the nature and direction of the economy in which a firm operates. Economic trends that affect a firm’s industry must be considered because they are influenced by the changing needs of different market segments. On both the national and international level, credit availability, the level of disposable income, and people’s patterns of spending are economic factors to be considered. Prime interest rates, inflation rates, and the trends in the growth of the gross national product are other economic factors that cannot be neglected in strategic planning. For instance, the current downturn in the economic situation in Asia will undoubtedly contribute to some shrinkage in banking sector.

This lowers the consumption of luxury goods and increases price consciousness. The organizational analysis should on those aspects of the economics system that directly impact the type of project being considered. For example, inflation, labor laws, and opportunity costs for researchers in public institutions directly impact organizational activities. The globalised nature of today’s corporate world meant that no one could completely avoid being affected by economic forces, but it was possible to militate against the impact. At BP, much of that guidance came in the shape of Group Treasury. BP treasury has multiple short-and long-term financial functions, including raising dept in the capital markets, managing the company’s foreign exchanged providing insurance, managing the Group’s pensions funds and providing advice and support to businesses in a range of financial areas. •Social

Social factors that influence a firm include the beliefs, values, attitudes, opinions, and lifestyles of people in the firm’s external environment. They are shaped by cultural, ecological, demographic, religious, educational and ethnic conditioning. Because of the environmental consciousness of the public, more environmentally friendly or ‘green’ products appear in the market. BP Malaysia works in partnership with the Centre of Environment, Technology and Development Malaysia, on their Climate Change initiative. This makes BP the first private company as well as the first business unit within the BP group to enter into such a partnership with the objective of taking positive action to address the issue of climate change. Biodiversity is now a dominant theme in the global conservation movement. In early 2000 BP initiated a unique partnership which would impress upon Malaysians the importance of managing and conserving our biodiversity.

Social and cultural forces at local, nation, and often region levels have profound influence on the way organizations conduct their work and on what they value in terms of outcomes and effects. For examples, the more of an indigenous culture have a bearing on the work ethic and on the way in which people relate to one another. Undoubtedly, the most profound cultural dimension is language. Understanding the national/region/local values toward learning and research that is what valued. For example, what is the relative priority placed on contract research in partnership with local clients e.g. testing products and procedures with indigenous populations, as opposed to sharing information with academic peers internationally, or generating biostatical data that will shape nation or region policy? Arriving at these priorities involves culture-based decisions. BP involvement in education is diverse and wide ranging. BP help to fund a range of education programs, from early years learning to advanced university research, building skills and capability in communities.

BP Malaysia works in partnership with the Centre of Environment, Technology and Development Malaysia, on their Climate Change initiative. This makes BP the first private company as well as the first business unit within the BP group to enter into such a partnership with the objective of taking positive action to address the issue of climate change. Biodiversity is now a dominant theme in the global conservation movement. In early 2000 BP initiated a unique partnership which would impress upon Malaysians the importance of managing and conserving our biodiversity.

School-level programmes
In supporting school education, BP looks to develop children’s awareness of links between energy and the environment, as well as stimulating interest in science and engineering. For example 2008 marked the 40th anniversary of the BP School Links programs in the UK, which enable children to visit BP’s plants and laboratories and BP staff make visits to schools. Contribution to communities – BP continued to build the skills of local companies, including BP suppliers, in countries such as Angola, Indonesia and Azerbaijan, and used a new system for screening supplier’s human rights records in China. BP also continued with large-scale projects to bring solar power and cleaner, safer fuel to rural populations in Sri Lanka, the Philippines and India.

•Political
Political factors also affect a firm’s remote environment. The factors define the legal and regulatory parameters within which firms must operate. Political constraints are placed on firms through antitrust laws, fair-trade decisions, tax programs, pollution policies, and so forth. Since laws and regulations restrict the firm’s operation, they are likely to reduce the potential profits of firms. There are some exceptions, such as patent laws or government subsidies, which are designed to benefit and protect firms. Thus, political factors may either limit or benefit the firms they influence. •Technological

Discoveries may create new products or shorten life of manufacturing facility. To be innovative, a firm must be aware of technological advances that might influence its industry. Important technological discoveries can suddenly and dramatically affect a firm’s environment. Discoveries may lead to the appearance of new markets and products, as well as shorten the life of manufacturing facility. Thus, firms must be aware of current and future technological advances that may influence their products and services. Technological forecasting can help protect and improve the profitability of firms in growing industries. Its alert strategic managers to both impending challenges and promising opportunities.

Technology plays a crucial role in addressing the world’s energy challenges and is a key factor in maximizing the effectiveness of investment. Inside BP, as a major International oil gas (OIC) operating on the industry’s frontiers, research and technology is critical for its competitive business performance and new business development.

Beyond R&D, BP also invest in technologies to get them to the point of commercial readiness; BP have 20 major technology programs across their business segments. Expenditure on research and development (R&D) in 2008 was $595 million, compared with $566 million in 2007. In E&P, there are 10 flagship technology programmes, including our latest advanced seismic imaging technique, enhanced oil recovery which applies digital technologies and uses real-time data from oil and gas fields to optimize production and improve recovery.

•Ecological/ Environment
As strategic managers forecast into the 21st century, one of the most prominent factors in the remote environment is the relationship between business and the ecological environment. Problems such as water, land, and air pollution can affect decision-making. Businesses are major contributors to ecological pollution. Government as well as public demand is also requiring managers to consider ecological problems in their decision making. The impact of ecological factors on strategic decisions is felt across a wide spectrum of industries and business. Just as the Operating Management System (OMS) sets a framework for safe operation, it also provides sites with a systematic approach to reducing environmental risk. BP has taken a progressive stance on several environmental issues for more than a decade, launching voluntary initiatives to reduce Direct Green House Gas (GHG) emissions, for example.

In reviewing environmental strategy in 2008, BP determined priorities of managing risk, with a particular focus on sensitive areas; driving continuous improvement; and complying with applicable laws and regulations. Using technology to address environmental concern

Research and development of new technology helps us find ways to reduce the environmental impact of providing energy. Exploration & Production (E&P) environmental technology program, for example, examines environmental risks linked to upstream activities such as access, seismic surveys, drilling and operations. In Refining & Marketing (R&M), technology research seeks to minimize environmental impacts from our own operation and from the use of our products. We are supporting for example independent research into emerging technologies for improving wastewater treatment option from refining. BP also participated in many joint industry technology projects, such as those overseen by the Global Petroleum Industry Research Institute. Projects cover diverse themes, such as produced water, monitoring technologies, or research to understand how offshore sounds affect marine mammals.

Industry Environment
The industry environment is always the foremost in strategic thinking and business planning. Through the Porter’s Five Forces analysis, the structure to which there are only a few firms in the industry, product differentiation from other companies, relationship between volume of production and average cost per unit, barriers companies must overcome to enter the industry can be identified. A company has a very strong position in an industry when it has no threat of potential entrants. When a superior or lower-cost substitute product appears, the strategy for competing with this product will be the most important issue for the firm to consider. Thus, a firm must understand its industry environment very well in order to beat out the competition. The threat of new entrants is an important force to be considered in strategic formulation. New capacity, desire to gain market share and substantial resources are the main issues a new entrant brings to the market. Suppliers can affect the profitability of an industry by raising prices or reducing the quality of purchased goods and services. Powerful suppliers can actually limit the profitability of an industry to the extent that the industry is unable to recover cost increases in its own prices.

Large price increases by packaging producers have led to the erosion of profitability by companies. Because of the intense competition in the industry, it’s difficult to compete with other producers. Another important force in industry environment is the bargaining power of buyer groups. Customers can force price decreases, demand higher quality or more services, and play competitors off against each other. Another contending force in the industry environment is the substitute products. Substitute products or services affect the industry’s growth by limiting profit potential and forcing price reductions or performance improvements. If the product is not differentiated or its quality is not upgraded, the industry’s earnings and growth may be adversely affected. Jockeying for position is another force in the industry environment. Existing competitors use tactics such as price competition, product introduction, and advertising battles. Different forces take effect in different industries. Therefore, a firm must seriously consider the contending forces in its industry to achieve success and maintain profitability.

The strategies adopted by firms in the same industry must be varied and most of all, adapted to their operating environments. Therefore, every firm needs to do a through analysis of its industry and competition. Defining an industry’s boundaries is a critical issue in industry and competitive analysis. A definition of industry boundaries help executives determine the arena in which their firm is competing and the key factors to success. Defining an industry’s boundaries also helps a firm identify its competitors and forecast demand for its products and services. Since there is no precise rule for defining industry boundaries, and industry change constantly, it’s difficult to a firm to successfully define industry boundaries. The difficulties stem from sources such as: Industrial evolution creates new opportunities and threats, creates industries within industries, and becoming more global in scope.

The starting point for drawing accurate boundaries for an industry is the definition of the industry in global terms. This involves consideration of the industry’s international, as well as domestic, components. There are four issues that must be included in a realistic definition of an industry – Part of the industry that is a firm’s main business, Ingredients keys for success in specific business area, Skills needed for competition, Flexibility to adjust business concept. To completely define industry boundaries, it is also important to understand the industry’s structural attributes – the enduring characteristics that give an industry its distinctive character. To understand the structural attributes that comprise industry structure, a firm must examine four variables – Concentration, Economies of Scale, Product Differentiation and Barriers to Entry. Analysis of these four industry variables helps strategic planners understand the forces that determine competition in an industry. It also sets the stage for identifying who the competitors are and how they position themselves in the marketplace. Industry and competition analysis is a critical issue during a firm’s strategic planning. It helps a firm’s executives to completely understand the position of the firm in the industry.

Operating Environment
More than other external environments, a firm’s operating environment is typically subject to the firm’s influence or control. Therefore, a firm must be proactive in dealing with its operating environment. These include factors that affect a firm’s success in acquiring needed resources or in marketing its goods and services. When a firm assesses its competitive position it has a better chance to design strategies that maximize its environmental opportunities. By developing a competitor profile, a firm can more accurately foresee its short and long-term growth and its potential for profits. There are many character often used to help construct competitor profile:

• Market share and breadth of product line
• Effectiveness of sales distribution and promotion
• Proprietary and key-account advantages
• Price competitiveness
• Location & age of facility
• Capacity & productivity
• Raw material cost
• Financial and R&D advantages position
• Caliber of personnel

When key criteria are selected for a competitor profile, they can be weighted to indicate how important they are to a firm’s success. This information can be used to help a firm define its competitive position and to identify factors that might make it competitors vulnerable.

A customer profile is another important factor in the operating environment. Making a profile of a firm’s customer helps managers plan strategic operations, anticipate changes in the markets, and reassign resources. The customer profile information can be obtained from geographic, demographic, psychographic and buyer behavior background. Awareness of the importance of customer profiles has led to increased market research, which in turn has led to direct changes in company strategies.

Another factor in the operating environment is the relationship between a firm and its suppliers. Dependable relationships are essential to a firm’s long-term survival and growth because a firm depends on its suppliers for financial support, services, materials, and equipment. Several key issues include: Supplier competitive prices or attractive quantity discounts; less costly shipping charges, or suppliers who are competitive in terms of production standards; supplier’s competitive abilities, reputations and services in terms of deficiency rates; suppliers who are reciprocally dependent on the firm. For example, the quality, speed to market and the cost efficiency of an automaker are strongly tied to its ability to work with its supplier.

The ‘Just In Time’ inventory system invented by Japanese automaker works only if the automotive suppliers cooperate. A firm’s relationship with creditors is also an important factor to be considered in operating environment. Because the quality, quantity, price, and accessibility of financial, human, and material resources are rarely ideal, assessing creditors is critical. The importance of a company’s relationship with its suppliers and creditors depends on the nature of its business. These relationships are usually more critical for manufacturing companies, which need to have a strong supply chain in order to produce quality products and a good banking relationship to borrow money.

A firm’s ability to attract and retain capable employees is essential to its success. However, the operating environment influences its personnel recruitment and selection. Three factors that affect a firm’s access to needed personnel are the firm’s reputation, the employment rate, and the availability of the needed people. A firm’s reputation is a key factor in satisfying its personnel needs. If a firm is permanently in the community, or if the firm provides competitive compensation packages and is concerned about the welfare of its employees, the firm is likely to attract valuable employees. The availability supply of skilled and experienced personnel depends on the stage of a communities, a new manufacturing firm would have more difficulty hiring skilled employees than it would in an economically depressed community. The availability of people with specialized skills may have to broaden the geographic area in which its searches.

The operating environment directly affects a firm’s success in getting its needed resources or marketing its goods and services. Knowing the related factors in the operating environment helps managers to make reasonable decisions on how to run the firm.

The most important factor to being successful for BP is ‘Demand for natural gas is growing fast as indicate 0.25 weights’. BP believes that exploring offshore could help meet energy needs. Today, natural gas accounts for over 40% of BP’s hydrocarbon portfolio in the US. Global demand for energy is expected to increase in the long term. The biggest threat for BP is high oil price and volatile oil product prices as indicate 0.25 weights. To overcome this threat, BP is using their skill, knowledge and innovation to get more from existing fossil fuels resources.

3.3Conclusion
Understanding the external environment therefore helps to contextualize the understanding of performance. For instance, the usefulness of a particular organizational strategy or structure can be directly influenced by the organization’s external environment. The extent to which resources are available is influenced by the external environment, as are the internal policies and procedures deployed by an organization to control these resources. The external environment influence the choices an organization makes regarding its programs, types of outputs, and the standards of judgment that are appropriate and acceptable by which to measure its progress in fulfilling its mission.