External Analysis on Petron
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A. General Environment
General Environment is also called External Forces, which can be divided to five broad categories: (1) Economic Forces; (2) Social, Cultural, Demographic, and Natural Forces; (3) Political, Governmental and Legal Forces; (4) Technological Forces; and (5) Competitive Forces.
Changes in external forces translate into changes in consumer demand for both industrial and consumer products and services. External Forces affect the types of products developed, the nature of positioning and market segmentation strategies, the type of services offered, and the choice of businesses to acquire or sell. External forces directly affect both suppliers and distributors. Identifying and evaluating external opportunities and threats enables organizations to develop a clear mission, to design strategies to achieve long-term objectives and to develop policies to achieve annual objectives. (David 2010)
1.) Economic Forces
Economic forces refer to the nature and direction of the economy in which business operates. Economic factors have a tremendous impact on business firms. The general state of the economy, interest rate, stage of the economic cycle, balance of payments, monetary policy, fiscal policy, are key variables in corporate investment, employment, and pricing decisions.
1.1) Organization of Petroleum Exporting Countries (OPEC) Policies. An organization consisting of the world’s major oil-exporting nations. The Organization of Petroleum Exporting Countries (OPEC) was founded in 1960 to coordinate the petroleum policies of its members, and to provide member states with technical and economic aid. OPEC is a cartel that aims to manage the supply of oil in an effort to set the price of oil on the world market, in order to avoid fluctuations that might affect the economies of both producing and purchasing countries.
Opportunities – With OPEC, Petron, along with its competitors are guided as to how they should properly manage and run their company to avoid disputes with other companies and countries. OPEC also helps Petron and all other Oil Companies belonging to its organization aid in aspects that it encompasses.
Threats – OPEC’s control also hinders Petron’s freedom in some aspects, like its pricing and policies.
1.2) Price fluctuations are the rising and falling of the prices for the given product. It is very much common in oil companies as the prices inflate and deflate.
Opportunities – With these fluctuations, Petron will have the opportunity to invite in more consumers if they are able lower their prices better than their competition. They will also create a better relationship with their consumers and gain their loyalty when their oil products’ prices often deflate.
Threats – Not only Petron has price fluctuations. Its competitor might be able to have better outcome due to these fluctuations. Price inflation does not mean bigger profit, it means that the prices of the products themselves increase due to more expenses, therefore it poses a risk to the company as well.
1.3) Inflation rate is the percentage rate of change of a price index over time. Evaluation:
Opportunities – When prices inflate, there may also be chances to have more profit.
Threats – As stated above on the previous page, price inflation does not always mean more income; it may also mean more loss for the company, along with losing more consumers.
1.4) Tax rates are the percentage of taxes laid for the merchandise. It is considered as burden for the company for that percentage will go to straight to the government instead of being an additional income for the company.
Opportunities – Tax may be a burden on the company itself but due to tax, the company will be able to contribute for the betterment of the whole country. As the country develops, more and more consumers will be able to afford cars, leading to the boom of the oil companies.
Threats – Tax eats up large amounts of the income gained by the company. Petron’s tax rate is said to be 30% which is pretty much a heavy burden on the company’s treasury.
1.5)Consumption Patterns are the usual rhythm of the consumers in buying the products. Evaluation:
Opportunities – The patterns may at times be helpful and profitable for the company. With these patterns, Petron will be able to plan ahead in order to have the best output possible.
Threats – These patterns may not always be profitable for the company and when needed to avoid are sometimes inevitable.
2.) Social, Cultural, Demographic, and Natural Forces
Refers to the factors involved in starting a business. Such as religious beliefs, strata, age, level of education, infrastructure, among others. These forces make up the identity of the population that is targeted by the company. 2.1) Buying habits refers to the marketing lifestyle of the consumers. It may pertain to their attitude in buying products, when they want to, how they want to or how much they want to. Evaluation:
Opportunities – With these buying habits, the company will be able to create predictions and plan ahead in order to control the market. They will be able to know when a consumer will buy and how much they are willing to spend due to conditions and season. Threats – The buying habits of the consumers do not always produce positive effects for the company. It may at times result to lesser spending of the target market. 2.2) Attitude towards customer service
Opportunities – The company has the opportunity to create more relationships and deepen the already existing positive relationships with their consumers to gain more of their loyalty and to assure their patron. Threats – Petron may not be that successful in creating great relationships with its consumers and may drive away its buyers instead. 2.3) Pollution control refers to the action of minimizing the pollution in the country. It creates opportunities and threats for the company regarding the quality of the company’s products. Evaluation:
Opportunities – The company will create a bigger name for themselves if their product maintains or become more eco-friendly. They will also be able to prove that their product is superior to their competition in this sector. Threats – The cheap and low quality products of the oil company may have the chance to be banned or create a negative notion in the name of the company. 2.4) Number of deaths
Threats – Death minimizes the target market and the number of consumers for the company. 2.5) Attitudes towards product quality
Opportunities – Petron’s products’ qualities’ chances of enforcement and enhancement increases. Threats – Not only the company itself but also its competitor tries to enhance their merchandise, which leads to stronger competition. Also, Petron’s attitude towards product quality may not always lead to their products’ upgrade. 3.) Political, Governmental and Legal Forces
Political and legal forces are two of the three most important aspects for a business, with social forces being the third. Politics is a changing scene, and the rules and laws will change not regularly but often enough. Different elected parties have different feelings about certain business practices and use or alter the laws to change these.
3.1)Government regulations and deregulations refer to the government’s policies.
Opportunities – Some government regulations helps oil companies in gaining more profits and gives more order to the oil industry in the country, Threats – Other government regulations hinder oil companies’ growth and earning of profit.
3.2)Environment Protection Law
Opportunities – Eco-friendly products of the company are rather promoted than prohibited. Threats – Company’s products, which are considered harmful to the environment, are not promoted but rather demoted. 3.3)Import-Export Regulations
Opportunities – Export of company’s products is an addition to its profits and gains. Threats – Import of foreign products creates bigger and greater competition that the company should fight in. 3.4)World-oil, Currency and Labor Markets
Opportunities – The market itself is the lifeline of the company. The better it gets, the greater the benefit for the company itself. Threats – The market is not only for the company. Its competitors also have their share in it. 4.) Technological Forces
This refers to changes in technology, which can have a significant impact on a company’s processes, pricing of competition or even the obsolescence of a company’s product. If one company develops a product, which is technologically superior to another company’s product at a competitive price, both firms will feel the impact of that advancement.
4.1)Advancement of technology
Opportunities – The advancement of technology will not only make the company’s production easier, faster, cheaper and more efficient but will also make their product better overall. Their services will also have an upgrade along with the things they offer.
Threats – Things like solar energy is also a part of advancement of technology. This poses a great threat to the industry of oil. Also, the company will be left behind if their competitors lead on with technology.
5.) Competitive Forces
These are the forces that shape industries and economic sectors, which can be used to determine the competitive strength or weakness of a company. Some competitive forces include the threat of substitute products, the power of customers, the power of suppliers, the potential for new competitors, and the current number of competing firms in the industry.
B. Industry Analysis
In order to make an industry analysis, the Porter’s five- forces method. This framework will be used to assess and evaluate the competitive strength and position of Petron Corporation.
The concept of Porter’s five forces is to determine the competitive intensity and attractiveness of the market. Porter’s five forces help to identify where power lies in the situation of Petron. This will be useful both in understanding the strength of an Petron’s competitive position, and the strength of a position that the company may look to move into. Strategic analysts often use Porter’s five forces to understand whether new products or services are potentially profitable. By understanding where power lies, the theory can also be used to identify areas of strength, to improve weaknesses and to avoid mistakes.
a) Rivalry among Competing Firms
This refers to the extent how the organization responds to the competitive strategies of the rival organization in the industry. In this part of the Porter’s five forces, the rivalry among existing firms may formulate strategies such as lowering price, enhancing quality, providing and features, extending warranties, increasing advertising, better networks of wholesale distributors and increased level of customer service. Two principles of competitive rivalry are particularly important: (1) a powerful competitive strategy used by one company intensifies competitive pressures on the other companies, and (2) the manner in which rivals employ various competitive weapons to try to outmaneuver one another shapes “the rules of competition” in the industry and determines the requirements for competitive success. EVALUATION:
The degree of threat among rivalry among competing firms is High. The top rival companies of Petron Corporation are Pilipinas Shell Petroleum Corporation and Chevron Philippines Incorporated (Formerly Caltex). Based on the data gathered, the market share of the competing companies is very high and Petron Corporation being on the number one spot of having the highest market share on Petroleum products and LPG.
In order to maintain its number one spot, Petron Corporation formulate strategies such as lowering price or oil price rollback, continuously upgrading its world-class petroleum products, increasing its advertisements through product promotions and campaigns and increasing its network by producing more outlets annually and wholesale distributors of petroleum products and LPG. In the past two years, Petron embarked on an aggressive expansion to serve a wider market thereby providing over 2,000 Petron stations all over the country and being the largest service station network. From mega stations with many convenience facilities and partner establishments along the expressways, to small, strategically-located bulilit stations in remote, rural locations.
Using the main principles of competitive rivalry, Petron Corporation intensifies competitive pressures on rival companies and employ various competitive weapons to try to outmaneuver its rival by continuously providing products that meets the diverse needs of Filipino motorists. Having served the fuel needs of the country for more than 80 years, Petron has a deep understanding of the unique driving conditions on Philippine roads. Its R&D team is constantly striving to create diverse products that will deliver optimum efficiency for every type of vehicle. Created by Filipino engineers, Petron fuels and lubricants are designed to meet the motoring needs of everyone
b) Potential entry of new competitors – moderate
A major force shaping competition within an industry is the threat of new entrants. The threat of new entrants is a function of both barriers to entry and the reaction from existing competitors. According to Jones et al. the major barriers to entry in the industry are: economics of scale, consumer switching costs, government regulations, product differentiation, capital requirements and access to distribution channel. The degree of threat of potential entry of new competitors is moderate. For the consumer switching costs, Petron has customer loyalty. The buying habits of the customers does not easily shift when there is a new product and it increased effective price of the new product. For the product differentiation, the products of Petron is unique and with its world-class formulation. Government industries, these are the barriers that protect the petroleum industry from competition or protect the consumers from the industry. Petron must obey policies regarding oil products and LPG, importation and exportation. In capital requirements, this industry requires large financial outlay. For the refining and transportation of goods. For the distribution channels, Petron has over 3,000 outlets in the Philippines and has branched out to other countries. The more outlets, the more places to sell the product.
In the energy industry primarily on oil ad gas products, the company’s management strategy reduced the fiction of threat among its new competitors in the business by increasing minimum efficient scales of operation, its cohesive and good status with suppliers and distributors, retaliation tactics, protection of property and establishing a competitive and trustful image to the consumers.
c) Potential development substitute
In this force, the competing corporations of Petron in the industry are offering substitute products or services that may be used to fulfill the same need. The more these substitute products exists, the larger the company’s competitive environment and the lower the profitability.
On the good note, although potential development imposes as a threat to Petron Corporation, the threat is weak. Since Petron Corporation has been serving the fuel needs of Filipinos for 80 years; the Petron’s products have continuously met the diverse fuel needs of Filipino Motorists with its unique world-class products.
Based on the market share of petroleum products in the Philippines, Petron captured 38. 5 percent, which is higher among all of its competitors. Even though there are substitute products, there is still a preference for Petron’s petroleum products.
d) Bargaining power of suppliers –high
This framework refers to the ability of the providers if inputs to determine the price and terms of supply. Suppliers can exert power over the firms an industry by raising prices, reducing the quality of purchased goods and services, so reducing profitability.
Petron Corporation is the country’s leading oil company and the only and the biggest Filipino refiner with the local capability to formulate world – class products. Unlike other industry players who rely on imported fuel, Petron as a Filipino-based company has its refinery in Bataan. The Petron Bataan Refinery (PBR) is the country’s largest integrated crude oil refinery and petrochemicals complex with the capacity of 25,000 barrels per day and has grown to its current capacity of 180,000 per day and its sources bulk of its crude oil s from Saudi Aramco in the Middle East. As a strategy of developing non-traditional revenue resources and taking advantage of overseas market opportunities, Petron formed an expanded strategic partnership with the leading fuel additives supplier, Innospec Incorporated.
e) Bargaining power of consumers – low
Consumer power is the ability of the buyer of the industry to influence the price and the terms of purchase. This is very significant in that buyers can force process down, demand higher quality products or services and in essence, play competitors against one another, all resulting in potential loss of industry profits. The bargaining power of consumer is low. Petron Corporation tends to induce customer’s loyalty by giving the customer’s perceived quality that meets the needs of our countrymen from the simple tricycle driver to high performance luxury vehicles. The buyers do not easily switch to the other competitor because of its reputation of giving serving quality products thereby having patronage to the company and their products.