If you want to analyze political and economic factors influencing BP, PESTLE analysis is what you need. For reviewing the strengths and weaknesses of BP, SWOT analysis is perfect. You will find both of these analyses here.
Introduction
British Petroleum (BP), headquartered in St. James’s, City of Westminster, London, is ranked number three among the largest energy companies in the world. Founded in 1909 as the Anglo-Persian Oil Company, the company has grown to be a multinational oil company, and it is listed on the London Stock Exchange (“British Petroleum,” para. 1). Since it is the largest corporation in the United Kingdom, it forms part of the FTSE 100 index.
In 1998, the company came out of a partnership with its American-based counterpart, Amoco, and has now established business operations across six continents. The core activities of the company are “exploration and production of crude oil and natural gas; refining, marketing, supply, and transportation; and manufacturing and marketing of petrochemicals” (“About BP, para. 1). This paper outlines the SWOT and PESTLE Analysis of the company.
BP SWOT Analysis
SWOT analysis refers to the internal review of an organization’s strengths, weaknesses, external environment threats, and opportunities, influencing its strategic decisions (Hayward 141; Griffin 67; Jones and George 151). BT has a number of strengths. The company operates an oil business in various places of the world. It has a network of subsidiaries and retail brands in various places worldwide. Some of these are BP Express, BP Connect, and Burma Castrol. In the United Kingdom, the oil sector represents about thirteen percent of the FTSE 100 index.
Furthermore, since BP is considered to be one of the key players in this lucrative sector, the company is regarded as one of the barometer companies in the country since its successes or failures are expected to be reflected in the country’s economy (“BP PlC overview,” para. 2). Therefore, its participation in the London Stock Exchange is one of its key strengths. BP has a strong symbol for its products that has assisted in developing consumers’ brand loyalty to oil.
The company’s retail brands, such as BP, ampm, and ARCO, consist of its most valuable brands. The introduction of the “Beyond Petroleum” slogan in 2000 has made the company manage its brand better since this portrays it as an energy company, not just an oil company (Beder, para. 1; Morley 162). Based on the last three years financial performance of the company, it is evident that it has been experiencing increased revenue growth due to a record rise in oil and gas prices. Despite the global recession, the company experienced an increase of growth by twenty-seven percent in the year 2008 as compared to the same period the previous year (“Annual Review”).
Despite its strengths, BP PLC has several weaknesses. BP, alongside other consortium energy companies, entered the controversial business with the Baku-Tbilisi-Ceyhan (BTC) pipeline to build the 1,768 kilometers long pipeline that starts at Sangachal Terminal and terminates at the Haydar Aliyev Terminal (“BTC Caspian pipeline, “para. 3). The controversial aspects of the BTC pipeline relates to its construction in volatile areas that are prone to conflict, environmental and other political concerns. In a number of instances, BP or its affiliates have been convicted of environmental crimes.
These include the explosion of the BP refinery in TEXAS in March, which resulted in 15 casualties and 180 injuries (Mauer and Tinsley, para.1), and the breach of law that arose due to the spilling of 270,000 gallons of crude oil in Alaska tundra in 2006 (Shogren, para.1). Other incidences are the Prudhoe Bay oil disaster that resulted in the toxic spill of over one million liters of oil (Roach, para.1), and the recent deepwater horizon spill that took place on April 20, 2010 (Nudd, para.1). The occurrence of these incidences has continued to deteriorate BP’s global corporate image.
Several opportunities are available for BP to exploit. In early 2007, the company announced that it would be investing approximately $8 billion over the following decade in alternative energy production methods. This plan includes the production of energy from hydrogen, natural gas, wind, and hydrogen (“BP Alternative energy”).
Although some lobby groups are attacking this plan, it can open more opportunities for the company in the production of environmentally friendly fuels. The company has developed a more flexible price policy system that will enable it to out-compete its traditional rivals, such as Shell and Chevron oil companies. Other opportunities have arisen from its expansion into the frontier regions appropriate for its future reserves (post-Soviet Union regions) and the increase of strategic oil and gas acquisitions in the North Sea region (“BP propose £ 170 million boost,” para.1).
BP PLC is under constant threat due to a variety of factors. These include environmentally unfriendly policies that often result in toxic oil spillage, which is expensive to clean, sporadic explosions of refineries that cause widespread destruction, and lawsuits that are constantly being filed against it concerning its unsound ecological activities. BP PLC is not free from the intense competition from energy companies such as Shell and Chevron.
The company has stopped major operations in certain potential areas, which has also made it to sell some of its corporate-owned stations. The current historical price of crude oil goes at $70.04 per barrel, leads to significant tensions for those who are in the oil business (Williams, para.2). Although BP has put appropriate measures to prevent corrosion of pipes, sometimes it happens and adds to its costs, for example, in the Northstar pipes in early 2007 (“BP finds corrosion,” para. 1).
PESTLE Analysis of BP
PESTLE is a strategic planning analysis tool that involves political, economic, social, technological, legal, and environmental forces influencing business operations and competitiveness (Haberberg, Rieple, 105; Allen 54). This analytical tool enables an organization to prepare strategically for any changes that need to be made in its structure or just to provide it with an overview of the different external influences it must consider (Henry 51; Kotler). Political influence has a significant impact on determining the progress of the lucrative oil business (Hanke, para. 1; Kemp).
Since BP operates in different areas worldwide, each area has its own political decisions. This would include but is not limited to the enforcement of new tax laws, onerous employment regulations, escalating threats due to terrorism, and competitive rules in different countries. These factors either enhance or deteriorate the business operations of BP. In order to gain favor from governments, BP has been funding political campaigns. For example, in the U.S., it has been paying lobby groups to take care of its political interests (Juhasz, para. 3). In some areas, political factors have influenced its operational decision-making strategy, which has made it adopt different production technology.
Economic factors mainly determine how BP operates and arrives at strategic decisions. For instance, the recent global recession decreased its profit margin. Interest rates affect its cost of capital. Therefore, its overall growth and expansion, and exchange rates affect the costs of exporting and importing its energy products. Because of BP’s alleged unsound environmental policies, consumer confidence in its products may be weakened (Williams and Curtis 114). In some regions, the high inflation rate has made its workers ask for increased compensation, which has increased operational costs, and the higher national income growth in some countries has increased the demand for its products, especially solar panels.
It has been observed that “Changes in social trends can impact the demand for a firm’s products and the availability and willingness of individuals to work” (“PESTEL analysis,” para. 4). For instance, the aging population in England has increased the costs that BP allocates for pension funds because its workers are likely to live for more years. The world’s population is increasing at a tremendous rate (“Population growth,” para. 2.). This means that the demand for oil products is likely to increase in the coming years (Hayward, para.7). As more people get concerned about environmental issues, BP will have to change the nature of its products to address this need.
Technologically, BP is faced with the challenge of developing current and global energy innovative products. Since some of the company’s oil flows through long pipelines, it has adopted a secure IT system to monitor and control the movement of oil. The company has a website where it communicates easily with its customers on various issues. The company is also involved in research aimed at adopting appropriate technology in producing alternate energy sources.
In this century, people are concerned about environmental sustainability. So many environmental groups are continuously raising concerns about the environmental degradation that the company is causing.
It could influence BP’s overall performance since consumer attitudes to climate change could potentially impact their demand for the company’s products. In 2009, the company was a nominee for the Greenwash Awards. The award is for companies not making considerable efforts towards climate change (Corporate Europe Observatory, para.1). Amidst the controversies, BP is engaged in efforts to minimize environmental pollution.
Legal factors have been influencing the operations of BP. For example, in the United Kingdom, the enactment of the age discrimination and disability discrimination law has affected the company’s operations there. In addition, some countries have also increased the minimum wage, passed health and safety laws, and enacted strict employment regulations.
Conclusion
To this end, it is clear that despite the many challenges that BP is currently facing, it is still a profitable company for potential investors. The company trades on the London Stock Exchange and has a strong brand image. Although the company is usually blamed for causing environmental damage, it has devoted a significant amount of its resources to realizing environmental sustainability. In most cases, political forces have benefitted the oil company’s operations. The company has funded research projects in alternative energy sources. With its many opportunities, its continued expansion is inevitable in the coming years.
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