If you want to analyze political and economic factors influencing BP, PESTLE analysis is what you need. For reviewing strengths and weaknesses of BP, SWAT analysis is perfect. You will find both of these analyses here.
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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 in 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 it has now established business operations across six continents. The core activities of the company are “exploration and production 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, which influence its strategic decisions (Hayward, 141; Griffin, 67; Jones and George, 151). BT has a number of strengths. The company operates oil business in various places of the world. It has a network of subsidiaries and retail brands situated in various places across the world. Some of these are BP Express, BP connect, and Burma Castrol. In the United Kingdom, the oil sector represents about thirteen percent of FTSE 100 index.
And 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 for oil.
The company’s different retail brands such as BP, ampm, 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 record increase 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 a number of weaknesses. BP, alongside other consortium energy companies, entered the controversial business with the Baku-Tbilisi-Ceyhan (BTC) pipeline to build the 1,768 kilometres 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.
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These include the explosion of 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 litres 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.
A number of opportunities are available for BP to exploit. In the early 2007, the company made known that it would be investing approximately $8 billion over the following decade in alternative methods of producing energy. This plan includes production of energy from hydrogen, natural gas, wind, and hydrogen (“BP Alternative energy”).
Although some lobby groups are attacking this plan, it is able to open more opportunities for the company in the area of production of environmental friendly fuels. The company has come up with a more flexible price policy system that will enable it 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 threats due to a variety of factors. These include environmentally unfriendly policies that most of the time 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 intense competition that comes 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 historic price of crude oil that 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, which involves political, economic, social, technological, legal, and environmental forces that influence 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 that it has to take into consideration (Henry, 51; Kotler). Political influence has a big impact in determining the progress of the lucrative oil business (Hanke, para. 1; Kemp).
Since BP operates in different areas around the world, each area has its own political decisions. This would include, but not limited to, enforcement of new tax laws, tough employment regulations, escalating threats due to terrorism, and competitive rules in the different countries. These factors either enhance or deteriorate the business operations of BP. In order to gain favour 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 to 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 and therefore its overall growth and expansion, and exchange rates affects the costs of exporting and importing its energy products. Because of BP’s alleged unsound environmental policies, consumer confidence on its products may be weakened (Williams and Curtis, 114). In some regions, the high inflation rate has made its workers to ask for increased compensation, which has increased its operational costs, and the higher national income growth in some countries had increased the demand for its products, especially the solar panels.
It has been observed, “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 ageing 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 on 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 the use of 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 production of alternate energy sources.
In this century, people are concerned about environmental sustainability. So many environmental groups are continuously raising concerns of the environmental degradation that the company is causing. This could influence BP’s overall performance since consumer attitude to climate change could have potential impact on their demand for the company’s products. In 2009, the company was a nominee for the Greenwash Awards. The award is for companies who are not making considerable efforts towards climate change (Corporate Europe Observatory, para.1). Amidst the controversies, BP is engaged in efforts of minimizing 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 operations of the company there. In addition, some countries have also increased the minimum wage, passed health and safety laws, and enacted strict employment regulations.
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 in the London Stock exchange and it has a strong brand image. Although the company is usually blamed for causing environmental damage, it has devoted a significant amount of its resources in realizing environmental sustainability. In most cases, political forces have benefitted the operations of the oil company. The company has funded research projects in alternative energy sources. In the coming years, with the many opportunities it has, its continued expansion is inevitable.
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