Strategic Decision Making in the Oil and Gas Industry

Introduction

The oil and gas industry has faced numerous challenges in the past few years due to increasing concerns about climate change and global warming all over the world. Countries are slowly transforming to renewable sources of energy, which presents a challenge to companies producing oil (Doolan and Muntean, 2013, p.5). The oil and gas sector in the world is likely to shrink in the future presenting a risk to companies that invest highly in this industry (Matos and Hall 2007, p. 1087). It is due to these concerns that the renewable sources of energy appear to the most viable solution for business in the present world.

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The current business situation is challenging for any company focused on making an entry into a new market. Sinochem Hongrun Petrochemical LTD is facing huge competition in the Chinese oil and gas market from global industry leaders Petrochina among many other players in the market. However, the company has a huge opportunity to increase its profitability in the market by focusing on ways in which it can be unique and thus achieve the oil needs across the world. The primary focus on Sinochem's market entry is to identify a unique way to solve the market needs. The company looks to use its innovation power to develop ways to provide the market with eco-friendly fuel sources.

Eco-friendly fuel sources include the fuels from the renewable sources of energy such as wind and solar. Producing large quantities of such energy will help build the company's competitive advantage in the market. Challenges still exist about these renewable sources of energy and its market. The below analysis from porter's fiver forces which will help in understanding the company's competitiveness in the business environment.

Porter's Five Forces

Competitive Rivalry

Renewable sources of fuel will be one of the biggest developments in the oil and gas industry in the present world. This is due to the existing challenges presented by fuels which include environmental pollution, global warming, and climate change (Ritter 2009, p.11). The challenges have been received as a major threat to mankind. Renewable sources of energy are thus a new product which is considered as acceptable and can be used in many countries in the world (Schwarz, Beloff, and Beaver, 2002, p. 60). In Europe, most of the countries have already embraced the use of renewable sources of energy such as wind and solar. For example, in Germany, most of the car manufacturing companies are now focused on producing electric cars to reduce on fuel consumption (Kumar et al., 2011, p.4267).

In the new market, there is little competition especially in the Chinese market. Competitive rivalry in China is majorly presented by the existing players in the industry such as Petrochina. However, the competition offered by these brands is not a threat since their focus is on oil gas instead of renewable sources of energy (Porter 2008, p.30). Sinochem's focus on renewable sources will help grow the brand in the market with little competition, which will help in building a stronger market force and competitive advantage.

Supplier Power

The supplier power will determine the pricing of the product in the market (Porter, 2008, p. 29). In the oil and gas business, suppliers control the prices easily due to the global demand for products. However, when it comes to renewable sources of energy, the focus will be on the specific suppliers of raw materials such as solar panels and wind mills (Kellstedt, Zahran and Vedlitz, 2008, p.117). A rising demand for these raw materials will likely create a rising price of the end products. However, being based in china, access to these raw materials should be easier and cheaper.

The company thus will not suffer from increased supplier power at the beginning but likely to suffer from increased supplier power in the future. The future supplier power increase may be due to increased number of players in the industry and reduced competitiveness of the products. The company should focus more on storing and redistributing these energy sources rather than supplying the energy directly to buyers to cut down on costs (Eweje, Turner and Muller 2012, p. 642).

Buyer Power

The buyers in the energy sector do not have much power over the seller. The buyer power is reduced by the reduced supply of fuel in the market. Buyers thus have no choice but to buy from the renewable sources of energy. Additionally, in China, the effects of global warming will force the country to reduce on crude oil consumption and focus on renewable sources of fuel (Maestro et al., 2017). The low buyer power will help the company increase its accessibility to the market and further increase the profitability levels in the long run.

The fuel market is filled with demand from every country in the world. The only determinant of buyer power is the market supply. When it comes to renewable sources of energy, buyers can choose to make their own fuels and use them (Yunna and Yisheng, 2014, p.800). For example, big corporations can choose to invest in solar power plants to instead order for several solar panels, which they will use to produce their own power. The same corporations can also choose to invest in bio power plant. Such moves will render power to the buyers which will mean the sellers will have to reduce prices for them to be accommodated in the market.

Threat of Substitution

The threat of substitution is visible as the existing product is already seen to be substituted by the use of renewable sources of energy. For example, the replacement of oil and gas with eco-friendly energy sources shows that the threat of substitution is still very possible (Panwar, Kothari, and Tyagi, 2012, p.1810). Climate change among other reasons might result to a need to have a different product that will produce power to people and corporations. However, the only solution to the threat of substitution is staying ahead of competition every time.

The company has to work on diversity and innovation for it to manage to be the market leader. The existing market is dynamic due to technology and many other factors controlled by governments, market and climate (Davis, Caldeira and Matthews, 2010, p.1330). It will be important for the company to invest in innovative power, which will help in realizing new ideas which can be substitutes and thus capture them in their early stages of development.

Threat of New Entry

The market is composed of many players. However, a new entrant into the market will pose a threat to the existing industry players. The company will need to look at the threat of new entry posed by the industry players. For example, Petrochina can choose to adapt to the renewable sources of energy. The political environment can also force all other company to adapt to these forms of renewable sources of energy (Sharma, Singh, and Korstad, 2011, p.3006). It will not only develop unnecessary competition but also create inflated prices for the goods and services.

Recommendations

According to the porter's five forces, the market entry opportunities for the company are limited due to the existing challenges. However, it is important to understand that there is a huge opportunity for the company to exploit the market and realize its potential. It can only be possible through focus on the opportunities available. The challenges that exist are due to the uncertainties in the industry.

It is thus important for the company to focus and invest in its power of innovation to develop not only market friendly but also unique products that will help develop the market. The market for renewable sources of energy in China is still untapped and requires increased focus on the products (McCright and Dunlap 2011, p.160). The company can achieve this by ensuring the human resource meets the standards of a modern world. In the modern world, employees must be ready to embrace innovations and increase the use of technology. Technology has revolutionized companies and industries across the world and this company should not be an exception.

Conclusion

In conclusion, it will be important for the company to put much effort in building the brand's reputation in the market and reducing the power of its competitors. The company should identify the important requirements which are needed to achieve the market's needs. Competition is a threat but it exists in every industry. It is thus necessary for the company to work on the ways to achieve its competitive advantage in the market and reduce on competition by focusing on new products, which meet the global needs and also the existing market needs. Such an effort will not only make the brand succeed in China, but also gain on the international market.

References

Bloomberg. 2018. Sinochem Hongrun Petrochemical Co Ltd: Company Profile - Bloomberg. [online] Available at: https://www.bloomberg.com/profiles/companies/0610625D:CH-sinochem-hongrun-petrochemical-co-ltd [Accessed 27 Feb. 2018].

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Kumar, S., Kwon, H.T., Choi, K.H., Lim, W., Cho, J.H., Tak, K. and Moon, I., 2011. LNG: An eco-friendly cryogenic fuel for sustainable development. Applied Energy, 88(12), pp.4264-4273.

Maestro, A., Branson, D., Biscardini, G. and Morrison, R. 2017. 2017 Oil and Gas Trends. [online] Strategyand.pwc.com. Available at: https://www.strategyand.pwc.com/trend/2017-oil-and-gas-trends [Accessed 27 Feb. 2018].

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Panwar, N.L., Kothari, R. and Tyagi, V.V., 2012. Thermo chemical conversion of biomass-Eco friendly energy routes. Renewable and Sustainable Energy Reviews, 16(4), pp.1801-1816.

Porter, M.E., 2008. The five competitive forces that shape strategy. Harvard business review, 86(1), pp.25-40.

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Yunna, W. and Yisheng, Y., 2014. The competition situation analysis of shale gas industry in China: Applying Porter's five forces and scenario model. Renewable and Sustainable Energy Reviews, 40, pp.798-805.