BUS101 International Business Environment Small Group Assignment for Spring Semester 2008 Table of Contents 1.

Terms of reference 2. Procedure 3. British Petroleum 3.1. British Petroleum (BP) 3.2. Background 4. British petroleum SWOT analysis 4.1. What is SWOT analysis? 4.2. Strengths 4.3. Weaknesses 4.4. Opportunities 4.5. Threats 5. BP Porters Five Forces Analysis 5.1. What is Porters Five Forces Analysis? 5.2. Threat of New Entrants 5.3. Buyer Bargaining Power 5.4. Supplier Bargaining Power 5.5. Threat of Substitutes 5.6. Rivalry 6. Key Success Factors 7. Conclusion

8. Referencing 9. Meetings Log and Reflections 1. Terms of reference This report has been produced by Mariya Barbudeva, Davide Mariani and Mohammed Alsuhaimi upon the request of Dominic Laffy, course leader of BUS101 International Business Environment. The report is due 18 Apr 2008 (end of week 8). 2. Procedure The information, which is necessary for the following report has been taken from different electronic and printed sources. For full details please refer to bibliography, which can be found at the end of this report. 3. British Petroleum 3.1. British Petroleum (BP) British Petroleum is a company, which focuses mainly on petroleum, but has some interest in alternative energy. It is one of the worlds largest oil and gas companies, which serves over 13 million consumers in more than 100 countries. The market of alternative energy is not as well developed, nor as profitable as oil, but it is a good future investment with the recently raising environmental concerns. BP recognized this on time and entered the solar market in the year of 1973.( History of BP Solar ) 3.2. Background Formed in 1908, The British Petroleum Company was originally called The Anglo-Persian Oil Company. The current name was given in 1954. BP adopted a re-positioning strategy in 1997 and the group chief executive, Lord John Browne, addressed the threat of global warming. Even though the oil industry does not have a good reputation in taking responsibility, BP was put first on the list of Fortune Magazines Global 100 Companies on Corporate Strategy. (Changing the Game. Stanford Social Innovation Review ) 4. British Petroleum SWOT analysis 4.1. What is SWOT analysis?

SWOT analysis is a useful tool for decision making and understanding a certain business. SWOT is an acronym for Strengths, Weaknesses (internal for a corporation), Opportunities and Treats (external for an organisation). SWOT analysis is functional for strategic planning, business planning, marketing, business and product development, as well as research reports. 4.2. Strengths Financial assets. The current financial situation gives the opportunity to BP to research different areas and expand the best way possible. It is capable to invest big amounts in developing alternative energy strategies. BP profits for the year of 2005 were $22.341 billion.( BP.) Innovation. BP signed a strategic joint venture to enter Chinas solar market and provide narrow manufacturing capacity. (BP Forms BP Alternative Energy) Their solar business even became profitable in 2004. (BP.) Another big accomplishment for them is providing the solar panels for the United States Marine Corps Air-Ground Combat centre. Their projects include the new Lufthansa Terminal in Munich, Germany. Corporate strategy. BP corporate strategy is proven to be one of the best. They have recovered from many crises by now and managed to maintain their good name. They have responsible and environmental friendly corporate strategy, nevertheless the industry they are in. Public awareness. BP has and still is creating different programs to increase public awareness. They have created a program, according to which, every time a celebrity installs a solar panel in their house, BP donates one to a low-income family. They have been trying to create awareness about the current situation of energy industry in schools around the world. Brand recognition. BP has created a well-known brand for high quality. 4.3. Weaknesses March, 2006. Thousands of litres of crude oil were spilled on the North Slope of Alaska when a BP pipeline cracked.(BP.) This accident has created big difficulties for BP and especially for its ?environmental friendly image. The public image they are trying to create is almost unthinkable for an oil company.

Oil and alternative energy sector. BP is exceptionally strong in the oil industry, but far not that competitive in the alternative energy sector. People are not aware for their entrance there. Nevertheless the brand recognition is high. Differences between the oil industry and solar industry. BP is trying to enter the alternative energy sector and become leaders, but there are also few problems, which may occur. The difference between photovoltaic industry and the ability to refine oil, transport, mine, drill and store is huge. BP vast knowledge in oil is unusable in the alternative energy sector. 4.4. Opportunities Profits. The current financial situation of BP is good and profits are big, as we mentioned before. This gives them options to invest in different and new projects, which will help their expansion. Alternative energy. This might be the biggest opportunity for BP. Currently BP Solar and Home Depot are offering BP Solar Home Solutions in New Jersey and New York. They have included a five year full service warranty, which assures the customers and they are keener on switching to solar energy. (BP Solar and Home Depot) As this project has been successful, we can suggest for BP to work with other home improvement stores and this way expand and higher their profits. Cost efficiency. If BP manages to make solar panels more cost efficient they will start expanding quickly. Synergies. The combined functioning of the petroleum and the solar sides of the company can be really useful for BP to reduce their cost and also assure the consumers how well the new part of the company functions. Increasing consumer confidence through using your own product is easy and cheap. Government. BP can start working with governments to provide tax breaks for people or companies, who use the alternative energy. In some developed countries it may also be possible to add a clause, which states that a house, built after the year of 2007, should have a solar system installed. 4.5. Threats

Shell. Shell is another one of the most successful oil companies and it has accessed the solar market as well. It is also one of the leading companies in this sector along with Kyocera, Sharp and BP Solar. Global warming. This may lead to government actions to ban hydrocarbon fuels, which bring the actual profits to BP. Wars and military action. There are always threats of wars and military actions and this can be bad for BP facilities across the globe. (GCE AS Level Business Double Award for OCR) 5. BP Porters Five Forces Analysis 5.1. What is Porters Five Forces Analysis? Porters Five Forces Analysis is a model for industry analysis. Michal Porter created a framework, which shows an industry as being influenced by five forces. This model can be used for better understanding of the industry context, in which the company operates. Those forces are the Supplier Power, Barriers to Entry, Threat of Substitutes, Buyer Power and the Degree of Rivalry. The model of competition can be seen in Table 1. Table 1 5.2. Threat of new entrants. Strong. The threat of new entrants in the oil industry is strong. BP is a market leader, but the strong growth of the industry, combined with the low costs and easy access to buyers are tempting for new comers . For the solar industry it is different for every geographical region. U.S. There are a lot of small companies in the US Market, but few big ones. Currently this market is unprofitable, because of the lack of governmental enthusiasm and there are not many new companies, which are willing to go into that industry. BP has a good base for the US and it is likely for it to become the local market leader with weak treat of new entrants. Germany. Government in Germany is fully supporting the solar industry and has accepted the Renewable Energy Act (EEG), which guarantees large paybacks to users of solar technology.

Germany is one of the biggest innovators in Europe and it is attractive for new entrants. Nevertheless, the big players in the market are just starting to emerge and BP has the good opportunity to use its position as a large corporation and prevent new entrants. The threat of new entrants in Germany is relatively strong. Japan. The Japanese solar market is highly developed with Sharp being the market leader. This discourages the new entrants to that market. Demand grows rapidly and companies are attracted by the profits, which can be made. In this case BP is the new entrant and it still has its place in that market, because of the good brand recognition and well developed structures across the world. 5.3. Buyer Bargaining Power Moderate. Needs of consumers are high and there are no substitutes of motor fuels. That indicates a low degree of buyer power. Even though the brand awareness is high, because of the extreme budgets for marketing and advertisement of oil companies, brand loyalty is low. Product differentiation is low. Considering the many existing players on the market, this makes the buyer bargaining power moderate. Solar Industry. In sense of the solar industry consumer demand outpaces supply due to slow development and limited production of solar companies. For now consumers have no or little bargaining power considering the rarity of the product. Even huge corporations have to wait few months for solar system to be installed. 5.4. Supplier power Strong. Considering the large size of suppliers, the number of suppliers, and the switching costs for the independent retailers, we indicated that supplier power is strong. The leading corporations are large and they do everything from the fuel supply chain. There is a high degree of forward integration within the industry. Solar Industry. The supplier power is extremely high in this sector, due to the small number of suppliers. 5.5. Threat of substitutes

Weak. Threat of substitutes of oil at the current moment is really weak mainly due to the high prices of such. Solar panels and other alternative energy include high switching costs and long waiting time, which makes them unattractive to the consumer. Although biodiesel and bioethanol also exist, availability is low. Even though the threat of substitutes is weak, BP has already taken it under consideration and, as we mentioned, entered the market of alternative energy. BP is investing huge amounts into developing new technologies. 5.6. Rivalry Moderate. Even though there is a strong rate of growth within the industry, rivalry remains moderate due to the switching costs, size of competitors (oil companies) and similarity of those competitors. There is a high price competition, as well as any other industry. Nevertheless, there are few major market leaders and there is no place for small companies, which can not offer the same low prices. Solar energy. Amongst companies, which are in the solar industry, there is no strong rivalry, because of the high producing costs. Undercutting prices if of no interest for companies, because of the expensive technology, being used. There is also consumer base segregation and the major players have separate geographical regions. 6. Key Success Factors Financial stability. BP benefits from its financial stability. It has enough resources to develop new projects and research new areas. They are able to be innovative and expand and build up new technologies. New Findings. BP can pump sufficient oil until the year of 2020 without any new findings. This is one of the biggest success factors they have at the current moment. They do not need to invest more in finding new sources of oil and that makes them really competitive in alternative energy sector. Government. BP has big support from governments around the world, because of the low prices and high quality they offer. They have negotiated good deals (such as the recent one with Libya) and this is really helpful for their development.

7. Conclusion With fading profits and an increasingly pessimistic reputation, it would be a tactical move for BP to relocate itself in the alternative energy industry, explicitly focus on solar and exit other substitute industries. With the possible income and with prior practice in the solar market, BP can develop into the leader of this industry. Some key strategies that BP can take consist of advertising, more funding and investments in PV cell technology, educating the community, growing into elsewhere located markets, and lobbying the governments. If BP wants to maintain its market share in the solar industry, it will need to offer more of its funds and incomes to BP Solar. 8. Referencing History of BP Solar.

http://www.bp.com/sectiongenericarticle.do?categoryId=9012889&contentId=7025482 (Accessed on 17 Apr 2008) Changing the Game. Stanford Social Innovation Review.

http://www.ssireview.org/articles/entry/changing_the_game/ (Accessed on 16 Apr 2008) BP. http://www.bp.com/sectiongenericarticle.do?categoryId=9013388&contentId=7026234

(Accessed on 18 Apr 2008) BP Forms BP Alternative Energy.

http://www.bp.com/genericarticle.do?categoryId=2012968&contentId=7012352 (Accessed on 15 Apr 2008) BP. http://www.bp.com/managedlistingsection.do?categoryId=3050486&contentId=7004985

(Accessed on 18 Apr 2008) BP. http://www.bp.com/genericarticle.do?categoryId=9012574&contentId=7025850 (Accessed on 17 Apr 2008) BP Solar and Home Depot.

http://www.bp.com/sectiongenericarticle.do?categoryId=3050524&contentId=30507 (Accessed on 17 Apr 2008)

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