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Kuwait Petroleum Corporation – 2009

Case Notes Prepared by: Dr. Victor Sohmen


Case Author: C.P. Rao

A. Case Abstract

Kuwait Petroleum Corporation (KPC) (www.KPC.com.kw), with its headquarters


domiciled in the State of Kuwait, was founded in 1980 as an umbrella organization to
manage the State of Kuwait’s rapidly diversifying oil interests. Thus, it is the apex
business organization of the oil industry in Kuwait. It is also one of the world’s major oil
and gas companies and its activities are focused on petroleum exploration and
production, refining, marketing, petrochemicals, and transport. As support and
development of the Kuwaiti economy predominantly depends on its oil industry, the
performance of KPC is critical for the Kuwaiti economy. These impact the development of
national human resources, maintaining superior commercial and technical expertise, and
proactively managing the environmental, health, and safety aspects related to KPC’s
businesses. Although global oil demand has been increasing in recent years, the oil
industry is characterized by intense competition, especially for value-added end-use
products. In addition, certain trends in the overall business environment have significant
implications for the future prospects of the oil industry in general, and for KPC’s diverse
businesses. The environmental concerns and global warming trends with the
concomitant development of alternate energy sources and new technologies may have
an adverse impact on the oil industry, including the operations of KPC. Hence, the
company’s top management directed the its “strategic planning team” to review current
operations and develop a strategic plan taking into account the expected future trends
that will impact the oil industry in general, and KPC’s operations in particular.

B. Vision Statement (Actual)

“Our vision is to be the leading oil company in Kuwait and the Middle East, providing
impactful and diverse contributions to the support and development of the Kuwaiti
economy.”

C. Mission Statement (Actual)

“As one of the world’s leading oil companies, KPC’s mission is to manage and operate
our integrated worldwide activities focused on petroleum exploration and production,
refining, marketing, petrochemicals, and transport in the most efficient and professional
manner, in addition to growing shareholder value while ensuring the optimum
exploitation of Kuwaiti hydrocarbon resources.”

Mission Statement (Proposed)

Our mission at Kuwait Petroleum Corporation (KPC) is to be a producer of high quality


(6,8) hydrocarbon resources (2) and refined petrochemical products (2) for use by
commercial and domestic customers (1) across Kuwait, (3,5) and international
customers (1) who value quality (4,7,8) products and services (2) using the latest

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technology(4), as we efficiently manage (9) and operate our integrated worldwide (3)
exploration, production, and refining activities (4,5) to expand and transform (6) the
company to be the most efficient and productive entity in the business (6,7).

1. Customer
2. Products or services
3. Markets
4. Technology
5. Concern for survival, profitability, and growth
6. Philosophy
7. Self-concept
8. Concern for public image
9. Concern for employees

D. External Audit

CPM – Competitive Profile Matrix

The Competitive Profile Matrix (CPM) identifies a firm’s major competitor(s) and its own
particular strengths and weaknesses in relation to its strategic position. KPC’s relative
strengths and weaknesses based on the case details are portrayed in the weighted
scores. As KPC is an international player, and the leading monopoly oil producer in
Kuwait, no local competitors have been identified in the case; however, the case
mentions a slew of competitors from various continents. Therefore, three foreign
competitors who are ranked above KPC (rank: #15) are featured herein, and will be
considered as representative of the overall foreign competition faced by KPC. These are:
Aramco (rank: #1 - Saudi Arabia); ExxonMobil (rank: #5 - USA); and, PetroChina (rank:
#12 - China). Their weighted scores are estimates based on their strengths and
weaknesses in terms of the critical success factors explicitly or implicitly reflected in the
case.

It can be seen that there are several areas in which KPC is able to compete well with the
overseas competitors: in terms of global expansion, KPC has an extensive reach into
Asia, NW Europe, USA, and Arab countries. Similarly, KPC is internationally competitive
in technology, product lines, management, and price competition. As for customer
loyalty and advertising, unfortunately, KPC is lagging behind Aramco and ExxonMobil.
However, KPC’s mandate to excel in technology, management, product quality and
image, will enable redressing of these sensitive areas. The company’s strong position in
the domestic market and its significant contribution to the Kuwaiti economy, should lend
long-term viability to the Kuwaiti monopolist. Therefore, the Critical Success Factors
score of 3.84 for KPC can be considered commendable for a Middle-Eastern player.

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Aramco ExxonMobil PetroChina

KPC INTERNATIONAL COMPETITORS

Rating

ScoreWeighted

Rating

Rating

ScoreWeighted
ScoreWeighted

Rating

ScoreWeighted
Weight
Critical Success Factors
Price Competition 0.10 4 0.40 3 0.30 4 0.40 3 0.30
Global Expansion 0.12 4 0.48 3 0.36 4 0.48 2 0.24
Management 0.08 4 0.32 3 0.24 4 0.32 2 0.16
Technology 0.09 4 0.36 4 0.36 4 0.36 3 0.27
Product Lines 0.10 4 0.40 3 0.30 4 0.40 3 0.30
Customer Loyalty 0.10 3 0.30 3 0.30 3 0.30 2 0.20
Market Share 0.09 4 0.36 4 0.36 4 0.36 2 0.18
Advertising 0.06 3 0.18 3 0.18 4 0.24 1 0.06
Product Quality 0.10 4 0.40 3 0.30 4 0.40 2 0.20
Product Image 0.08 4 0.32 3 0.24 4 0.32 2 0.16
Financial Position 0.08 4 0.32 4 0.32 4 0.32 3 0.24
TOTAL 1.00 3.84 3.26 3.90 2.31

Opportunities

1. The Kuwaiti economy depends largely on its oil industry – the performance of
KPC is therefore critical
2. KPC has access to 29 producing oil fields, and 1,045 producing oil wells. East Asia
is now witnessing significant economic growth and an increasing demand for oil
and its distillates
3. KPC has the technology to meet high product standards for the most stringent
future quality specifications in the world
4. Developing countries that do not currently seek high product standards due to
substandard infrastructure may be good targets for market penetration

Threats

1. The environmental concerns and global warming trends with the concomitant
development of alternate energy sources and new technologies may have an
adverse impact on the oil industry
2. Although global oil demand has been increasing in recent years, the oil industry
is characterized by intense competition, especially for value-added end-use
products
3. Competition seems to be increasing with the appearance of new companies from
emerging economies
4. In recent years, environmental pollution has dominated as a major concern all
over the World, and will impact oil companies
5. Governmental regulations in many countries and the trend towards tightening
product specifications make it difficult to market the current production slate

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External Factor Evaluation (EFE) Matrix

An External Factor Evaluation (EFE) Matrix allows strategists to summarize and evaluate
economic, social, cultural, demographic, environmental, political, governmental, legal,
technological, and competitive information. KPC is in a comfortable position as the
industry leader in Kuwait with a high reputation for quality; and this provides the
necessary capability to harness opportunities in the external environment because of a
favorable climate for non-oil producing businesses (represented by several of KPC’s
subsidiaries) that the Kuwaiti government encourages, in order to diversify the
economy.

Key External Factors Weight Rating Weighted


Score

Opportunities
1. The Kuwaiti economy depends largely on its oil
industry – the performance of KPC is thus critical 0.10 4 0.40

2. KPC has access to 29 producing oil fields, and


1,045 producing oil wells 0.12 4 0.48
3. East Asia is now witnessing significant economic
growth and an increasing demand for oil and its 0.08 2 0.16
distillates
4. KPC has the technology to meet high product
standards for the most stringent future quality 0.10 3 0.30
specifications in the world
5. Developing countries that do not currently seek
high product standards due to substandard 0.12 3 0.36
infrastructure may be good targets for market
penetration
Threats
1. The environmental concerns and global warming
trends with the concomitant development of 0.10 3 0.30
alternate energy sources and new technologies
may have an adverse impact on the oil industry
2. Although global oil demand has been increasing in
recent years, the oil industry is characterized by 0.10 3 0.30
intense competition, especially for value-added
end-use products
3. Competition seems to be increasing with the
appearance of new companies from emerging 0.10 3 0.30
economies
4. In recent years, environmental pollution has
dominated as a major concern all over the world 0.08 3 0.24
and will impact oil companies
5. Governmental regulations in many countries and
the trend towards tightening product specifications 0.10 2 0.20
make it difficult to market the current production
slate
Total 1.0 3.04

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The average total weighted score is considered to be 2.5. A total weighted score of 4.0
indicates that a firm is responding in an outstanding way to existing opportunities and
threats in its industry. That is, the firm’s strategies effectively take advantage of existing
opportunities and minimize the potential adverse effects of external threats. A total
score of 1.0 indicates that the firm’s strategies are not capitalizing on opportunities or
avoiding external threats. The total weighted score of 3.04 here suggests that KPC has
recognized the opportunities and threats it faces, and needs to embark on a serious
review of its potential for growth, its capabilities, and its limitations. Consolidation of
existing capabilities and markets, as well as expansion into new markets in Asia and the
Arabian Gulf may sustain the vision of KPC to be the oil and gas market leader of choice
beyond the shores of Kuwait.

Product Positioning Matrix

After markets have been segmented so that a firm can target particular customer
groups, the next step is to find out what customers want and expect. Many firms have
become successful by filling the gap between what producers see and customers
perceive, as good service. Product positioning entails developing schematic
representations that reflect how a firm’s products or services compare with their
competitors’ regarding dimensions most important to success in the industry. Two such
matrices are presented below for KPC and the representative foreign competitors
Aramco, ExxonMobil, and PetroChina indicated above.

Product Positioning Matrix for Global Expansion vs. Technology

Technology (High)

KPC Aramco
ExxonMobil

PetroChina
Global Expansion Global Expansion
(low) (High)

Technology (Low)

As depicted in the Product Positioning Matrix above for Global Expansion vs. Technology,
KPC is quite competitive with Aramco and ExxonMobil, and ahead of PetroChina on the
technology dimension, but behind them in global expansion as it is focused only on parts

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of Asia, Europe, and the USA, with plans for further expansion into Asia and the Arabian
Gulf.

Product Positioning Matrix for Product Lines and Product Image

Product Lines
(High)
ExxonMobil
KPC
Aramco

PetroChina
Product Image Product Image (High)
(low)

Product Lines
(Low)

It can be seen from the above Product Positioning Matrix for Product Lines vs. Product
Image that KPC is in a strong position on both dimensions – thanks to its high
prioritization of unremitting quality in its products, and the patronage of the Kuwaiti
government in maintaining a high public and international image. Aramco and
ExxonMobil are also strong on both dimensions with their extensive international clout
and public image. PetroChina is seen to be lagging somewhat behind the other three
players on both dimensions.

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E. Internal Audit

Strengths

1. KPC is a highly profitable and performance-driven company


2. KPC has a world-class reputation for all of the company’s products
3. The company encourages continuous learning by the employees in all areas
related to its business
4. KPC has an integrated portfolio of both upstream and downstream activities
5. KPC currently has foreign markets in Asia, NW Europe and the U.S., and
proposed markets in Africa and the Arabian Gulf

Weaknesses

1. KPC needs to improve its production efficiency by enhancing the technology of the
production process
2. KPC refinery products need to meet better quality specifications to more
stringently satisfy customer needs
3. The monopoly hold of KPC in the Kuwaiti oil and gas market may result in
increased pricing and reduction of quality
4. KPC lacks joint venture partnerships upstream or downstream that could promote
technology transfers and international market viability
5. The KPC exports of refined products to neighboring Arabian Gulf are far less than
its exports to South-East Asia, Europe and the U.S., which can be logistically
uneconomical

Internal Factor Evaluation (IFE) Matrix

A summary step in conducting an internal strategic-management analysis is to construct


an Internal Factor Evaluation (IFE) Matrix. This strategy-formulation tool summarizes
and evaluates the major strengths and weaknesses in the functional areas of a business,
and it also provides a basis for identifying and evaluating relationships among them.
Itemized below are the strengths and weaknesses of KPC – from the information
provided, there are equal numbers of strengths and weaknesses.

Key Internal Factors Weight Rating Weighted


Score

Strengths
1. KPC is a highly profitable and performance-
driven company 0.12 3 0.36
2. KPC has a world-class reputation for all of the
company’s products 0.12 4 0.48

3. The company encourages continuous learning by


the employees in all areas related to its business 0.08 2 0.16

4. KPC has an integrated portfolio of both upstream


and downstream activities 0.10 3 0.30

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5. KPC currently has foreign markets in Asia, NW
Europe and the U.S., and proposed markets in 0.10 3 0.30
Africa and the Arabian Gulf
Weaknesses
1. KPC needs to improve its production efficiency by
enhancing the technology of the production 0.10 4 0.40
process
2. KPC refinery products need to meet better 0.10 2 0.20
quality specifications to more stringently satisfy
customer needs
3. The monopoly hold of KPC in the Kuwaiti oil and
gas market may result in increased pricing and 0.08 2 0.16
reduction of quality
4. KPC lacks joint venture partnerships upstream or
downstream that could promote technology 0.12 4 0.48
transfers and international market viability
5. The KPC exports of refined products to
neighboring Arabian Gulf are far less than its 0.08 2 0.16
exports to South-East Asia, Europe and the U.S.,
which can be logistically uneconomical
Total 1.00 3.00

Regardless of how many factors are included in an IFE Matrix, the total weighted score
can range from a low of 1.0 to a high of 4.0, with the average score being 2.5. Total
weighted scores well below 2.5 characterize organizations that are weak internally,
whereas scores significantly above 2.5 indicate a strong internal position. In light of this,
KPC’s position with a score of 3.00 reflects a somewhat strong internal position,
consistent with its world-class reputation, integrated upstream and downstream
activities, and moderate international presence and expansion capabilities.

F. SWOT Strategies

Any organization, whether military, product-oriented, service-oriented, governmental, or


even athletic, must develop and execute good strategies to win. A good offense without
a good defense, or vice versa, usually leads to defeat. Developing strategies that use
strengths to capitalize on opportunities could be considered an offense, whereas
strategies designed to improve upon weaknesses while avoiding threats could be termed
defensive. Taking into consideration the above identified External Audit of the
Opportunities and Threats (OT) and the Internal Audit of Strengths and Weaknesses
(SW), a SWOT Matrix can be compiled and is presented below as: SO (strengths-
opportunities) Strategies; WO (weaknesses-opportunities) Strategies; ST (strengths-
threats) Strategies; and, WT (weaknesses-threats) Strategies. Matching key external
and internal factors is the most difficult part of developing a SWOT Matrix, requiring
good judgment – and there is no one best set of matches.

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Strengths Weaknesses
1. KPC is a highly profitable 1. KPC needs to improve
and performance-driven its production efficiency
company by enhancing the
2. KPC has a world-class technology of the
reputation for all of the production process
company’s products 2. KPC refinery products
3. The company need to meet better
encourages continuous quality specifications to
learning by the more stringently satisfy
employees in all areas customer needs
related to its business 3. The monopoly hold of
4. KPC has an integrated KPC in the Kuwaiti oil
portfolio of both and gas market may
upstream and result in increased
downstream activities pricing and reduction of
5. KPC currently has quality
foreign markets in Asia, 4. KPC lacks joint venture
NW Europe and the partnerships upstream
U.S., and proposed or downstream that
markets in Africa and could promote
the Arabian Gulf technology transfers and
international market
viability
5. The KPC exports of
refined products to
neighboring Arabian Gulf
are far less than its
exports to South-East
Asia, Europe and the
U.S., which can be
logistically uneconomical
Opportunities S-O Strategies W-O Strategies
1. The Kuwaiti economy 1. KPC should expand its 1. KPC should enter into
depends largely on its oil market by meeting the joint venture
industry – the demand for oil and its partnerships for its
performance of KPC is distillates by developing upstream and
therefore critical countries including East downstream activities
2. KPC has access to 29 Asia 2. KPC should focus its
producing oil fields, and 2. KPC should develop the exports to the nearest
1,045 producing oil wells lucrative Arabian Gulf, countries such as those
3. East Asia is now European, and U.S. in the Arabian Gulf,
witnessing significant markets Europe, and South Asia
economic growth and an to avail of logistical
increasing demand for oil economies
and its distillates
4. KPC has the technology
to meet high product
standards for the most
stringent future quality
specifications in the
world

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5. Developing countries
that do not currently
seek high product
standards due to
substandard
infrastructure may be
good targets for market
penetration
Threats S-T Strategies W-T Strategies
1. The environmental 1. KPC could invest in the 1. KPC needs to work on
concerns and global development of its production efficiency
warming trends with the alternate sources of and quality through
concomitant energy technology transfers by
development of alternate 2. KPC could acquire newly horizontal integration
energy sources and new entering competitors
technologies may have from emerging
an adverse impact on the economies, availing of
oil industry its world-class
2. Although global oil reputation and extensive
demand has been upstream and
increasing in recent downstream resources
years, the oil industry is
characterized by intense
competition, especially
for value-added end-use
products
3. Competition seems to be
increasing with the
appearance of new
companies from
emerging economies
4. In recent years,
environmental pollution
has dominated as a
major concern all over
the World, and will
impact oil companies
5. Governmental
regulations in many
countries and the trend
towards tightening
product specifications
make it difficult to
market the current
production slate

SO Strategies use a firm’s internal strengths to take advantage of external


opportunities. KPC could expand its market by meeting the demand for oil and its

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distillates by developing countries including East Asia. Also, KPC could develop the
lucrative Arabian Gulf, European, and U.S. markets.

WO Strategies aim at improving internal weaknesses by taking advantage of external


opportunities. KPC could enter into joint venture partnerships for its upstream and
downstream activities, and could also focus its exports to the nearest countries such as
those in the Arabian Gulf, Europe, and South Asia to avail of logistical economies.

ST Strategies use a firm’s strengths to avoid or reduce the impact of external threats.
KPC could invest in the development of alternate sources of energy, and could acquire
newly entering competitors from emerging economies by availing of its world-class
reputation and extensive upstream and downstream resources.

WT Strategies are defensive tactics directed at reducing internal weaknesses and


avoiding external threats. KPC needs to work on its production efficiency and quality
through technology transfers by horizontal integration.

G. SPACE Matrix

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The Strategic Position and Action Evaluation (SPACE) Matrix below indicates whether
aggressive, conservative, defensive, or competitive strategies are most appropriate for a
given organization. The axes of the SPACE Matrix represent two internal dimensions:
(Financial Strength [FS] and Competitive Advantage [CA]) and two external dimensions:
(Environmental Stability [ES] and Industry Strength [IS]). These four factors are
perhaps the most important determinants of an organization’s overall strategic position.

FS
Conservative +7
Aggressive

+6

+5 K
P
+4 C
+3

+2

+1

CA IS
-7 -6 -5 -4 -3 -2 -1 +1 +2 +3 +4 +5 +6 +7

-1

-2

-3

-4

-5

-6

Defensive -7 Competitive

ES

Financial Strength (FS)* Environmental Stability (ES)


Return on Investment 4 Risk involved in business -2
Leverage 4 Technological Changes -3
Liquidity 4 Price Range of Competing Products -3
Working Capital 4 Competitive Pressure -3
Cash Flow 5 Barriers to Entry -1
(*These figures are best estimates
based on performance and market
realities, as the case does not provide
financial information)
Financial Strength (FS) Average 4.2 Environmental Stability (ES) Average -2.4

Competitive Advantage (CA) Industry Strength (IS)

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Market Share -2 Growth Potential 6
Product Quality -1 Financial Stability 4
Customer Loyalty -3 Ease of Market Entry 4
Product Life Cycle -2 Resource Utilization 4
Technological Know-how -2 Profit Potential 5
Control over Suppliers & Distributors -1 Technological Know-how 4
Productivity, Capacity Utilization 4

Competitive Advantage (CA) -1.8 Industry Strength (IS) Average 4.4


Average

Y-axis: FS + ES = 4.2 + (-2.4) = +1.8


X-axis: CA + IS = (-1.8) + (4.4) = +2.6

The directional vector of the SPACE Matrix above indicates that KPC is in Quadrant I of
the SPCE Matrix. Therefore, according to the results of the SPACE Matrix, it is
recommended that KPC embark on an Aggressive Strategy on a growth trajectory in
the promising oil and gas business in Kuwait and in overseas locations through its
subsidiaries. The company should thus balance all extant external and internal realities
impinging on it. According to the SWOT profile, the company could avail of horizontal
integration (acquiring similar firms towards oligopoly or monopoly) through selective
joint venture partnerships with strong foreign firms. KPC is already forward integrated
(taking ownership of distribution channels and nodes such as warehouses and retail
store chains), and backward integrated (acquiring firms providing raw bitumen) through
its subsidiaries. It appears from the overall strategic thrust of the various analyses
including the CPM, EFE, IFE, SWOT, and Product Positioning Matrix, that KPC is unlikely
to adopt an unrelated diversification strategy, but a related diversification strategy, as
the company’s mainstay is the production and refining of oil and gas from its ownership
of highly productive oil and gas fields. It can therefore acquire firm(s) that could help in
innovating and cost-cutting to establish KPC’s presence in Kuwait and around the world
with competitive pricing. KPC will thus need to embark on a market penetration and
market development strategy, together with product development to meet quality, price,
and demand for various market segments in Kuwait and in existing and evolving global
markets.

H. Grand Strategy Matrix

All organizations can be positioned in one of the Grand Strategy Matrix’s four strategy
quadrants. The Grand Strategy Matrix is based on two evaluative dimensions:
competitive position and market (industry) growth. Any industry whose annual growth in
sales exceeds 5 percent could be considered to have rapid growth. KPC’s sales growth is
unknown based on information provided in the case, but its market leadership,
monopoly, government patronage, and high market share puts the company in a healthy
annual growth trajectory. Appropriate strategies for an organization to consider are
listed in sequential order of attractiveness in each quadrant of the matrix. Firms located
in Quadrant I of the Grand Strategy Matrix are in a strong strategic position with
rapid market growth. For these firms, continued concentration on current markets
(market penetration and market development) and products (product development) is

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an appropriate strategy (see also the SPACE Matrix above). As it would be unwise for a
Quadrant I firm to shift notably from its established competitive advantage(s), KPC
should consolidate and expand its market. When a Quadrant I organization has
excessive resources, then backward, forward, or horizontal integration may be effective
strategies – in the case of KPC, horizontal integration has been recommended in the
SPACE Matrix analysis. When a Quadrant I firm is too heavily committed to a single
product, then related diversification may reduce the risks associated with narrow
product lines. KPC has several successful and diversified product lines, which could be
further extended through related diversification. As a Quadrant I firm, KPC can take
risks aggressively to make inroads into new global markets in Asia, Europe, and the U.S.

Rapid Market
Growth
Quadrant II Quadrant I

KPC

Weak Strong
Competitive
Competitive
Position Position

Quadrant III Quadrant IV


Slow Market Growth

1. Market development
2. Market penetration
3. Product development
4. Backward integration
5. Forward integration
6. Horizontal integration
7. Related diversification

I. The Quantitative Strategic Planning Matrix (QSPM)

The only analytical technique in the literature designed to determine the relative
attractiveness of feasible alternative actions is the Quantitative Strategic Planning Matrix
(QSPM), which comprises Stage 3 of the strategy-formulation analytical framework. This
technique objectively indicates which alternative strategies are best. The QSPM uses

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input from Stage 1 analyses and matching results from Stage 2 analyses to decide
objectively among alternative strategies. That is, the EFE Matrix, IFE Matrix, and
Competitive Profile Matrix that make up Stage 1, coupled with the SWOT Matrix, SPACE
Matrix, and Grand Strategy Matrix that make up Stage 2, provide the needed
information for setting up the QSPM (Stage 3). The QSPM is a strategic decision-
making tool that allows strategists to evaluate alternative strategies objectively, based
on previously identified external and internal Critical Success Factors. Like other
strategy-formulation analytical tools, the QSPM requires good intuitive judgment.

The left column of a QSPM consists of key external and internal factors (from Stage 1),
and the top row consists of feasible alternative strategies (from Stage 2). Specifically,
the left column of a QSPM consists of information obtained directly from the EFE Matrix
and IFE Matrix. In a column adjacent to the Critical Success Factors, the respective
weights received by each factor in the EFE Matrix and the IFE Matrix are recorded. The
top row of a QSPM consists of alternative strategies derived from the SWOT Matrix,
SPACE Matrix, and Grand Strategy Matrix. These matching tools usually generate similar
feasible alternatives. However, not every strategy suggested by the matching techniques
has to be evaluated in a QSPM. Strategists should use good intuitive judgment in
selecting strategies to include in a QSPM.

Strategy 1 Strategy 2 Strategy 3


KPC should KPC should KPC should
focus its develop the enter into
exports to lucrative joint
the nearest Arabian venture
countries Gulf, partnerships
such as European, for its
those in the and U.S. upstream
Arabian markets and
Gulf, downstream
Europe, activities
and South
Asia to
avail of
logistical
economies

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Key Factors Weight AS TAS AS TAS AS TAS

Opportunities
1. The Kuwaiti economy
depends largely on its oil 0.10 -- -- -- -- -- --
industry – the performance of
KPC is thus critical
2. KPC has access to 29
producing oil fields, and 0.12 3 0.36 4 0.48 2 0.24
1,045 producing oil wells
3. East Asia is now witnessing
significant economic growth 0.08 -- -- -- -- -- --
and an increasing demand for
oil and its distillates
4. KPC has the technology to
meet high product standards 0.10 3 0.30 3 0.30 4 0.40
for the most stringent future
quality specifications in the
world
5. Developing countries that do
not currently seek high 0.12
product standards due to 3 0.36 2 0.24 1 0.12
substandard infrastructure
may be good targets for
market penetration
Threats
1. The environmental concerns
and global warming trends 0.10
with the concomitant -- -- -- -- -- --
development of alternate
energy sources and new
technologies may have an
adverse impact on the oil
industry
2. Although global oil demand
has been increasing in recent 0.10
years, the oil industry is 2 0.20 3 0.30 3 0.30
characterized by intense
competition, especially for
value-added end-use
products
3. Competition seems to be
increasing with the 0.10 3 0.30 2 0.20 2 0.20
appearance of new
companies from emerging
economies
4. In recent years,
environmental pollution has 0.08 -- -- -- -- -- --
dominated as a major
concern all over the world
and will impact oil companies
5. Governmental regulations in

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many countries and the trend 0.10 -- -- -- -- -- --
towards tightening product
specifications make it difficult
to market the current
production slate
TOTAL 1.0 1.52 1.52 1.26
Strengths
1. KPC is a highly profitable and
performance-driven company 0.12 4 0.48 4 0.48 4 0.48
2. KPC has a world-class
reputation for all of the 0.12 4 0.48 4 0.48 4 0.48
company’s products
3. The company encourages
continuous learning by the 0.08 -- -- -- -- -- --
employees in all areas related
to its business
4. KPC has an integrated
portfolio of both upstream 0.10 3 0.30 3 0.30 4 0.40
and downstream activities
5. KPC currently has foreign
markets in Asia, NW Europe 0.10 4 0.40 4 0.40 3 0.30
and the U.S., and proposed
markets in Africa and the
Arabian Gulf
Weaknesses
1. KPC needs to improve its
production efficiency by 0.10 3 0.30 3 0.30 4 0.40
enhancing the technology of
the production process
2. KPC refinery products need to
meet better quality 0.10 4 0.40 3 0.30 2 0.20
specifications to more
stringently satisfy customer
needs
3. The monopoly hold of KPC in
the Kuwaiti oil and gas 0.08 2 0.16 3 0.24 1 0.08
market may result in
increased pricing and
reduction of quality
4. KPC lacks joint venture
partnerships upstream or 0.12 3 0.36 2 0.24 4 0.48
downstream that could
promote technology transfers
and international market
viability
5. The KPC exports of refined
products to neighboring 2 0.16 3 0.24 2 0.16
Arabian Gulf are far less than 0.08
its exports to South-East
Asia, Europe and the U.S.,
which can be logistically
uneconomical

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SUBTOTAL 1.00 3.04 2.98 2.98
SUM TOTAL ATTRACTIVENESS SCORE 4.56 4.50 4.24

J. Recommendations

Strategy #1:- It is recommended that KPC should focus its exports on the nearest
countries such as those in the Arabian Gulf, Europe, and South Asia to avail of logistical
economies.

K. Epilogue

KPC’s top management had directed the company’s “strategic planning team” to review
the company’s current operations and develop a strategic plan taking into account the
expected future trends that will impact the oil industry in general, and KPC’s operations
in particular. This case analysis has delved into the strengths and weaknesses of KPC,
together with the opportunities and threats facing the Kuwaiti oil and gas giant. Future
oil industry trends and geographical realities have also been taken into account to
provide a more holistic picture.

To bolster its business interests, KPC has several subsidiaries covering both upstream
and downstream activities. Each subsidiary operates a different oil service activity: from
onshore and offshore exploration and production through refining, petrochemicals, local
and international marketing, and retailing and marine transportation. These are:

(1) Kuwait Oil Company (KOC) – Oil & Gas production and exploration
(2) Kuwait Gulf Oil Company (KGOC) – Oil production from joint operations with AGOC
(3) Kuwait National Petroleum Company (KNPC) – Oil refining & products marketing
(4) Kuwait Petroleum International (KPI) – Petroleum products production and
marketing
(5) Kuwait Petrochemical Industries Company (PIC) – Petrochemical production &
exports
(6) Kuwait Oil Tanker Company (KOTC) – Oil Transportation through owned marine fleet
(7) Kuwait Aviation Fueling Company (KAFCO) – Supply of plane fuel at Kuwait Airport
(8) Kuwait Foreign Petroleum Exploration Company (KUFPEC) – Oil & Gas excavation

Following a multi-pronged analysis using judgment and reasoning coupled with


numerical and graphical outputs, three strategic choices have been presented herein for
KPC:

(1) KPC should focus its exports to the nearest countries such as those in the Arabian
Gulf, Europe, and South Asia to avail of logistical economies.

(2) KPC should develop the lucrative Arabian Gulf, European, and U.S. markets.

(3) KPC should enter into joint venture partnerships for its upstream and downstream
activities.

According to the comprehensive and decisive Quantitative Strategic Planning Matrix


(QSPM), Strategy #1, with the highest Sum Total Attractiveness Score (STAS) [4.56],
has emerged as the best option among the three promising alternatives. This involves a
closer look at the nearer countries such as those in the Arabian Gulf, South Asia, and

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Europe for logistical economies through local market penetration, expansion, and
consolidation. With the world-class reputation that KPC enjoys, it should be possible for
the company to reach the neighborhood markets before venturing further to far-flung
locations such as the U.S. (Strategy #2) where stronger players such as ExxonMobil, BP,
and Chevron-Texaco are already competing. As for entering into joint venture
partnerships with upstream and downstream activities (Strategy #3), these would be
feasible in the future to enhance production and distribution efficiencies.

KPC ranks seventh in world crude oil production with 2,500,000 bpd. It ranks a
respectable 12 out of the top 100 oil companies. The destruction of Kuwait’s oil industry
during the first Iraqi occupation (1990–1991) was extensive, but damage to exploitable
reserves was estimated at only about 2 percent. Several hundred oil wells and gathering
stations required replacement. All three domestic refineries were beyond operation. By
mid-1994, however, nominal production capacity of crude from Kuwait and its share of
the Neutral Zone was around 2.4 million bpd, and the refineries’ capacity was back to
pre-invasion levels. KPC‘s rise from the ashes to being a world-class player in the highly
lucrative and competitive oil and gas industry is indeed laudable for a relatively small
country in the Arab world.

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