PESTLE analysis of Oil and Natural Gas Corporation Limited (ONGC Ltd.

)
PESTLE Analysis is a strategic management tool used for analyzing internal and
external factors that impact the situations in an organization/firm. PESTLE stands for –
Political, Social, Economic, Technological, Environmental and Legal factors that impact
the macro-environment of the firm that it operates in.

Every industry operates in a dynamic environment where it is influenced by –

government decisions, increasing environmental activism among consumers, collective
social trends, regulatory framework, technological changes, increasing regulatory
framework for environmental factors, consumer spending behavior, and ever evolving
legal system.

This report details the PESTLE analysis conducted on ONGC with respect to Indian
context.This report focusses on the context of the oil and gas industry in India, the
prospects and potential pitfalls, and paints a broad-brush picture of the key players
currently operating in the market. It also discusses on the theme of transformation of
India's largest national oil company (NOC), the Oil and Natural Gas Corporation
(ONGC).

 Political Factors:
Political factors are often related to the level of intervention and nature of
intervention of the local and national government in the business and economic
environment. Government policies and governance system plays a huge role in
nature and objectives of the policies. The following are a few prominent political
factors which influence ONGC :

- Changing policies with new government :Since ONGC is a public sector

venture, it should always be prepared for changes in policies/structure/resource
allocation which can happen because of transition of government.

- Regulatory Practices: ONGC has to manage diverse regulations in the various

markets it is present in. Over the last few years Global Business has witnessed
an increasing regulatory scrutiny.

- Taxation policies :Over the last two decades, ONGC has been benefitted from
lower taxation policies.This has resulted in higher profits and increasing spending
in the research and development. This trend is subjected to change in future.

- Political stability in the existing markets : – ONGC operates in many countries.

Hence, it has to make policies based on the Global Business industry specific
requirements.
 Economic Factors :
Economic factors generally includes – inflation rate, economic performance of
country, consumer disposable income, interest rate, labor market conditions,
taxation rate, exchange rate etc.The following are a few prominent economic
factors which influence ONGC :

- Liberalization of trade policy :Increasing liberalization of trade policy can help

ONGC to invest further into the regions which are so far off-limits to the firm.

- Availability of core infrastructure :Over the last decade, the government has
increased the investment in developing core infrastructure to facilitate and
improve business environment. ONGC can use this as an advantage to
penetrate tier 2 and tier 3 markets.

- Efficiency of financial markets :ONGC can access vibrant financial markets and
easy availability of liquidity in the equity market to globally expand the business.

- Inflation rate : The easy liquidity in the market post the great recession of 2018
will lead to increasing inflation in the ONGC markets. This will likely impact the
consumers of ONGC.

- Skill level of workforce the present market :ONGC can leverage good skill level
of employees in the present market to not only improve services in Global
Business but also leverage those skills to create global opportunities.

- Exchange rate : The volatile exchange rate can impact ONGC investment plans
not only in the short term but also in the long run.

 Social Factors:
Every industry or firm has its own way of doing business andunderstanding the
customer preferences in the market which it operates in. Social factors generally
include – traditions, acceptance of entrepreneurial spirit, culture, gender roles,
societal roles and norms, demographics, health & safety attitudes, attitude
towards certain products and services etc.The following are a few prominent
social factors which influence ONGC :

- Power structure : There is an increasing trend of income inequality in ONGC's

most prominent market. This has altered the power structure that has been
persistent in the society for over last 6-7 decades.
 - Gender roles : The gender roles are evolving in the country. ONGC can test
various concepts to cater to and support these evolving gender roles in the local
market.

- Societal norms and hierarchy :ONGC should strive to build a local team that
understands the societal norms and attitudes better to serve the customers

- Influence of Media :Media outlets play a critical role in influencing the public
opinion. Both traditional media and social media are rapidly growing these days.
ONGC can leverage this trend to build efficient marketing network.

- Migration : The broader attitude towards migration is negative in the market in

whichONGC is present. This can impact the company’s ability to bring
international talent to manage operations in the country.

- Education level : The education level is high in the ONGC existing markets.
This expertise can be used for building a R&D center in the local market

 Technological Factors:
Technology is a game changer in various industries and global businesses these
days. Some of the technological factors that are impacting the firm are–
innovation in customer services, supply chain disruption because of technology,
access to mobile phones driving empowerment, innovation in product offerings,
rate of technology driven change, access to greater information, population
access to technology etc.The following are a few prominent technological factors
which influence ONGC :

- Development in Mobile technology :Developments and dissemination of mobile

technology has transformed customer expectations in the Global Business
sector. ONGC has to not only meet and manage these expectations but also
have to innovate to stay ahead of the competition.

- Improvement in Supply Chain System: Technological innovation is fast,

disrupting the supply chain model of ONGC as it is providing greater access to
information to channel partners leading to higher profit sharing.
 - Maturity of technology :The technology in the Oil and Gas sector is still at
nascent stage and most players are vying for new innovations that can enable
them to garner higher market share.

- Lowering cost of production :Lowering the production and servicing cost can be
added advantage for any business. ONGC has to restructure its supply chain to
bring in more flexibility to meet both customer needs and cost structures.

- Latest technology based innovations implemented by competitors of ONGC :

This can provide a good insight into what the competitors are thinking and
improvement in global business model in future.

 Legal Factors:
Legal factors playa critical role in any country. Legal factors includes - system of
justice, data protection laws, discrimination laws, intellectual property rights
protection, copyrights law, biasedness toward home players, time taken to deliver
justice etc.The following are a few prominent legal factors which influence ONGC
:

- Employment laws :Employment lawsfor the respective country play a prominent

role in setting up the business model in international market.

- Time take for business cases in court :Some countries, even though following
international norms but the time for resolution often run in years. ONGC has to
carefully consider the average time of specific cases before entering an
international market.

- Health and safetystandards :Health and Safety standards are setup for each
country. ONGC should be aware of the requirements and cost of meeting those
norms.

- Data protection laws : Over the last decade, data protection has emerged as a
critical part of not only privacy issues but also intellectual property rights. ONGC
has to consider whether the country in which it is operating,has a robust legal
and technological mechanism to protect against data breaches or not.

 Environmental Factors:
Over the last decade, sustainability and environmental factors are becoming
critical for businesses. Government and pressure groups are forcing the
organizations to adhere to environmental standards. Some of the environmental
factors are – safe disposal of hazardous material, laws regulating pollution,
limiting carbon footprints, safe water treatment, safe waste disposal, increasing
focus on sustainability, insurance policies, climate change etc.The following are a
few prominent environmental factors which influence ONGC :

- Paris Climate Agreement is enforced by the government of most countries. This

can result in greater scrutiny of environmental standards for ONGC in both
developed and emerging markets.

- Extreme weather can likely add the cost of operations in ONGC since it has to
invest in making its supply chain more flexible.

- Environmental norms are also altering the priorities of product innovation. In

many cases products are designed based on environmental standards and
expectations rather than catering to traditional value propositions.

- Waste management especially for units close to the urban cities has taken
increasing importance for Oil and gas sectors such as ONGC. Government is
coming up with strict norms for waste management in the urban areas.

References :
 ONGC Ltd. Annual Report 2017-2018,
https://www.ongcindia.com/wps/wcm/connect/en/investors/annual-reports/annual-
report-2017-18

 Kannan Ramaswamy (2018), "ONGC India: In Search of a New Growth

Strategy”, Harvard Business School Case Study, Published by Harvard
Business Publications.

 Euromonitor (2018), "Global Business Sector Analysis ", Published in

2018.