Porter's Five Forces Analysis on British Petroleum

Porter’s Five Forces Analysis – British Petroleum

Porter (1980, p. 80) outlined the five forces model enabling analysis of an organization’s competitiveness. The five forces comprise, the threat of new entry, the threat of substitute products, bargaining power of suppliers, bargaining power of buyers, as well as the rivalry among existing players. Traditionally, the oil and gas industry in which BP operates requires a massive financial investment to start as well as very expensive infrastructure. A large amount of capital investment is essential to develop building pipelines, drilling wells, accessible roads as well as acquisition of land.

Threat of Substitute Products

The substitute products of oil and gas energy are gas, energy generated by the falling water, energy from the sun, coal, and energy from the wind, nuclear reactions, and several others. The potential (near term – 10 / 20 years) threat of such alternatives is quite insignificant and minuscule for the Oil and Gas Industry players, amongst whom British Petroleum operates. This threat is insignificant due to the fact that an increased cost of production of such unconventional sources, typically who are not as prudent and penny-wise; additionally, these alternatives/substitutes do not offer similar throughput as is offered by the oil and gas, as fuel sources. Still, several firms have heavily invested in research and development to scoop-out more options, for example: solar and making these as efficient as oil and gas. A potential downside of this alternative is that the switching and maintenance cost is very high when dealing with these alternatives, and that is why these substitutes are not attractive for consumers.

Threat of New Entrants

The emergence of a new entrant in an Industry is based on the entry and exit barriers in that specific sector. Broadly, the prime barriers of entry are a few, viz., readiness and availability of the distribution channels, upfront capital investments required to set-up the business, economies of scale, brand capital, government policies, etc. In the oil and gas industry, there are significantly high barriers to entry, due to the relatively large amount of required investment in capital and technical know-how to put the foot forward in the industry. Therefore, the threat of new entry to the existing players is quite insignificant. However, barriers to the entry into the renewable energy sector of the solar market is considered to be getting lower as of the current date, as the establishment of a renewable energy manufacturing unit doesn’t require as much high an amount of capital as was required 5 -10 years back.

Intense Rivalry among Existing Players

The level of intensity of competition among the prevalent operators significantly depends on the number of players operating in the market as well as their capabilities and competencies. The intensity of rivalry among the established competitors will be higher when exit barriers are high in the industry, along with the presence of a number of small competitors equally paired, however, are lacking the differentiation. The oil and gas industry is distinguished by the presence of large firms like Chevron, Exxon Mobil, Total, Shell, etc. Competition is quite intense in the oil and gas sector. Whereas, all the Oil and Gas firms