The petroleum industry
Introduction
The petroleum industry is a business dealing with oil and gas, also known as the oil industry. The industry involves the world processes of exploration, extraction, refining, transportation and marketing of petroleum products with the most significant volume products being gasoline (petrol) and fuel oil. The extreme monetary value of oil and its products has resulted in being called “black gold”. This is why it interests me in analyzing the global strategic management administered by the oil and gas industry. I have identified multinational companies in oil and gas industry in including Total S.A. which is a French multinational integrated oil and gas company and Royal Dutch Shell PLC which is also called Shell, a British-Dutch oil and gas company. Both companies offer various services and products across the world. Oil and gas executives were a confidence that 2019 would recover oil markets which increased expectations for increased economic growth, commodity prices and investments overall due to increased energy demand above the average levels, as the world economy keeps displaying robust growth rate.
Strategic Groups
I used Porter’s Five Forces framework to analyze the potential opportunities and risks for the oil and gas sector. One of the factors I analyzed was a competitive rivalry. I found that the competitiveness of the petroleum sector and specifically the upstream sector of the industry is significantly intensive. The graph below shows the big integrated oil and gas companies in the private sector.
Sinopec tops the list of the oil and gas companies by revenue in U.S. dollars, 420.38, followed by Royal Dutch Shell-388.38, Saudi Aramco 356, PetroChina 342.21, BP 298.76, Exxon Mobil 279.33 and Total 209.36. This statistics is by November 2019.
Both Total and Shell engages in all aspects of the oil and gas sector, including upstream operations and downstream operations. Total produces base chemicals and specialty chemicals for the industrial and consumer markets. The two companies are involved in exploration and production projects sectors all over the globe. They sell a wide range of products produced by its refineries and other facilities. Natural gas is sold by international distributing companies as well as marketing companies and transport natural gas through firms. Don't use plagiarised sources.Get your custom essay just from $11/page
PESTEL Analysis of Total S.A. and Royal Dutch Shell PLC
Dynamic capabilities address increasing complexity and rapid change in the upstream petroleum industry. The challenges include partnership, new competitors and unconventional. Dynamic capabilities generate ambidexterity and effective management of the business ecosystem. In the new business environment, there are three dynamic capabilities with certain importance for upstream oil and gas organizations including the ability to manage environmental, security, safety and health considerations; the ability to manage the upstream business ecosystem; and ambidexterity across mature and emerging domains. In the oil and gas industry, dynamic capabilities framework is applied to capture opportunities and mitigate strategic risks in upstream petroleum exploration and production. Managers with vital strategic decision-making roles use it to keep sustainable value, to enhance safety and profitably, to raise reserves and production to meet the organization’s share of the global energy requirements and to keep or extend the organization’s competitive position.
Both companies, Total S.A. and Royal Dutch Shell PLC, have their dynamic capabilities accumulating with their spread across the world offering competitive and also an organization-specific advantage. Changes in the macro-environmental aspects pose a direct effect on both Total S.A. and Royal Dutch Shell PLC. The macro-environment factors can affect the Porters- Five Forces that design strategy and competitive landscape. They can affect individual company’s competitive advantage or the entire profitability of the basic material industry. PESTEL analysis offers the operating challenges both Total S.A., and Royal Dutch Shell PLC faces in a prevalent macro environment other than competitive forces.
| Political | Economical |
| World political developments resulting in economic uncertainty Investment pact in Iran’s South Pars field uncertainty due to delay in sanction waivers Labeling products and other needs in major integrated oil and gas Industrial safety regulations in the basic material area. Mandatory worker benefit Work week rules in MI oil and gas Wage legislation Tax rate and incentives Pricing regulations Anti-trust regulations connected to MI oil and gas Favored trading partners Trade regulations and tariffs connected to basic materials Intellectual property protection Legal framework for enforcing contracts Bureaucracy and interference in MI oil and gas sector by the government Level of corruption Risk of military invasion Political stability and the importance of MI oil and gas | Adverse currency movements Impact on fall in crude oil prices Interest rates Inflation rate Unemployment rate Discretionary income Economic growth rate Business cycle stage (e.g. recovery, recession, prosperity) Labor cost and productivity in the economy Education level in the economy The educational level in the economy Skill level of the workforce in MI oil and gas sector Comparative advantage of host country and basic material sector Infrastructure quality in MI oil and gas sector The efficiency of financial markets Exchange rates and stability of host country currency Government intervention in the free market and associated basic materials Kinds of economic systems in the nation of operation
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| Social Improving preferences for electric vehicles use renewable energy Leisure interests Attitudes (e.g. environmental consciousness, health) Entrepreneurial spirit and the extended nature of the community Culture, e.g. social conventions and gender roles Educational level and also educational standards Power, hierarchy, and class structure in the community Demographics and skills level of the society | Technological Strong investments in R&D for technological creativity Leveraging supercomputing for exploration and filed management decision making Diffusion technological rate Effect on value chain structure Effect on the structure in MI oil and gas sector Impact of the technology on product offering Recent technological developments by the two company competitors |
| Legal Penalties for implication in lawsuit and bribery scandals greenhouse gas policies and regulations Data protection Health and safety regulations Employment regulations Customer protection and e-commerce Intellectual, patent, copyright property law Discrimination laws Anti-trust laws in the main Integrated oil and gas sector | Environmental Investments and developments of renewable energies Attitude and support towards and for renewable energy Endangered species Attitude towards ecological goods Waste management Recycling Regulations in water and air pollution Policies controlling environmental pollution Climate change Climate change Weather |
table 1: External Environmental Factors affecting Total S.A. and Royal Dutch Shell PLC
I have constructed the table 1 above, based on the annual reports that indicate the external environment factors affecting Total S.A. and Royal Dutch Shell PLC.
SWOT Analysis and Critical Success Factors for Total S.A. and Royal Dutch Shell PLC
| Strength Opportunity | Weaknesses |
| Total S.A. has resilient upstream and downstream performance in a challenging environment and therefore, Shell should take this as an opportunity to gain resilient performance in such areas. Both Total S.A. and Royal Dutch Shell PLC have continuous cost reduction by total that accelerates competitive advantage. Shell has a strong dealer community than Total. Total can therefore develop a culture among distributors and dealers to promote its products and invest in training the sales team. Shell also has strong free cash flow and Total should make its free cash flow strong as well to help in expanding new projects. Total has impressive safety record and Shell can take it as an opportunity to improve safety record to ensure high availability of production and exploration Both Total S.A. and Royal Dutch Shell PLC invests in low carbon business and R and D to assist future development and profitability | Total pays penalties for implication in lawsuit in the U.S. over bribery charges and manipulating natural gas prices and Shell can take this as an opportunity to penetrate further in U.S. market. Total has divestment of oil sands assets in Canada because of worries of climate change and profitability. Shell can take this opportunity since it has superb performance in new markets. Both Total S.A. and Royal Dutch Shell PLC require more investments in new technologies. Shell is not very good at product demand for predicting resulting to increased rate of missed opportunities compared to Total. Total can take this as an opportunity and focus on demand forecasting that will lead to higher rate of missed chances. Both Total S.A. and Royal Dutch Shell PLC leave a lot to be desired in marketing of products. Shell has gaps in the product it sells and Total should take a foothold in the market using this lack of choice. Shell does not do financial planning efficiently and properly. It should ensure it is doing the financial planning effectively to stand ahead of Total. Shell has higher attrition rate in work force and therefore it must spend more than Total on training and developing its workers Both Total S.A. and Royal Dutch Shell PLC investment in research and development is below the fastest growing players in the sector
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| Opportunities | Threats |
| Total is in a comfortable position to leverage world-class Asian-Middle East platforms. Shell has therefore to align its strategies in penetrating the East and Middle East market. Low prices by Total are stimulating LNG demand and Rotal’s integrated gas portfolio which help in expanding along the gas value chain New environmental policies. New opportunities will develop a level playing field for both Total S.A. and Royal Dutch Shell PLC. it presents a significant opportunity for both companies to drive home its advantage in new technology and gain market share New taxation policies can substantially affect the manner of business operation and can open new opportunities for Total S.A. and Royal Dutch Shell PLC to increase their profitability Both companies have the opportunity to enter a new emerging market due to adoption of new technology. Shell’s free cash flow offers opportunity to invest in adjacent product segment. reduced cost of transportation due to reduced shipping prices reduces production cost which is an opportunity for both Total S.A. and Royal Dutch Shell PLC Both Total S.A. and Royal Dutch Shell PLC has new customers from online channels Shell’s Market development can increase competitiveness compared to Total | Both Total S.A. and Royal Dutch Shell PLC has low oil prices resulting to the production cuts and lower investments Political turmoil and uncertainty in Middle East is a significant business area for Total and therefore Shell should be prepared before venturing in Middle East. There is intense competition due to stable profitability in the sector Change of customer buying behavior from online channel can be a threat rising trends toward isolationism in the U.S. economy can result same response from different governments therefore adversely affecting the international sales Both Total S.A. and Royal Dutch Shell PLC are operating in various nations and therefore exposed to currency fluctuations Low quality products and imitation of the counterfeit can be a threat to both Total S.A. and Royal Dutch Shell PLC’s products There is no regular supply of innovative products New technologies created by other companies can be a threat to both Total S.A. and Royal Dutch Shell PLC
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Table 2: SWOT Analysis of Total S.A. and Royal Dutch Shell PLC
According to the strengths and weaknesses, both Total S.A. and Royal Dutch Shell PLC have undertaken corporate social responsibility initiatives to get competitive advantage and promote their organizational success. They can both improve on weaknesses.
Comparison of CSR Initiatives of Total S.A. and Royal Dutch Shell PLC
The oil and gas sector face liability risk, health and safety risk and finally reputational risk the management of which is key to the sector’s long-term success. Every stakeholder seeks to control oil and gas development to reduce the risk of harm and offer redress in the event harm is done. Shell began undertaking reputational problem after the problem in Nigeria to undertake social investment and make concrete efforts for positive relationships with all stakeholders. total demonstrates strengthened respect for its stakeholders, by listening to them, engaging them and keeping continued dialogue; setting a benchmark for the promotion of access to energy; promoting economic and social development in host regions; and being accountable operator that is exemplary in their management of the effects connected to their activities. Both Shell and Total operates voluntarily on social and environmental performances to share benefits with people and contributing to sustainable development. The sector is actively participating in collaborations with well-established agencies such as the U.S. Agency for International Development to create future that is in sync with people’s social and environmental concerns.
Similarities in Total S.A. and Royal Dutch Shell PLC CSR strategies
| Total S.A | Royal Dutch Shell PLC |
| To Society: Total is putting the safety of the society first. it says that risk are inherent in every activity they carry out , put unwavering commitment to safety to be crucial to protect people and environment and make sure their long-term viability. Human rights: Total recognizes human rights at the workplace by upholding the fundamental conventions of the International Labor Organizations in its engagement with workers wherever they are operating. | To society: Shell aims at conducting business as a responsible corporate member of society, to observe the laws of the nation in which they operate. to express support for fundamental human rights in according to the legitimate role of business and to offer appropriate regard to health, safety and the environment consistent with their commitment to contribute to sustainable development Human Rights: Shell states its respects human rights by incorporating values like integrity and honesty in its core. it has certain human rights applying to its employees and local communities. its basic rights involves abolition of child labor, freedom from forced labor, freedom from discrimination and freedom of association |
Table 3
Differences in Total S.A. and Royal Dutch Shell PLC CSR strategies
| Royal Dutch Shell PLC | Total S.A. |
| Diversity in employment: Shell recognizes diversity in employment by stating that being an equal opportunity employer is part of their core principles. Its diversity involves women and men employees and also top positions by nationals. Number fatalities at work: Shell aims at zero fatalities and incidents at work. it keeps improving commitment and investment in safety and training. Financial support: Shell offers financial support to lobbying, political parties and similar institutions to help in assisting or influencing their agenda. Indigenous groups: Shell has policies concerning indigenous groups. for example, the indigenous individual’s rights are useful in areas like Artic, Canada, Russia and Brazil. | Combating Climate change: Total has integrated the challenge of climate change in their strategic vision. They have realized that according to the Intergovernmental Panel on Climate Change, human activity I the main cause of global warming. The environment: Total aims at reducing their effect on the environment via tailored initiatives. It is fully aware that their industrial operations can have a potential risk to the environment. it therefore implemented a proactive policy anticipating, measuring and reducing their footprint every step of the way Responsible and active employer: Total acts as a responsible and attractive employer. their ability to attract, reward and keep talent is a strategic strength, specifically like now they are implementing the ambitious project. |
Table 4
Analyzing and comparing the CSR strategies of both Total S.A. and Royal Dutch Shell PLC CSR strategies, I have realized that they both engage the local communities in their operations. They also acknowledge the protection of the workers by investing in safety and training measures. Both Total S.A. and Royal Dutch Shell PLC CSR strategies protect the environment and Total has strategic plan with climate change vision in their plan. Every company has social responsibility in the host countries.
Conclusion
The internal analysis of Total S.A. shows that their CSR strategy focuses on several concerns such as employment, climate change, impact on environment and code of conduct. Total demonstrates an unwavering commitment to their core of conduct by upholding human rights roadmap, rights to local communities, human rights in the workplace and having responsible security practices. It also looks at climate change, for instance, by speeding up the development of eco-innovative products and services. They also have Lacq carbon capture and storage facility in France. Regarding the environment, Total confirms off-limit areas and significant decline in hydrocarbon discharges to water. It also offers comprehensive benefits packages to all workers. These are all moved by PESTEL and SWOT analysis by Total.
For Shell, CSR strategies also focus on several concerns like rights and policies of indigenous people, human rights policy and improvements, financial support and fatalities at the workplace. Shell aims at zero fatalities at work. It also offers support to lobbying and political parties to support their agenda. Shell has certain human right principles. However, the internal analysis shows that their CSR strategies are affected negatively by several factors such as less than a negligible contribution to governments worldwide indicating that Shell still needs to work on its CSR in various nations.