Background of Study
Every business provides a service or products in a given industry. For a business to survive and grow, it needs to expand its share of consumers in the market within which it operates. There are several tools that are utilized to examine and review a given market. This includes the Porter’s Five Force analysis which examines and critiques the key players that can influence a given industry and the relative strength of each group to dominate and control the market. This competitor analysis method defines the extent to which the players will change and influence the industry in the foreseeable future.
The National Iranian Oil Corporation (NIOC) is a state-owned corporation that operates under the Ministry of Petroleum of the government of Iran. Their primary function is to produce and distribute petroleum and natural gas in Iran. NIOC is the sole agency of the Iranian government tasked with handling of petroleum and natural gas matters because Iran has nationalized its petroleum and oil resources. Globally, NIOC is the third largest petroleum corporation after Saudi Aramco and Russia’s Gazprom and has several subsidiaries including six giant corporations that carry out the core functions of the NIOC.
Iran was sanctioned for its nuclear program between 2003 and 2006. This caused NIOC’s activities to be significantly reduced and its engagement on the global market was severely limited. However, in 2015, after long negotiations, the international community decided to remove the sanctions in return for moderation of the Iranian nuclear program. Hence, Iran and the NIOC are ready to trade with the world and engage in the international oil market.
International Petroleum Industry Analysis
The Porter’s Five Force theory provides a framework and basis for the identification of actual and potential competitors that significantly influence an industry. Within the petroleum industry of the Middle East and the world, the following classes of competitors exist in relation to NIOC:
Threat of New Entrants: This is the possibility of the formation of large conglomerates to produce over 4 million barrels of petroleum each day. This is a very low threat because it is not easy for any country to find oil reserves with so much oil to reach that quantity of production each day. The only remote possibility is for several oil producing countries to merge their oil companies and create a few large corporations to become a threat to NOIC, however, this is almost too remote to happen. This threat is negligible.
Threat of Substitutes: This includes two main threats. First, the threat of generating petroleum from new sources like fracking which is becoming common in the United States and Europe. This is a moderate threat but the United States now has enough oil from fracking and is currently exporting petroleum. The second avenue for substitutes is in the possibility of research into cleaner energy and fuels and this include the new sources of energy like electricity. This threat is moderate.
Supplier Power: The main threat of suppliers is the threat of not getting essential resources or logistics to keep production going in the industry. This threat is very low because NOIC has its resources – petroleum in large quantities in the country it controls and the country is sufficiently industrialized to produce its own petroleum. This threat is negligible.
Buyer Power: This is a major threat because countries that demand and consume oil can easily come together to sanction Iran and ban Iranian oil. This is evident in the sanctions that were passed upon Iran over the past decade. Therefore, it is a threat that Iran will have to deal with although it a political risk rather than a market risk.
Competitive Rivalry: This is a major threat faced by Iran in terms of the markets and its operations. The main competitors are Saudi Aramco, Gazprom and ExxonMobil which together with NIOC form the Top 4 petroleum giants in the world. These competitors produce over 5 million barrels of petroleum each day from their global operations. These competitors are closely followed by Rosneft, Shell and PetroChina which produce over 3 million barrels each day. There is also competitive rivalry from other OPEC countries’ national manufacturing units including those of Venezuela, Kuwait, United Arab Emirates, Nigeria and Angola. These companies have strong subsidiaries that produce large quantities petroleum, market them and control supply chain systems that span across the globe.
Competitive Advantage of NIOC
There are several competitive advantages that the NIOC has which will influence their involvement in the global oil industry over the coming decade and this includes:
Access to Capital: The Iranian government is entitled to some $150 billion in frozen money that they have been given since the easing of the sanctions on them. This creates a comfortable base for their expansion into the global markets after the end of these sanctions.
Technological Adjustments during the Sanctions: Iran was encouraged to focus on research and development during the sanctions and this gives them a competitive advantage in terms of technology. This has caused them to map out and stay ready for the boom in demand for Iranian petroleum and this gives NIOC a competitive advantage.
Focus on Increasing Market Share: Every country in the OPEC is complaining about falling oil prices. Due to the fact that Iran and Iranians have been living in hardship over the past decade, they do not feel the same pain as the countries that lived in luxury during Iran’s absence in the international community. Hence, Iranians who are now used to living in hardship can tolerate a slower pace in increasing quality of life rather than those who have lost the luxuries they had. Due to this, Iran is pursuing a policy of increasing their production level five times with a hope of increasing market share even if the revenue they get is relatively lower.
Strong HR Capabilities: Iran has a strong HR capability that was developed through rigorous studies and education in their universities. Iran has such an advance educational system that most of their professionals in the NIOC are Iranians not foreigners. So they are likely to make money and keep the money within their own country and reinvest and grow the economy.
Subsidiaries
The petroleum industry is one that requires an integrated supply chain system that deals with different units and activities from the sourcing of logistics to the marketing of the end product. The National Iranian South Oil Company is an integration of the oilfields in the south of the country. The Iranian Offshore Oil Company focuses on exploring and extraction of oil on Iran’s seas and has strategic locations on the islands of Iran. Iranian Central Oil Fields Company is focused on gas and operates in the interior of the country. National Drilling Company is focused on exploring and discovering and research. There are over 20 other subsidiaries that come together to concentrate resources and skills for effective performance.
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