SINOPEC
Introduction:
Established in the July of 1998, Sinopec Group stands for China Petrochemical Corporation. It is a large petroleum and petrochemical enterprise group based in China. Former China Petrochemical Corporation was the founding basis for the Company. The Group has the controlling share of the State which makes it a state-authorized investment organization. The headquarters of the Sinopec Group is located in Beijing and the President is taken as the legal representative of the enterprise. The total registered capital of the group is 130.6 billion Yuan (English.sinopec.com, 2014).
Sinopec Group has a number of subsidiaries, shares holding Companies and controlled Companies whose investor rights over the diverse related assets owned by the huge enterprise are executed and ensured by the Company. Major decision makings, the appointment of management teams and getting back returns on the assets invested comprise the rights of these investors. The relate laws govern the operation, management and supervision of the Group’s state assets. It also has policies and procedures drafted by the state for the maintenance and value enhancement of the existing state assets (En.cciip.org.cn, 2014). The first H-shares and A-shares issue of the Group inside national boundaries and for the international market was in October 2000 and August 2001 respectively. The listing stock markets for the Company are Hong Kong, New York, London and Shanghai.
External and Internal Environment Analysis
SWOT Analysis
A constructive way to get the overall picture of where the organization stands and where it needs to focus is the SWOT analysis. By the use of SWOT analysis, we get an incentive to understand the value proposition of the organization in the market. It also assists in drafting plans for the future courses of actions. All this assessment is to be based on the strengths and weaknesses of the internal environment of the organization and opportunities and threats of the external environment (Mbaskool.com, 2014).
Through a detailed SWOT analysis of Sinopec, the following overall picture can be assessed:
- What is best offered by the Company, and what additional improvements can be made
(Strengths and opportunities)
- Where the Company has internal and external competition which can be fortified (strengths and threats)
- Where and how the Company needs to position its services and products to protect itself from outsiders (weaknesses and Threats)
- Where the Company needs to focus its overall activities.
The strengths of the Company can be explained in a number of ways. Sinopec has been able to develop a distinct and strong name in China. With this brand image, it has been able to produce diversified and huge operations. The strength also lies in the sales of the Company, which are of the top level. The operations of the Company are diversified in terms of the oil & gas refining, exploration, marketing, storage, pipeline transportation, which adds to the overall value. The largest strength lies in the market share as, if we go by the annual volume; it is the largest Oil refiner in Asia by annual volume
The weaknesses of the Company can be assesses in terms of the internal deficiencies that the Company has. There are a number of costs of environmental hazards involved, which is to be paid by the Company. The concerning fact is also that the operations in China are declining. Recently, a huge amount of Operating loss is involved. Another issue that defines the Company weakness is that there have been a number of accidental deaths due to mishaps.
Similarly, there are some opportunities that the Company could utilize. The trends that can be taken as opportunities are that there is Increasing demand of petroleum in China and that the global demand for fuel is also on the rise and at higher fuel rates.
The Company also possesses some threats. The threats exist in the external environment. There are growing national and international Government regulations in all parts of the world. The high Competition with national and international petroleum companies can also be taken as a threat. Finally, the latest trends where the Environmental laws are getting strict with new sources of energies being introduced and the Hybrid cars overtaking fuel-car markets are also the threats.
The conclusion from the SWOT analysis is an indication that there are plenty of opportunities that the Company could grab, given the strengths that it has developed over the years.
External Environment Analysis
The most effective way for external analysis, which gives a total assessment of the industrial environment in which the Company functions, is given by the PESTEL analysis.
Political Environment:
Political factors are best reflected by the ways in which a political entity can influence a Company on various levels including the national level, regional level or international level. It is generally believed that oil industry, comprising of upstream and downstream features, acts as a strategic point that amalgamates the political, economic and social needs of a country. It is so believed because it has a greater influence on various aspects of a country transport capacity, energy production, industrial production, chemical production, agriculture and social welfare. There are certain consumers who have a greater impact on the oil market, which comprise of United States of America, China and western European Union countries. There are also certain trade agreements for the exchange of energy resources carried out for mutual gain of bilateral parties. The instable situations from the Middle East act as a powerful influence over the production of oil and the price. Every conflict could easily disturb the global oil production and transport, which can result in the overall rising of oil price. The Ex-Soviet Space also has a considerable influence on the oil systems of the global community.
Economic Environment:
The economic factors related to the oil industry are best reflected by the supply and demand influences on the oil prices. It also includes the possible influences of the supply or demand of the complementary goods, the influence of the supply and demand of substitute resources. Other economic considerations include the USD exchange rate, which is based on petrol-dollar policy, per barrel price of oil on stock exchanges and most importantly the regional and global stages economic situation. Other small influencing factors of the oil market economic environment are the known reserve values, financing interest rates, value of the known reserves, interest rate for financing, and the stock market indexes value. The variation in transport activities is also a variant that influences the overall demand for fuels in the energy sector.
Socio Cultural Environment:
The heaviest consumers of the energy sector in the developed nations are now slowly growing with age and thus there is a tendency of decline in the demand for fuels and energies in such areas. However, the population growth in developing countries does not seen to slow down, and so there is a growing market on the other side of the globe as well. This growth in population will inflict the rise of the energy resources for rising transportation, petrochemical industries and electricity production needs. The balancing results will be that the need for energy in developing countries will surpass the decline in need of the developed nations. Another important factor in the socio cultural environment that is worthy of noting is the urbanization factors. In the developing parts of the world, the growth in urban population is expected to be larger than developed countries (with almost 1432 millions).
Technological environment:
The technology aspects do not influence individual firms but they affect the whole industry at a time. The effect is on both the upstream and downstream companies. The technologies that affect the oil industries are represented by the complementary products and substitutable products. The fact to note here is that the complementary products influence the demand for oil. They influence this demand by the development of technologies that will decrease the consumption of oil products or replace them with other a substitutable product. The representation of the complementary products is given by auto vehicles, airplanes, ships, petrochemicals (plastics, synthetic fibers, synthetic rubber, detergents, paints, adhesives, aerosols, insecticides and pharmaceuticals), energy, agricultural product or other industrial products (Ukessays.com, 2014). The representation of the substitutable products is in the form of by-products of the rest of energy industries.
The other industries that reflect these differences are the coal industry, natural-gas industry, nuclear industry, biomass industry, hydro industry and other renewable-energy industry (solar, wind, geothermal). It is hard for oil companies at their maturity level o implement any new technology because of the resistant to change and the installation of new development becomes very hard at that stage, like for any other firm.
Environmental factors:
The geographical position, landform, climate, fauna, flora, rock structure and natural resource reflect the environmental factors. In case of petroleum companies, these are essentially represented by oil reserves. The geographic position at a place is also an influencing factor for the activities of oil companies. It is because they define the distances that exist between exploitation, refiners and consumers. In other ways, it could also influence the demand for oil by influencing the transports, international trade and migration (Ukessays.com, 2014). The difficulty in the exploitationis reflected by the landforms, with transportation problems to the refiners and consumers. The overall demand of petroleum products is mot devoid of influence from the consumption of the fuel in heavy terrains. There are climate influences that exert difficulty in oil exploitation. The unfavorable climatic situations, like in time of the cold season in north climates, or hot seasons of desert climate, it is difficult to carry out the works of exploration. The cost of oil exploitation is also equally affected by the Flora and Fauna.
Legal environment:
Constitutions, laws, norms and regulations of the local authorities, governments, international institutions and the international community’s constitute the legal environment (Ukessays.com, 2014). These factors are essential because they influence the modes of all the technical activities involved including that of exploration, of exploitation, of the refiner, of transportation and of commercialization of global oil and oil products. The laws and regulations on pollution, social and work protection, regulations on the same matters and anti-trust regulations along with consumer protection and trade activities also fall in the purview of the legal environment. The other factors include various agreements between parties, Government subsidies, the taxes, which may include the excise rates for fuels and oil price, energy company provisions for taxes and fees over profit.
Porters Five Forces:
Porters Five forces analysis helps to see how the environmental factors of the firm affect the environment in which they are functioning.
The bargaining power of the Sinopec Company as a supplier is high because there is still a huge demand for energy sources within and outside China. The company can still take full advantage of the growing populations’needs (prezi.com, 2014).
The threat of new entrants in the market is limited. It is because it is not just about the cost; it is also about the resources that are required to set up such businesses. Large amount of activities are required and huge costs are involved in the exploration sector, which many companies cannot afford. And there are also problems in locating the exact exploration site as the sources of non renewable resources are limited.
The threat of substitute products is however growing with alternative sources of energy are being introduced into the world. But, the matter of fact is that there has not been any alternative source of energy that can fully replace the requirement of oil and petroleum products. So, as of now we could say that the threat of substitutes is low.
The competition in the petroleum industry is growing. Even in China there are two companies that stand as a competitor to the Company. So, there is high competition in the petroleum industry, with the activity of one firm substantially affecting the activity of the other.
The final assessment is the effect of suppliers of the oil industry. Most of them have their own exploration sites so there is no major problem of procurement and the people involved there are low income workers. So, the bargaining power of buyers is substantially low.
Analysis of the Strategic Management Process:
Strategic Management is the systematic process of bringing out strategies that encompasses all the business functions of an organization. The analysis of these aspects is necessary to understand the organization and the situations.
STRATEGIC GOALS of Sinopec
The international strategy of the Company is to meet the increase in domestic demands. This is to be obtained through implementation of expansion strategies of its direct access to the large oil and gas assets that it has (Hbr.org, 2014).
- Sinopec has increased its investments heavily in establishment of production facilities. The first step in this is the exploration of assets in China and outside of China. Instances could be Swiss Canadian petrochemical producer, Addax Petroleum Corp.
- In 2010 and 2011, Sinopec increased its foreign investments to US$20 million
- The Company formed important partnerships with Companies like Kuwait Petroleum Corporation to fund its acquisitions. It also released bonds into Chinese bond market.
Based on these analyses of processes, we should provide recommendations, which follow the following steps for the generation of effective strategic management.
- Selection of correct Employees and Organization Culture :
Sinopec being an international Company, is surely a workplace of a number of diverse employees, those operate within the same office or in networks across various offices. In such a diverse workforce, who is subjected to conflicts and other forms of chaos, a correct organizational culture can help produce great results. The employee and corporate culture at Sinopec should be so adjusted that it can cater to the motivational needs of all its employees around the globe.
- Efficient Promotion of unique services that we deliver
Though there is and has always been a growing demand for gas and other energy sources in the world, the competition is growing with many companies coming out and many sources of energy being discovered in different parts of the world. In such a situation, when even within the country there are other two competitors for the Company, it is advisable that the Company focus adequately in being able to develop a competitive strategy of its own. This competitive advantage should also be correctly communicated to the concerned group of individuals and clients.
- Delivering optimal Client Satisfaction
Be it a supermarket or an Oil corporation, it is important to deliver client satisfaction in order to run business. While the quality of oil produced could be one issue and major point for retaining client satisfaction, the differentiation can also be in terms of the relationships that need to be maintained with the clients. A better client satisfaction strategy goes a long way in retaining the periodic returns that flow into the business from time to time. The interest of the investors should also be a major consideration at the side of the Company.
- Provide Membership and Other benefits to build long term client Relationship
With the surging needs for fuel energy around the world, there is intense competition among the existing fuel providers of the world. They are now trying to develop an environment where the investors and clients can be given some incentives so that they continue to take service from them. Sinopec should also take this initiative to bring out certain incentives for its investors and shareholders so they can be retained and long term client relationships at the global level can be maintained. They should also try to expand the client market they have by making associations with other players in the same industry and outside that industry (Scribd.com, 2014). This would help them build a better alliance to ensure sustainability of the business.
Conclusion:
The Petroleum Industry in the world is still on the rise and the global Petroleum Companies have a lot of opportunities that they can utilize. However, there exist some threats and challenges in the business environment. Globally leading Companies like Sinopec need to make such strategic decisions that not only enhance their Company position but also create a greater impact of the Petroleum as a whole. For this, an efficient analysis of the organization and industry situations is a must. Successful Companies like Sinopec could take the initiative in doing so.
Thus, Sinopec has been able to rise with time and develop strategies that have taken the Company so successfully even in the international market. With some recommendation implementations, the company can do wonders and emerge as a stronger player in the energy sector.
References
Parsa, H. (2014). Industry Showcase. 1st ed.
En.cciip.org.cn, (2014). Brief Introduction of Sinopec Group_Member List of CCBC _China-ChileBusiness. [online] Available at: http://en.cciip.org.cn/ccbc/c/2010-04-13/204.shtml [Accessed 24 Nov. 2014].
English.sinopec.com, (2014). Welcome to Sinopec. [online] Available at: http://english.sinopec.com/about_sinopec/our_company/chairman_address/ [Accessed 25 Nov. 2014].
Guo, A. (2014). Sinopec Parent Makes ‘Strategic Breakthrough’ in Sichuan Shale. [online] Bloomberg. Available at: http://www.bloomberg.com/news/2014-01-23/sinopec-parent-makes-strategic-breakthrough-in-sichuan-shale.html [Accessed 25 Nov. 2014].
Hbr.org, (2014). Sinopec: Refining its Strategy - Harvard Business Review. [online] Available at: https://hbr.org/product/sinopec-refining-its-strategy/an/708018-HCB-ENG [Accessed 25 Nov. 2014].
Mbaskool.com, (2014). Sinopec | SWOT Analysis | BrandGuide | MBA Skool-Study.Learn.Share.. [online] Available at: http://www.mbaskool.com/brandguide/energy/354-sinopec.html [Accessed 24 Nov. 2014].
prezi.com, (2014). Sinopec Analysis. [online] Available at: https://prezi.com/jkd01ycj6eib/sinopec-analysis/ [Accessed 25 Nov. 2014].
Scribd.com, (2014). Sinopec case study analysis. [online] Available at: https://www.scribd.com/doc/115189829/Sinopec-case-study-analysis [Accessed 25 Nov. 2014].
Ukessays.com, (2014). Pestel Analysis On Petroleum Industry Economics Essay. [online] Available at: http://www.ukessays.com/essays/economics/pestel-analysis-on-petroleum-industry-economics-essay.php [Accessed 24 Nov. 2014].
