Business Strategy: Shell Refinery Company

Business Strategy: Shell Refinery Company

Introduction

This Paper seeks to evaluate the strategies that can be used by Shell Refinery Company in increasing its market share and revenues. In answering the questions provided, the paper shall evaluate the internal and external environment for the company. An evaluation of these factors will enable the author to present recommended strategies that can be used to counter various market forces that may derail its operations.

Environmental Scan

Conducting an environmental scan enables company managers to focus on the strengths, weaknesses, opportunities and threat. SWOT analysis is thus a tool that managers use in auditing their organization and the environment in which it operates (De Geus, 2002). The company will thus use the strengths it has to overcome its weaknesses and take advantage of opportunities in the external environment to increase its operations and counter the industry threats.

Question 1: Environmental Threats and how shell can respond to them

Within the oil refinery and distribution industry, Shell is exposed to a myriad of threats that minimizes the chances of increasing profits and growth. The most significant threat to the growth and survival of Shell Refinery Company is the existence of intense competition from industry bigwigs such as Exxon Mobil and Total among other. In as much as competition is healthy for the growth of a company, a company can have difficulty in continuing is operations and even exit the market if managers do not implement effective strategies. However, the management can implement innovative strategies that will enable Shell produce highly innovative products using improved methods of production that minimizes costs (De Geus, 2002). Shell Refinery Company management can also diversify their operations horizontally in order to enter new markets that are not yet dominated by its competitors.

Another threat in Shell’s operating environment is the increase in government taxation on oil refinery companies. Government policies affect all companies within the same operating industry (Elyasiani, Mansur & Odusami, 2011). This implies that Shell is not the only company affected whenever there is a hike in taxation and other government revenues. Therefore, the management can use cost cutting measure and tax strategies to reduce the impact of increased taxation.

Question 2: Company Strengths and how shell can use it to leverage itself to create competitive advantage

Strengths are internally generated characteristics that makes a business competitive against its rivals in the industry (Teece, 2010). One of the greatest strengths that Shell has is its retail brand. Shell is well known in the oil industry and has a rich network almost in all continents on the globe. This places the company at a strategic position to market its products on a wide scope of consumers. A strong brand is a competitive strength that can leverage a company in its operating industry. The management can thus take advantage of the brand strength to market its products and explore new markets to increase profitability and sustainability.

Another strength that Shell Refinery Company has is its credibility in producing and maintaining standard quality process and procedure. The high quality products that the company paces in the market are of value both to Shell and its consumers (McGrath, 2010). This ensures that brand loyalty is maintained and so is sustainable revenues. The company can use the standard procedures and quality products to intensify its marketing strategies and even appeal to new and emerging markets. Lastly, Shell launches new and innovative product or services in every month. This strength can be used as a competitive wedge through which the company can increase its market share and drive sales. The oil industry is highly volatile and thus coming up with an innovative product is quite hard (Teece, 2010). Therefore, the management can use the innovation to reduce production and distribution costs. This is one way of gaining a competitive advantage.

Question 3: Competitor Analysis – Exxon Mobil Corporation

Shell Refinery Company is a well-known company that explores for, produces and markets its oil and natural gas. Exxon Mobil is the fiercest competitor of Shell Refinery Company. Exxon Mobil is arguably the world’s largest integrated oil company followed by Shell. The company leads a volatile industry in which the oil prices are often influenced by economic cycles, political instabilities and competition from other alternative energy sources such as green energy solutions. During the year 2010, Exxon Mobil reported production in excess of 25.2 barrels of oil. This was against shocks in the industry including effects of BP oil spill (Elyasiani, Mansur & Odusami, 2011). In addition, Exxon Mobil has a total of 32 oil refineries in 17 countries globally with a production capacity of 5.4 billion barrels a day. The company also supplies refined products to more than 19,400 gas stations in its global operations and similar to Shell, Exxon Mobil is also a petrochemical producer.

The knowledge on the market presence and production capacity of Exxon Mobil can help Shell management to formulate strategies to counter the cut-throat competition offered by the competitor (Elyasiani, Mansur & Odusami, 2011). For instance, Shell Company management can determine the markets that have been exploited by Exxon and those that the competitor has low penetration. The management can thus engage in comprehensive expansion strategy in which it will increase its market presence in unexploited markets (McGrath, 2010). also, Shell company management can also analyze the types and scope of products that its competitor provides for the market and seeks ways of either improving on their alternatives or producing more innovative products to act as substitutes form the competitor’s. This is possible because Innovation and new product Deployment is part of Shell company’s strengths. Therefore, the company can utilize its strengths in leveraging against the threat of competition from Exxon Mobil.

Question 4: Declining Economy

A decline in the US economy has adverse impacts on the oil industry. This is because consumers (especially motorists) reduce their expenditure on petroleum products during the harsh economic situations. The decline in consumption of fuel implies that the demand for Shell products will reduce and thus driving the sales revenue down. This means that the company should modify its strategies during these times in a manner that will trigger an increase in demands for petroleum products (Teece, 2010). For instance, the strategy to increase the market share for the company in order to increase sales revenues is unfeasible during a periods of economic decline. As such, the company shall engage in measures that seek to increase the demand for oil products. Shell Company shall thus, through its innovative capabilities, improve its products and make them more affordable to the market. The company already has a powerful brand name and thus marketing the new products will not be hectic. Through effective innovation, the company can produce at lower costs and thus reducing the overall product prices (Teece, 2010). However, this strategy will attract mixed reactions due to negative price perception among a section of consumers. Nonetheless, this strategy will enable the company to maintain its market share through the hard economic period.

 

Question 5: Global Competition

Competition on a global scale has adverse effects on the operations of the company. For instance, the emergence of high volumes of oil from the East affects the profitability and sustainability of American Oil Companies (Elyasiani, Mansur & Odusami, 2011). Oil companies from the Arabian countries produce at significantly lower process and thus low production costs. This enables the companies to sell their products at lower prices and thus influencing the market prices and margins for Shell Refinery Company. In order to cap on the effects of global oil price surges, Shell management should consider entering into a merger with one of the companies from the Arabian Oil belt (Elyasiani, Mansur & Odusami, 2011). This will enable the company to have a stake in the low-cost oil and thus enable it capitalize on the spread between lowest price and highest in the industry.

References

De Geus, A. (2002). The living company. Harvard Business Press.

Elyasiani, E., Mansur, I., & Odusami, B. (2011). Oil price shocks and industry stock returns. Energy Economics, 33(5), 966-974.

McGrath, R. G. (2010). Business models: A discovery driven approach. Long range planning, 43(2), 247-261.

Teece, D. J. (2010). Business models, business strategy and innovation. Long range planning, 43(2), 172-194.

 

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