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Ravneet Kumar Vishwas

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INDEX

Contents
o Preface
o Acknowledgement
Introduction
1.1 Objective of study
Analysis of Porter’s Five model
1. Porters Five Forces Model

Conclusions -
Methodology

Reference
 ACKNOWLEDGEMENT

Behind every study there stands a myriad of people whose help and contribution make it successful.
Since such a list will be a prohibitively long. I may be excused for important omissions.
This is my pleasure to thank “Vishvash Sir” & all my friends who helped me lot to complete this
Term Paper. Data for this study, I have taken from Strategic Management Book, Internet (some
commercial website). Thanks all for their help & co-operation.
Also, I am very much thankful to all of you who all are come up with remarkable efforts in collecting
the information and making the project relevant and above of all I present my deep gratitude to my
parents.
Study objectives

1) Apply PESTEL Analysis To Banking Sector.

2) Porters Five Forces Model.
3) Attractiveness of Industry for Investment Purpose.
4) Methodology.
5) Recommendations.

Introduction-

The petroleum industry includes the global processes of exploration, extraction, refining,
transporting (often by oil tankers and pipelines), and marketing petroleum products. The
largest volume products of the industry are fuel oil and gasoline (petrol). Petroleum is also the
raw material for many chemical products, including pharmaceuticals, solvents, fertilizers,
pesticides, and plastics. The industry is usually divided into three major
components: upstream, midstream and downstream. Midstream operations are usually
included in the downstream category.

Petroleum is vital to many industries, and is of importance to the maintenance of

industrial civilization itself, and thus is a critical concern for many nations. Oil accounts for a
large percentage of the world’s energy consumption, ranging from a low of 32%
for Europe and Asia, up to a high of 53% for the Middle East.

Other geographic regions’ consumption patterns are as follows: South and Central
America (44%), Africa(41%), and North America (40%). The world consumes 30
billion barrels (4.8 km³) of oil per year, with developed nations being the largest consumers.
The United States consumed 25% of the oil produced in 2007. The production, distribution,
refining, and retailing of petroleum taken as a whole represents the world's largest industry in
terms of dollar value.
Governments such as the United States government provide a heavy public subsidy to
petroleum companies, with major tax breaks at virtually every stage of oil exploration and
extraction, including for the costs of oil field leases and drilling equipment

Petroleum Industry Analysis

The petroleum industry analysis is filled with intense complexity regarding its economical
and physical growth. As we can see, in today's world, expectations begin to grow higher and
higher. The higher the expectations the more the average person expects to live in higher
conditions of living. There is increase in the common man demanding more energy, more
water, more food, more resources and more technological advances. This can create an
immense pressure on the petroleum industries of the world. Therefore, as a consumer, or
perhaps even as a common man you may find yourself looking for an analysis of
the petroleum industry. Keeping the increasing demands in mind, keep the following fact in
mind as well. The fact is that the world's populations continues to double and increase,
therefore these demands are not placed by a fixated amount of individuals, but it is an
increasing demand from an increasing population. Let us take a quick analysis on the
petroleum industries.

The average petroleum industry requires enough equipment in order to consequently carry out
with three basic processes; exploitation, refining and supplying. The equipments for each
category are various and extremely in demand from all petroleum based industries. The
supplies for gas, oil and coal and uranium have all reached their zeniths within the present
decade. Simultaneously, due to global warming there is an even larger pressure on providing
sufficient energy to the common man. Keep in mind that every petroleum industry is
primarily focused on creating energy sources that are eco friendly and that can benefit the
growing global warming pandemic at our hands today. In addition to buying all the
equipments there rests the task of paying all workers and stock markets as required. This can
as well be troublesome due to the large amounts of workers needed to work the copious
amounts of petroleum equipments. Each process is dangerous in its own way and must
carefully be thought out and paid for with accuracy.

Petroleum is not a simple requirement, as statistics show. It is indeed a very complex in

demand source of energy, since it is non-renewable and will become extinct within a matter
of time. Statistics show that petroleum accounts for 40% of the world's source of energy. The
left over components are used for plastics, fertilizers and other chemically required industries.
Therefore, with this simple petroleum industry analysis it is easy to recognize the importance
of such a high in demand source of energy.

Top World Oil Net Exporters, 2006

Net Exports (million
Country
barrels per day)
1) Saudi Arabia* 8.65
2) Russia 6.57
3) Norway 2.54
4) Iran* 2.52
5) United Arab Emirates* 2.52
6) Venezuela* 2.20
7) Kuwait* 2.15
8) Nigeria* 2.15
9) Algeria* 1.85
10) Mexico 1.68
11) Libya* 1.52
12) Iraq* 1.43

Analysts and investors often disagree on specific investment decisions, but one thing that they
do agree on is their approach to analyzing energy companies. A top down investment
approach is almost always the best strategy. We will go through the top down steps below.
(For more insight, read A Top-Down Approach To Investing.)

Economics/Politics
The oil industry is easily influenced by economic and political conditions. If a country is in
a recession, fewer products are being manufactured, not as many people drive to work, take
vacations, etc. All of these variables factor into less energy use. The best time to invest in an
oil company is when the economy is firing on all cylinders and oil companies are making so
much money that using excessive amounts of energy themselves has little effect on
their bottom line.
Some analysts believe that rather than analyzing energy companies, you should just predict
the trend in energy prices. While more analysis is needed for a prudent investment than
simply looking at price trends in oil, it's true that there is a strong correlation between the
performance of energy companies and the commodity price for energy.

Supply and Demand

Oil and gas prices fluctuate on a minute by minute basis, taking a look at the historical price
range is the first place you should look. Many factors determine the price of oil, but it really
all comes down to supply and demand. Demand typically does not fluctuate too much (except
in the case of recession), but supply shocks can occur for a number of reasons. When OPEC
meets to determine oil supply for the coming months, the price of oil can fluctuate wildly.
Day-to-day fluctuations should not influence your investment decision in a particular energy
company, but long-term trends should be followed more closely. You can find the latest
energy supply/demand statistics at the Energy Information Administration.

Rig Utilization Rates

Another factor that determines supply is the rig utilization rates; its close relationship to oil
prices is not a coincidence. Higher utilization rates mean more revenue and profits. For
drilling companies, it is important to take a close look at the company's rig fleet,
because older rigs lack the ability to drill in remote locations or to bore deep holes. Some
other factors to consider are the depth of water that the offshore rigs can drill in, hole depth
and horsepower. Higher quality rigs will have higher utilization rates, especially during weak
periods. This will lead to higher revenue growth. Sometimes this is a double-edged sword;
while higher utilization is better, a company that is at its capacity will have difficulty
increasing revenues further.

Contracts
The contracts through which an oil services company is paid also play a large role in supply.
Pay close attention to the dayrates, as falling dayrates can dramatically decrease revenues.
The opposite is true should dayrates rise. This is because many of the drillers' costs are fixed.

Financial Statements
After these wide scale factors have been considered, it's time to get down to the nitty gritty -
the financials. And when it comes to the financials, the same old rules apply to oil services
companies. Ideally, revenues and profits will be growing consistently, just as they do in any
quality company. It's worth digging deeper to see if there are any one-time events that have
dramatically increased revenues. Also, the P/E ratio and PEG ratios should be comparable to

Petroleum Tax

The petroleum tax is an excise tax encompassing

• a petroleum tax on crude oil, other mineral oils, natural gas, their processed products,
and engine fuels;
• a petroleum surtax on engine fuels.

Like customs duties, special excise taxes are single-stage taxes. The main difference between
customs duties and special excise taxes is that customs duties are only levied on goods
imported into the customs area, while excise taxes are levied on goods subject to
consumption. Accordingly, imported goods and goods produced and processed domestically
are subject to equal taxation under the excise tax system.

The petroleum tax is levied as close as possible in time to the delivery of the goods for
consumption. It is therefore indispensable that traders have the possibility of storing the
goods untaxed. The number of taxable persons should, for administrative reasons, be kept as
low as possible. As a rule, tax liability is therefore incurred at the level of traders. Traders
then pass the tax on to consumers by way of the product price.

The petroleum tax varies heavily depending on the product and the use of the product (engine
fuel, heating fuel, technical purposes). For instance, the tax per litre is:

• 74.47 cents for unleaded petrol

• 75.87 cents for diesel oil
• 0.3 cents for extra light heating oil

Tax reductions are provided for engine fuels used in agriculture, forestry, professional
fishing, licensed transport companies, and so on.
Importance of the Petroleum Tax

• Petroleum tax 2009: CHF 5.18 billion, or 8,51 % of federal revenue

• Of which CHF 3.11 billion petroleum tax and CHF 2.07 billion petroleum surtax
• Half of the petroleum tax and the entire petroleum surtax are earmarked for tasks
related to road traffic. The rest of the net revenue is allocated to general expenditures
of the federal budget.

Principles of Petroleum Taxation

• Imported goods and goods produced and processed domestically receive equal tax
treatment. "Domestic" means within the Swiss territory and the customs union areas.
"Domestic" does not include the customs exclusion area Samnaun.
• Tax liability arises when the goods enter free circulation under tax law. For imported
goods, this is the time at which the goods enter free circulation under customs law.
For goods in authorised warehouses, tax liability arises at the time the goods exit the
warehouse or are used in the warehouse.
• Authorised warehouses serve the purpose of storing, refining, producing, and
processing untaxed goods. Production (including refinement) and processing as well
as the storage of untaxed goods must always take place in an authorised warehouse.
• Authorised warehouse owners and compulsory stockpilers transfer the tax declaration
each month by computer. This procedure can also be used by importers.
• The domestic transport of untaxed goods requires a consignment note.
• In the case of compulsory stockpilers under the supervision of Carbura, special
provisions apply to untaxed compulsory stockpile inventories stored outside
authorised warehouses.
• To distinguish it physically from diesel oil, gasoil intended for use as heating oil must
be coloured and marked.
• The assessment base is fixed per 1000 litres at 15 oC; for heavy distillates and a few
other products per 1000 kg dead weight.
Porter’s Five Forces Analysis:
A Strategic Tool
Ideas + Strategies + Marketing = Success
A Five Forces Analysis, as developed by Michael Porter, is an important marketing
planning tool for looking at the competitive environment that affects your business.
Understanding the competitive dynamics of your industry is critical to your potential
success. An industry is defined as a group of firms marketing products or services which are
close substitutes for each other. Examples include the banking industry, the automotive
industry and the furniture industry. The most influential model for analyzing the nature of
competition within an industry is Michael Porter’s Five Forces Model. It can be used in
conjunction with various other strategic tools for audit and analysis, such as the SWOT
Analysis and the PEST Analysis.
The model is illustrated here:
Porter has determined that there are five forces that govern industry attractiveness and long-
run profitability. These include the threat of entry of new competitors (new entrants), the
threat of substitutes, the bargaining power of buyers, the bargaining power of suppliers and
the degree of rivalry between existing competitors.
Threat of New Entrants:
In the first of the five forces, new competitors in industry can raise the level of competition,
reducing its attractiveness to current members. The threat of new entrants largely depends on
the height of the barriers to entry. Very high entry barriers exist in certain industries, such as
shipbuilding, while other industries are quite easy to enter, such as real estate or restaurants.
Some of the key barriers to entry include:
• Economies of scale
• Capital and/or investment requirements
• Customer’s costs to switch
• Access to industry distribution channels
• Likelihood of retaliation from existing industry players
Threat of Substitutes:
The presence of substitute products can also decrease industry attractiveness and profitability
by limiting price levels. The threat of substitute products is correlated with:
• Buyers' willingness to substitute products/services
• The relative price and performance of substitutes
• The cost of switching to one of the substitutes
Bargaining Power of Suppliers:
Suppliers are defined as the businesses that supply materials & other products to the
businesses within an industry.
The cost of items purchased from suppliers, such as raw materials and component parts, can
have a significant impact on a company's bottom line. If suppliers gain strong bargaining
power over an individual company, the company's industry becomes less attractive. The
bargaining power of suppliers will be high when:
• There are many buyers and few dominant suppliers
• There are undifferentiated, highly valued products in the industry
• Suppliers threaten to integrate forward into the industry, illustrated by brand-name
manufacturers threatening to set up their own retail outlets
• Buyers do not threaten to integrate backwards into the supply chain
• The industry does not play a key customer group role to the suppliers
Bargaining Power of Buyers:
Buyers are the people and/or organizations who create the demand in an industry. The
bargaining power of buyers is greater in the following instances:
• There are few dominant buyers and many sellers in the industry
• Products are standardized
• Buyers threaten to integrate backward into the industry
• Suppliers do not threaten to integrate forward into the buyer's industry
• The industry is not a main supplying group for the buyers
Intensity of Rivalry:
The fifth of the five forces, the intensity of rivalry between competitors in an industry,
depends chiefly on:
• The structure of competition - a rivalry is more intense where there are many small or
closely-sized competitors; a rivalry is less intense when an industry has a clear market leader
• The structure of industry costs – an industry with high fixed costs motivates competitors to
cut prices
• Degree of differentiation - industries where products are commodities, such as steel or coal,
experience a greater degree of rivalry; industries where competitors can clearly differentiate
their products find less rivalry
• Switching costs - rivalry is lowered where buyers face high switching costs, as when there is
a high cost associated with the decision to buy a product from an alternative supplier
• Strategic objectives - when competitors are pursuing aggressive growth strategies, rivalry
becomes more intense; when competitors are milking the profits in a mature industry, the
degree of rivalry is lower
• Exit barriers - when the barriers (such as the cost to close down factories) to leaving an
industry are high, then competitors tend to show a greater degree of rivalry.

India’s financial services sector will enjoy generally strong growth during coming years,
driven by rising personal incomes, corporate restructuring, financial sector liberalization
and the growth of a more consumer-oriented, credit-oriented culture. This should lead to
increasing demand for financial products, including consumer loans (especially for cars
and homes), as well as for insurance and pension products. India’s financial services
sector is expected enjoy generally strong growth during coming years, driven by rising
personal incomes, corporate restructuring, financial sector liberalization and the growth of
a more consumer-oriented, credit-oriented culture. This is expected to lead to increasing
demand for financial products, including consumer loans (especially for cars and homes),
as well as for insurance and pension products. The Financial Services Industry in India in
Michael Porter’s Five Forces Analysis. It uses concepts developed in Industrial
Organization (IO) economics to derive five forces that determine the competitive intensity
and therefore attractiveness of a market. Porter referred to these forces as the
microenvironment, to contrast it with the more general term macro-environment. They
consist of those forces close to a company that affect its ability to serve its customers and
make a profit. A change in any of the forces normally requires a company to re-assess the
marketplace.
The Five Competitive Forces

The Five Competitive Forces are typically described as follows:

Buyers’ bargaining power
The power of buyers is the impact that customers have on a buying process of the products
from a certain industry. In general, when buyers’ power is strong, the relationship to the
industry is near to what an economist terms a monopsony - a market in which there are many
suppliers and one buyer. Under such market conditions, the buyer sets the price. In reality few
pure monopolies exist, but frequently there is some asymmetry between a producing industry
and buyers. The same case can as well be applied to the service industry, as a nowadays there
is no pure-manufacturing or pure service industry. The combination is way forward. The only
vital difference is the definition of the core product. For instance much as we consider banks
to be under the service industry.

SUPPLIERS BARGAINING POWER

A producing Industry requires raw materials-labour, components, and other supplies.
This requirement leads to buyer- supplier relationships between the industry and the firm that
provides the raw materials used to create products.Suppliers,if powerful, can exert an
influence on the producing industry, such as selling raw materials at a high price capture
some of the industry’s profit. In a service sector there is no direct supplier of raw material.

Barriers to entry / Threat of new entrants

It is not only incumbent rivals that pose a threat to firms in an industry; the possibility that
new firms may enter the industry also affects competition. In theory, any firm should be able
to enter and exit a market, and if free entry and exit exists, then profits always should be
nominal. In reality, however, industries possess characteristics that protect the high profit
levels of firms in the market and inhibit additional rivals from entering the market. These are
barriers to entry. Barriers to entry are more than the normal equilibrium adjustments that
markets typically make.
For example, when industry profits increase, we would expect additional firms to enter the
market to take advantage of the high profit levels, over time driving down profits for all firms
in the industry. When profits decrease, we would expect some firms to exit the market thus
restoring market equilibrium. Falling prices, or the expectation that future prices will fall,
deters rivals from entering a market. Firms also may be reluctant to enter markets that are
extremely uncertain, especially if entering involves expensive start-up costs. These are
normal accommodations to market conditions. But if firms individually (collective action
would be illegal collusion) keep prices artificially low as a strategy to prevent potential
entrants from entering the market, such entry-deterring pricing establishes a barrier. Barriers
to entry are unique industry characteristics that define the industry. Barriers reduce the rate of
entry of new firms, thus maintaining a level of profits for those already in the industry. From
a strategic perspective, barriers can be created or exploited to enhance a firm's competitive
advantage. If it happens that for a certain industry there are low entry barriers but high exit
barriers, then this situation is referred as ‘the worst situation of competition’ in that particular
industry

Dynamic Nature of Industry Rivalry

Schumpeter and, more recently, Porter have attempted to move the understanding of industry
competition from a static economic or industry organization model to an emphasis on the
interdependence of forces as dynamic, or punctuated equilibrium, as Porter terms it. In
Schumpeter's and Porter's view the dynamism of markets is driven by innovation. The
petrolium industry of India is equally facing a lot of dynamism and the dynamics will keep on
changing over time at an increasing speed.

Threat of Substitute Products-

LPG is the substitute product .That is very cheap in comparison of petrol.
In Porter's model, substitute products refer to products in other industry. To the economist, a
threat of substitutes exists when a product's demand is affected by the price change of a
substitute product. A product's price elasticity is affected by substitute products - as more
substitutes become available, the demand becomes more elastic since customers have more
alternatives.

RESEARCH METHODOLOGY :-

This is the descriptive type of research. I used secondary data for this.
 o REFERENCES

• Pearce II, J.A., Robinson Jr., RB and Mital, A., Strategic Management:
Formulation, Implementation and Control, 10th Ed., Tata McGraw-Hill,
 New Delhi, 2008
• David, F.R., Strategic Management: Concepts and Cases, Pearson Education,
Ed.12th, New Delhi, 2008
• Kazmi, K., Strategic Management and Business Policy, Tata McGraw-Hill, New
Delhi, 2008
• Hill & Jones, Strategic Management: an Integrated Approach, Cengage , Sixth Edition

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 http://university-essays.tripod.com/porters_5_forces_analysis.html
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