Year 2007 was strong economic growth for the global economy. This was due to tight global refining capacity and continued strong demand for energy to fuel economic growth especially from China, India, the Middle East and Russia. Singapore Petroleum Co Ltd (SPC) is a Singapore-based company.
The principal activities of the Company consist of exploring, developing and producing oil and gas, petroleum refining, marketing, distribution and trading of crude oil and petroleum products and the provision of administrative support services. In line with the Vision “To Be Strong Integrated Oil and Gas Company”, the group has further invested in oil and gas producing assets, while developing the existing acreages. An External analysis conducted on SPC using PESTEL. Four factors contribute to the SPC’s threat and opportunity they are economy, technology, society and environment.
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Followed by Porter’s 5 Forces the competitive environment analysis indicate that Intensity of rivalry is high while the rest of the forces are low, this also contributes to the threat. Later an internal analysis also conducted using Value Chain Model to discover the strength and weaknesses of SPC. This was including financial performance on the efficiency, effectiveness and return on investment. All this analysis helped to reveal the strength and weaknesses of SPC from wider angle. Substantial analysis on SPC, enable us to recommend strategic options based on TOWS matrix.
Ten strategic options suggested and only five were strongly recommended based on rating and further enforced with two more criteria and they are value creation and tangible benefit. Finally, to implement all the recommended strategies five guidelines chosen, they are system, structure, policy, economic situation and technology development. Conclusion SPC’s vision is to be strong, integrated Oil and Gas Company with premium brand in Asia Pacific region, in order to achieve the vision SPC has to continuously strive for excellence and provide quality service to remain competitive among their competitors. . 1 External Analysis (PESTEL analysis) I have selected Singapore Petroleum Company Limited (SPC) as my assignment company. An External analysis was done on SPC to understand the environment of the company. Chart 1. 1a shows the impact of the PESTEL to SPC. Economy Currently crude oil prices has moved higher in the 2008 first quarter due to geopolitical tensions and strong global demand for oil, this has resulted SPC to pay very high price to buy its crude oil for its refinery production.
This has caused refined petroleum products to fail to keep pace with the sharp rise in oil prices, and refining margins have narrowed. In addition the high cost in operation, logistic, waste management and transportations has reduced the profit margin of SPC. Economically SPC has to face the instability in exchange rate due to weakening US dollar. Technology SPC faces tough competition among big players like Exxon Mobile, Royal Dutch Shell and BP to produce large amount of refinery oil to meet the Asian market demand this has forced SPC to find its way to increase its production technology.
SPC also pay very high price for its energy consumption whereby it operates 24hrs/7day, this cause SPC production cost to increase and narrows its profit margin. Drilling oil in deep sea needs high end technology to monitor its operation and maintenance of its facilities adds further to its cost. Recently growing environmental concern has caused SPC to seek for latest technological equipments which are environmental friendly to enable its product compatible in the market. Society Rising fuel and energy price has brought great impact to the society such as soaring prices in food and public utility.
High inflation also has changed the lifestyle of the people. This has caused the demand for oil to drop in Asian market as people are switching to energy efficient products. This has posed a threat to the SPC downstream activity. Environment As an integrated oil and gas company SPC has subjected to Environment, Health, Safety and Security (EHSS) policy that has been set by the world organisations. Issues such as oil spillage also has forced SPC to response locally and internationally to oil spill resources as a part of addressing environmental issues. 1. 1a Impact of PESTEL to SPC 1. 2 Industry Analysis (Porter’s 5 Forces)
I have chosen Porter’s 5 forces to further analyse the industry and surrounding competitive variables in which SPC operates and to understand the dynamics of its industry and markets. The figure 1. 2a shows my analysis on SPC using porter 5 forces. 1. 2a: Porter five forces model [pic] 1. Intensity of rivalry ( High) The intensity of rivalry faced by SPC is many big players like Exxon Mobile, Royal Dutch Shell, Caltex and BP are matured and highly reputable companies, so SPC faces many challenges in term of market share, capacity and risk of high investments. In this case SPC has threat from big players. 2. Threat of New Entrants. Low) The barriers to enter this industry are enough to scare away new companies due to high investment and switching cost. There are also many rules and regulations and standards to comply. To manage effectively these companies also need access to distribution channels and to build distribution channels that takes long time and high cost, so SPC has less to worry on new threats. 3. Power of Suppliers. (Low) The oil and gas business is dominated by a small handful of powerful companies.
The large amounts of capital investment tend to weed out a lot of the suppliers of rigs, pipeline, refining, so there isn’t much competition between them, but they do have significant power over smaller companies like SPC, there is threat like forward integration or controlling of the supplies. 4. Power of Buyers. (Low) Increase in oil price may leads buyers to become price sensitive and may switch to alternative such as public transport and this will reduce the demand for oil.
Low demand in oil production will pose serious threat for SPC, as the demand will affect the market share. 5. Availability of Substitutes. (Low) Substitutes for the oil industry include alternative fuels such as coal, gas, solar power, wind power, hydroelectricity and even nuclear energy, but oil is also used for more than just running our vehicles, it is also used in plastics and other materials. So SPC face less threat from the substitute products. 1. 3 Impact
After PESTEL and porter 5 force analysis on SPC external environment I have identified the opportunities and threats this is shown in the diagram 1. 3a: 1. 3a Opportunities and threat faced by SPC [pic] 2. 0 Internal Analysis on SPC Porter’s value chain model was used to analyze the internal activities of SPC. As a result the competitive advantage of SPC was identified through interrelated generic activities. The resulting value chain model is depicted in 2. 1a. 2. 1a Value chain model Strength of SPC The strengths of SPC focused in the resource capabilities such as tangible resources.
SPC has high cash reserves for potential oil plant acquisition and wide land holding they are nine explorations, predevelopment and production acreages in the Asia Pacific region with total size of more than 40,900Km?. The intangible resources are increasing reputation recently on 17-June the share holder interest has increased from 45% to 46. 1% this shows SPC has gained shareholders trust and lifted their image as reputable company beside this SPC also have good leadership as it has received the award as “Best Managed Board” in the year 2007.
The other intangible resource is organizational capabilities such as remarkable customer service where SPC is the first to launch drive through ATM and also first to offer CNG filling in a service station in Singapore. In development SPC is the first to offer service station network to promote out home digital advertisement. Basically SPC is a oil production company where by they are exposed to safety hazard, so their culture is to practice safety at all times. Weakness of SPC
SPC distribution channel or service stations are very limited in mainland and neighboring countries, this limits the brand name expansion. Poor brand name can cause significant drop in market share and undesirable effect in stakeholder trust. Even though SPC has extended its footprint to China and Australia, it still lack in its research and development activities. Limited knowledge will be a significant disadvantage among its competitors. 2. 2 Impact After the internal analysis of SPC the strength and weaknesses were identified and compiled as in the chart 2. 2a: 2. a Strength and weaknesses of SPC Industry analysis of SPC The growth that SPC has achieved in oil industry since year 1969 to 2007 is remarkable and this was possible due to their defender type of strategy where by they have limited product line but focusing on improving efficiency in their oil exploration and production. Defender strategy also forced SPC to expand their upstream activities in year 2000 and as result of it SPC owns interest in nine exploration, predevelopment and production acreages in the Asia-Pacific region with a total size of more than 40,900km?.
SPC also increased their production at the end of 2007 to an average of 10,000 boepd (barrels of oil equivalent per day) from below 3,000 boepd at the beginning of the year. 3. 0 Financial Performance of SPC An overview of SPC was analysed on its financial performance and following are the findings. SPC remained relatively flat that is $8. 6 billion to $8. 8 billion this is due to cost of goods sold drop from 94. 01% to 91. 48% this is the key component in the bottom line growth in the face of flat revenues. But the company was able to grow net income from $284. 6M to $508. M due to the significant rise in oil price. Below is the chart 3. 1 shows detail of financial achievements for SPC for the past 7 years. 3. 1: Singapore Petroleum Company Ltd financial Statement |Company Financials FY-end : December |Year ( As at 31 December) | |Per Share Data ( S$ ) |2007 |2006 |2005 |2004 |2003 |2002 |2001 | |Tangible Book Value |3. 48 |2. 833 |2. 78 |1. 1 |- |- |- | |Cash Flow |0. 71 |0. 726 |0. 714 |0. 33 |- |- |- | |Earnings |0. 988 |0. 552 |0. 792 |0. 533 |- |- |- | |WS Core Earnings |- |- |0. 792 |0. 533 |- |- |- | |Dividends |0. 6 |0. 35 |0. 2 |0. 2 |- |- |- | |Payout Ratio |60. 7 |63. 4 |40 |38 |- |- |- | | | | | | | | | | |Income Statement Analysis (Million S$ ) | | | | | | | | |Revenue |8766. 7 |8574. |7474. 2 |4974. 4 |3187. 6 |2498. 3 |2337. 3 | |Operating Income |747. 1 |550. 4 |- |- |- |- |- | |Depreciation |- |55. 7 |49. 2 |42 |- |- |- | |Interest Expense |38. 6 |34 |20. 5 |15. 1 |- |- |- | |Pretax Income |581. |338. 5 |439. 1 |293. 4 |70. 7 |52. 5 |2. 4 | |Effective Tax Rate |- |- |- |- |- |- |- | |Net Income |508. 3 |284. 5 |403. 6 |252. 1 |59 |48. 9 |-1. 2 | |WS Core Earnings |- |- |403. 6 |252. |- |- |- | | | | | | | | | | |Balance Sheet & Other Financial Data (Million S$ ) | | | | | | | | |Cash |475. 1 |421. 2 |255. 1 |108. 3 |- |- |- | |Current Assets |2764. 1 |1981. 1 |1782. |1228. 5 |- |- |- | |Total Assets |4308. 1 |3140. 2 |2957. 2 |2296. 8 |- |- |- | |Current Liabilities |2358. 6 |1458. 7 |1403 |1069. 1 |- |- |- | |Long Term Debt |0. 1 |- |33. 6 |313. 1 |- |- |- | |Common Equity |1790. |1570. 4 |1425. 9 |828. 4 |588. 9 |551. 8 |509. 4 | |Total Capital |4308. 1 |3140. 2 |1425. 9 |828. 4 |- |- |- | |Capital Expenditures |45. 9 |57. 8 |142. 6 |265 |- |- |- | |Cash Flow |365. 5 |374. 8 |366. 6 |169. 2 |- |- |- | |Current Ratio |1. 2 |1. |- |- |- |- |- | |Gearing Ratio |0. 2 |0. 01 |- |- |- |- |- | |% Net Income of Revenue |5. 8 |3. 3 |5. 4 |5. 1 |1. 9 |2 |-0. 1 | |% Return on Assets |11. 8 |9. 1 |13. 6 |11 |- |- |- | |% Return on Equity |28. |18. 1 |28. 3 |30. 4 |10 |8. 9 |-0. 2 | 3. 1 Analyzing the efficiency of SPC Revenue of $8. 8 billion for 2007 was a record achievement for SPC, an improvement of about $200 million over the 2006 revenue of $8. 6 billion. The sharp increase in global crude and product prices during the year was fuelled largely by the continuing demand growth from China, India and a construction and investment boom in the Middle-East. Geopolitical tensions, supply fears and uncertainties coupled with speculative activities drove oil prices to record highs.
The Group’s activities were segmented into downstream and exploration and production businesses. Regional refining capacity remained constrained while demand continued to be robust. Outages of regional refineries for scheduled maintenance and the unplanned shutdown of a Japanese nuclear power plant in the third quarter contributed to the generally strong demand for refined products throughout the year. The Group’s downstream activities continued to be the main contributor to the Group and recorded $8. 6 million and $523. 2 million respectively in segmental revenue and operating profit.
The E segment enlarged its footprint into China’s Bohai increased from $14. 6 million in 2006 to $52. 4 million in 2007. (Refer to appendix 1. 1 for the financial statements for the details of the group segment information). All of the group’s facilities were operated safely and reliably during the year. Shareholders equity of $1. 8 billion at year end was 14% higher compared to $1. 6 billion as at 31 December 2006, due mainly to higher retained earnings. In the year end 2007, the Group’s current ratio and net gearing ratio were 1. 17 and 0. 2 respectively compared to 1. 36 and 0. 1 respectively for the previous year. General and administrative expenses were 13. 7% higher in 2007 due to the SPC’s enlarged footprint in the upstream business and an increase in manpower costs. The increases in finance income and expenses were mainly due to higher deposits and higher working capital requirements respectively. In conclusion, record oil prices in 2007 enabled SPC to post record revenues of $8. 8 billion, a 2. 2% increase over the previous year. PATMI reached a record level of $508. 3 million, a 78. 6% increase. Earnings per share rose 78. 5% to 98. 8 cents.
The total dividend paid for full year 2007 amount to 60 cents per share, compared to 35 cents last year that is 78. 5% increase in earning per share. While return on equity also shows an increase of 19% to 30%. Overall SPC had shown high efficiency. 3. 2 Analyzing the effectiveness of SPC SPC’s group effectiveness was measured and it was identified that the total assets of SPC increased to 37. 2% from previous year to $4. 3 billion. The record performance and high oil prices as at year end contributed to the higher cash and bank balances that were 13. 4% increase to $458. 2 million.
The Group’s total liabilities of $2. 5 billion as at 31 December 2007 comprised mainly higher trade payables and higher short-term borrowings for working capital requirements and investments. The Group generated $386. 9 million operating cash flow from its strong performance and working capital management of higher trade receivables, higher payables and inventories which due to high oil price. The Group invested $392. 8 million in refining and exploration and production assets. In conclusion SPC has well managed its group activities and has lifted its image. 3. 3 Return of investment for SPC Company Financials FY-end : December |Year ( As at 31 December) | |Per Share Data ( S$ ) |2007 |2006 |2005 |2004 |2003 |2002 |2001 | |Total Assets |4308. 1 |3140. 2 |2957. 2 |2296. 8 |- |- |- | |Net Income |508. 3 |284. 5 |403. 6 |252. 1 |59 |48. 9 |-1. | |ROI ( net income / total asset) |11. 8% |9. 0% |13. 6% |10. 9% |- |- |- | Return on Investment (ROI)= Net Income/Total Assets. It’s a performance measure used to evaluate the efficiency of an investment so in the case of SPC in the year of 2007 there is a increase in ROI that is 11. 8% compare to the previous year only 9. 0%. 3. 4 Summary of SWOT analysis Demand for energy continued to be strong as global Gross Domestic Product (GDP) registered another year of 5% growth.
Asian consumption of energy was led by China and India whose GDP grew by 10% and 9% respectively. Oil and refined petroleum products continued to make up the bulk of energy consumption and year 2008 is shaping up to be very challenging and volatile year. Given this backdrop, there is a compelling reason for a SWOT analysis of SPC as one of the leading oil and gas Company in Asia. After all the analysis the internal strength and weaknesses together with external threat and opportunities were summarized in a table 3. 4a: 4. 0 Strategic options and recommendations.
In line with the SPC, vision to be strong integrated oil and gas company SPC has to formulate substantial and strong strategic options and recommendations to continue its survival in the industry. Therefore, an External Factor Analysis Summary (EFAS) table was drawn and the opportunities and threats were weighted. Table 4. 1 shows the result and factors that need to address. The EFAS chart explains that in opportunities growing demand in Asian market and R&D in exploration and production need to be addressed as they score high 1. 2 and 1. respectively where else in threat tough competition and rising energy cost need to be addressed as they also score high as 0. 4 and 0. 3. Following is the Internal Factor Analysis Summary (IFAS) table for SPC, the strength and weaknesses have been drawn and weighted accordingly. Table 4. 2 shows the result. The IFAS chart shows that in strength high cash reserves, good reputation and good leadership ranks highest where else in weaknesses poor brand image, poor R&D and insufficient high end technology ranks the highest. These factors can be manipulated to overcome SPC weaknesses and further increase its strength.
After identifying the most important factor contributing to Internal and External Factor Analysis, these factors combined in Strategic Factor Analysis Summary (SFAS) to formulate a strategic fit between external opportunities and internal strengths while working around external threats and internal weaknesses. After the rating for all the factors which were given priority another 5 main issues were identified they are poor R&D knowledge and high end technological equipment , growing demand in Asian market , tough competition and issues on environment concern.
These issues will be further analysed in Tows matrix to develop strategic option and recommendation. 4. 4 Developing strategic options from an external-internal analysis TOWS Matrix was used to analyse the SPC external environment (threats and opportunities), and internal environment (weaknesses and strengths) to develop strategies for SPC. TOWS Strategic Alternatives Matrix | |External Opportunities (O) |External Threats (T) | | |1. Growing demand in Asian market |1.
Tough competition among big players | | |2. SPC develop new product lines |2. Raisisng environment concern | |Internal Strengths (S) |SO |ST | | |”Maxi-Maxi” Strategy |”Maxi-Mini” Strategy | | |Strategies that use strengths to maximize|Strategies that use strengths to minimize | | |opportunities. |threats. | |1.
High cash reserves |1. Invest in E&P to further fulfill the |1. Strategic alliance with one of the | | |demand and cater for future |small players to strengthen their position| |2. Good reputation |2. Launch new product that gives better |2. Fund environmental projects to enhance | | |performance |SPC image | |3. Good leadership |3. Enhance relationship with neighbor |3.
Collaborate with local government to | | |country like Indonesia and Vietnam to |encourage the automobile user to switch to| | |obtain license to tap oil |CNG | |Internal Weaknesses (W) |WO |WT | | |”Mini-Maxi” Strategy |”Mini-Mini” Strategy | | |Strategies that minimize weaknesses by |Strategies that minimize weaknesses and | | |taking advantage of opportunities. |avoid threats. | |1. Poor R&D |1. Strengthen R&D by setting up pool of |1.
Incorporate new technology and innovate| | |talent researchers. |new product to achieve competitive | | | |advantage among rivals | |2. Insufficient high end technology |2. Invest in high end technology that | | | |will increase productivity | | |3. limited service stations |3. Deliver variety of service at present | | | |service stations to chieve | | | |differentiation | | The options identified are strategic alternatives, derived from various quadrant of the TOWS Matrix. To evaluate the options that have been generated, and to identify the ones that give the greatest benefit, and that best to achieve the mission and vision of SPC was further analysed. The chart below shows the result. |No |Strategic options |Pros |Cons |Weight |Rating |Weighted score |Result | | | | | |0. 10 |4 |0. |RECOMMENDED | |1 |Invest in E&P to further fulfill |Able to fulfill their |Need high feasibility cost | | | | | | |the demand and cater for future |production requirement and |and high risk as the oil | | | | | | | |meet most of the Asian market|industry is volatile market | | | | | | | |demand | | | | | | | | | | |0. 10 |3 |0. |RECOMMENDED | |3 |Enhance relationship with neighbor |Widened its acreages and add |Political instability in | | | | | | |country like Indonesia and Vietnam |to SPC’s portfolio |neighbor country may affect | | | | | | |to seek opportunity to tap oil | |the business relationship | | | | | | | | | |0. 15 |3 |0. 5 |RECOMMENDED | |6 |Collaborate with local government |First mover advantage as SPC |When the demand increases SPC| | | | | | |to encourage the automobile user to|already have stations in |may need to build more | | | | | | |switch to CNG |mainland |service stations | | | | | | | | | |0. 10 |3 |0. |RECOMMENDED | |8 |Invest in high end technology that |Will boost SPC production |High cost for maintenance and| | | | | | |will increase productivity |capacity |investment of high end | | | | | | | | |technology | | | | | | | | | |0. 10 |2 |0. |NOT RECOMMENDED | |10 |Incorporate new technology and |Will give SPC the leading |Incur high cost and must go | | | | | | |innovate new product to achieve |edge as new product and |through many phases in the | | | | | | |competitive advantage among rivals |technology is the key factor |new product development | | | | | | | |for success | | | | | | | | | | |1. 00 | |3. 00 | | | |TOTAL | | | | | | | Legend: The chart 4. 5 shows the there were five strategic options were recommended based on the weighted score. The reasons for rating the strategic options explained by the chart below: | | |Reasons | |No |Strategic options |Rating |Value Creation |Tangible Benefit | |1 |Invest in E to further fulfill |4 |Able to extend its portfolio which will increase|The estimated profit from | | |the demand and cater for future | |the asset of its value and SPC will be able to |these investment is more | | | | |compete with big players like Exxon Mobile, |than 3500 million | | | | |Royal Dutch Shell and BP not only in downstream | | | | | |activity but also on upstream business | | |2 |Enhance relationship with neighbor|3 |Able to exploit the cheap labour cost and |The estimated profit from | | |country like Indonesia and Vietnam| |strength of Singapore Dollar to cut the cost of |these investment is more | | |to seek opportunity to tap oil | |operation. Further more this also will develop |than 200 million | | | | |better relationship among the neighbouring | | | | | |countries and contributes to their country | | | | | |growth. | |3 |Strategic alliance with one of the|5 |This will lead SPC to new era of business |The estimated profit from | | |small players to strengthen their | |whereby strategic alliance will give SPC to |strategic alliance is more | | |position | |obtain and share their technology and resources. |than 400 million and will | | | | |Technologically SPC can upgrade their knowledge |substantially increase | | | | |and can maximize their resources in both |their portfolio. | | | | |management and operation.
Theoretically SPC | | | | | |portfolio also will also increase | | |4 |Collaborate with local government |3 |SPC moving towards eco-friendly and |The estimated profit for | | |to encourage the automobile user | |collaboration with government to implement |supplying CNG service | | |to switch to CNG | |Compressed Natural Gas (CNG) with give them |stations is more than 200 | | | | |first mover advantage and will be significant |million | | | | |contribution in addressing environmental issues. | | |5 |Invest in high end technology that|3 |SPC has to invest in high end technology due to |By applying high end | | |will increase productivity | |the complicated process of oil drilling and |technology to increase | | | | |refinery.
Beside this SPC also has to increase |productivity and the | | | | |its productivity to meet the growing demand in |efficiency the estimated | | | | |Asian market this is only achievable by applying|profit will be more than | | | | |modern technology. This strategy will improve |300 million | | | | |the efficiency and effectiveness of SPC | | | | | |operation. | | 5. 0 Implementation of recommended strategies SPC in the effort of implementing the proposed strategies has to place importance to few factors that will monitor the implementation process and guide the activities within the objective of the organization.
Despite of market instability, increasing global competition and miscellaneous threat, SPC has to carry out the implementation in order to achieve their Vision “to be strong, integrated Oil and Gas Company with a premium brand in Asia-Pacific region. Below chart shows the guidelines for implementations. |No |Strategic options 1 |Invest in E&P to further fulfill the demand and cater for future | |1 |System |Form new Project Group system to investigate or study on the potential oil exploration and | | | |production area for acquisition and conduct feasible study on these projects. | | |Build a strong know how system on crude oil and natural gas process to enhance the | | | |knowledge to create knowledgeable workforce in this field. | |2 |Structure |Appoint a Division Manager to monitor and guide the team towards the company goal and | | | |direction. | |3 |Policies |Bring up policies such as feasibility study procedure and E&P procedure and policy. | |4 |Economic Situation |Current market condition is very demanding for energy and fuel so any investment will yield| | | |high profitability in future. |5 |Technological Development |Look into latest technology in E&P to speed up the feasibility study and potential | | | |technology for operation use. | |No |Strategic options 2 |Enhance relationship with neighbor country like Indonesia and Vietnam to seek opportunity to| | | |tap oil. | |1 |System |Practice ambassador system in organization that is by appointing an official who will | | | |represent the company and overlook the interest of the both parties. | | |Practice frequent visit by specially appointed director to these countries to understand | | | |their economic environment and business prospect in the country. | |2 |Structure |Restructure human resource department with Public Relations Director and Operation Director | |3 |Policies |New policies that address diplomatic relationships and overseas country business information| | | |confidentiality. |4 |Economic Situation |SPC may consider the poor economic performance of their countries and should deal all | | | |activities amicable manner. | |5 |Technological Development |Use video conference and Internet to relay the information to and fro. | |No |Strategic options 3 |Strategic alliance with one of the small players to strengthen their position | |1 |System |Develop Alliance Management System in HR department which can seek for collaboration and | | | |cooperation with potential partners which aims for synergy. | | |SPC can use its strength to form a Strategic Management System where by the director of the| | | |management can engage in official negotiation with small players in the region to form a | | | |strong alliance to obtain bigger share in the Asian market. | |2 |Structure |Restructure by bring in two new Directors for Alliance management System and strategic | | | |Management System. | |3 |Policies |New policies on alliance and documentations to seal the deal. | |4 |Economic Situation |In the current
Asian Market there are many small players such as Petro China Co, China | | | |Petroleum Oil and Natural Gas Corp and etc. | |5 |Technological Development |SPC knowledge and expertise in current oil technology such as Automated Distributed Control| | | |System that provide quick turnaround for tanker and barge operations and cogeneration | | | |technology a Combined Heat and Power application to improve power generation efficiency | | | |will encourage alliance. |NNo |Strategic options 4 |Collaborate with local government to encourage the automobile user to switch to | | | |Compressed natural Gas (CNG) | |1 |System |Build a Eco-Friendly System in organization which forms a team to negotiate with local | | | |government to gradually implement CNG | | | |Incorporate Environmental System such as CFC friendly to promote green environment. | |2 |Structure |Appoint a Director and a team of members to facilitate the Eco-Friendly project. |3 |Policies |New policies on the Eco-friendly system and documentation on the ISO standards on | | | |environment control. | |4 |Economic Situation |Currently rapid economic growth as caused global warming and SPC movement towards | | | |promoting green environment will be welcomed by public and government. | |5 |Technological Development |Technologically there are gadgets to control the emission of harmful gasses to air from | | | |refinery process and production. | No |Strategic options 5 |Invest in high end technology that will increase productivity | |1 |System |High-Tech System should be formed by the Facilities Group to increase the capacity and | | | |the efficiency of production | | | |Production System has to be upgraded to high end equipment. | |2 |Structure |In the Facilities Group an additional Vice-President may required to carried out this | | | |task. |3 |Policies |Policies to commission the High -End Technological equipments are necessary as these | | | |equipments vary in its function and strict calibration on these equipments is also | | | |needed. | |4 |Economic Situation |Economically High End Technologies are more than available in the market and embracing | | | |these technologies would give higher benefit. | |5 |Technological Development |Many High End Technological equipments are available in the market that can be used in | | | |oil industry | Total of five strategic options were recommended based on five factors.
The reasons for selecting these five factors are due to this factors gives great impact on the implementation of the strategies. The system will enable the organization to set up its functional level to initiate the strategy. Secondly structure, that is necessity rearrangement of the organization whereby appointing higher officials to monitor and carry out the projects. Policies are the proper way of carrying out the process and the red tapes that stops people from doing anything illegal. Economic situation will help the organization to analyse the external environment before implementing the strategies and decide is it the right time or not as well as is it applicable to carry out the strategies or not.
Lastly, technological development will assist the organization to understand the available technologies to assist the implementation of the strategies and further upgrade their efficiency and effectiveness in operation. 6. 0 Assessment of usefulness of the strategic models used Strategic Model 1: PESTEL analysis Usefulness: PESTEL model did help a lot in analysing SPC external environment. Deep analysis of the environment helped to list out the opportunities and threat that surrounded SPC environment. This model is a good tool for SPC as currently they are facing tough competition among the big players like Exxon Mobile, Royal Dutch Shell and BP so being aware of the environment would help them to react in time to deal any disaster. SPC as a growing company can use this model to monitor its surrounding and can amend its course of direction if necessary.
Critics on the model: PESTEL model even though does help to analyse the environment it but it’s not easy to obtain the accurate information due to the ever changing environment. Beside this model also based on the understanding of the people who does the analysis so there is a tendency of people to make mistake in their analysis due to limited knowledge and hard to update on current issues time to time. Strategic Model 2: Porter’s 5 Forces Usefulness: Porter’s 5 Forces was used to analyse the competitive environment and the dynamic of the oil industry that engulfed SPC. This model helped SPC to understand that only one force that is Intensity of Rivalry is high and the rest of the forces were low, so SPC must concentrate its business strategy to be competitive among its competitor to survive the intensity.
Critics on this model: Porter’s 5 Forces did help to understand the competitive environment based on 5 forces but these forces are based only on the general view and we are uncertain about the changes that can take place within the forces. Strategic Model 3: SWOT analysis Usefulness: SWOT analysis was used to tabulate the strength, weaknesses, opportunity and threat to have the overall view of the organisation. This model helped to analyse the internal and external factors of SPC in depth, so that better and good strategies can be developed. Critics on this model: SWOT analysis even though comprises the internal and external analysis as mentioned earlier the inaccuracy and uncertainty do exist, so the analysis may not be useful over a certain time of period.
Strategic Model 4: Value Chain Analysis Usefulness: Value chain analysis was helpful in analysing the internal strength of SPC in primary and support activities. This model also used to identify the strength and weaknesses of the resources in the SPC and identify the competitive advantage. Critics on this model: Even though this model helps to identify the strength and weaknesses but then it is difficult to identify all the strength and weaknesses as the value chain comprise the entire organization activity. Strategic Model 5: Tows matrix Usefulness: Tows matrix was useful in formulating strategies for SPC based on overcoming threat and weaknesses through strength and opportunity.
This model also helped SPC to understand their weakness and threat. Critics on this model: Formulating strategies based on the threat and weaknesses may only be addressing part of the problem but strength and opportunity may differ as everyone in the industry are competing to have competitive advantage. Appendix: Websites Referred. [pic] [pic] [pic] [pic] [pic] SPC’S achievements in its business 18 Jan 2008- Singapore Petroleum Company Limited (SPC) has according to the requirements of the Australian Corporations Act 2001, notified the Australian Securities Exchange (ASX) that SPC has increased its shareholding in Cue Energy Resources Limited (Cue Energy) to approximately 12. 83%. Dec 2007- Singapore Petroleum Company Limited (SPC) has according to the requirements of the Australian Corporations Act 2001, notified the Australian Securities Exchange (ASX) that SPC has increased its shareholding in Cue Energy Resources Limited (Cue Energy) to approximately 11. 75%. 21 Nov 2007- Sembcorp Gas and Singapore Petroleum Company Limited (SPC), a member of the Keppel Group, will jointly introduce the first retail compressed natural gas (CNG) service early next year. The retail price of the CNG will be announced later. The CNG will be supplied and retailed by Sembcorp Gas at SPC’s service station in Jalan Buroh. With this, Singapore motorists would be able to fill up their CNG tanks as easily as pumping petrol or diesel at a service station, by early next year.
This will be the first CNG retail station on mainland Singapore as currently the only CNG refuelling station, which is owned and operated by Sembcorp Gas, is on Jurong Island. 30 Oct 2007- Singapore Petroleum Company Limited (SPC) has increased its shareholding in Cue Energy Resources Limited (Cue Energy) to approximately 10. 02%. This follows SPC’s earlier announcements dated 23 July, 3 and 17 August, and 15 October 2007. From 16 to 30 October 2007, SPC acquired 3,303,842 Cue Energy shares for investment purposes in the ordinary course of trading on the Australian Securities Exchange at an average price of A$0. 24 per share. This brings SPC’s total shareholding in Cue Energy to 62,962,475 ordinary shares. These shares are held through nominee holders. ———————– Opportunities
Bargaining power of Supplier – threat to forward integration Barriers to Entry – High investment cost. – High switching cost – Access to distribution The intensity of rivalry (ExxonMobil, Royal Dutch Shell, Chevron and BP ) Bargaining power of Buyers – price sensitivity – switching to alternative source ( public transport) Threat of substitute – buyer inclination to substitute ( such as solar or battery energy) Threat 1. Growing demand in Asian market for oil will boost SPC production. 2.
SPC can develop its R&D in exploration and production to develop new product lines to further expand its downstream business as there is growing demand 3. Growing business trend in oil industry encourage SPC to offer more job vacancies and further invest in training and upgrading of employees. 1. Increase in oil price may probe consumers switch alternative source such as public transport. 2. Tough competition among big players like Exxon Mobile, Royal Dutch Shell and BP in downstream business. This may affect SPC survival in ASIA. 3. Higher crude oil prices will affects the profit margin. 4. Raising energy cost force SPC to further cut-down on its daily operation and maintenance cost. . Recent environment concerns have to be taken into considerations by SPC in their operations Strength Weaknesses 1. High cash reserves for potential oil plant acquisition and land holding. 2. Good reputation has increased share holder interest 3. Good leadership – “Best Managed Board Award” in year 2007. 4. Remarkable customer service by providing first drive through ATM and first to offer CNG filling service station. 5. Strongly culture of practicing ‘Safety’. 1. limited service station shows weak brand name and image 2. Poor research and development knowledge. 3. Insufficient high end technological equipment.
SPC external environment Economic – High crude oil price. – High cost in operations, waste management and transportations – Unstable currency exchange Technology – Insufficient production technology. – Increasing high energy consumption – Deep sea oil drilling need high end technology – Need for environmental friendly technological equipment Society – Soaring oil price cause high inflation cause lifestyle of people change such as using more public transport. – Switching to energy efficient products. Environment – Embed to EHSS policy. – Must response to the oil spillage locally and internationally Margin Margin Inbound Logistic Operations -contributing $8. billion in turnover Outbound Logistic Marketing and sales Services – limited service stations. – First to offer drive through ATM service Firms Infrastructure – (high cash reserves for acquisition) Human Resource Development – (“Best management board award”) Technological development (insufficient high end technological equipment) Procurement Primary activities Secondary activities – (form Sound Enterprise Risk management) Legend: -strength – Weaknesses Strength Weaknesses • limited service station shows weak brand name and image • Poor research and development knowledge. • Insufficient high end technological equipment. High cash reserves for potential oil plant acquisition and land holding. • Good reputation has increased share holder interest • Good leadership – “Best Managed Board Award” in year 2007. • Remarkable customer service by providing first drive through ATM and first to offer CNG filling service station. • Strongly culture of practicing ‘Safety’. Threat Opportunities • Growing demand in Asian market • SPC can develop its R&D in exploration and production to develop new product lines • Growing business trend in oil industry encourage SPC to offer more job vacancies • Increasing in oil price threats consumption Tough competitions among big players affect SPC survival in ASIA. • Higher crude oil prices affect the profit margin. • Rising energy cost affects SPC daily operation • Raising environment concerns need to consider 3. 4a Summary of SWOT analysis for SPC External factors Opportunities • Growing demand in Asian market • SPC can develop its R&D in exploration and production to develop new product lines • Growing business trend in oil industry encourage SPC to offer more job vacancies Threat • Increasing in oil price threats consumption • Tough competitions among big players affect SPC survival in ASIA. • Higher crude oil prices affect the profit margin. • Rising energy cost affects SPC daily operation Raising environment concerns need to consider Weight Rating Weighted score Comments 0. 3 0. 3 0. 05 0. 05 0. 1 0. 1 0. 1 1. 00 4 5 2 1 4 2 3 1. 2 1. 5 0. 01 0. 05 0. 4 0. 2 0. 3 3. 66 Booming economy in China and India Need to further expand downstream activities SPC does employ talent workforce No impact as the demand still good Many big players in Asian market. Well positioned Need to equip high energy saving equipment Total scores 4. 1 External Factor Analysis Summary for SPC 4. 2 Internal Factor Analysis Summary for SPC • High cash reserves for potential oil plant acquisition and land holding. • Good reputation has increased share holder interest Good leadership – “Best Managed Board Award” in year 2007. • Remarkable customer service by providing first drive through ATM and first to offer CNG filling service station. • Strongly culture of practicing ‘Safety’. • limited service station shows weak brand name and image • Poor research and development knowledge. • Insufficient high end technological equipment. Total scores Poor brand image Well positioned Need more R&D activities Customer satisfaction Corporate governance Public confidence Facilitates acquisition of new plant 0. 8 1. 0 0. 1 0. 05 0. 1 0. 4 0. 3 0. 3 3. 05 4 5 2 1 1 2 3 3 0. 2 0. 2 0. 05 0. 05 0. 1 0. 2 0. 1 . 1 1. 00 Comments Weighted score Rating Weight Weaknesses Strength Internal factors Need technology to compete Need technology to compete 0. 2 0. 2 0. 1 0. 2 0. 3 0. 75 0. 4 0. 2 0. 45 0. 3 3. 1 Total scores Potential market to grow Weak brand image Weak in R&D Good leadership Pose strong image Command strong position Weak in technology 2 2 2 2 3 5 4 4 3 3 0. 1 0. 1 0. 05 0. 1 0. 1 0. 15 0. 1 0. 05 0. 15 0. 1 1. 0 Comments Weighted score Rating Weight Address environmental issues Strategic factors Weak brand image S1 High cash reserves for potential oil plant acquisition and land holding. S2 Good reputation has increased share holder interest
S3 Good leadership – Best Managed Board Award” in year 2007. W1limited service station W2Poor research and development knowledge. W3Insufficient high end technological equipment. O1 Growing demand in Asian market O2SPC can develop its R in exploration and production to develop new product lines T1Tough competitions among big players affect SPC survival in ASIA. T2Raising environment concerns need to consider • 4. 3 Strategic Factor analysis summary Duration SHORT MID 4. 5 Strategic options and recommendations X X LONG X X X X X X X X 40% priority 60% priority 80% priority 100% priority 5 4 3 2 0 1 Singapore Petroleum Company Ltd
Singapore Petroleum Company Ltd Singapore Petroleum Company Ltd Singapore Petroleum Company Ltd Singapore Petroleum Company Ltd The reasons for rating the selected strategic options (Applicable for all the tables) No priority 20% priority Singapore Petroleum Company Ltd Singapore Petroleum Company Ltd Singapore Petroleum Company Ltd Singapore Petroleum Company Ltd Singapore Petroleum Company Ltd Singapore Petroleum Company Ltd Singapore Petroleum Company Ltd Singapore Petroleum Company Ltd Singapore Petroleum Company Ltd Singapore Petroleum Company Ltd Singapore Petroleum Company Ltd Singapore Petroleum Company Ltd Singapore Petroleum Company Ltd