Business - Pestle Analysis (Essay Sample)

Running head: PESTLE ANALYSIS
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Contents TOC \o "1-3" \h \z \u Introduction PAGEREF _Toc373922814 \h 2Company background PAGEREF _Toc373922815 \h 3PESTLE analysis PAGEREF _Toc373922816 \h 4Political PAGEREF _Toc373922817 \h 4Economic PAGEREF _Toc373922818 \h 5Social PAGEREF _Toc373922819 \h 6Technological PAGEREF _Toc373922820 \h 7Environmental PAGEREF _Toc373922821 \h 7Ranking of the factors PAGEREF _Toc373922822 \h 8Limitations of PESTLE PAGEREF _Toc373922823 \h 9Key important issues PAGEREF _Toc373922824 \h 10Summary PAGEREF _Toc373922825 \h 11References PAGEREF _Toc373922826 \h 12
Introduction
Due to the dynamics of customers’ needs, competition among different organization is ever growing. Consequently, organizations are coming up with strategies of sharpening their competitive advantage. Many of these strategies are either geared towards minimizing the cost of production, maximizing the net profit, minimizing the customers waiting time or even improving the quality of products producedCITATION Ama \l 1033 (Amason, 2011). In the formulation of these organizational strategies, tools such as PESTLE, SWOT and Porter’s forces analysis are commonly used. In this assignment, PESTLE tool is used.
The PESTLE analysis is used in the analysis of the external environment in which a given organization operates. Basically, it provides a comprehensive list of influences that may lead to the failure or success of an organization in relation to its external environmentCITATION Joh10 \l 1033 (Johnson, 2010).
The PESTLE analysis is used in macro-environmental scanning in strategic planning and management. The relationships between the different factors are as shown in figure 1 below CITATION Men99 \l 1033 (Menon, 1999)[Political-Economic-Social-Technological-Legal-Environmental]
Figure SEQ Figure \* ARABIC 1: The PEST analysis
Company background
Worldwide, the oil industry is characterized by oligopoly structures in which it is dominated by a small number of big players. The most common players in the oil market include BP, Shell, Mobil, Exxon and Chevron.
Royal Dutch Shell plc was selected for the analysis because it is the largest oil and gas company in the world. As of 2013, Royal Dutch Shell plc had revenue of US$ 481.700 billion and operating income of US$ 46.447 billion. During the same financial year, the company registered net profit of US$ 26.592 billion. The company has total assets and total equity worth US$ 360.325 billion and US$ 188.494 billion respectively. Furthermore, the multinational corporation employs a total of 87,000 employees CITATION She13 \l 1033 (Shell, 2013).
Headquarter in The Hague-Netherlands; the company is listed as the world’s most valuable company. The company is vertically integrated and it operations in every area of the oil and gas sector: exploration, refining, distribution and marketing. In addition to that, the company produces 3.1 million barrels of oil from its 40000 stations located in over 90 countries in the world CITATION She13 \l 1033 (Shell, 2013).
This assignment will focus on Shell Group's subsidiary in Brazil. This is because the company operates more than 2,700 fueling stations in the country. In addition to that, the company distributes fuel and crude oil to 56 airports across the country. Furthermore, the company operates 15 offshore and onshore extraction blocks that are located in areas such as Santos, Campos and Sao Francisco basin CITATION She13 \l 1033 (Shell, 2013).
PESTLE analysis
Political
Political influence and government interventions play a very big role in the oil industry in Brazil. For example, the government of Brazil has the majority shares in Petróleo Brasileiro S.A. Consequently, this company is given 30% operating stake in all operations in the oil and gas sector in Brazil. As a result, this has a negative effect to the competitiveness of Royal Dutch Shell which is only left with the other 70% to compete with the other major players in the oil sector such as BP, Mobil, Exxon and Chevron CITATION Elk10 \l 1033 (Elkind, 2010).
However, the political stability in Brazil plays an important role in the hastening of the operation of Shell in Brazil. This is because most global oil reserves are located in countries which have high political risks. This has been positively contributing towards the success of Shell in Brazil CITATION Dav061 \l 1033 (Jerome, 2006).
Another positive impact of the government of Brazil to the operation of Shell in Brazil can be traced back in September 2011. At this time, CIDE tax on gasoline imports was reduced by 16%. This reduction greatly benefited Shell-Brazil because the depreciation of the Brazilian currency against the US dollar was absorbed and consequently, the import cost managed.
In addition to that, the government of Brazil has ensured sustainability measures by setting aside 40% of sub-mature oil fields. This is a positive implication to the future operations of Shell in Brazil because it means the company can get a share of the not-developed oil fields.
Another political factor that contributes towards the success of failure of Shell in Brazil is the influence of OPEC on the oil prices. As oil reserves become depleted, the role of OPEC is expected to increase with time.[Organization of the Petroleum Exporting Countries]
Economic
The oil and gas industry is highly interdependent with the global economy. Not only does the global economy affect the price of oil, but also oil affects the growth of the global economy. The main economic factors that affect the profitability of shell in Brazil are the exchange rates and the price volatility of crude oil. The oil industry is very sensitive to external global factors such as the economic recession that was witnessed in 2008. In addition to that, downward trends in the economy lead to a reduction in the oil demand.
Revenue from oil has played an important role towards the growth of Brazil’s GDP. In 2011, the GDP of Brazil jumped to the 6th position worldwide with a value of US$ 2,518 billion. This is an advantage to Shell because it indicates that there will always be a market for the products from Shell.
Brazil has the 6th largest labor force of 107 million and an unemployment rate of 6.2%. With such a high workforce, Shell will not be faced with a problem of lack of skilled labors.
Social
In 2012, the Brazilian government put in place measures to incorporate the local content in the oil and gas sector to least 65%. This led to job creation and consequently promotion of the corporate image of the company among the Brazilians. This led to Shell developing Corporate Image Monitoring System (Sismico) in Brazil. The objective of implementing this system is to measure and monitor the development and progress of its corporate image.
In addition to that, Shell has engaged in a number of Corporate Social Responsibility activities in Brazil. This has in deed boosted its reputation against the locals.
Furthermore, Shell has been engaging in sponsoring students for higher education in Brazil. The company has also been engaging in HIV/AIDS awareness campaigns and road safety campaignsCITATION Bad97 \l 1033 (Baddour, 1997).
The increase in population in Brazil has a massive impact on the energy pattern in the country. In Brazil, the annual population growth rate is estimated at 0.9%. This has led to an increase in the demand of oil. Consequently, the revenue of Shell in Brazil has been increasing CITATION Mug11 \l 1033 (Mughal, 2011). This is a positive contributor towards the continuous growth of Shell in Brazil.
Technological
One of the key success drivers of Shell is its superior technology. It has most advanced equipment for exploration and production of oil. In addition to that, Shell has a huge budget on research and development. For example, in the year 2012, Shell’s budget for research and development was about $1.3 billion. This has led to development of drilling equipment using special alloys, which reduce the cases of corrosion and consequently increasing the life of the tools. Consequently, Shell has increased its offshore and onshore drilling blocks to 56.
The location of new wells by Shell is accurately determined by use of airborne and satellite based geophysical data. With such technological advancements, Shell is expected to minimize the time needed to do operations in Brazil.
Even though there has been an increase in the demand of oil, the share of oil on the market share has been decreasing. This can be attributed to the fact that technology has driven renewable sources of energy such as solar and wind. The trend is expected to increase and greener sources are expected to be adopted.
Environmental
Carbon recapture is the latest trend in the oil and gas industry. To reduce the impact of global warming, Shell has set up experimental centers in which carbon dioxide separation techniques are studied CITATION ElH08 \l 1033 (El-Hillow, 2008).
To minimize chances of facing a case such as the Gulf of Mexico spill, Shell has set up a collaboration plan with Applied Science Associates, Inc. (ASA). The main aim of the collaboration plan is to help in the preparation of an up-to-date emergency plan CITATION Tho07 \l 1033 (Thomas, 2007).
Shell is bound by a series of legal frameworks in which it is supposed to operate from. After the Macondo World blow in the Gulf of Mexico in 2010, new legislations have been created and implemented CITATION Mad12 \l 1033 (Madden, 2012).
Since oil and gas venture is a very risk operation, safety and health laws are also put into consideration by Shell.
Shell has collaborated with ANP to ensure that environmental regulations are enforced. This has been achieved thr...