Understanding the Business Environtment of Chevron

Chevron Corporation is an American multinational energy corporation, headquartered in San Ramon, California, and active in more than 180 countries. Chevron is an integrated oil and gas company which mean they participate in every aspect of the oil or gas business, which includes the discovering, obtaining, producing, refining, and distributing oil and gas and power generation. With approximately 62,000 employees, it has more than 32,000 service stations worldwide.

5 Forces Analysis of Chevron

1.      Competitive Rivalry

The main competitors of Chevron are Exxon Mobil, Royal Dutch Shell and Conoco Philips. The table below is the comparison between Chevrons with its competitor in term of the company size, market share / capitalization, revenue, their product and services positioning and strategy.

	Market Capitalization	Annual Revenue	Number of Employee	Positioning	Strategy
Chevron	$240,150,704	$257.3 billion	62,000	Cost leadership; Differentiation	Focused on upstream and downstream strategy. Upstream strategy is focused on their energy production, while downstream strategy is used in their refining and chemicals sector. While Chevron is more focused on the exploration and production of energy, they also remain committed towards the marketing of electricity and natural gas; and shipping or transportation of chemicals and oil products.
Exxon Mobil	$361,313,345	$453.123 billion	69,600	Cost leadership; Differentiation	Focus on delivering operational excellence and building technology leadership. Invest with intelligence and discipline.
Royal Dutch Shell	$192,175,309	$451.235 billion	90,000	Differentiation	Aims to improve energy efficiency in operations, support customers in managing their energy demands and continue to research and develop technologies in the production of liquid products and natural gas.
Conoco Philips	$91,096,627	$62.004 billion.	16,900	Focused low cost	Collaboration with key stakeholders to increase capacity for biodiversity protection, internally and in related institutions and communities.

2.      Threat of potential entrants:

Due to the cost of entry is very high (huge capital required) and specialist knowledge and advanced technology is needed, the barrier to entry for new entrants are high. Besides, the economics of scales advantages by the existing big IOCs which drives the whole value chain and the heavy regulations by government makes it harder to enter this industry. Other factor is national oil companies control more than 90% of the proven oil and gas reserves in the country.

3.      Threat of substitutes:

The main alternatives sources to oil and gas for producing energy are nuclear energy, coal, hydrogen, biofuels and other renewables sources such as solar and wind energy. The rising of the society awareness toward the environment; such as air pollution, emission converted using oil and gas (fossil fuels) might encourage the switching. However, the substitution is uneconomic. It is less efficient (hard to find) and usually more expensive. Hence, the limited number of substitution and high switching cost lead to low threat of substitutes.

4.      Power of suppliers:

Great player in the side of the suppliers are the oil rich countries or else OPEC has a significant bargaining power. OPEC nations own at least 70% or the world's oil proven reserves. The limited crude oil supplies which can be find on certain strategic location and government permission needed create a high supplier power. Besides, the supply of the advance technology such as the drilling machine, refining machine, and others is only supply by limited suppliers. 

5.      Power of buyers:

The main buyers of oil and gas products are refineries, both national and international oil companies, distribution companies, traders and to be exported to another countries. The buyer’s power is less because oil and gas cost is similar and fixed by government (there is a benchmark). And also the inelastic demand for energy will cause the price insensitivity. With lower buyer price insensitivity, price can increase and buyers will still buy the product.

5th week of MIS "Understanding a business"

Before start-up a business or entering a new industry, the first thing we need to do is to analysis the industry. We need to understand the business. One of the tools that can be used to analyze is Porter’s five forces which including competitive rivalry, the threat of new entry, the threat of substitution, supplier power, and buyer power.

1.      Competitive Rivalry

Identify the current market, and list the number of competitor in this industry. Then, we can identify what does each competitor offers, start from their product quality, prices, their delivering process, and many other differences such as bonuses or incentives given.

2.      Threat of new entry

There are several threats to enter the business. Therefore, firstly we need to identify the cost of entry that business. For example in a certain industry such as mining need a huge entry cost that might need to consider about compare to open a restaurant. Specialist knowledge, an expert, and human capital are needed for certain industry. Several questions such as is the economics of scale is high?; Is there a cost advantage to entry?; And also is there any technology protection?; might help us to understand the threat to enter the business.

3.      Threat of substitution

In this modern area, where everything is changing; start from the advanced technology until the changes in human behavior. All of these changes will bring us to another alternatives way to keep improving our convenient and efficiency even to create a better environment for our future. One real example is people demand paper is decreasing, where the use of paper is substitute by everything that can be done digitally (E-book, E-news, online test, and etc.). This substitution is a way to increase efficiency while at the same time saving the world. Hence, the threat of substitution might need to be considered before entering the business.

4.      Supplier power

By considering the supply and demand rules, the numbers of suppliers have a certain effect on their power. If a certain industry has a limited number of suppliers, then their power is bigger and usually might control over the potential rise of price, which in turn would lower the profitability of a business. Then, we need to compare between those suppliers, start from their size or the ability to provide until their uniqueness in service.

5.      Buyer power

Same with the supplier power, the buyer power here also implemented the supply and demands rule. Number of suppliers, size of each order, price sensitivity and the ability to substitute are some points we need to analyze to know the buyer power.