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Michael Porter's five makes: Engine oil industry

The following case study the product is olive oil. In petrol industry, your competition is very common, we can easily see the oil price changing every day. Now I'll use marketing vision to see the engine oil competition.

First step, I'll description essential oil industry track record and selected an organization for a starting to warm up. Then, the next part is evaluate marketing segment and Michael Porter five pushes analyze.

Product background

There is without doubt that the engine oil/energy industry is incredibly large. According to the Department of Energy (DOE), fossil fuels (including coal, engine oil and natural gas) makes up more than 85% of the power consumed in the U. S. by 2008. Oil supplies 40% of U. S. energy needs. (Visit the U. S. Office of Energy's Energy Options information page to get more detailed insight. )

Before petroleum can be utilized, it is delivered to a refinery where it is actually, thermally and chemically sectioned off into fractions and then changed into done products. About 90% of the products are fuels such as gasoline, aviation fuels, distillate and residual engine oil, liquefied petroleum gas (LPG), coke (not the refreshment) and kerosene. Refineries also produce non-fuel products, including petrochemicals, asphalt, street olive oil, lubricants, solvents and polish. Petrochemicals (ethylene, propylene, benzene while others) are delivered to chemical vegetation, where they are being used to produce chemicals and plastics. (For additional insight, read Oil And Gas Industry Primer. )

There are two major areas within the petrol industry, upstream and downstream. For the purposes of this tutorial we will concentrate on upstream, which is the procedure of extracting the petrol and refining it. Downstream is the commercial area of the business enterprise, such as gasoline stations or the delivery of petrol for heat.

Company Introduction

The Saudi Arabian Essential oil Company (Saudi Aramco), the state-owned olive oil company of the Kingdom of Saudi Arabia, is a fully-integrated, global petroleum organization and a global leader in exploration and producing, refining, distribution, shipping and delivery and marketing. The business handles proven reserves of 260 billion barrels of crude essential oil and it handles the fourth-largest gas reserves on the planet, 263 trillion cubic feet. (see figue1)

Saudi Aramco utilizes more than 55, 000 people and it is headquartered in Dhahran in Saudi Arabia-s Eastern Province, which borders the Arabian Gulf. Operations span the Kingdom, with creation and product distribution facilities linking all market areas. Major export delivery terminals can be found at jacks on the Arabian Gulf and the Red Sea, while domestic demand for automotive and aviation products is attained by using a Kingdom-wide network of strategically situated refineries.

Internationally, Saudi Aramco holds substantial joint venture and investment interests in refining and marketing activities in america, the Republic of Korea, Japan and China. Key market service support offices are found in major locations in THE UNITED STATES, Europe and china and taiwan. Saudi Aramco, through its affiliate Vela International Sea Limited, has and operates one of the world's largest tanker fleets, which transports crude essential oil and refined products, internationally and domestically, amounting to 892 million barrels in 2008.

Saudi Aramco stands committed to providing a trusted way to obtain petroleum and petroleum products to areas and consumers around the globe. Throughout its history, Saudi Aramco has never failed, anticipated to operational reasons, to meet a delivery determination to a person. The company-s ability to bring its free capacity onstream in response to advertise needs has been frequently proven over the years.


Market segment

Bases for Segmentation in Industrial Markets

In contrast to consumers, professional customers have a tendency to be fewer in amount and purchase greater volumes. They evaluate offerings in greater detail, and the decision process usually consists of more than one person. These characteristics connect with organizations such as manufacturers and service providers, as well as resellers, governments, and organizations.

Many of the consumer market segmentation factors can be employed to industrial marketplaces. Industrial market segments might be segmented on characteristics such as:


Company type

Behavioral characteristics


In industrial market segments, customer location may make a difference in some instances. Shipping costs may be considered a purchase factor for merchant selection for products having a higher large to value percentage, so distance from the vendor may be critical. In a few industries firms tend to cluster mutually geographically and therefore may have similar needs within a region.

Company Type

Business customers can be categorised relating to type as follows:

Company size- Saudi Aramco is the greatest oil corporation on earth with the major proven crude olive oil reserves and development.

Industry - Petrol industry

Decision making unit(DMU) (see figue2)


Purchase Criteria- high purity, low price

Behavioral Characteristics

In industrial markets, habits of purchase patterns can be considered a basis for segmentation. Such behavioral characteristics can include:

Usage rate:

Oil and gas touch our daily life in familiar and new ways. We live in an engry-hurgry world. Industry, agriculture and life as we realize it rely upon harnessing engry from a few natural resources. One of the most import engry resources is petroleum: coal and oil from the planet earth. this can be a convenient and often the only sources of products and gas that are crucial to modern life.

Buying position- regular

Purchase process:

Downstream: Identifies oil and gas operations following the production period and to the idea of sales, whether at the gas pump or the home heating engine oil truck

Upstream: The turf origins of the olive oil business, upstream identifies the exploration and production of coal and oil. Many analysts check out upstream expenses from prior quarters to calculate future industry movements. For example, a decline in upstream expenditures usually trickles right down to other areas such as travelling and marketing.

Target market

Developing counties

Reason: growing counties drivers increase>>engine oil demand ^

Developed counties

Reason: big demand of oil on life and manufactory

What is Michael porter five pushes?

A range of season ago the renowned business strategist and one of the world's best-known business academics Michael E. porter indentified five competitive forces that affect planning strategies in a model called porter's five makes. Recently, porter modified this model to add the impact of the internet on the strategies that business use. As illustrated by shape1, the five makes are: (see figue3)

-Barriers to entry

-Degree of rivalry

-Threat of substitutes

-Buyers power

-Supplier power

Figue3: Michael porter five pushes model





Porter Five Pushes analyze

1. Obstacles to Entrants

The easier it is good for new companies to enter the industry, the greater cutthroat competition you will see. Factors that can limit the threat of new entrants are known as barriers to entry. Some examples include:

Existing loyalty to major brands

Incentives for utilizing a particular buyer (such as consistent shopper programs)

High fixed costs

Scarcity of resources

High costs of transitioning companies

Government constraints or legislation

Case analysis:

There are thousands of oil and oil services companies throughout the world, but the obstacles to go into this industry are enough to scare away all however the serious companies. Obstacles can vary with regards to the section of the market where the company is situated. For example, some types of pumping vehicles needed at well sites cost more than $1 million each. Other areas of the engine oil business require highly specialised workers to use the equipment and to make key drilling decisions. Companies in companies such as these have higher barriers to entry than ones that are simply offering drilling services or support services. Having sufficient cash is another hurdle - a corporation had better have profound pockets to defend myself against the existing olive oil companies.

2. Supplier Power

This is how much pressure suppliers can put on a business. If one company has a big enough impact to influence a company's margins and quantities, then it keeps substantial power. Here are some reasons that suppliers may have power:

There are extremely few suppliers of a specific product

There are no substitutes

Switching to some other (competitive) product is very costly

The product is extremely important to purchasers - can't do without it

The offering industry has a higher success than the buying industry

Case review:

While there are many oil companies on the globe, much of the coal and oil business is dominated by a tiny handful of powerful companies. The huge amounts of capital investment tend to weed out a lot of the suppliers of rigs, pipeline, refining, etc. There isn't a lot of cut-throat competition between them, nevertheless they do have significant power over smaller drilling and support companies. See the table 1 you understand that Saudi Arabia is the most notable one engine oil exporter!


3. Buyer power

This is how much pressure customers can place on a business. If one customer has a huge enough impact to have an effect on a company's margins and quantities, then the customer hold considerable power. Here are a few reasons that customers might have power:

Small number of buyers

Purchases large volumes

Switching to another (competitive) product is simple

The product is not extremely important to customers; they can do without the product for a period of time

Customers are price sensitive

Case research:

The balance of ability is shifting toward buyers. Oil is a commodity and one company's olive oil or oil drilling services are not that much not the same as another's. This leads clients to seek lower prices and better agreement terms.

4. Availability of Substitutes.

What is the chance that someone will switch to a competitive product or service? If the expense of turning is low, then this poses a serious threat. Here are a few factors that make a difference the risk of substitutes:

The main issue is the similarity of substitutes. For example, if the price of coffee rises significantly, a coffee drinker may move to a drink like tea.

If substitutes are similar, it can be viewed in the same light as a new entrant.

Case review:

Substitutes for the engine oil industry generally speaking include alternate fuels such as coal, gas, solar powered energy, wind ability, hydroelectricity and even nuclear energy. Remember, oil can be used for more than simply jogging our vehicles, additionally it is used in plastics and other materials. When inspecting an energy company it is extremely important to have a close look at the specific area where the company is functioning. Also, companies offering more obscure or specific services such as seismic drilling or directional drilling tools are much more likely to endure the threat of substitutes. (For much more on petrol substitutes, start to see the Biofuels Debate Heats Up. )

Potential entrants

''The search for a way out commenced after the Arab oil embargo of 1973-74, and come to a zenith with the Iranian Trend of 1979. Many well-intentioned programs were undertaken, concentrating generally on coal -- coal as a gas, coal as a substance and the improved combustion of coal.

But it was then, as it is now, a outdoors time for new entrants. A large number of jobs were funded including magneto-hydrodynamics, in situ coal gasification, garbage to electricity, power supply research, cryogenic transmission research and energy storage in fly wheels.

Some, if not a bulk, of the tasks were pure knowledge fiction. ''

(Llewellyn Ruler is number of television's "White House Chronicle" on PBS. )

5. Competitive Rivalry.

This details the depth of competition between existing companies within an industry. Highly competitive sectors generally earn low returns because the expense of competition is high. An extremely competitive market might derive from:

Many players around the same size; there is no dominant firm

Little differentiation between competitors products and services

A mature industry with very little growth; companies can only just expand by stealing customers from competitors

Case analysis:

Slow industry development rates and high exit barriers are a particularly frustrating situation facing some firms. Until quite lately, engine oil refineries were an especially good example. For an interval of almost 20 years, no new refineries were built-in the U. S. Refinery capacity exceeded the product demands therefore of conservation efforts following the olive oil shocks of the 1970s. At the same time, exit obstacles in the refinery business are quite high. Besides the scrap value of the gear, a refinery that does not operate does not have any value-adding capability. Almost every refinery can do a very important factor - produce the sophisticated products they are created for.


Ultimately, Michael porter five causes are very helpful to evaluate the oil industry. The proper business manager wanting to develop an advantage over rival businesses can use this model to better understand the essential oil industry context in which the firm operates

For obstacles to access, Saudi Aramco is the most significant oil corporation in the world with the largest proven crude petrol reserves and development, it also is the state-owned countrywide olive oil company, the Arabia government support Saudi aramco operation, so the new entries hard to best than me.

About supplier electric power, while there are plenty of oil companies on the globe, a lot of the coal and oil business is dominated by a small couple of powerful companies. But Saudi Arabi is the very best one engine oil exporter in the world so their provider power are incredibly large.

With buyer vitality, in global oil industry is imperfect competition, market framework is monopolistic, non-price competitive is quite typical therefore the buyer buyers to seek lower prices and better deal terms, the buyer electricity is high.

On the other side, oil substitute products are coal, gas, solar powered energy, wind ability, hydroelectricity and even nuclear energy. However in now just producing.

Lastly, Saudi Aremco is rich and large, it can have big market talk about for a whole essential oil industry, the rivalry vitality is leaner.

We can see that, Saudi Aramco the competitive pushes is high by Michael porter five makes analyze.


Unfavorable situation A:

Cancer Risk among Engine oil Refinery Workers

''The possibility that excess cancers derive from occupational exposures in petrol refineries has generated a great deal of interest. Ecological studies and case-control studies in the overall population have recommended a positive connection between essential oil Industry activity and tumor rates, with an increase of direct research provided by studies of refinery employees. The eight investigations of tumors risks among refinery employees are critically assessed. The methodological strengths and weaknesses of the studies are evaluated with an emphasis on the likely impact on the results. While the results are markedly inconsistent across studies, there is certainly some recommendation of excess dangers for melanoma and for brain, stomach, kidney, and pancreatic cancers. Problems with exposure characterization, latency, and potential confounding factors limit every one of the studies which were reviewed. ''

[(C)1984 The American College or university of Occupational and Environmental Remedies]


Use automatic robot to refinery oil

Nowadays, advanced knowledge and technology are generally use in developing processes. We can use automatic robot to substitute individual work. The benefits of using robots for refinery olive oil techniques are numerous and include: increased productivity; improved and consistent productivity quality (which can also minimize the necessity for subsequent operations) reduced demand for skilled operators who are hard to find; greater stability and simplicity; ideal for employed in difficult surroundings or on upsetting tasks; the ability to work tirelessly on long shifts; and it can lowering the labour cost, the cost down therefore the income can up!it can update the business competitive power!

Unfavorable situation B:

Fire risk in essential oil refineries

Refinery oil is a extremely dangerous work, for the reason that in refinery manufacturing plant have so many Inflammable materials, so that it easily case varying fire. I can say that, it is a major loss with a company! Why? It is because fire loss is a large cost in essential oil industry, it also case casualties, our organization will needs to response a lot of realistic.


Camera monitoring

A probabilistic method is provided to judge the economical value of fireplace monitoring by finished circuit TV camera in petroleum refineries. The proposed model is restricted to the evaluation of risk decrease in a location where fires can be triggered either by pump failing or by failing of valves and lines. The huge benefits come from minimizing the time where the fire develops undetected. Fire growth and expected values of losses are analyzed by a Markov model that includes five stages: (1) effective undetected development, (2) detection, (3) fire progress at the start of the firemen's involvement, (4) open fire control, and (5) hearth extinction. The results (e. g. , the expected online present value of the investment) show that the proposed monitoring investment is attractive for an illustrative example.

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