Indian Oil Corporation Business Analysys.

Indian Oil Corporation Industry analysis: th

IOC is an Indian state-owned oil and gas corporation and is 88 world’s largest organisation according to Fortune Global 500 list. Main products of Indian Oil Corp. are petrol, diesel, LPG, auto LPG, aviation turbine fuel, lubricants and petrochemicals. petrochemicals. IOC operates 10 of the 22 petrol refineries in India and IOC has 31% share of total refining capacity in India. Porter five force analysis:

Porters five force model helps in analysing the performance and efficiency of overall industry taking into account five factors(forces) which are believed to play a crucial role in analysing profitability of particular firm operating in that industry. 3 major forces are from horizontal competition and two other are from vertical competition. Under the horizontal forces category are threat from new entrants, existing players, and substitutes. Under the vertical forces category are bargaining power of suppliers and buyers. Power of suppliers: Due to the non-availability non-availability of sufficient fossil fuel resources in India, energy suppliers in India are heavily dependent on import of raw materials for energy production. So the petroleum industry in India is at the mercy of importers (mainly OPEC). Suppliers enjoy a lot of power over fixing prices to supply IOC and it in turn affects the selling price and profit profit of IOC. These days situation has been changing, IOC is calling tenders from all the suppliers (including non OPEC suppliers) and whoever bids to supply at lowest price is considered for for supplying raw materials materials to IOC. By calling tenders from different suppliers top petro companies were successful in reducing power of suppliers over them. Power of buyers: Petroleum has 2 types of customers- industrial buyers and individual buyers. Industrial buyers buy it from suppliers like IOC. There are many suppliers for them BP, SHELL etc. these buyers from upstream suppliers have an incentive to limit l imit the supply and make profit. Industrial consumers generally buy large quantities from suppliers and they have considerable bargaining power as they have well established distribution channels also and if they switch to another firm there is a huge loss to IOC or such firm. For individual customers price matters a lot, because switching cost is low they can always switch to a supplier who sells at lower cost. And government intervention is high in some industries because of its share in them and it pushes these industries to provide fuels at cheaper or subsidised costs costs and it leads to heavy losses losses for firms. Overall buyers have good good bargaining power over Oil industry firms. Now let us consider horizontal forces Threat from existing players: Competition in Oil industry is fierce because of trading in commodities. Customers are very sensitive to price change and brand value doesn’t matter a lot when trading in commodities, so oil companies try to reduce the cost instead of product differentiation. This cost reduction can be obtained by

efficient operation. Gulf oil has full acquired the buses segment, servo’s share consists of Lorries and trucks. With regard to Valvoline it has its market share from the drillers and other heavy equipment users. And finally Castrol has targeted bike segment and high end users. So, from the above scenario we can say that there is more rivalry among existing players in this oil industry. Profitability of any form in this industry depends on its distribution network and Indian Oil has very well established network of fuel stations and household gas distributors. Threat from substitutes: There are many substitutes for oil products available in market due to technical advancements and concern for environment. We have coal, solar, chemical, wind energies substituting energy from oil. For example we have electrical bikes available in market which doesn’t require oil to run and we have solar pump sets available these days even government is giving subsidies on alternative fuels. These substitutes pose a great threat to oil industry in long run. Threat from new entrants: Setting up an Oil company involves pumping lot of capital before realising any profit from operations. It is estimated that nearly $450 million is required as an investment for setting up Oil Company in India. Oil industry is characterised by its economies of scale which says the more industry produces better of it is in terms of cost reduction and profit realisation. For anyone to enter Oil industry it is becomes difficult to sustain because of increase in interest on capital and it takes some time to realise profit. And high level of expertise is required for exploration and operation of Oil Company as it is highly prone to accidents and there can be loss of life and transportation should be handled carefully as there are instances of Oil spills which resulted in heavy penalties. Profits realised depends on how good a firm maintains its distribution network so new entrants finds it very difficult to enter the space. Sectors like this are regulated by government agencies so first entrant has the advantage of getting licences earlier and in easy manner than new entrant. We can conclude new entrant poses less threat to established players. Competitive Strategy:

Since Oil products has become commodities Indian Oil Corp. has been following Cost leadership strategy instead of product differentiation. Cost leadership: Cost leadership can be obtained by reducing cost of production, increasing efficiency of operation and production. Indian Oil spends little on advertising. But by selling at very low cost compared to its competitors Indian Oil has gained large customer base. And it has selected strategic locations for its plants abroad so that it would reduce the cost of transport and will ensure prompt delivery.

Differentiation: Indian Oil is concentrating more on differentiating itself from its competitors in packaging and customer service aspects rather than on product differentiation. It has outsourced its packaging activities by inviting tenders so that it can concentrate on its core competency.