Five Forces Analysis of Chevron

Chevron Corporation has established a strong industry presence in the oil and gas industry with
activity in more than 180 countries, it is engaged in every aspect of the oil, gas and geothermal
industry, including exploration and production, refining, marketing and transport, chemicals
manufacturing and sales, and power generation. With approximately 62,000 employees, it has more
than 32,000 service stations worldwide. While having the power of an international brand and strong
industry positioning, Chevron Corporation is poised to capture additional shares as it expands and
diversifies, with alternative energy operations including geothermal, solar, wind, biofuel, fuel cells
and hydrogen. In 20112013 the company spent at least $2 billion on research and acquisition of
renewable power ventures. In 2011, Chevron launched a 29 MW thermal solar steam facility in the
Coalinga field to produce the steam for enhanced oil recovery. The project is the largest of its kind in
the world.

THREAT OF NEW ENTRANTS

1. As the capital for entry is too high, and the level of knowledge required is also high and
advanced, there is a high barrier to entry for new entrants.
2. Heavy regulations by governments and environmental public safety organizations make entry
less likely because it makes it harder to maneuver within the industry. Strong distribution
network required: Weak distribution means goods are more expensive to move around and
some goods don’t get to the customer end.
3. High capital requirement: means a company must spend a lot of money in order to compete in
the market.
4. Strong brand name: if strong brand names are critical to compete, then new competitors will
have to improve their brand value in order to efficiently compete.
5. Advanced Technologies are required: advanced technologies make it difficult for new
entrants to enter the market because they have to develop the technologies before effectively
competing.
6. Geographic factors limit competition: if existing competitors have the best geographical
location, new competitors will have a competitive disadvantage.

INTENSITY OF RIVALRY
1. Governments limit competition: government policies and regulation can dictate the level of
competition within the industry.
2. Large industry size: large industry allows multiple firms and producers to prosper without
having to steal market share from each other.
3. Fast industry growth rate: when industries are growing revenue quickly, they are less likely to
compete because the total industry size is also growing. The only way to grow in slow growth
industry is to steal market shares from competitions.
4. Low exit barriers: when exit barriers are low, weaker firms are more likely to leave the
market, which will increase the profit for the remaining firms.
THREAT OF SUBSTITUTES
1. Substitute products are lower quality: a lower quality product means a customer is less likely
to switch from Chevron corporation product to another product or service.
2. Substitute has lower performance: a lower performance product means a customer is less
likely to switch from Chevron Corporation to another product ro service.
3. Substitute product are inferior: an inferior product means customers are less likely to switch
from Chevron Corporation product to another product or service.
4. High switching costs: limited number of substitutes means that a customer cannot easily
switch to another product or service of similar price and receive the same benefits.
5. Limited number of substitutes: a limited number of substitute product means that customers
cannot easily find other products or service that fulfill their needs.

BARGAINIG POWER OF BUYERS

1. Lower buyer price sensitivity: when buyers are less sensitive to prices, prices can increase and
buyers will still buy the product. Inelastic demand positively affects Chevron corporation.
2. Product is important to customer: when customers cherish a particular product, they end up
paying more for that one product.
3. Large number of customers; when there are large number of customers, no one customer
tends to have bargaining leverage.

BARGAINIBNG POWER OF SELLERS

1. High competition among suppliers: high levels of competition among suppliers acts to reduce
prices to producers
2. Diverse distribution channel: the more diverse distribution channel becomes the less
bargaining power a single distributor will have.
3. Volume is critical to suppliers: when suppliers are reliant on high volume, they have less
bargaining power, because producers can threaten to cut volumes and hurt the supplier’s
profit.

PESTLE analysis of Chevron

Political factors play a significant role in determining the factors that can impact Chevron
Corporation's long term profitability in a certain country or market. Chevron Corporation is operating
in Major Integrated Oil & Gas in more than dozen countries and expose itself to different types of
political environment and political system risks. The achieve success in such a dynamic Major
Integrated Oil & Gas industry across various countries is to diversify the systematic risks of political
environment. Chevron Corporation can closely analyze the following factors before entering or
investing in a certain market-

 Political stability and importance of Major Integrated Oil & Gas sector in the country's
economy.
 Risk of military invasion
 Level of corruption - especially levels of regulation in Basic Materials sector.
 Bureaucracy and interference in Major Integrated Oil & Gas industry by government.
  Legal framework for contract enforcement
 Intellectual property protection
 Trade regulations & tariffs related to Basic Materials
 Favoured trading partners

Economic Factors such as – inflation rate, savings rate, interest rate, foreign exchange rate and
economic cycle determine the aggregate demand and aggregate investment in an economy. Some of
the economic factors include:

 Type of economic system in countries of operation – what type of economic system there is
and how stable it is.
 Government intervention in the free market and related Basic Materials
 Exchange rates & stability of host country currency.
 Infrastructure quality in Major Integrated Oil & Gas industry
 Comparative advantages of host country and Basic Materials sector in the particular country.
 Business cycle stage (e.g. prosperity, recession, recovery)
 Economic growth rate
 Discretionary income

Social factors include Society’s culture and way of doing things impact the culture of an organization
in an environment. Social factors that leadership of Chevron Corporation should analyze for PESTEL
analysis are -

 Demographics and skill level of the population

 Class structure, hierarchy and power structure in the society.
 Education level as well as education standard in the Chevron Corporation ’s industry
 Culture (gender roles, social conventions etc.)
 Entrepreneurial spirit and broader nature of the society. Some societies encourage
entrepreneurship while some don’t.
 Attitudes (health, environmental consciousness, etc.)
 Leisure interests
Technological Development

 The constant need to find more efficient and Eco- friendly ways to extract ( as there is need to
dig deeper for crude oil these days), transport, and refine the crude oil.
 The need to increase the quality value of energy output (Hydrocarbons), through more
efficient conversion processes.

Environmental Factors

Different markets have different norms or environmental standards which can impact the profitability
of an organization in those markets. Even within a country often states can have different
environmental laws and liability laws. For example in United States – Texas and Florida have
different liability clauses in case of mishaps or environmental disaster. Similarly a lot of European
countries give healthy tax breaks to companies that operate in the renewable sector. Some of the
environmental factors that a firm should consider beforehand are -
  Weather
 Climate change
 Laws regulating environment pollution
 Air and water pollution regulations in Major Integrated Oil & Gas industry
 Waste management
 Attitudes toward “green” or ecological products
 Endangered species
 Attitudes toward and support for renewable energy

Global Trade Issue

 In the oil industry, there is a strong link that connects the demand for oil and the rate of global
economic growth.
 Uncertain energy policies: Energy policy is in a continued state of flux in many key
geographies. Meanwhile, the consequences of last year’s oil spill in the Gulf of Mexico
continue to be felt in the debate over deepwater regulations.
 Worsening fiscal terms: The use by governments of tax claims, real or not, as a pressure point
to coerce oil companies appears to be increasing.
 Health, safety and environmental issues have risen on the oil and gas industry’s agenda,
reflecting both increased public pressure and more complex operational challenges.

References :
http://fernfortuniversity.com/term-papers/pestel/nyse4/120-chevron-corporation.php
https://energyroutes.eu/2016/05/23/porters-five-forces-model-for-oil-and-gas-industry/