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SWOT and Porter Five Forces Analysis of Royal Dutch Shell | The WritePass Journal

SWOTandPorterFiveForcesAnalysisofRoyal
DutchShell
rodrigo|January25,2013

TableofContents[show]

Abstract
RoyalDutchShellPlcisthesecondlargestoilcompanywithglobaloperationsinmorethan80countries
andmorethan30refineryplants.ThecompanyhasaregisteredofficeinLondon,UnitedKingdomand
headquartersinTheHague,Netherlandsandwasrankednumberonewithamarketcapitalizationof
135,511.7millionUSDollarsasatthecloseof11thTuesday,2012.Thecompanysmajorstrengthincludes
aglobalpresencewithgloballyrecognizedbrands,growingfinancialstrength,significantmanufacturing
andtechnologicalcapabilitiesanddiversifiedportfolioofproducts.Theglobaloperationsofthecompany
areassociatedwithdifficultiesofstandardisingqualityduetovariedoperationalconditions.Furthermore,
thecompanyisfacedwithstiffcompetitionfromtheleadingsuppliersintheindustryincludingExxon
MobilCorporation,TotalS.A.andBPPlc.However,thecompanycanusedifferentiationstrategy
capitalizingonitsgloballyrecognizedbrandstoestablishacompetitiveedgeoverthecompetitors.In
addition,thecompanycanexpanditsglobalpresencethroughstrikingstrategicpartnershipswithlocal
smallcompaniesinforeignmarketstoenhancepenetrationinthemarkets.

Introduction
RoyalDutchShellplccommonlyknownasShellisanindependentcompanywithitsregisteredoffice
locatedinLondonUKandheadquarteredinTheHague,Netherlandsoperatingintheoilandgasindustry
globally(Reuters,2012).Theoperationsofthecompanyaredividedintothreemainsegmentsincluding;
Downstream,UpstreamandProjectsandTechnology.TheUpstreamsegmentcombinesactivities
involvedinthesearchforandrecovery,liquefactionandtransportationofoilsandnaturalgasandwind
energy.TheDownstreamsegmentisengagedintheactivitiesofmanufacturing,distributingand
marketingofchemicalsandoilproducts.Finally,theProjectsandTechnologysegmentincludesallthe
criticalsupportfunctionsofthecompanyscorebusinessintheUpstreamandDownstreamsegments
(ShellPlc,2012).In2011,thecompanyhadrevenuesof470,171millionUSDollarsandbasedonthese
revenues,thecompanyisrankedasthesecondlargestcompanyworldwide(Bloomberg,2012).Asatthe
closeofbusinessonTuesday11thDecember2012,thecompanywasrankedasnumberoneonthe
FTSE100Indexwithamarketcapitalizationof135,511.7millionUSDollars(StockChallenge,2012).

ShellSWOTAnalysis
Thecompanyhasanumberofstrengths.Firstly,RoyalDutchShellPlcisaleadingcompanygloballyinthe
OilandGasindustrywithglobalpresenceinmanycountries.Consequently,thecompanyderivesits
strengthinthisglobalimageintheindustry.Secondly,thecompanyhasrecordedgrowingfinancial
performancesincethe2008/2009economicdownturn.Itthereforehasastrongcapitalbasefor
competinginthecompetitiveindustry.Thirdly,thecompanyhasestablishedstrongbrandsrecognized
globallylikeShellVPowerandtheShellFuelSave.Finally,thecompanyhasstrongexplorationand
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SWOT and Porter Five Forces Analysis of Royal Dutch Shell | The WritePass Journal

technologicalcapabilityasaninternalstrengthcoupledwithadiversifiedportfolioofproductsinthe
upstreamanddownstreamsegmentsofthecompany(ShellPlc,2012).
Thesizeandscaleoftheglobaloperationsofcompanymaybeaweaknessduetothedifficultiesofthe
companytocontrolqualityandstandardsofitsproductssincetheoperationalconditionsofdifferent
refinerysitesdiffer.Thisalsoimpactsnegativelyontheadministrativeefficiencyandeffectivenessofthe
companysmanagement.Exposuretodifferentregulatoryregimesthroughtheglobalpresenceofthe
companypresentsdifficultiesinformulatinguniformpoliciesapplicabletotheglobaloperationsofthe
company(ShellPlc,2012).
Thereisincreasingawarenessandconcernforenvironmentalsanitywherereducedcarbonemissionisa
necessaryconsiderationformostoilrelatedproducts.Consequently,thereisincreasingdemandfor
liquefiednaturalgasasasourceofcleanenergy.Thisislikelytoincreasethecompanysrevenuesfrom
liquefiednaturalgas.Therearealsoopportunitiesforthecompanytoexpandtotheemergingeconomies
likeChinathroughjointventures,mergersandacquisitionslikeacquisitionofNesteOilOyjinPoland
(Reuters,2012b).
TheeconomicslowdownintheUSandEuropeanUnionduetothedebtcrisesinvolvingmember
countriespresentsathreattothecompanysprofitability.Terrorismactivitiesthreatenthecompanys
globalfunctionsbyincreasingrelatedbusinessoperationalexpenses.Increasingstrictenvironmental
regulationsisalsoathreattothecurrentandfutureoperationsofthecompanywhichwillrequiremore
efficientandenvironmentfriendlyexplorationandmanufacturingtechnologies.Fluctuatinginterestrates
andthewarintheMiddleEastcountriesisalsoathreattothecompanyduetoitsglobaloperations.

PortersFiveForcesAnalysisofShell
Porter(2008,p.80)identifiesfiveforcesthatcanbeusedtoanalysethecompetitivenessofacompanys
industryofoperation.Theforcesincludethethreatofnewentrants,threatofsubstitutes,bargaining
powerofsuppliersandbuyersandrivalryamongexistingcompetitors.RoyalDutchShellPlchas
establishedlargescaleoperationsinmorethan80countriesenjoyingeconomiesofscale,globalimage
withestablishedstrongbrandswhichmakesithardfornewentrants.Thereforethethreatofnew
entrantsislowduetothehighcapitalrequirementstosetupoperations.
Threatsofsubstitutesarehighforthecompany.Thisisbecauseoilrelatedproducts,chemicalsand
naturalgasproducedbydifferentcompaniesarehighlysubstitutable.Majorcompetitorproductscanbe
usedassubstitutesforthecompanysproducts.Therefore,thethreatofsubstitutesforthecompanyis
high.
RoyalDutchShellPlchasembracedaverticalintegrationgrowthstrategywhichinvolvesacquiringand
mergingwithcompaniesatdifferentlevelsofoperationandthereforeithassignificantinfluenceonits
supplychain.Furthermore,thecompanyhasenhanceditstechnologicalcapacitythroughtheprojects
andtechnologysegmentofitsbusiness(Reuters,2012).Therefore,thebargainingpowerofsuppliersis
low.
Oilandgasareessentialproductsinanyeconomy.Economicproductionprocessesinaneconomymake
useofoil.Thisexplainswhyinsomedevelopingcountriesoilsupplyisunderstateagencies.Furthermore,
theoilindustryischaracterizedbycompaniescomingtogethertoformcartelsthatwouldenablethem
controlthemarket(Bloomberg,2012).Furthermore,mostofthebuyersofoilproductsbuyinbulkand
thereforelossofonebuyerwouldsignificantlyaffectthecompanysrevenue.Consequently,the
bargainingpowerofbuyersismedium.
ThemajorcompetitorsofthecompanyincludeExxonMobilCorporation,TotalS.A.andBPPlcwhichhave
alsoestablishedglobalpresenceintheoilandgasindustry(Hoovers,2012).Rivalrywiththesecompanies
ishighduetobrandinganddifferentiationstrategiesappliedbythecompaniesintheiroperations
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globally.Thecompanieshaveestablishedbrandsrecognizedgloballyandmajorclientelewhichmakes
rivalryintheindustryhigh.

Conclusion
RoyalDutchShellPlchasestablishedstrongbrandsrecognizedgloballyenhancingitsimageintheglobal
market.Despitethecomplexitiesandrisksthatareassociatedwiththeglobaloperationsofthecompany,
thereareopportunitiesforthecompanytoexpandandgrowitsoperationsintheemergingmarkets.The
companycanuseadifferentiationstrategytopositionitsproductsgloballyassuperiorusingitsbrand
names.Todealwiththerisksofglobalizedoperations,itisadvisablethatthecompanyusestrategic
partnershipswiththelocaloperatorsinthenewmarketstoenhanceitspenetrationinthemarkets.
Furthermore,thecompanycanestablishitscompetitiveadvantageincreasingitscontroloverthesupply
chainthroughmoreverticalintegrationmergersandacquisitions.Lastly,toincreaseefficiencyofthe
companysoperations,thereisneedforreengineeringoftheproductionprocessandadoptionofnew
efficiencytechnologies.

References
Bloomberg,(2012)RoyalDutchShellPlcFinancialStatements,availableat
http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=RDSA:LNaccessed
on14thDecember,2012.
Hoovers,(2012)TopCompetitorsforRoyalDutchShellPlc,availableat
http://www.hoovers.com/company
information/cs/competition.Royal_Dutch_Shell_plc.01e84f5552dabef3.htmlaccessedon14thDecember,
2012.
PorterM.E.(2008)TheFiveForcesthatShapeStrategy,HarvardBusinessReview,pp.7994.
Reuters,(2012)RoyalDutchShellPLC:CompanyOverview,availableat
http://www.reuters.com/finance/stocks/overview?symbol=RDSa.Laccessedon14thDecember,2012.
Reuters,(2012b)RoyalDutchShellPLC:LatestKeyDevelopments,availableat
http://www.reuters.com/finance/stocks/RDSa.L/keydevelopmentsaccessedon14thDecember,2012.
ShellPlc,(2012)OurBusiness:ShellisOrganisedinto:Upstream,DownstreamandProjectsand
Technology,availableathttp://www.shell.com/home/content/aboutshell/our_business/accessedon
14thDecember,2012.
StockChallenge,(2012)FTSEAllShareIndexRankingasatCloseonTuesday,11thDecember2012,
availableathttp://www.stockchallenge.co.uk/ftse.phpaccessedon12thDecember,2012.

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