Pestle, Porter and SWOT analysis of Lukoil Essay

LUKOIL, a vertically integ pastured embrocate society, and machineries extinct exploration, acquisition, integration and subsequent efficient break inment of crude colour and gas palm outside the Russian Federation to facilitate the transformation of LUKOIL into a multinational energy corporation. LUKOIL ope steps in 25 countries (the most major of them atomic number 18 Russia, Azerbaijan, USA, Georgia, washout and Czech Republic). Net income in 2013 is $3.105 trillion. Basic earnings per sh atomic number 18 $4.11. The political partys 2012 net income rose by 6.2% and tingeed record $11,004 billion. EBITDA (earnings before interest, tax incomeation, wear and tear and amortization) rose by 1.7% and reached $18,915 billion. gross revenue revenues were $139,171 billion (+4.1% y-o-y). In 2013 Forbes estimated LUKOIL as 43 in Sales, 34 in Profit, 254 in Assets, 139 in Market cling to. harmonize to these data we lav assume, that LUKOIL is successful Russian bon ton with a serve of strengths, c be good prospects regarding financial exponents. And fortunately, it doesnt need any financing. Usually, the participation invests in different realises regarding environmental protection andemployees support.2. Mission and kenMissionThe Companys mission consists in increasing shargonholder value finished the exploration and mathematical product of hydrocarbons outside Russia. My vision of the function is that company wants to be a reliable supplier of hydrocarbons on the transnational market. Moreover, Luk anoint has a purpose to support economic growth and social stableness in long- marches prospects. Thus, it has some briny aims such as to grasp reputation of a reliable and dependable hydrocarbon supplier in the institution to deliver high-pitched-quality petroleum products to end-users to ensure long-term sustainable growth to reach leading position on the marketMy formulation of the missionLukoil as a company in the oil and gas indus stress victimisation natural energy recourses is trying to be a draw in the international market by reducing costs, increasing operations and shelter social aspects. VisionThe company wants to be worlds leader in oil and gas empyrean by first-class service to our clients, effective HR policy, reliable and positive image of the company, effective environmental policy, optimization of the operational efficiency, decrease of the operational costs, sustain high-profit level. In conclusion, companys mission determines a purpose within the organization provides standards for allocating organisational resources establishes a general organizational climate shows purpose and direction. Consequently, mission and vision be clear and give a parcel of advantage.3. Macro-environment (PESTLE)At the graduation of this part, it is necessary to mention some relevant factsPopulation in Russia 139mln playing area 17mln sq. kmTime zones GMT +2 to +119th largest sparing in the world in terms of gross domestic product, reaching USD 2014,8 bn 2013 Exports and Imports exceed 50% GDP lavishlyest GDP per capita among BRICS countriesWinter Olympic Games 2014 in Sochi 2012 and FIFA World Cup 2018 are coming 1. GDP cipher 2.1 Real GDPAs we crapper return hold on the Figure 2.1 Real GDP has a purpose to grow up. Moreover, the present value of Real GDP is about 2014.8 USD billion which is the highest point during the history. Real GDP had been ontogenyd up to more than 6% in comparison with the previous period Contemporary situation in economy, especially in Real GDP, shows the fortune for a company to increase production, because high GDP inwardness higher consumer expendings in turn, it is an alleviating competitory pinch within diligence, then its the potential for expansion. As we can see GDP is constantly growing that means an opportunity to have higher revenues for LUKOIL Company because people have a higher profits and sepa pointly higher consumer expenditures.2. Int erest rateThe interest rate in Russia was closing curtain recorded at 5.50 portion. Interest Rate in Russia is reported by the exchange Bank of Russia. It is quite high interest rate in comparison with for face European countries. The average interest rate in Europe is 0.25%. For LUKOIL it is a threat of decreasing the companys sales, because during high interest rate potential consumers tend to spend less (borrowings live on more expensive). at that tail endfore the consumer purchasing ply is quite unhopeful and companys sales will be decreased.Figure 2.2 Russia interest rate3. Inflation rateFigure 2.4 Russia inflation rateFigure 2.5 petroleum price RUB per literAs we can see Figure 2.4 and Figure 2.5, the oil price and rate of inflationare connected directly when oil price goes up, the inflation follows in the same direction. We can explain it by that the oil is the major input in economy (oil is used for manufacturing and transportation). The inflation rate in Russia w as recorded at 6.30 percent in October of 2013. It has a positive impact on Oil and ordnance intentness. LUKOIL can estimate future profit more accurate and deflect several risks which effected by the oil price and inflation rate. 4. Unemployment rateFigure 2.5 Russia unemployment rateAt the moment the rate is 5,5%. And the tendency has a declining character. Thus it could be opportunity to find high-qualified employees. There is a contestation on a labor market.5. Reservoirs of oilRussia is the first country in the world in crude oil production. Its share is 12%. This indicator makes the country gainive for the investors. Consequently, LUKOIL could use positive investment climate of Russia as the companys benefit.6. TaxesNowadays there are three main taxes which have influence on economic in Russia a) Corporate tax rate 20%b) Personal income tax rate 13%c) Sales tax rate 18%Accordingly to these indicators the corporate tax rate is quite low in comparison with Japan 38,01%, United Arab Emirates 55%, US 35%. then, it is opportunity to increase a profit (low taxes increase net profit). We are analyzing oil and gas industry in Russia. luckily most of deposits are situated in cold geographical areas want Tyumen Region, called Extreme North or Far North. Government gives a lot of benefits want people who work there are used to encounter an extra grade of throwment, referred to as the Northern Bonus, as rise as other benefits, including extra vacation, extra disability benefits, extra retreat benefits, and housing benefits. LUKOIL wont increase outflow of money into bonus fundsetc.4. Technological factors (PESTLE)New technologies are an important competitive advantage of LUKOIL Group. Key technological aspects1. The company conducts R&D to develop late technologies and upgrade the existing ones. 2. Cooperation with national projects is actively developing, including the Skolkovo innovation project and the RUSNANO Corporation. 3. Great attention is paid to developing information technologies and improving work processes. 4. The total financing of scientific and technical works in 2012 amounted to US$ 150 million. It is opportunity to use own technology and ability to block costs for using technologies from elsewhere.5. Environmental factors (PESTLE)Waste disposalRussia drowns in 60 million tons of garbage a year. It is serious problem in waste disposal issue. Today, only 11% of the whole volume is recycled. Unfortunately, it is straight evidence of contemporary problem and the threat for environment. LUKOIL uses chemicals for production, which could be statutory restrictions by the government for environmental protection. It is the threat for company of activities restriction.PollutionOil and muck up industry damages nature by pollution. Many risks occur like spilling of oil into the sea or into the ocean. In this case LUKOIL will pay damage to nature and spoil its reputation. Consequently, LUKOIL should keep back into a ccount all risks and try to avoid them.ClimateThere is the dominance of the continental climate on the territory of the country. Russia faced to one serious problem during springs. It is flood. For oil industry it could be a relevant threat because it directly depends on transportation, for instance if roads are damaged it is becoming complicated to transport oil to different regions.6. Political factors (PESTLE)Strictly speaking, two of the most dangerous threats are the high level of corruption and terrorism.High level of corruptionRussia is stratified 127th out of 175 countries in Transparency Internationals putrescence Perceptions Index in 2013. This score indicates the perceived level of public sector corruption in a country or territory. TerrorismThere is a terrorist war aimed at destabilizing Russia politically and economically. Few weeks ago there was the 3rd terrorist attack in Volgograd during last 2 months.Membership in World Trade OrganizationIn August 2012, Russia off icially became a World Trade Organization member. Moreover, European Union contributes half of Russia great deal flows. It is opportunity of simplified international market access with the purpose of trading and it is opportunity of hiring professional and administrative staff on fixed term contracts.Index of Economic FreedomIndex of Economic Freedom in Russia is 51.3 out of 100 and it ranked as mostly unfree. These ranking means that the country is not attractive to do business and indicates a low possibility of obtaining investment. Thus, it is a threat for LUKOIL, it will be difficult to attract foreign investors.Protection of property rightsIt is an opportunity to protect LUKOILs innovations and to get patent.7. Legal factors (PESTLE)The following laws of the Russian Federation form the main healthy framework of the oil and gas industryConstitution of the Russian Federation. federal jurisprudence On undersoil (Subsoil righteousness).Federal Law On blow out Supply in the R ussian Federation (Gas Supply Law). Federal Law On Natural Monopolies.Federal Law On the Continental shelf of the Russian Federation. Federal Law On brawniness Saving and Energy Efficiency.Federal Law On Production Sharing Agreements.The following federal laws are also relevant to the legal framework of the natural resources industry of the Russian Federation The Codes of the Russian Federation, including the Civil Code, Land Code, Water Code, wood Code, Tax Code, Code on Administrative Violations and Criminal Code. Federal Law on Environmental Protection.Federal Law on Ecological Expertise. autocratic Council Regulations on the Procedure of Enactment of the Provisions on the Procedure of Licensing of the Subsoil Use of 1992 (Subsoil Use Licensing Regulations). The fundamental rights that are guaranteed to each Russian citizen are All people shall be equal before the law and court.The stir shall guarantee the equality of rights and freedoms of man and citizen, regardless of sex, race, nationality, language, origin, property and official status, place of residence, religion, convictions, membership of public associations, and also of other circumstances. All forms of limitations of human rights on social, racial, national, linguistic or religious grounds shall be banned. Man and adult female shall enjoy equal rights and freedoms and have equal possibilities to exercise them. That means that Lukoil should take into account all this rights and keep it in mind when hiring the employees.8. Socio-cultural factors (PESTLE)Age social structure0-14 historic period 15.7% (male 11,498,268/female 10,890,853)15-24 years 12.4% (male 9,031,057/female 8,662,557)25-54 years 45.8% (male 31,894,116/female 33,432,996)55-64 years 13.1% (male 7,926,184/female 10,711,347)65 years and over 13% (male 5,622,464/female 12,847,828) intimately of population is in capable of working age. There is a competitor on labor market. It is an opportunity to find employees corresponded to t hestandards of the company.Main religion ChristianityNo take inment in the organization of labor. Thus, it is opportunity for LUKOIL to organize manufacture easily. High level of educationOpportunity to attract well-qualified personnel.9. Porters 5 Forces1. Threat of New Entrants (Low)The LUKOIL is protected by high barriers to entering. Therefore the threat of new entrants is very low Huge amounts of capital expenditure are needed to perform the activities, for example the cost of refinery is almost $7 billion, the price of petrol station is $600 000. Large amounts of fixed are require for the development of oil fields and the installation of production facilities Costs for get in the industry drilling costs, oilfield services, skilled labor, scientific research, materials and energy tho companies that exit economies of scale can survive, for example LUKOIL has been searching for oil since 1991. They invest a huge amount in up-to-date technologies making it difficult for new e ntrants to compete. Russia allows only national companies (or foreign companies in partnership with the national company) to work oil reservoirs, because it is owned by the state. It is barrier to entry.2. Power of Suppliers (High)There are more then 100 suppliers in Russia OAO Gaztrubinvest, TOO KST Steel, OAO Severstal are some of them. But their products are unique tubular products, electric outward-developing pumps, oil cable, spurt steel framework. What gives them high bargaining power to grade conditions. Moreover there are no substitutes, because the equipment needed for oil industry is special and impossible to replace.3. Power of Buyers (Low)The main buyers are government and car owners. Product differentiation is low and customers dont have opportunity to choose, only to buy. The market share of LUKOIL is almost 17% and it has contracts with government, becausethey have a big chain of petrol stations. Consumers willingness to pay is the only power buyers have. Only very large buyers of oil such as big countries like US may influence oil price. Overall the buyer power is low4. Threat of Substitutes (Low)At the moment customers can not surpass from using oil and gas for other sources of energy. Only some European countries introduced renewable sources of energy instead of gas and oil. But there are many alternatives of energy coal, solar, and wind power. Instead of this fact, we notice the demand for oil increases every year and there is no chance of decreasing in consumption.5. Industry Rivalry (High)LUKOIL has 4 serious competitors Rosneft (22% share of market), TNK-BP (14%), Surgutneftegaz (12%), Gazprom neft (6%). Even though there is a very strong rate of growth in oil and gas sector the rivalry remain small overdue to large switching costs, required investments for a new entrance, size of competitors, and political barriers. There is no place for small companies because of few market leaders. besides there is no possibility that competitors will offer a debase price. LUKOIL is second company that operates in Russia. The leader is Rosneft and its main competitor. LUKOIL has 17% share of Russian market, Rosneft 22% respectively.10. SWOT analysisStrengthsWeaknesses 1st among the largest privy oil and gas companies in the world. 1.3% oil reserves of total reserves of oil worldwide and second in terms of volume prove hydrocarbons reserves about 2% of total global reserves maturation in oil index price in the world. High entry barriers in the market, which eliminates small competitors. Very sufficient technology of research and exploration. geographical business diversification (30 countries). Large amount of oil reserves(17%) Superior oil related technology. Fully vertical and horizontal integrated. Well supported by Russian government. Constant increase in demand for gas and oil in Russia. Constant research and innovation. Production costs are relatively high compared with levels achieved by its main competitors . The companys communication some(prenominal)(prenominal) inside and outside is slow and bureaucratic. Cost of environmental hazards.OpportunitiesThreats Increase in oil and gas demand in Russia. New exploration projects. investiture into new businesses. Iraq oil project. Corruption. Terrorism. Floods. Decrease sales (high interest rate). Competition on the marketInternal analysisRevenue $139.2 billionEmployees 150.000RecommendationsDespite having a relatively good position in the regional market of Central and Eastern Europe, LUKOIL faces strong competition. In this context, LUKOIL should increase its market share through an offensive strategy of territorial expansion and to attract new customer segments. In addition, LUKOIL should ensure implementation of new technologies for modern and efficient production in terms of cost and continues its efforts to improve product quality and competitiveness, in order to meet international standards, including API and ACEA. Another import ant trend is the operation of marketing strategies on the downstream, taking into accountthe factors influencing consumer choice of stations location, value for money, image, service, the existence of ancillary services. These strategies are reflected in the mix of marketing, in which both product and promotion play a central role.