Chevron Corporation is an American global corporation that trades under NYSE: CVX in the US stocks exchange. It is one of the companies that replaced Standard Oil and it is headquarters are in San Ramon, California. The company has its presence in more than 180 countries worldwide and approximately 60,000 employees. Chevron is involved in all aspects of the oil, geothermal and gas energy industries, including investigation, manufacture, refining, selling and transportation and power generation. Chevron is the second largest company in the energy industry and the third world largest company (Chevron Inc, 2014).
The future of the companies in the energy industry seem positive due to the drastic rise of oil prices over the past years. However, despite the oil prices going up and remaining high, there are a number of serious threats that face the oil companies, Chevron Corporation included. These challenges could potentially constrain the company’s long-term earnings power and hinder its growth.
Environmental Factors That Influence Chevron Corporation
The changing population size and demographics affect the economy, which in turn affects oil demand. With the world population expected to rise with about 20%, to 8.5 billion by 2030, the demand for oil and oil products is expected to surge. Population demographics also affect demand too. When a country’s working age changes, the country’s GDP also changes hence affecting demand for energy (Stephens, 2008).
Political factors such as regulations affect oil companies and their operations. Typically, legal regulations that constraint where, when and how mining is done and how oil companies conduct their operations. Additionally, how laws are interpreted vary from one state to the other and laws are different in every country. Big oil companies such as Chevron Corporation that operates across states and countries have to deal with different regulations and political environments, which make their operations.
Forces Of Competition That are Most Significant Chevron Corporation
Threat of New Entrants
The oil industry is very profitable hence despite the heavy investment required; capable investors are always willing to take the risk to get the business. This has increased the number of new entrants entering the market. New entrants in the market have increased supply and competitiveness as they bring in fresh ideas and innovative technology hence threatening to reduce Chevron Corporation’s market share (Stephens, 2008). It is expensive for Chevron Corporation to upgrade all their systems to match the new entrée’s technology thus threatening the company’s competitive edge.
Availability of Substitutes
Environmental organizations and environmental sensitive individuals backed by federal energy policies have been conducting campaigns against the use of emission products. This has made Chevron Corporation’s target customers look for substitutes for oil and oil products hence reducing demand. Substitutes for oil include nuclear energy, coal, solar power, gas, wind power, and hydroelectricity. Companies that offer oil substitutes are also on the rise therefore encouraging more people to switch from oil and oil products to other sources of energy. Electricity is one of the major substitutes threatening oil use in America today. Invention of products such as electric cookers, electric trains and electric cars have reduced demand for oil, coal and gas thus reducing Chevron Corporation’s market share(Stephens, 2008). If this invention trend continues, the company may suffer low due to limited market for its products in the future.
How Chevron Corporation can Address the Threat of New Entrants and Availability of Substitutes in the Near Future
The Internet has made it easy for consumers to compare prices of products and services offered by different suppliers. This has made price competition more pronounced hence suppliers are forced to provide high quality products and services at lowered prices. Chevron Corporation, being a big corporation is in a position to employ strategies that will help lower its production costs and help it lower the costs for its products to overcome the threat of new entrants who cannot afford to provide their products at low prices (U.S. Securities and Exchange Commission, n.d). The company can apply price lining; offer the same merchandise at different price points in order to meet the needs of different customers. That would help them cater for a larger customer base hence gaining a competitive advantage over their competitors.
Availability of substitutes
Another strategy that Chevron Corporation can use is innovation and introduction of niche products. The company could focus on advancing the production of alternative energy in order to counteract the threat of substitutes. By so doing, the company would be able to retain their environmental sensitive customers and attract new customers too. Providing products to a small market means that the company can charge premium prices for its products and services.
Assess the external threats affecting Chevron Corporationand the opportunities available to the corporation.
Chevron, like any other company in the energy industry is faced by a number of external threats and opportunities. The threats include:
Maintaining Chevron’s key asset, Tengiz Field is technologically challenging and capital extensive. This makes the risks associated to it, such as market delivery options and renewal of government contracts, substantial. The company also faces threats of political instability of its countries of operations, such as Nigeria and Venezuela, which could potentially result to huge losses (Chevron Inc, 2014).
There are however several opportunities the company can exploit to gain an edge. They include securing more Asia Pacific domestic natural gas supply agreements as the markets ripen. The company has world-class research advantage potential, which can be attributed to its strong financial position. Lastly, the company can seize new enhanced oil recovery projects, in Libya and Middle East, and heavy oil projects in Venezuela and Canada.
Chevron Corporation greatest strengths and most significant weaknesses
Chevron Corporation is the second largest energy company in the world. This comes with a financial strength that gives it a competitive advantage over other companies in the industry.
Chevron’s balance sheet is strong enough to allow the company to invest in sizable, long-term projects that will enable them to compete on a global level(Chevron Inc, 2014). The company can also hire experts and invest in research and development to ensure that they produce high quality products at the lowest cost possible while eliminating or reducing negative environmental impact. By doing so, the company can expand, grow exponentially hence securing its future.
Cost of environmental hazards
Chevron has been a recipient of criticism by both environmental institutions and human rights activists due to its operations and practices in the a number of countries including United States,Ecuador, Burma, Nigeria, Angola, and Chad(Chevron Inc, 2014). The company has had a number of lawsuits in which it has paid hefty fines. The company has also been investing in campaigns and activities in their effort to diverge attention from its poor record of over two decades.
The company should invest in technology that helps reduce emissions and other negative environmental outcomes that might result to liabilities such as oil spills. Through advanced technology, the company can also act quickly in the event of such outcomes to reduce the level of damage caused. The Company should also take part in communal activities so as to build a relationship with the communities they operate in. Fostering a strong relationship will help the company settle any disputes that may arise civilly thus reducing the costs incurred. Chevron Corporation should try to improve its image through advertising more and investing in producing more environmental friendly energy such as biofuel, wind, and solar energy.
Chevron Corporation’s resources, capabilities, and core competencies
Resources are bundled to create organizational capabilities
Tangible and intangible (Chevron Inc, 2014)
Cash and Short Term Investments (Quarterly):13.22B
Net PP&E (Quarterly):178.10B
Total Assets (Quarterly):266.03B
Resources purposely integrated to achieve a specific task or set of tasksdeveloped in specific functional areas. Source of a firm’s core competencies and basis for CA
Effective customer service
Motivating and empowering employees
Research and Development
Effective use of management practices
Ability to predict the future of oil market
Capabilities that serve as a source of CA for a firm over its rivals
Distinguish a company from its competitors and can help firms identify and build their core competencies
Is it valuable
Is it rare
Is it costly to initiate
Is it non substitutable
Its competitive consequences
Its performance implications
Sustainable competitive advantage
Research and development
Valuable Capabilities – helps the company exploit opportunities or counteract threats in its external environment
Rare Capabilities – few players possess them
Costly-to-imitate Capabilities – other firms cannot easily develop
Non-substitutable Capabilities – there are no strategic equivalents
Chevron’s Value Chain Analysis
Chevron organizational Structure has three major business segments, which are:
Upstream Segment, which explores and produces crude oil and natural gas.
Midstream Segmentwhich gathers and transports crude oil as well as natural gas to processing factories and transports finished goods to markets.
Downstream Segmentwhich is involved with refining of crude oil into finished merchandises
Through effective application of technology, Chevron has established a portfolio of assets. The company’s strong leadership especially in areas as deep-water maneuvers, improved oil recovery methods, heavy oil mining, and gas production epitomizes the success of the procurement strategy.
Chevron participates in highly complex projects hence they need to ensure that they have the skill set and organizational ability to execute them effectively. The company links upstream and downstream operations and integrates key talents to help distribute proficiency and skill across the enterprise. The company has transferred approximately 800 employees over the past 7 years within the organization to assist major crude oil and natural gas projects(Chevron Inc, 2014).
Energy Technology Centers
Chevron runs a system of Energy Technology Centers globally including areas such as Aberdeen, Scotland, Houston, Perth, Texas California, San Ramon and Australia. These centers support the company’s global operations and ensure that it meets the ever-rising growing market for technical services. These Energy Technology Centers can help companies looking for product or service endorsement for usage in Chevron’s setups.
Chevron Technology Ventures
Chevron focuses on technology through Chevron Technology Ventures. These ventures champion the invention, commercialization, and amalgamation of new technologies into Chevron. The key areas that these ventures focus on are
Oil and Gas
Alternative Energy such as Biofuels, solar, wind and current energy.
Advanced Materials, which include Nanotechnologies, polymers, and advanced ceramics.
Communications and Networking
Joint Industry Projects
Chevron takes part in Joint Industry Projects such as Deepstar project, which was financed by the US government to help develop technology that could be used in deep waters. Other companies are free to also join in this partnership.
Supplier Diversity Program
Chevron’s Supplier Diversity Program concentrates on small firms, minority-owned corporations, and women-owned companies. Companies that fall under these categories can register to take part in this program, which hosts monthly events all year round(Chevron Inc, 2014).
Most companies in the energy industry undervalue the need to analyze environmental and social factors affecting the process of manufacturing and marketing oil and its products. Proactively addressing micro and macro issues affecting the organization at the early stages of oil development can help prevent unforeseen complications later on in the process. Recognizing the different requirements that need to be tackled at each stage in the development of an oil project is paramount for smooth running of the process.
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