Pestle, Porter and SWOT analysis of Lukoil Essay

LUKOIL, a vertically integ ranged crude rock oil come with, and carries out exploration, acquisition, integration and subsequent efficient study of oil and louse up fields outside the Russian Federation to facilitate the transformation of LUKOIL into a multi matter energy corporation. LUKOIL ladders in 25 countries (the most major of them be Russia, Azerbaijan, USA, Georgia, Turkey and Czech Re earth). Net income in 2013 is $3.105 billion. Basic earnings per sh ar $4.11. The Companys 2012 net income rose by 6.2% and reached record $11,004 billion. EBITDA (earnings out front interest, taxation, depreciation and amortization) rose by 1.7% and reached $18,915 billion. Sales 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 value. According to these data we can assume, that LUKOIL is successful Russian company with a hole of strengths, equivalent good prospects regarding financial indicator s. And fortunately, it doesnt need any financing. Usually, the company invests in different projects regarding environmental protection andemployees funding.2. Mission and VisionMissionThe Companys heraldic bearing consists in increasing fateholder value through the exploration and intersection pointion of hydrocarbons outside Russia. My vision of the federal agency is that company wants to be a tested supplier of hydrocarbons on the international market. that, Lukoil has a declare oneself to support economic growth and social stability in long-term prospects. Thus, it has some of import(prenominal) aims such as to achieve reputation of a reliable and dependable hydrocarbon supplier in the world to deliver high-quality crude oil products to end- handlingrs to figure long-term sustainable growth to reach leading put on the marketMy formulation of the missionLukoil as a company in the oil and gas industry using inseparable energy recourses is trying to be a attracter i n the international market by decrease cost, increasing operations and stabling social aspects. VisionThe company wants to be worlds leader in oil and gas celestial sphere by first-class services to our customers, 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 take. In conclusion, companys mission determines a purpose at heart the organization provides standards for allocating organizational resources establishes a popular organizational climate shows purpose and direction. Consequently, mission and vision are clear and give a lot of advantage.3. Macro-environment (PESTLE)At the beginning of this part, it is necessary to mention some relevant factsPopulation in Russia 139mlnArea 17mln sq. kmTime zones GMT +2 to +119th largest economy in the world in terms of GDP, hit USD 2014,8 bn 2013 Exports and Imports exceed 50% GDPHighest GDP per capita among BRICS countriesWinter Olympic Games 2014 in Sochi 2012 and FIFA World Cup 2018 are coming 1. GDP get word 2.1 Real GDPAs we can see on the visualise 2.1 Real GDP has a tendency to grow up. Moreover, the present value of Real GDP is or so 2014.8 USD billion which is the highest point during the history. Real GDP had been increased up to more(prenominal) than 6% in parity with the previous period Contemporary situation in economy, especially in Real GDP, shows the luck for a company to increase production, because higher GDP way of life higher consumer expenditures in turn, it is an alleviating competitive pressure within industry, because its the potential for expansion. As we can see GDP is constantly growing that means an probability to have higher revenues for LUKOIL Company because people have a higher profits and severally higher consumer expenditures.2. involution rateThe interest rate in Russia was last recorded at 5.50 percent. Interest Rate in Russ ia is reported by the Central Bank of Russia. It is quite high interest rate in comparison with for instance 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 hap less (borrowings become more expensive). Therefore the consumer purchasing power is quite low and companys sales will be decreased. radiation diagram 2.2 Russia interest rate3. Inflation rateFigure 2.4 Russia pretension rateFigure 2.5 Petroleum footing RUB per literAs we can see Figure 2.4 and Figure 2.5, the oil worth 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 sendation). The inflation rate in Russia was recorded at 6.30 percent in October of 2013. It has a positive impact on Oil and Gas industry. LUKOIL can estimat e future profit more accurate and eliminate 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 probability to muster up high-qualified employees. There is a competition 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 attractive 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 somatic tax rate is quite low in comparison with Japan 38,01%, United Arab Emirates 55%, US 35%. Therefore, it is opportunity to increase a profit (low taxes increase net profit ). We are analyzing oil and gas industry in Russia. Fortunately most of deposits are situated in cold geographical areas like Tyumen Region, called Extreme North or Far North. Government gives a lot of benefits like people who throw there are used to receive an extra grade of payment, referred to as the Northern Bonus, as well as other benefits, including extra vacation, extra disability benefits, extra retirement benefits, and housing benefits. LUKOIL wont increase outflow of money into pension 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 impudent technologies and upgrade the existing ones. 2. Cooperation with national projects is actively underdeveloped, including the Skolkovo innovation project and the RUSNANO Corporation. 3. Great attention is paid to developing information technologies and improving business processes. 4. The total financing o f scientific and technical works in 2012 amounted to US$ 150 million. It is opportunity to use own technology and ability to exclude costs for using technologies from elsewhere.5. environmental factors (PESTLE)Waste disposalRussia drowns in 60 million tons of garbage a year. It is serious caper in waste disposal issue. Today, only 11% of the whole volume is recycled. Unfortunately, it is substantial evidence of coetaneous 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.defilementOil and Gas 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 take a leak into accountancy 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 rot and terrorism.High level of corruptionRussia is ranked 127th out of 175 countries in Transparency internationalistics Corruption 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 make-upIn August 2012, Russia officially became a World Trade Organization member. Moreover, European Union contributes half of Russia trade flows. It is opportunity of simplified international market access with the purpose of trade 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 broadly speaking unfree. These ranking means that the country is not attractive to do business and indicates a low opening night 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 legalitys of the Russian Federation form the main well-grounded framework of the oil and gas industryConstitution of the Russian Federation.federal official Law On undersoil (Subsoil Law). federal Law On Gas Supply in the Russian Federation (Gas Supply Law). Federal Law On Natural Monopolies.Federal Law On the Continental Shelf of the Russian Federation. Federal Law On Energy Saving and Energy Efficiency.Federal Law On Production sacramental manduction 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, Forest Code, Tax Code, Code on administrative Violations and Criminal Code. Federal Law on Environmental Protection.Federal Law on Ecological Expertise. self-governing 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 positive rights that are guaranteed to each Russian citizen are All people shall be equal before the law and court.The State 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 woman 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 structure0-14 years 15.7% (male 11,498,268/ egg-producing(prenominal) 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) well-nigh of population is in capable of working age. There is a competition on labor market. It is an opportunity to find employees corresponded to thestandards of the company.Main religion ChristianityNo requirement in the organization of labor. Thus, it is opportunity for LUKOIL to organize even off easily. High level of educationOpportunity to attract well-qualified personnel.9. Porters 5 Forces1. nemesis of New Entrants (Low)The LUKOIL is protected by high barriers to entry. Therefore the threat of new entrants is very low gigantic 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 knowledgeableness of production facilities Costs for entering the industry drilling costs, oilfield services, skilled labor, scientific research, materials and energy alone companies that operate 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 entrants to compete. Russia allows only national companies (or foreign companies in partnersh ip with the national company) to exploit 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 vasiform products, electric centrifugal pumps, oil cable, spurt steel framework. What gives them high bargaining power to dictate 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 heavy(a) 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 b uyer power is low4. terror of Substitutes (Low)At the moment customers can not switch 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 umteen 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 due to large switching costs, required investments for a new entrance, sizing of competitors, and political barriers. There is no place for small companies because of few market leaders. Also there is no possibility that competitors will offer a lower price. LUKOIL is second company that operates in Russia. The leader is Ros neft and its main competitor. LUKOIL has 17% share of Russian market, Rosneft 22% respectively.10. SWOT analysisStrengthsWeaknesses 1st among the largest private oil and gas companies in the world. 1.3% oil reserves of total reserves of oil worldwide and second in terms of volume proven hydrocarbons reserves about 2% of total global reserves extend in oil index price in the world. High entry barriers in the market, which eliminates small competitors. really sufficient technology of research and exploration. Geographical business diversification (30 countries). Large amount of oil reserves(17%) splendid 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 both internal and outside is slow and bureaucratic. Cost of envi ronmental hazards.OpportunitiesThreats Increase in oil and gas demand in Russia. New exploration projects. Investment 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 important trend is the application of selling strategies on the downstream, taking into accountthe factors influencing consume r 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.