a comparative and competitive analysis of oil …
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A COMPARATIVE AND COMPETITIVE ANALYSIS
OF OIL INDUSTRY OF PAKISTAN
“A CASE STUDY OF PSO & SHELL SINCE 1997-2006”
PhD THESIS
BY
IRAM RANI
SUPERVISED BY PROF. DR. AMANAT ALI JALBANI
A PhD thesis submitted as partial requirement for the degree of Doctor of
Philosophy in Business Administration,Shah Abdul Latif University Khairpur.
DEPARTMENT OF BUSINESS ADMINISTRATION SHAH ABDUL LATIF UNIVERSITY KHAIRPUR, SINDH
PAKISTAN
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Dedicated to my Parents
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CERTIFICATE
This is to certify that the work presented in thesis report has been undertaken and
completed by Ms Iram Rani under my guidance and supervision.
Prof. Dr. Amanat Ali Jalbani Research Supervisor
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ACKNOWLEDGEMENT
Maxwell once stated that what is done by what is called by my self is, I feel done by
something greater than myself in me? This question is justifiable. Did I really do this? Did
I really manage to get it all together?
The process of writing this PhD thesis is wonderful work and achievement in my
academic record and it became possible because of my research guide professor Dr
Amanat Ali Jalbani. I am extremely thankful for allowing me from his precious time, the
intellectual stimulation and valuable guidance and suggestions throughout the research
period. He has opened a new world for my future research. “ALLAH blesses him all”.
Outside of my academia I am high thankful and pleased to my husband Mr. Minhoon
Khan Laghari who had always visited along me in different organizations and in field work
for the data collection and questionnaires respondents & eagerly he helps and supports
me.
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ABSTRACT
Pakistan itself is a country of more than 135million people with birth rate 25.89%,
with population, is incapable to meet the energy demands by production of
approximately 64,000bbl/d.high population have high consumption and
consequently develops pressure on country for import.
According to one estimate resources potential of Pakistan is 200 trillion cubic feet
of gas and 40 billion barrels of oil. We have so far been able to find only a small
part of these resources and the remaining potential is more than sufficient to
challenge the mind of explorer.
Pakistan it self is not sufficient to meet the local demand so after the 1999 reforms
in oil sector the govt had taken major measures to increase the private investment
(both from local and foreign companies), induce the competition in upstream &
downstream sector, Accelerate the investment in infrastructure development,
deregulation of prices, to break the monopoly of public entity increase the
production of refineries so that finished products import can be reduced.
The long term vision for these reforms should be that producer would compete
among themselves for large consumers (including distributors); the transmission
and distribution companies would offer a transportation service (and not be
merchants in addition to being transporters); cross border pipelines would enhance
competition as well as quality of service; and an independent regulator would
promote competitive market conduct. The ultimate purpose of the new policy
reforms will be to ensure that there is no more monopoly exist, companies can
induct and operate in the market and they are free to obtain the crude from refinery
(with in the country) and also they have free will to import the crude and petroleum
products from other countries but subject to the availability of their storage
capabilities.
Now the issue is that how the benefits of competition and efficiency gains are
passed on to consumers in terms of quality, service, safety and regular supply
although the prices are fixed throughout the country.
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At present near about seven companies are operating in downstream sector as oil
marketing companies. The study is conducted on two companies (PSO (public
sector) & SHELL (private sector)) because of easy access to data.
In this study a competitor’s analysis model is applied on Pso and Shell Company to
test the hypothesis that “Companies that make steady gains in mind share and heart
share will they inevitably make gains in market share and profitability”.
Here a qualitative approach was used for getting better understanding of
respondent’s views and empirical data is collected from employees and customers
of PSO & Shell.
Data analyses were done on the basis of questionnaire design & on study model.
Finding from respondents data shown that petroleum products prices are not
identical to preference but only other attributes (quality, inventory, supply, other
technical services) can increase the customer preference. It is testified and
confirmed by many methods.
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CONTENTS
ACKNOWLEDGEMENT IV ABSTRACT V
Abbreviations IX
CHAPTER # 1 INTRODUCTION 01
1.1 Study Background 01
1.2 Problem Statement 05
1.3 Scope of Study 05
1.4 Objectives of Study 06
1.6 Hypothesis 06
1.5 Research Methodology 06
CHAPTER #2: LITERATURE REVIEW &THEORETICAL FRAMEWORK
2.1 Literature Review 09
2.1.1 Porter’s Five Forces Model 09
2.1.2 Product Life Cycle Model 16
2.1.3 Porter’s Generic Strategy Model 17
2.1.4 SWOT Analysis 18
2.1.5 Porter’s Competitive Strategy Model 18
2.1.6 Competitors Analysis Model (CAM) 20
2.2 Theoretical Framework 27
2.2.1 Market Concept of Competition 27
2.2.2 Competition policy purpose 27
2.2.3 Causes and Needs of Competition 28
2.2.4 Significance of Competitors 30
2.2.5 Research Methodology/Design Analysis 31
CHAPTER #3: OIL INDUSTRY IN GENERAL 38
3.1 Oil Industry at current era 38
3.2 Oil Industry in Advanced Technology 42
3.3 Govt. Regulations in Oil Industry 45
3.4 Key Players in Oil Industry of Pakistan 49
3.4.1 PSO Appraisal 49
3.4.2 Shell Appraisal 52
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CHAPTER #4: DATA ANALYSIS & FINDINGS 53
4.1 Identify the Company Competitors 53
4.2 Identify the Competitors Strategies 53
4.3 Identify the Company & Competitors Objectives 58
4.4 Assess the Company & its Competitors under
Strength & Weaknesses 58
4.4 (a) Rating Term Analysis 59
4.4 (b) Financial Term Analysis 85
4.5 Selecting Competitor’s to Attack or Avoid 94
4.6 Balancing Customer and Competitor Orientations 98
CHAPTER #5: Conclusions & Suggestions 100
5.1 Conclusions 100
5.2 Suggestions 105
REFERENCES 113
ANNEXURE I 114
ANNEXURE II 115
ANNEXURE III 116
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ABBREVIATIONS
❖ ADB Asian Development Bank
❖ AG Arab Gulf
❖ AJK Azad Jammu & Kashmir
❖ ARL Attock Refinery Limited
❖ C & F Cost and Freight
❖ CIDA Canadian International Development Agency
❖ CIF Cost, Insurance, and Freight
❖ CIM Central Inspectorate of Mines
❖ CNG Compressed Natural Gas
❖ COS Cost of Service
❖ DGG Directorate General Gas
❖ DGO Directorate General Oil
❖ DGPC Directorate General Petroleum Concession
❖ DWT Dead Weight Tons
❖ E&P Exploration and Production
❖ EIA Environmental Impact Assessment
❖ EPA Environmental Protection Agency
❖ FATA Federally Administered Tribal Areas
❖ FO Fuel Oil
❖ FOB Freight on Board
❖ FOTCO Fauji Oil Terminal Company
❖ FSU Former Soviet Union
❖ GDS Gas Development Surcharge
❖ GOP Government of Pakistan
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❖ GPA Gas Purchase Agreement
❖ GSA Gas Supply Agreement
❖ GST General Sales Tax
❖ HOBC High Octane Blending Component
❖ HSD High Speed Diesel
❖ HSFO High Sulfur Fuel Oil
❖ IMF International Monetary Fund
❖ IOC International Oil Company
❖ IPP Import Parity Price
❖ IPP Independent Power Project
❖ KAPCO Kot Addu Power Company
❖ KESC Karachi Electricity Supply Company
❖ KMK Karachi to Mahmood Kot pipeline
❖ KPC Kuwait Petroleum Company
❖ KPT Karachi Port Trust
❖ LDO Light Diesel Oil
❖ LNG Liquefied Natural Gas
❖ LPG Liquefied Petroleum Gas (cooking gas)
❖ LSFO Low Sulfur Fuel Oil
❖ MCA Monopoly Control Authority
❖ MFM Mahmood Kot to Faisalabad- Machike
❖ MGCL Mari Gas Company Ltd.
❖ MJPP Machike-Taru Jabba Pipeline Project
❖ MMBUTU Million British Thermal Units
❖ MMCFD Million Cubic Feet per Day
❖ MMCFT Million Cubic Feet
❖ MPNR Ministry of Petroleum and Natural Resources
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❖ MS Motor Spirit (Gasoline)
❖ MTJPP Machike-Taru Jabba Pipeline Project
❖ NEQS National Environmental Quality Standards
❖ NGRA Natural Gas Regulatory Ordinance
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CHAPTER 01
Introduction
1.1 Study Background
Our basins are known to be as hydrocarbon rich. According to one estimate resources potential
of Pakistan is 200 trillion cubic feet of gas and 40 billion barrels of oil. We have so far been able
to find only a small part of these resources and the remaining potential is more than sufficient to
challenge the mind of explorer”. Pakistan itself is a country of more than 135million people and
the energy demand is growing and with the expected economic growth there will be an
increasing demand for energy.
The hydrocarbon potential needs to be fully exploited not only to meet the growing demand of
energy but also to ease a pressure on the trade balance by reducing our dependence on
imported oil for which substantial level of new investment in petroleum exploration and
infrastructure development are required to face the sophisticated challenges of new century.
The petroleum reserves of Pakistan are given as under in million tones of Oil equivalent.
OIL GAS
Discovered 103 831
Produced 62 335
Remaining 40 496
Source:-World Bank report 2000
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Pakistan Energy Mix
45 million tons of energy
43%
35%
0%
4%
1%
10%
7%
Gas
Oil
Lpg
Coal
nuclwear
hydro
imported oil
Source:-sustainable oil HDIP 1999
Energy mix pattern in Pakistan shows that oil accounts for 35% and gas accounts 4% for
commercial and domestic energy use. The other sources for energy use are hydro 10%, nuclear
1%, coal 4% and LPG has near about to 1%. Over the past three years, imports of liquid fuels
were about 8 million tons (MMT) per annum, resulting in an import bill of some US$6 billion.
PETROLEUM PRODUCTS CONSUMPTION
TOTAL 17 MILLION TONNES /YEAR
47%
37%
10%
1%
2%
3%
TRANSPORT
POWER
INDUSTRY
AGRICULTURE
DOMESTIC
OTHER GOVT
Source:-sustainable oil HDIP 1999
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The total consumption of POL products in Pakistan is approximately 17 MOT/year. Out of this
total the transport sector is the largest user of petroleum products 47% followed by power
generation 37%, industry 10.%, agriculture 1% and 2% residential sector and the remaining is in
the consumption of other Govt.
Significant achievements have been made in the last few years in the petroleum downstream
sector: fuel oil and diesel prices have been deregulated (approximately 85 percent of national
consumption); petroleum products prices are revised every fortnight to reflect changes in
international prices; distributor and retailer margins have been rationalized; product
specifications have been improved and leaded gasoline phased out; and LPG assets have been
privatized. These measures have laid the foundation for making the sector more competitive.
Oil industry reforms by World Bank assessment report 2001 showed that “Due to high control
and full involvement of Pakistan govt in oil and gas industry till to 1999 all the decisions were
failed because of having political interest rather than economical consideration. But in 2000 an
ambitious, pro-market, reform program is being implemented, and gradually, the straightjacket
under which the industry used to operate is being dismantled”. As a result the sector has
changed dramatically after new reforms and the govt had taken reforms on
Government role only in policy formulation
• Harness the full potential of resources to reduce the import bill (4.5 million tones per year)
• Deregulation of most of the petroleum products
• Private investment in upstream sector& down stream sector.
• Introduction of price caps in relation to market
• Establish Refineries capabilities in country for crude oil production
• Reduce the import of crude oil
• Accelerate the investment in infrastructure development for oil and gas industry
• Competition should be introduced by offering .license to other oil marketing companies to
break the monopoly of public entity (PSO 66.9% share in market)
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• Competition in import
World bank in report further stated that “the long term vision for this sector should be that in
which producer would compete among themselves for large consumers (including distributors);
the transmission and distribution companies would offer a transportation service (and not be
merchants in addition to being transporters); cross border pipelines would enhance competition
as well as quality of service; and an independent regulator would promote competitive market
conduct. The ultimate purpose of the new policy reforms will be to ensure that there is no more
monopoly exist, companies can induct and operate in the market and they are free to obtain the
crude from refinery (with in the country) and also they have free will to import the crude and
petroleum products from other countries but subject to the availability of their storage
capabilities”.
Now the issue is that how the benefits of competition and efficiency gains are passed on to
consumers in terms of quality, service, safety and regular supply although the prices are fixed
through out the country?.
At present five oil marketing companies are working in Pakistan. These are PSO, SHELL,
CALTEX, ATTOCK and TOTAL. The first two are listed on stock exchange and enjoys 66.9%
share of total POL markets in the country. The other two companies’ shell 21.6% and caltex
7.1%have a market share, TOTAL have 2.0 and ATTOCK have 2.4.However with the shift in
GOP policies for oil and petroleum sector companies are trying to reposition themselves. Since
Pso has the largest infrastructure because of public entity, it is expected to remain its edge for
considerable long time by effective marketing strategies in relation to competitors and
environmental scanning.
To prepare effective marketing strategies, company must consider its competitors as well as its
actual and potential customers. This is especially necessary in slow growth market because
sales can be gained by winning them away from competitors.
During this research, a researcher needs to know about the company’s competitors, their mkg
strategies, objectives, strengths and weaknesses.
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1.2 Problem Statement
The market position of OIL marketing companies will be measured by comparing its performance
with its major competitor (OMCS) during the period 1997-2007 on customer satisfaction basis.
1. Who are the major players?
2. What are their marketing strategies?
3. What are their major marketing objectives?
4. What are their strengths and weaknesses? (in term of mkg strategies)
5. What is their reaction pattern?
6. How to attack the competitors (by the use of customer and mkg philosophy).
1.3 Scope of Study
The selected problem for research purpose is very much important to oil industry especially to
PSO & OMC`s because it will show that knowing one's competitors is
• Critical to design effective marketing planning.
• Strategies for competition.
• Discern the areas of potential competitive advantages and disadvantages.
• Attacks on its competitors& defenses against attack.
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1.4 Objectives
In this research the major objectives of study are
• The nature of customer and Mkg philosophy.
• Type of customer philosophy is used by OMC`s.
• The customer satisfaction as a performance parameters like profit, sales volume etc.
1.5 Hypothesis
Companies that make steady gains in mind share and heart share will inevitably make gains in
market share and profitability.
1.6 Research Methodology
Mostly nature of problem defines the type of research. There are three types of research.
Exploratory research: - When the nature of problem is unclear then exploratory research is
conducted.
Descriptive research:-When the purpose of study is to describe the characteristics of population
or phenomenon, the descriptive research is suitable.
Cause & Effect research: - When research is conducted to observe the relation ship of one
variable among others is called cause and effect research.
According to nature of my study descriptive research is selected because I want to assess the
characteristics of population as a preference towards any company.
Research Design: - Different methods of study are available like
Survey (Questionnaire/ Interview).
Experiment (laboratory/field)
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Observation
Secondary data
As for my study is concerned is selected and applied two methods (1) Survey (Questionnaire/
Interview). (2)Secondary data
Research Approach:-There are two basic types of approaches, quantitative & qualitative. In
quantitative results are based on calculations by formulas & statistics while in qualitative the
observation are presented in theoretical terms
I applied both for measuring the behavior of customer towards company preference in form of
rating (qualitative) and also company position is assessed under ratio analysis (quantitative).
Data Collection:-The two methods are widely used i.e. primary & secondary methods. This
study data will collected from both sources.
1) Primary Sources
Interviews
Sample Size: - 50 people from each concern organization (10 from each levels of employees
& 20 from customers)
Sampling Method:-Probability
Based on Questionnaire & interviews
⚫ PSO employees & customers
⚫ Shell employees & customers
⚫ OGRA employees
⚫ MPNR employees
⚫ People involve directly or indirectly in petroleum industry
2. Secondary Sources: - Libraries, websites journals, reports etc
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Research Model Steps
> Identifying the Companies Competitor
> .Determining Competitors' Objectives
> .Identifying Competitors' Strategies & Structure
> .Assessing Competitors' and Weaknesses
> .Estimating Competitors' Reactions
> .Selecting Competitors to Attack and avoid
SOURCE:-PHILIP KOTLER: MKG MGT 6TH EDITION.
Identifying the
company’s
competitors
Determining
Competitors
Objectives
Identifying
Competitors
Strategies
Assessing
Competitors
Strengths and
Weaknesses
Estimating
Competitors’
Reaction
patterns
Selecting
Competitors to
attack and avoid
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CHAPTER 02
Literature Review & Theoretical Frame Work
2.1 Literature Review
Industry competition comprise on domestic and international rivals, innovation and immense
growth. It proved an interesting market in which strategists examine their businesses,
understanding the nature and importance of competition and competitive strategy. During the
implication of these study/model different directors interviewed were from four leading
businesses representing the multi-facets of industry - Feedback, Radamec, Microvitec and
Psion - with products in each principal sector of different industry. These companies were
established in different periods and have products in different stages of the product life-cycle.
2.1.1 Porters Five Forces Model
The leading name cited by most academics and MBA-trained marketing managers in the context
of competitive strategy is Michael Porter, whose work in the 1970s and mid-1980s established
concepts about competition analysis with the title of Porters five forces model issues still of
central importance to most businesses.
His model have focus on
▪ Of new entrants;
▪ Power of buyers;
▪ Power of suppliers;
▪ Of substitute products or services; and/or
▪ Among existing competitors.
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Figure# 1.1 Porter’s five forces model
Threats
of New
strengths
Revival among
existing
competitors
Bargaining
Power of
Buyers
Bargaining
Power of
Suppliers
Threats
of substitute
Products
of
activities
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The strength and the positioning of the company are determined by its competitive position under
these five forces. Furthermore, according to Porter, a company can use this model to evaluate its
position and constructed strategies to gain a competitive advantage. The strategic business
manager seeking to develop an edge over rival firms can use this model to better understand the
industry context in which the firms operate.
Threat of Rivalry
Economist measures rivalry by indicators of industry concentration. The concentration ratio (cr)
is one such measure. The bureau of census periodically reports the cr for major standard
industrial classifications (sicr). The cr indicates” the percent of market share held by four largest
firms. A high concentration ratio indicates that a high concentration of market share is held by
the largest firms, the industry concentrated. With only few firms holding a large market share,
the competitive landscape is less competitive (closer to monopoly).a low cr indicates that the
industry is characterized by many rivals, none of which has a significant market share. The
concentration ratio is not the only available measure; the trend is to define industries in terms
that convey more information than distribution of market share”.
If rivalry among firms in an industry is low, the industry is to be considered disciplined. When a
rival acts in away that elicits a counter response by other firms, rivalry intensifies.
In pursuing advantage over rivals, a firm can choose from several competitive moves:
• Changing prices
• Product differentiation
• Creatively using channels of distribution.
• Exploiting relationship with suppliers
Porter further notified that the intensity of rivalry is influenced by the following industry
characteristics
• No: of firms
• Slow market growth
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• High fixed cost
• Low level of product differentiation
• High exit barriers
• Industry shake out
The intensity of rival seems to be moderate where the structure of the competition consists of
few players and exit barriers are very high because of heavy investment incurred. In case of
Pakistan oil industry PSO undoubtedly enjoys as a market leader but competition starts after
1980s & also after 1999 reforms in this industry).
Threat of Substitute
In porter’s model, substitute products refer t0 “products in other industries”. To the economist, a
threat of substitute exists “when a product demand is affected by the price change of a
substitute product. Product price elasticity is affected by substitute’s products- as more
substitute becomes available, the demand becomes more elastic since the customers have
more alternatives. A close substitute product constraints the ability of firms in an industry to raise
prices”.
Porter emphasized that “the competition engendered by a threat of substitute comes from
product outside the industry”.
Before 1999 there was no substitution in petroleum products but due to high prices especially of
MOGAS, a chance of substitution increase by availability of CNG is increasing day by day. The
price effect of both products is 50% in difference so consumer prefers CNG as a cheaper fuel.
Second substitution is for industry consumers they want to shift to coal and atomic source but it
seems to be costly and faraway.
Buyer and Supplier Power
In general, when buyer power is strong, the relationship to the producing industry is near to what
an economist terms a monophony (in which many suppliers and one buyer), under such
conditions buyer sets the prices.
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In reality the power of supplier is linked with the power of buyer because the relationship with
the buyers and sellers can have similar effects in constraining the strategic freedom of an
organization and in influencing the margins of that organization.
In oil industry bargaining power of supplier is strong because companies have to buy the crude
from international market & on current prices. it totally depends on their will & wish although
contracts are signed with companies for sure supply but instability in political relations have
great impact and buyer can not threaten to integrate backward into supply but buyer power is
shaky because they have no influence to bargain with supplier on any issue and they can never
threaten to integrate backward into industry.
He suggested that buyer powers are likely to high when
• Buyer have good market concentration ( in volume)
• Supplying industry comprises a large number of small operators.
• Alternative source of supply
• Threat of backward integration
Suppliers’ powers are likely to high when
• Suppliers have good market concentration ( in volume)
• Switching cost from one supplier to another is high
• Brand of supplier is high
• The supplier’s customers are highly fragmented.
Threat of Entry
It is not only incumbent rivals that pose a threat to firms in an industry; the possibility that new
firms may enter the industry also effects competition. In theory, any firm should be able to enter
and exit a market, and if free entry and exit exists, then profits should always be nominal. In
reality, however, industries possess characteristics that protect the high profit levels of firms in
the market and inhibit additional rivals from entering the market. These are barriers to entry.
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Easy to enter if there is
Common technology
Little brand
Access to distribution channels
Low scale threshold
Difficult to enter if there is
Patent or proprietary know how
difficult in brand switching
Restricted distribution channel
High scale threshold
Easy to exit if there is
Saleable assets
Low exit cost
Independent businesses
Difficult to exit if there is
Specialized assets
High exit costs
Interrelated businesses
The threat of rival in oil industry is very low because it needs heavy capital investment,
economies of scale don’t play a role. It is very difficult for new entrant to get access over
distribution channels. Retaliation from existing players is also at crest.
After the porter’s model implications some economists have interrogation likely:
• .Key forces can be change by type of industry and environment
• Underlying forces in the macro environment that drive a competitive forces
• Is it likely that the forces change and if so, how?
• How do particular competitors stand in relation to these competitive forces?
• Are some industries more attractive than others? e.g. entry is more difficult, or buyers and
suppliers are less powerful.
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Five Forces Model In Oil Industry Competitive Dynamics
Threat of new entrants
Emergence of smaller OMC`s (high probability)
Refineries establishing OMC`s (medium probability)
Emergence of vertical entities leading to OMC
sector presence (only one clearly identified
integrated player potential at present).
Bargaining power of customers
Bargaining power exists with the industrial customer in
deregulated and semi-regulated products due to purchasing
of large quantities.
Limited bargaining power of retail segment based on
oligopolistic nature of industry in deregulated products (F.O.
& Lubes) and fixed margins in regulated products.
Rivalry among existing competition
The OMC sector is gearing up for increased competition as
existing refineries and the evolution of vertical entities have
found it viable to establish retail distribution networks.
Increasing reliance on gas as fuel source especially in motor
vehicles has led to establishment of several independent
CNG providers. Based on our estimates the market share of
new independents is approximately 58% today.
Bargaining power of suppliers
Remains weak due to a semi-regulated environment where entire
operations flow stream is governed by the GoP.
However, as deregulation proceeds in the future bargaining
power of suppliers will become important over the next 3-5 years.
Threats of substitutes
Higher prices have led to substitution of POL products with
gas-based fuel sources.
Our estimates suggest that approximately 45% total potential
convertible vehicles have been converted to CNG.
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2.1.2 Product Life-Cycle (PLC)
In the response of that criticism a product life-cycle (PLC) concept was introduced and it is
argued by leading marketing strategy exponents such as Abell and Hammond (1979),Doyle
(1994) Kotler (1994) and Levitt (1965) that “a product- and indeed a market passes through four
stages similar to the human life-cycle introduction , growth, maturity and decline. This concept
has an important link with the competitive situation in that in the introduction stage there is
typically little competition for the first into a new market or product class. As consumer interest
picks up and sales increase, more competitors notice the success and growth of sales of the
initially active players so the level of competitor activity intensifies. By the maturity stage,
completion is severe and while overall sales may be high, the intense rivalry and high marketing
spends reduce individual company profits. As the decline stage is reached, many companies
withdraw from now unattractive markets reducing the level of competition for those which remain
to soak up dwindling sales”.
Figure 2.3 PRODUCT LIFE-CYCLE (PLC)
2.1.3 Porter’s Generic Strategy Model
Porter (1987) argues that “companies must understand the PLC and the stage reached for their
products if they are to set realistic marketing objectives, understand the changing nature of their
competitive arena, and respond to evolving customer requirements”. Early 1980 was observed
as that five forces and PLC models of competition are describing and analyzing the industry at a
static position .although the nature and fascination of business in all industries is mostly is not
static but dynamic and it was also realized for a foundations and emphasis on the
interdependence of forces as dynamic, or punctuated equilibrium, as SCHUMPETER &
Development Growth Shakeout Maturity Decline
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PORTER said that “dynamism of markets is driven by innovation. We can envision these forces
at work as we examine the changes at micro and macro levels and they imply that generic
strategies are inherited into these five forces”. The generic strategies are designed as
Competitive advantage
Lower cost differentiation
Figure 2.3Porter’s Generic Strategy Model (1981)
The proper generic strategy will position the firm to leverage its strength and defend against the
adverse effects of the five forces. It is also intricate in model that these strategies are required to
work at corporate, business and functional level of organizations.
An important nature is to know their strengths and weaknesses. Aaker (1995) believes the
analysis process can be summarized by asking the following questions.
▪ Are the competitors?
▪ Against whom do we usually compete? Who are our most intense competitors? Less
intense but still serious competitors? Makers of substitute products?
▪ Can these competitors be grouped into strategic groups on the basis of their assets, skills
and/or strategies?
• Cost leadership
• Differentiation
Cost focus • Differentiation focus
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▪ Who are the potential completive entrants? What are their barriers to entry? Is there
anything that can be done to discourage them?
▪ The competitors:
▪ What are their strengths and weaknesses of each competitor or strategic groups?
▪ What leverage points (our strategic) weaknesses or customer problems/unmet needs)
could competitors exploit to enter the market or become more serious competitors?
▪ Evaluate the competitors with respect to their assets and skills. Generate a “competitor
strength grid”.
2.1.4 SWOT Analysis
The model SWOT analysis summarizes the key issues from the business environment and the
strategic capability of an organization that are most likely to impact on strategy development.
This can also be useful as a basis against which to judge future course of action. The aim is to
identify the extent to which the current strengths and weaknesses are relevant to, and capable of
dealing with the changes takes place in the business environment in form of opportunities and
threats. It can also be used to assess whether there are opportunities to exploit further the
unique resources or core competences of organizations. It is the sentiment of last interrogations.
2.1.5 Porter’s Competitive Strategy Model 1990
Porter (1990) extended his competitive strategy ideas that “to examine the relative advantages
and disadvantages of nations, Far from complementary of Britain, which he felt had few
advantages and whose leading businesses were less than through in their understanding of
competition, he identified several traits of the newly developed countries (NDCs) notably the
Korean and Taiwanese economies now providing significant challenges to their once-dominant
US, Japanese and European counterparts, particularly in the electronics industry”. These
included:
▪ Rapid changing technology that can be kept proprietary;
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▪ Highly skilled labor;
▪ Sensitivity to led times;
▪ Complex distribution and service;
▪ High consumer marketing content;
▪ Complex, technical selling task
Porter (1990) identified that many of these assets in the leading electronics manufacturers in
these NDCs companies such as Samsung, Hyundai and Daewoo Texaco, chevron and Exxon
oil are now making real in roads in terms of global market shares. These businesses not only
use these strengths effectively, but are focused in the need to develop differential advantages
over their international rivals. As Doyle (1994) succinctly highlights, “a competitive advantage is
the ultimate achievement of a marketer and pivotal to the formulation of a successful marketing
strategy”. In examining the technology sector, Wong and Saunders (1996) suggest that
“managers must understand the trends in the market in order to compete effectively”, notably:
▪ The fast pace of technological change;
▪ High R&D budgets;
▪ Concentration on minor product improvements alongside the major innovative
breakthroughs; and
▪ Increasing regulations to protect consumers in rapidly evolving, complex technical
markets.
According to Wrong and Saunders (1996), “in order to gain competitive advantage, companies
should design offers that satisfy targeted customer needs better than competitors analysis. As
shown in Figure 1, this is a process of identifying key competitors; assessing their objectives,
strengths and weaknesses, strategies and reaction patterns; and selecting which competitors to
attack or to avoid”.
More recently, work by, among others, Aaker (1995) Dibbet al. (1996) Doyle (1994), Wong and
Saunders (1996), “has added to the debate about tracking competitor activity and utilizing the
20
marketing intelligence provided to determine proactive marketing strategies which do not merely
react to rivals’ moves (Simkin, 1996a)”. Before reviewing the scope of competitor intelligence in
any industry it is necessary to overview of these key concepts in order to judge the rigor of the
competitive analysis.
2.1.6 Competitors Analysis Model (CAM)
In the light of above discussion, a more comprehensive model was proposed by Aaker and his
fellows with the name of competitors analysis model (CAM) that have all the characteristics and
factors that were considered in last models in dynamic environment but not in a static condition.
21
Figure 2.4:- Competitors Analysis Model (CAM)
Wong and Saunders (1996), after identifying business’ rivals, state that “it is then essential to
determine their objectives and strategies. Attempting to gauge rivals’ plans and degree of
success in achieving them enables a business to “second guess” what course of action will then
result from their competitors. An assessment of their strengths and weaknesses, as perceived by
the marketplace, then permits a business to predict how its competitors may be forced to modify
their apparent strategies, but also provides the business marketers with the information required
to create a differential advantage some attribute desired by targeted customers and not provided
by competitors (Dibb and Simkin 1996). The development of a competitive strategy is not
complete without an estimation of competitors’ likely reaction patterns and a clear policy on
which competitors to attack or avoid. In the UK, construction giant JCB is market leader and
attacks head on all rivals in all markets. In parts of Europe, the company is not known in certain
product groups where it is niche player and chooses not to antagonize directly the local leaders”.
Identifying the
company’s
competitors
Determining
Competitors
Objectives
Identifying
Competitors
Strategies
Assessing
Competitors
Strengths and
Weaknesses
Estimating
Competitors’
Reaction
patterns
Selecting
Competitors to
attack and avoid
22
Information helps decision makers to understand their competitors and to make market
decisions. According to Wong and Saunders (1996) “a company needs first to identify, gather,
organize and use the sources of information that are pertinent by designing the competitive
intelligence system. The source of relevant information could be sales responses from
distribution channels, press magazine or industrial journals, information from industry and trade
exhibitions, market survey reports and marketing research findings, or government published
statistics”.
23
TABLE 2.1 Top Ten Us Firms by Assets CAM Model for Success
1909 1987
1 US Steel GM (Not listed in 1909
2 Standard Oil, NJ (now, Exxon #3 Sears (1909=45)
3 American Tobacco (Now, American Brands #3) Exxon (Standard Oil) trust broken
up in 1911)
4 American mercantile marine (Renamed US Lines: acquired by
Kidde, Inc., 1969 sold to Mclean Industries, 1978; bankruptcy,
1986
IBM (Ranked 68, 1948)
5 International Harvester (Renamed Navistar #184); divested
farm equipment
Ford (listed in 1919)
6 Anaconda copper (acquired by Arco in 1977) MOBIL OIL
7 US Leather (liquidated in 1935) General electric (1909=16)
8 Armour (merged in 1968 with General Host; in 1969 by
Greyhound; 1983 sold to ConAgra)
Chevron (Not listed in 1909)
9 American sugar refining (Renamed AMSTAR. In 1967=320)
Leveraged buyout and sold in pieces)
TEXACO (1909=91)
10 Pullman, INC (acquired by Wheelabrtor Frye, 1980; spun-off
as Pullman-Peabody, 1981;1984 sold to Trinity Industries
DU PONT (1909=29)
24
TABLE 2.2 Top Ten Us Firms by Sales CAM Model for Success
1917 1945 1966 1983 1988
1 US Steel General Motors General Motors Exxon General Motors
2 Swift US Steel Ford General Motors Ford
3 Armour Standard Oil-NJ Standard Oil-NJ (Exxon) Mobil Exxon
4 American Smelting US Steel General Electric Texaco IBM
5 Standard Oil-NJ Bethlehem Steel Chrysler Ford General Electric
6 Bethlehem Steel Swift Mobile IMB Mobil
7 Ford Armour Texaco Socal (Oil) Chrysler
8 DuPont Curtiss-Wright US Steel DuPont Texaco
9 American Sugar Chrysler IBM Gulf Oil DuPont
10 General Electric Ford Gulf Oil Standard Oil of Indiana Philip Morris
Aaker (1950) believed that “while the identification of competitors is crucial, it is often more
complex than generally acknowledged. Key competitors will be those which battle most fiercely
and prominently with the basic business of the company. However, within specific target
markets, distinctive key customer values (KCVs) will be central to customer satisfaction criteria
and an individual customer’s decision to adopt a particular business product (Dibb and Simkin,
196)”. At this micro level, in a certain segment, a peripheral rival in the grander scheme may in
fact be a major competitor: the VW Transporter for traders’ people requiring a working vehicle
combined with family transport, for example. There are few rival vehicles with this feature, yet
many trades’ people require such a product. Aaker (1995) believes that “substitute products,
25
too are very important although often overlooked by hard pressed marketing managers JCB
manufacture trench-digging equipment the company is now facing a real threat from Japanese
sourced micro-bore tunneling moles which lay pipes without the need for a trench”.
Aaker (1995) suggested seven issues (figure2) central to understanding competition. These
factors provide a guideline for companies analyzing competitors.
▪ “Growth rates, sales and market share indicators provide an indication of the vitality of a
business strategy.
▪ A competitor’s objective and its assumptions may help to predict that company’s moves.
The objective could be defined in terms of financial performance, technological
advancement or marketing concerns of market share, brand perception and customer
satisfaction current and past strategies should be reviewed: businesses are often
surprisingly predictable and, if a tactic worked in the past, it is likely to be repeated
(Simkin, 1996b).
▪ Background and experience of a rival’s top management may provide an insight into that
company’s future direction.
▪ Businesses are concerned with their cost structures and available resources. Attempting
to estimate competitors’ positions may give important clauses as to their viable future
intentions.
▪ Barriers may be high, forcing a struggling business to remain active in a market. An
understanding of rivals’ exit barriers may indicate how doggedly they will fight on in a
market.
▪ The strengths and weaknesses of rivals are essential if a business is to develop its
strategy to compete effectively and on the best possible basis”.
26
Unfortunately, many businesses do still have an inward focus when planning for the future and
developing strategies. Problems at brewer Carlsberg-Tetley stemmed from an inward
prioritization on brewing and production, while rival brewers identified the leisure industry as their
future growth market, establishing restaurant chains, entertainment centers, sporting facilities
and hotels. For Carlsberg Tetley the recent takeover by Bass was perhaps inevitable.
The outlook inherent in the ideas of Aaker (1995), Dibb and Simkin (1996), Doyle (1994) Wong
and Saunders (1996) echo clearly said that “the seminal work on competition of Porter 1997).
Porter (1994) suggested that an evaluation of competitor strategy must examine future goals,
current strategy assumptions and capabilities”.
Grant (1995) sounds “a note of caution for seeking a competitive advantage in technology-
intensive industries arguing success depends first and foremost on the inventor/ innovator being
able to commercialize the product effectively in line with sufficient consumer interest, and then in
the face of significant competitive rivalry from the inevitable imitations which will be launched by
rivals”. These are more micro concerns compared with the ideas of Porter (1990) or Aaker
(1995), yet clearly are important for a business’s success, particularly in the electronics industry.
Competitor analysis is playing an important role in today’s industry especially for a high-
technology sector such as the electronics industry. Scholars and academic researchers have
worked extensively on the different perspectives of competitor analysis and developed
comprehensive theoretical frameworks to explain the motivation and the activities relating to
global competition. Competitor analysis starts usually by identifying competitors, then
progresses to examine rivals’ strengths and weaknesses, their strategies and their marketing
mix programmed. As higher level of analysis involves the estimation of competitors’ reaction
patterns by looking at their organization culture and limitations. The business undertaking the
competitor review should then modify its own strategy in line with the findings from its
competitive analysis. Analyzing competitors requires fast and accurate sources of information.
Therefore, the collection methods utilized are crucial to the effectiveness of the analysis. The
analysis is not a once—only event: the competitive situation is constantly changing and
evolving. The long-term maintenance of competitor analysis requires an effective marketing
information system to maintain its effectiveness.
27
2.2 THEORETICAL FRAME WORK.
2.2.1 Market Concept of Competition
Standard economic analysis provides a structured and precise view of what a market is?
In economics a market is defined in term if consumer preference and technology: consumer
preferences are the primary force of demand, while technology availability largely determines
supply. A market is therefore defined as a set of goods and services together with their budget
constraints determine their willingness to pay for those goods and services; and a set of
producers (sellers) endowed with production technologies whose physical properties along with
opportunity cost, determine the minimum price at which whose goods or services are supplied.
The market can therefore be considered to be an allocation mechanism that, in the absence of
frictions, ensures that goods and services end up in the hands of those who value them the most,
the way a market functions depends largely on the behavior of the players-buyers and sellers. A
market is said to perform efficiently if it allocates goods and services to those who value them the
most. Likewise a market is likely to perform inefficiently if, for consumers. In such a case the
seller is in a position of dominance and may manipulate the situation.
2.2.2 Competition Policy Purpose
Under section 20 of the fair competition act states that “The goal of competition policy is to
ensure that markets work efficiently. One way of starting point in the protection of competition is
identifying the existence of a dominant being used to the advantage of other players, i.e. is that
player abusing its dominance in the boundaries within which competition takes place, as whether
a firm enjoys a dominant position hinges upon the exact definition of the market within which
dominance is being examined. More specifically, any competition policy investigation requires
careful establishment of ht limits of the relevant market: a market where a hypothetical single
seller of a product could exercise market power. Defining the relevant market requires identifying
the set of products that compete with each other. The market in which two products compete is
not always obvious”. Do manufacturers of tea and lighters compete in the same market? The
answer to these questions depends on how the market is defined?
Defining the relevant market is not an end in itself. Rather, it is a tool that can be helpful in
analyzing the competitive effect of business practices or transactions that are under examination
in particular cases. More specifically, the purpose of defining the relevant market is to assist in
28
the process of determining whether firm’s posses market power, i.e. situations in which firms
have large market shares relative to their competitors and where however, can be determined
only after the relevant market has been defined.
2.2.3 Causes and Needs of Competition
According to Zweig White's survey that “39% of firms conduct surveys or original in-house market
research to learn more about markets and clients. And although a critical component of any
market research assignment also includes an analysis of your competition, less than none
quarter of firms keep a centralize file of data on competitors”.
Why this discrepancy? With so many A/E/P firms conducting market research, why do so few
keep a centralized file on competitors?
Clearly, “having market intelligence available—particularly information about everyone in your
firm, you limit the power of the data you have gathered. Having data about your competitors
accessible to all enables your staff to not only review it at any time (to help prepare for a
presentation where you and your top-two competitors are short listed, for example), but having
information available also allows your employees to contribute to the data bank (a current
employee may have worked for a competitor and might have some insights about how they
approach the marketplace, for competitors and make it available to your staff, as well as how to
do it and where to look for this intelligence”.
Zweig White's clear that “You can only stress your strengths in relation to the competition if you
know what they are. You've got a client presentation coming up and you know your team has a
lot of experience doing similar work. Is that your trump card? May be Or may be your main
competitor has more experience and your focus on experience actually highlights the fact If you
know iliac going in, you can shift your focus away from experience and toward an area where
you do have an edge”.
PHILIP KOKTLER stated that “To prepare an effective marketing strategy, a company must study
its competitors as well as its actual and potential customers. Companies need to identify their
competitors' strategies, objectives, strengths, weaknesses, and reaction patterns”.
They also need to know how to design an effective competitive intelligence system, which
competitors to attack and which is avoid, and how to balance a competitor orientation with a
29
customer orientation and needs and making similar offers, A company should also pay attention
to its competitor. They company should identify its competitors by using both industry and
market- based analyses.
You can only tell you're the best if you have something to compare yourself to. Every firm we
work with claims they want to be the best at what they do. Many mission and "pre-eminent
organization." But if you don't have the data to benchmark your firm against the field, can you tell
if you're the "best" or "leading" or "pre-eminent"?
You can differentiate your firm more effectively if you know what your competitors are doing
marketing-wise. Do they have a four-page client newsletter that goes out every quarter? Maybe
you should counter with a one-page newsletter sent out every month,
Do they have a regular column in a regional magazine?
May be you can gel a cover story potential clients? Maybe a personal visit by a technical seller-
doer from your firm would be more effective.
Your competitors may be doing something, saying something, or selling something that you
should be doing, saying, or selling. We all have to face the fact that good ideas competitors urc
doing, you'll be able to better react when they roll out a new service, try a new marketing tact, or
enter a new client sector. This information can help you make better educated decisions.
These are just a few reasons why it is helpful to keep tabs on what your competitors are
acquisition opportunities or tracking trends in the industry.
30
2.2.4 Significance of Competitors
They increase total demand.
They lower the antitrust risk.
They lead to more differentiation.
They share the cost of market development and legitimatize a new technology.
1. To prepare an effective marketing strategy, a company must study its competitors as well as
its actual and potential customers. Companies need to identify their competitors' strategies,
objectives, strengths, weaknesses, and reaction patterns.
2. They also need to know how to design an effective competitive intelligence system, which
competitors to attack and which to avoid, and how to balance a competitor orientation with a
customer orientation and needs and making similar offers, A company should also pay attention
to its latent competitors, who may offer new or other ways to satisfy the same needs.
They company should identify its competitors by using both industry and market- based
analyses.
31
2.2.5 RESEARCH METHODOLOGY/DESIGN ANALYSIS
Step 01 Competitors identification
In competitors analysis model first step competitors identification is totally based on industry
concept of competition. The framework for this step is given below.
It is stated by Economist that to understand the industry concept of competition via industry
concept based on
o Demand & supply
o Industry structure
o Conduct
o performance
Competitor’s analysis is totally underlying on the demand and supply analysis. You can take an
example of any auto, electronic, oil, pharmaceutical industry for this analysis. This analysis have
same pattern for all industries. This analysis in turn influences the industry structure. It specifies
Identifying the
company’s
competitors
Determining
Competitors
Objectives
Identifying
Competitors
Strategies
Assessing
Competitors
Strengths and
Weaknesses
Estimating
Competitors’
Reaction
patterns
Selecting
Competitors to
attack and avoid
32
the number of seller & degree of differentiation in industry. Take a example of PSO in oil
industry during 1970s when the demand was under limit because of low economic growth,
consumption of electricity, agriculture sector development, population, autos on road and
because of other factors, Pso was sufficient in supply & enjoyed a monopoly.
But by the passage of time when rapid changes occur in economy, living standard and
consumption pattern become up by high population & globalization then ultimately demand
increase in double and supply was insufficient .At that time there is turn in industry from
monopoly to oligopoly when a next competitor with old name Pakistan Burma shell came in
existence. “Eventually the products might be seen as high similar with prices being the only
characteristic of buyer interest: in this case, the industry is virtually a pure oligopoly” (Leonard M
fuld 1998, 2000).
Entry and mobility barrier: - it is the confirmation from Kathryn Rudie Harrigan (1980) that
“ideally free entry in industry show attractive profit. Because free entry would lead to more
supply and ultimately profit fetch down to a normal return on investment. But different industry
has different patterns of entry”. In case of oil industry after 1999 reforms ,barriers of entry were
reduced to promote the competition and extract the government intervention in policies directly
but still its nature it self create barrier like heavy investment of capital, economies of scale ,
patent and licensing, scarce location, distributions, reputation requirements.
Vertical integration:-in some industry there is a lot of advantages are possible if they can
integrate backward and/or forward. Like oil industry if the company have own upstream activities
(exploration, drilling, refinery and manufacturing) , then this act have great effect on cost and
they can manipulate the profit but this is not mostly happened in Pakistan because the big
players (PSO,SHELL) both have no any up- stream activity , they rely on supply from middle
east and buy the crude on import parity price and then process to Attock and Parco refinery for
different finished products. it means they can not integrate to vertically and operate at a
disadvantage. at the mean time the Parco and Attock group have started in downstream sector
with the cap of Attock petroleum limited & Total Parco and they have no doubt to rely on crude
supply from foreign countries but they have own refinery so in 07 years of business there return
on asset is 30% high than PSO and shell.
Global reach: -Michael Porter affirmed that “if the company has a global business then they
have good economies of scale and they keep the business up because of international repute &
33
advancement in technology”. This characteristic is linked and proved on shell because of
international company but not to Pso (local company)
Step 02 Identify the competitor’s strategies
After the competitors analysis in first step by industry concept of competition it provides input for
second step i.e. competitor’s strategies identification. let suppose if a new company wants to
enter in oil industry ,the most strategic dimensions of this industry is that heavy capital
investment ,leveraging , distribution network and quality image because price factor is same for
petroleum products in Pakistan.
Then the strategic map of oil marketing companies in Pakistan is as follows
Variable (a)
Variable (b)
B
A
C
D
STRATEGIC MAP
34
Some important insights emerge from this strategic group identification. First the entry barrier
because of leverage factor (it needs heavy capital invest and also favor from state government),
second is that already extensive network is pre-occupied from existing player(Pso, Shell, Caltex)
where they find a gap for more business and might be what they offer and where they do so to
start their business. It’s a time to take decision for future .even though a company successfully
enters in oil industry it is mandatory for that company to bring some competitive advantages if it
hopes to succeed. The example of shell and attock and total are available on record. Shell
brought international quality image, & latter one came with vertical integration (own refinery to
control the cost & supply assurance).
Although competition is most intense with in strategic group because of overlapping the customer
and customer not observe much difference in offer .this was the observation on two dimensions
(leverage & distribution network).other dimension include would include level of business,
marketing, manufacturing, R&D, financial and human resource strategy. Company needs a
detailed profile of each competitor. George Foster suggested that you can test and appraise the
each aspect of business along its strategy at business level e.g. product quality, quantity,
features, and mix, customer services, distribution coverage, storage and financial strategies. In
this way a clear picture about own act and defense can be formulated.
Step 03 Identify the competitor’s objectives.
The best question that support this stage of model are
1. What is each competitor seeking in market place?
2. What drives each competitor’s behavior?
A useful assumption in view of William E Rothschild.1999 is that each company has a thirst of
profit but there is difference either by satisfying or maximization on short term basis or long term
basis. If you want to know the relative objective (current profitability, market share growth, cash
flow, technology leadership) of competitor it means you want to see the status of company that
either company is satisfied from current status or they want to do more in future. It trace you an
idea about how you might react to competitors objectives keeping in view the own resources
capabilities.
Competitor’s objectives are shaped by many things including it s business size, products offer,
35
current management preferences and priorities and economics. If the competitor is part of larger
company it is best to know whether it is being run to growth or cash or being milked by the
parent firm. If the business unit is not central to the parents enterprise, you could attack it more
readily than if it were the centerpiece in the competitor’s empire.
Pso is the largest company in business and other player think and revise many time before start
of attack on its any strategy in long run and also on the interim they decide for own defense at
all.
William Rothschild wrote in his article “how to gain and maintain the competitive advantage,
pp72) that worst competitor to attack is the competitor for whom this is the only or major
business and who has global orientation. PSO no doubt has a major business in Pakistan but
indeed it is local company where the vacuum of quality assurance is available on its part. It can
occupy the distribution networks and win the major contracts by government sponsorship but
consumer preference is possible to win by quality testing. Shell is international brand, has a
quality image among customers and milked by parent firm to maintain the standard in quality
and in overall business (either sales up-down in Pakistan are observed).
STEP 04 Assessing the Competitors Strengths and Weaknesses
Assessment of strengths and weaknesses of any company is actually a part of SWOT analysis.
SWOT has a long history as a tool of strategic and marketing analysis. No one knows who first
invented SWOT analysis but its text is available since 1972 and its advocates say that” it can be
used to gauge the degree of “fit” between the organization’s strategies and its environment, and
to suggest ways in which the organization can profit strengths and opportunities and shield
against weaknesses and threats “(Adams 2005).
Pakistan, being a developing economy, is showing accelerated economic growth. The trend is
more pronounced in GDP growth figures of recent past. To fuel the impetus of growth any
developing economy needs increase quantum of energy supply. The crude oil runs like in the
vein of developing country. The consumption of POL products has shown exponential growth
over the years in general and during recent past in particular.
36
The oil industry participants can anticipate their position by applying SWOT analysis in view of
following activities.
As a first step, company should gather key recent data on each competitor’s business,
particularly sales, cash flows, profit margin, return on investment, new investment capacity
utilization. This type of data is mostly available through secondary data, personal experience,
and hearsay and also through the interviews of customer’s supplier’s dealers of own and
competitors.(Mentor.1999)
When data about above factors is collected then it can be used for the following analysis.
a) Rating (qualitative) analysis through customer awareness, product quality, product
availability, technical staff, and selling staff.
b) Financial (quantitative) analysis in form of ratio analysis like profitability, market ratios
through sales, cash flows, profit margin, returns on investment, new investment and capacity
utilization.
The rating method competitively tracked the assessment of market, mind and heart share of
company & it shows that how much company is strong in customer preference. And where the
weaknesses lie down for own company and competitors.
If the company competitors are operating in wrong assumption, you can take advantage of it by
applying precise strategy to fill this gap.
STEP 05 Selecting the Competitors to Attack or Avoid
After assessing the competitor’s objectives, strategies and swot analysis it is easier for
accompany to create a better sense to which they can attack vigorously for high market share
and from where we can produce the defense for survival. According to Porter” this target is
possible for by customer value added analysis. The aim of customer value added analysis is to
determine the benefits that customers in at target market segment want and how they perceive
the relative value of competing supplier’s offers”.
37
Step 06 Balancing the Customers and Competitor Orientations.
It is essential for organization to specify the own drive in business. The two options are possible
here either
1) Alfred R Oxenfeldt And William L.Moore have stated that a company can be proactive
(customer/ market centered) by utterly focusing on market growth, customer preference, in
search of new opportunities in same market and also new markets development but also
keep a insight the resources capabilities and constraints.
2) The next option is that they may be reactive (competitor oriented), whose motives are
basically dictated by competitors action and reaction. but its move has a one bad
disadvantage is that it does not know where it will end up, since so much depends on
what the competitors decide to do. but have only one plus point that it is fighter orienteer
& very constant alert for weakness tracing in own and competitor.
No doubt at start company should be product orient, they pay very little attention to customer
& competitor but as the competitor and substitution increase then it is badly to require to
balance own position by market orientation in which whole focus is required on both customer
for business and competitor for market share.
38
CHAPTER 03
Oil Industry in General
3.1 Oil Industry in Current Era
It is known by all individuals of Pakistan that our country is in major energy crisis since 2005
these energy crisis are observed mostly in the electricity because of FO (costly fuel) , gas
constraints ( over usage of CNG due to high prices of gasoline), and now we are experiencing a
2-14 hours load shedding in a day. Country requirements up to 75% meet by petroleum
products. According to 1990-91 the total consumption of petroleum (oil 12.1 & gas 11.9) equal to
24 MM TOE, and there is a 6% increase in demand per year up to 2000; in 2003-04 year the
consumption was decreased because lower demand of furnace oil because of conversion of
thermal power plants on gas and availability of hydel power but a gain of 10% per anum
increase was recorded after 2005-08 The demand is expected to increase around 17 million
tones per annum by the year 2010-11. Thereafter, it is expected to further increase to around 19
million tones by the year 2017-18. The production of refined products by the local refineries
during the year 2003-04 was 10.27 million tons.
Oil products consumption is highly skewed, with nearly 83 percent in the form of high speed
diesel (HSD) and fuel oil (FO). Only 18 percent of the liquid fuel supplies are met from local
sources, and the balance is imported in the form of either crude oil or finished products originates
from the Middle East, Gulf, Iran and largely Saudi Arabia under a government to government
contract.
In 1981 seismic study had proved that in the Badin area and the Lower Indus Basin are oil
bearing and since 30 years average of 18 wells were drilled per year, but they needs full
exploitation before they become dry.
39
REFINING SECTOR
Currently Pakistan has five refineries operating .The capacity and establishment is as under;
Refinery Name Establishing year capacity (MTO)
PARCO September 2000 4.5
ARL 1922 1.7
NRL 1963 2.8
PRL 1960 2.2
BPL 2003 1.4
PARCO: - It is located mid-country at mahmmodkot
NRL:-It is largest coastal refinery and processed largely imported crude oil to manufacturer the
entire range of fuel products, lube base oils. Imported crude oil is received at Karachi port and is
pumped to NRL hydro skimming plant through the dedicated pipelines.
PRL:-hydro skimming refiner, processes Arabian light (20%),Iranian light (60%),and local
crude(20%). Imported crude is pumped from keemari port and finished products are pumped to
OMC terminals by dedicated pipelines
ARL: -located at north of Rawalpindi, hydro skimming initially design to process local crude. Due
to inadequate crude production in the northern areas, crude from south Badin has to be shipped
at ARL, through browsers to fill the refinery capacity. It’s another plant produce motor spirits,
kerosene and diesel.
BPL : - near Karachi, private owned; obtain crude from Qatar, while Pso will handle crude
delivery and products off-take.
40
PORT FACILITIES
Crude, white oil products, and LSFO vessels up to 750000 DWT tons) are received at Karachi
port trust (KPT), while black products and LPG vessels are received at Fauji oil terminal Co.
(FOTCO), or at the Port Qasim Authority (PQA). HSD imports at PQA has also commenced in
2002 .There are three piers at KPT (OP-1, OP-2, OP-3). At PQA, there are three oil piers,
namely marginal wharf (MW-I), one pier belonging to FOTCO, and another belonging to engro
Pak Tank limited.
In country 16 days stock is available as an inventory. But it is full of risk if supply from Middle
East is in delay because of even minor disruption.
PIPELINES
Parco it is established in 1974 as a joint venture in between GOP and Abu Dhabi from Karachi to
Mahmood kot to transport 4.5 mt per anum of mainly HSD And kerosene. In start of 2000 the
crude was also pumped through this pipeline along to HSD. The total capacity of this pipe line is
6.0 MT out of which crude is 4.5 and HSD is 1.5.
Parco MFM Pipeline
In 1997 PARCO extended its pipeline network from Faisalabad to Macheike in Sheikhupura,
having capacity of 5.2 MT /ANUM for HSD and Kerosene.
Apl Fuel Oil Pipe Line:-To meet the 3.6 mt/anum needs of CST fuel oil of hub power plant a
pipeline was laid by Asia petroleum limited from ZOT.
White Oil pipe line project: - a joint venture of Parco (51%), Pso (12%), shell (25%) and caltex
(11%) was formed to transport the white ( light ) petroleum products up- country. It has shipped
imported products mainly diesel of 12 MT/Anum from FOTCO at port Qasim to Mahmood kot
Key Installations, Terminals and Storage Facilities
In Karachi (keemari, korangi, ZoT), Mahmmod –kot (mid –country) and morgah9 Rawalpindi),
Faisalabad and macheike, OMCS and refineries have key installations and terminals to receive
and store the crude and products. from here the products are supplied to depots (56 depots of
41
OMC`s which feed institutional customers and retail outlets through out the country) with a stock
of 21 days almost.
Total storage capacity of crude and products was approximately 2.7million tons, with two third
beings for products .About three quarters of product storage are for HSD and fuel oil. The 55% of
storage capacity is held by refineries (out this45% is held by Parco) and in case of OMC`s hold
45% of total (out of which 80% is in Pso while 20% is held by shell, caltex, attock and total in
small fragments).
TRANSPORTATION
The petroleum products are transported through out the country by rail and road.
RAIL:- Pakistan railway carries 11% share”(2403M/T) of small quantities of white products for
own use and defense department from Ex –KAEMARO, Ex- Pipri Marshalling yard and Ex-
MAHMOOD KOT. Because of poor –old design of railway infrastructure and other locomotive
unavailability its operations is hampered.
ROAD:-Most of crude from local fields to refineries, and the products to key destinations are
transported by long organized fleets owned by national logistic cell. The road tanker fleet is used
both for short-haul (secondary distribution within city), the medium/long haul (intercity) POL
transport. Almost 12.6 million tons (69%) are transported by road because of poor infrastructure
of road and limited availability of pipeline system. Throughout the country 20000 (capacity of 10-
30
From 1991 policy formulation is enforced by the GOP, consequent upon the success in major
reforms again 92 and in 94 a new comprehensive policy was formulated to mage the sector
competent by
❖ Offering incentives to investor
❖ Induce competition among local companies (down & upstream sector)
❖ Locally produced oil & gas produce have a separate price caps pricing revision on
fortnightly basis
42
3.2 OIL INDUSTRY IN ADVANCED TECHNOLOGY
High capital and advanced technology are binding for petroleum industry development. In past
this industry has faced many losses because of technology now up to some extent it has been
solve because of adaptation of new technology’s. Nature of work in this industry itself requires
modern technology for quick and easy access.
It is in the record that first super computer was prepared for oil exploration and transports the oil
from North Pole of Alaska to southern coast. After 1970s and till today major innovation were
found in petroleum sector from technological point of view.
a. Technology Transfer through Foreign Oil Companies.
In Pakistan 17 foreign oil companies are operating for exploration and production purpose but
they have risk in these contracts likely terrorism, risk in exploration (lethal environment), division
of profit, and control on physical assets. Labor employment. The companies had given training to
Pakistani professional so that they will be independent but result is not expected till to yet.
AMOCO & OCCIDENTAL had signed a contract sine 20 years with OGDC for technical
research and development .not only this Exxon is also signed a contract with OGDCl not only for
technical assistance but they brought their own equipments heavy machinery along with
engineers and labor and performed many exploratory work in Pakistan.
b. Technology Transfer through Service Companies.
On the leasing base technology is transfer from foreign countries to Pakistan but another mode
of help in the form of services is also avail by OGDC from Schlumberger Company. The major
arrangements were made by Schlumberger
❖ Reservoir data testing techniques
❖ Reservoir study centre (a state of art)
According to AMOCO & OCCIDENTAL “the signing of a service contract with a service company
doesn't necessarily mean transfer and absorption of oil exploration development technology by
the host country. In many cases only "Leasing" of technology takes place with no opportunity for
learning of the technology by nationals”.
43
Does, special arrangements have to be made to insure transfer of technology. In Pakistan,
special arrangements for technology transfer exist between Schlumberger and OGDC?
They stated further that “one is the establishment of a computing facility for interpretation of logs,
will testing and reservoir data. These facilities affects technology transfer mainly because of its
Pakistan staff who has learned Schlumberger technology and are able to disseminate to OGDC
personnel. The other is joint venture project between Schlumberger and OGDC for the
establishment of a state-of-the-art reservoir study center. This center which is now operational is
the subject of a later section. Such arrangements with service companies offer a good avenue of
acquiring modem petroleum technology for developing countries and have proven quite
successful in countries like Venezuela, Mexico, India and Algeria”.
These countries were able to build some indigenous technology capacity utilizing such
technology transfer agreements and combination with other arrangement.
c.Technology Transfer through foreign aid/foreign consultants
Canadian Various international agencies are providing professional and technical assistance to
OGDC. The Canadian government through its international aid agency (CIDA) has contributed
significantly to technology transfer in various spheres of the petroleum sector since 1974. “Their
contribution in setting up OGTI (Oil and Gas training institute of OGDC), in helping OGDC
acquire seismic technology and in providing technology needs of OGDC has been quite helpful.
In addition, a number of reservoir studies are carried out by foreign consultants each year and
OGDC professionals are sent overseas for short visits to participate in such studies”.
“As far so provision of material, equipment, hardware and processes is concerned, these foreign
aid based program are very helpful. But if the transfer of technology is viewed from the broader
perspective of human development and confidence building then they suffer from a fundamental
draw back. They imply that the technology exists only because of certain qualities inherent in
those who have it and that the recipients do not have the capacity to develop that technology”.
44
Thus “in an atmosphere of basic and persisting inferiority people are inhibited from utilizing their
full potential. They tend to convince them selves of their inadequacy and this destroys their self
confidence and restricts their capability of borrowing, adopting and experimenting with new
technology. This is especially true for disciplines that require close human-interaction between
individuals (i-e. interpretation of seismic, logging and will test data, reservoir engineering and
reservoir studies). The above is not just a theoretical or abstract analysis. The asymmetry
inherent in such programs is real and works in subtle ways. For example, more than once during
the last year, I have been told by OGDC professionals that they cannot turn on a particular
computer, are run software because the foreign consultant under whom it works is on vacation..
some OGDC professionals are scared that doing even a minor operation ( like reconfiguring a
PC, reloading a software or moving a PC from one location to another) will upset the delicate
(almost magical) balance under which these equipment operate and which can only be set and
maintained by the foreign consultant transfer? Similarly, a reservoir simulator has been available
to OGDC since 1987”.
Cookbook routine approach to simulation stated that “do not even seem to understand full
capabilities of the simulator. Their standard answer to any query about the simulator is that they
have been shown only such and such by the consultant and they do not know any thing beyond
that and that the question should really be put to the consultant environment, people lake what
they are given and no more”.
Further “they did not encouraged or given freedom to experiment, discover, modify and
manipulate the technology. Numerous short overseas trips are taken by OGDC professionals
each year to participate in reservoir studies. But, in the absence of clear objectives, these trips
lend to degenerate into pleasure trips. it has seen people who were totally blank about what they
were supposed to achieve after spending 3-4 weeks in a foreign country working on a reservoir
study”.
“The broader objectives of human development and confidence building can be achieved in a
foreign aid based technology transfer program only if enough attention is paid to these objectives
and they are made an essential component of the program, A success story for achieving these
broader objectives is the cooperation between C1DA and OGDC in the development of human
resources thru OGTI. The success of the program is due to its emphasis on teaching students
how to transform latest concepts into use fall and hands — on skills and then letting them apply,
adopt, experiment and modify these skills for new situations on their own. This facility is bound to
45
play an important role in the development of an indigenous technology base in Pakistan. OGDC
should technology transfer facilities in Pakistan”. The above was the goals of foreigners.
2.4 Government Regulations in Oil Industry
In Pakistan ministry of petroleum and natural resource is constituted in April 1977to ensure
availability and security of sustainable supply of oil and gas for economic development and
strategic requirements and to coordinate development of natural resources of energy and
minerals. The main functions of this ministry’s to develop the policies regarding
• Legislation, planning regarding exploration, development and productions.
• Guidelines to regulatory bodies in oil and gas sectors.
• guidelines and facilitation of import, export, refining, distribution, marketing,
transportation and pricing of all kinds of petroleum
• Attract the private investment
• Geological Surveys
For smooth functioning of ministry the work id distributed to autonomous bodies likely:-
1 OGDCL:-OGDCL is the national oil & gas company of Pakistan. Prior to OGDCl emergence,
exploration activities in the country were carried out by Pakistan Petroleum Ltd. (PPL) and
Pakistan Oilfields Ltd. (POL). In 1952, PPL discovered a giant gas field at Sui in Balochistan.
This discovery generated immense interest in exploration and five major foreign oil companies
entered into concession agreements with the Government.
As a result, a few small gas fields were discovered. Private Companies whose main objective
was to earn profit were not interested in developing the gas discoveries especially when
infrastructure and demand for gas was non-existent. With exploration activity at its lowest ebb
several foreign exploration contracting companies terminated their operation and either reduced
or relinquished land holdings in 1961.
To revive exploration in the energy sector the Government of Pakistan signed a long-term loan
Agreement on 04 March 1961 with the USSR, whereby Pakistan received 27 million Rubles to
finance equipment and services of Soviet experts for exploration. The Corporation was charged
46
with responsibility to undertake a well thought out and systematic exploratory programmed and
to plan and promote Pakistan's oil and gas prospects.
A number of donor agencies such as the World Bank, Canadian International Development
Agency (CIDA) and the Asian Development Bank provided the impetus through assistance for
major development projects in the form of loans and grants. This resulted in discovery of a
number of oil and gas fields in the Eighties, thus giving the Company a measure of financial
independence. Government of Pakistan disinvested part of its shareholding in the company in
2003. The Company is now listed on the London Stock Exchange since on December 06, 2006.
2 Oil Companies Advisory Committee: - The Downstream Oil Sector (Refining, Marketing,
and Distribution) plays a very significant role in Pakistan’s economic development, ensuring
uninterrupted supply of petroleum product to the country in order to keep the wheels of the
economy moving. The members of OCAC currently comprise of the country’s five Refineries
(Pak-Arab Refinery Limited PARCO, National Refinery Limited NRL, Pakistan Refinery Limited
PRL, Attock Refinery Limited ARL and Bosicor Pakistan Limited BPL), Ten Oil Marketing
Companies (Pakistan State Oil Co. Limited PSO, Shell Pakistan Limited SPL, Chevron Pakistan
Limited CPL, Attock Petroleum Limited APL, Total Parco Pakistan Limited TPPL, Admore Gas
(Pvt) Limited AGPL, Hascombe Storage Limited HSL, Askar Oil Services (Pvt) Limited ASOPL,
Overseas Oil Trading Co. (Pvt) Limited OOTCL, Bakri Trading Company Pakistan (Pvt) Limited
BTCPL) and one Pipeline Transportation Company (Pak-Arab Pipeline Co. Limited PAPCO). To
represent the downstream of oil industry at various forums in matters of common interest .There
operations in Pakistan are as under
❖ To establish short/long range demand/supply balances for various oil products and
advise the Government and Member Companies in this respect
❖ To pro-actively plan any Infrastructure Upgrades De-bottlenecking needed as per
medium/long term petroleum product availability projections
❖ To collect, prepare and circulate various trade statistics and other relevant information to
member companies as well as the Government
❖ Develop plans/suggestions to help Government to streamline the oil and gas sector
47
❖ Pakistan is deficit in crude oil, diesel and fuel oil. The Government has given permission
to bulk consumers and traders to import fuel oil while bulk consumers have also been
given permission to import diesel.
❖ Health Safety and Environment (HSE) is a very important aspect within the oil industry.
❖ To coordinate implementation of HSE standards within the oil industry, OCAC has set up
a separate sub-Committee for this purpose.
OCAC Sub-Committees
• Licensing
• Distribution
• Rules
• Refining
• Finance
• Trade
• CNG
Although third in recent years petroleum policy was announced by the Nawaz Sharif
government and another by Moeen Qureshi's interim regime on October 10, 1993 the new policy
is distinct form its predecessors in three important ways.
First, it places equal emphasis on all aspects - from exploration refining, of oil and gas to
commercial exploration, storage, transportation and distribution.
Second, all concessions will be awarded through transactions. in the policy itself, a petroleum
regulatory board is being set up to look after the problems that may arise from time to time. In
addition, a ministerial committee would be set up to meet at least once a month to ensure that
the policy is implemented smoothly.
Third the new policy provides usual fiscal incentives; like imports - free of duty, surcharges and
license fee - of machinery, equipment and related material for all new oil and gas unspecified in
die policy and probably to be decided on a case-by-case basis, for the continuity of the policy,
the government would participate in all exploration efforts by taking five percent shares in all
48
new ventures set up after January 1, 1994. through production installments over a period of five
years.
The government's share in oil and gas commercial discovery operations will range between 15
and 25 per cent in different zones, the country having been divided into three zones.
The policy aims at developing an indigenous base of exploration and production of oil and gas
by providing highly attractive incentives in the form of awards as bonus of 2.5 percent, after
commercial discovery, of the government's own share of 5 per cent, and 30 percent of the local
investor's sale proceeds in foreign exchange provided he has invested a minimum of five per
cent of the exploration costs. The prices of crude will remain linked, as in previous policies, with
the gulf crude oil, adjustment for quality differential continuing. New refineries based on
indigenous crude will be ensured a minimum rate of return of 25 per cent on paid-up capital net
of tax for eight years if set up by the year 2000.
The results of new policies were quite encouraging as 50 petroleum concession agreements
had been signed by the government with local and foreign oil and gas exploration companies
during the last two years- These companies have been carrying out seismic survey and data
analysis of the concession areas and drilling of exploratory wells will start once suitable site is
selected by them on the basis of data analysis. About half a billion US dollar risk investment is
being made by these companies in upstream petroleum sector. The petroleum policy also
provides attractive incentives to the downstream positively to invest in refineries, cross country
pipelines, storages terminals and gas import.
49
3.4 key Players in Oil Industry
The Downstream Oil Sector (Refining, Marketing, and Distribution) plays a very significant role in
Pakistan's economic development, ensuring uninterrupted supply of petroleum product to the
country in order to keep the wheels of the economy moving. With an annual sales of Rs. 1 trillion,
direct employment of over 100,000 people, indirect employment (transport sector) of another
24,000 persons, capital investment of over 30 billion Pak Rupees over last 5 years, annual
generation of taxes around Rs. 200 Billion, a world class IT infrastructure, skill sets ranging from
Technical, IT, Finance, Sales, Marketing & HR, and plans initiated for provision of better product
and better service, the Downstream Oil Sector is a significant contributor to the national well-
being.
The oil industry has seen considerable change over the last 30 years. From an era of
nationalization and governmental controls in the 1970s, the Industry is being gradually
deregulated. Pakistan is deficit in crude oil, diesel and fuel oil. The Government has given
permission to bulk consumers and traders to import fuel oil while bulk consumers have also been
given permission to import diesel
In down stream sector there are ten Oil Marketing Companies (Pakistan State Oil Co. Limited
PSO Shell Pakistan Limited SPL, Chevron Pakistan Limited CPL, Attock Petroleum Limited APL,
Total Parco Pakistan Limited TPPL, Admore Gas (Pvt) Limited AGPL, Hascombe Storage
Limited HSL, Askar Oil Services (Pvt) Limited ASOPL, Overseas Oil Trading Co. (Pvt) Limited
OOTCL, Bakri Trading Company Pakistan (Pvt) Limited BTCPL).Among them five oil mkg
companies are selected at the time of submission of proposal for thesis like PSO ,SHELL,
CALTEX ,APL, AND TOTAL. Because of hassle in the availability of data and non co-operation
of caltex and Parco companies in data availability; these both are excluded from the study. And
three major players (PSO, SHELL, and APL) are included for study purpose.
3.4.1 PSO Appraisal
Quarter of a century ago what started with the merger of three distinct entities (Pakistan National
Oil and Premier Petroleum) now stands as one of the largest, most profitable and efficient
company of the country. PSO had the unique advantages of enjoying the efficiencies and
technological edge of the multinationals along with a strong understanding and commitment to
the local environment. An advantage which has allowed it to be a truly "National Company,
50
International Quality Products"'. In its twenty-five years history PSO has moved form strength to
strength. In the process it has meet more than 70% of the nation's fuel requirements, created a
3,800 strong, retail network spanning the length and breadth of the country, developed the
largest storage network in the country and a customer base as diverse as the country itself, been
instrumental in developing as well as defending the nations. Above all it has given the nation the
confidence of assured fuel supplies at all times.
The constant evolution and development that has been PSO`S hallmark continue into the
21stcenturyt as well. New vision development now encompasses 503 outlets; new products and
value-added services are being continuously introduced; storage and supply chain facilities are
being modernized and upgraded, while a series of structural and reorganization steps have
already been taken towards enhanced productivity and efficiency.
The core competences of PSO include
• Total quality control
• Lowest cost supplier with assured access to long-term supplies
• Sustained growth in earnings in real terms
• Highly ethical company, good corporate citizen
• Excellence in customer services.
• Vast outlet coverage and tremendous infrastructure,
• Magnificent storage capacity, innovators,
• Modern technology driven company, all time supply surety etc.
Along with its areas of core competence, PSO in recent years has placed a growing emphasis on
Health, Safety & Environment, and good Corporate Governance and developed a flexible and
dynamic organization.
As in the past company made the best use of its human and material resources. The workplace
involvement in decision making remained strong and productive. Employee dedication to
Company and its corporate objectives are the factors underlying success in a rapidly changing
51
scenario, PSO adopts new strategies and organizational plans which are implemented by the
personnel fully equipped with required synergies.
PSO has entered the next millennium completely transformed. Replacing decades old attire with
new logo, refreshing color combination and structural design changes in retail stations. PSO has
begun implementation of the Mew Vision Scheme. Substantial investment has been appropriated
for development of a chain of modem retail stations throughout the country. Besides electronic
dispensing units these stations feature Quick Lube change, Shop Stop, CNG facility service
station / car wash, full size canopy etc. First of such stations was commissioned in January 1999,
with resounding success followed by commissioning of model New Vision Stations at Lahore and
Islamabad, with several other stations in various stages of development at different locations.
Initial results are reassuring for maintaining market leadership, of your company in the longer
perspective. Also we have launched a retail rationalization program to improve on the
performance of the existing network with a view to operating only those facilities that contribute
positively to our brand image.
Undoubtedly, PSO's strength lies in its vast storage, distribution and retail network existing
across the country. It is capable of ensuring uninterrupted and steady supplies to PSO's valued
customers; therefore, in order to ensure that these facilities meet the growing challenges of
modem trading requirements, continued technological input is of vital importance. During the
year, storage and tank wagon facility at Pipri Marshalling Yard for dispatch of Furnace Oil to
upcountry destinations was completed. This facility, primarily meant for ensuring steady supplies
to IPP's is designed to increase railway tank wagon availability by reducing turnaround time.
Under a program launched during the year, computer networking of all the depots and terminals
was undertaken to improve coordination and inter-storage product movement.
52
3.4.2 Shell Appraisal
Shell is a superior brand name with a 100 year history in this region - in fact the company’s still
in possession of a fuel storage tank from 1899. However, the documented history of the Royal
Dutch/Shell Group in the Indo-Pakistan sub continent dates back to 1903 when a partnership
was struck between The Shell Transport and Trading Company and the Royal Dutch Petroleum
Company to supply petroleum products in Asia. In 1928, to enhance their distribution
capabilities, the marketing interests of the Royal Dutch/Shell Group and Burma Oil Company
Limited in India were merged and the Burmah Shell Oil Storage Distribution and Storage
Company of India were born. After the Independence of Pakistan in 1947, the name was
changed to the Burmah Shell Oil Distribution Company of Pakistan.
In 1970, when 51% of the share holding was transferred to Pakistani investors, the name of the
company changed to Pakistan Burmah Shell (PBS) Limited. The Shell and Burmah group
retained the remaining 49% in equal proportions. In February 1993, as a result of a decision by
Burmah Oil to divest in Pakistan and the deregulation policy of the Government, the Shell
Petroleum Co. bought the shares of Burmah Oil Company and 2% shares from the market to
become the major shareholder in Shell Pakistan Limited (SPL).
In February 2002 The Shell Petroleum Company Ltd increased its shareholding to 76.1% which
further demonstrated Shell's continued confidence in the country's economic progress and in the
oil and gas sector.
Shell Pakistan is divided into six functional areas i.e. Retail, Global Lubricants, Aviation,
Operations, Finance and Human Resources, Controlling a market share of approx. 30% for
white oil products in Pakistan. Capital Expenditure amounted to Rs. 1.1 billion as compared to
Rs. 814 million last year.
The primary goal of the company is to position itself as the preferred oil company in Pakistan,
leading the field in its commitment to customer service, quality of products, safety and
environmental protection.
53
CHAPTER 04
Data Analysis and Findings
4.1 Step 01 Identify the Company Competitors
In fist step there is a need of competitor’s identification. From industry point of view a competitor
(s) is a group of firms that offer a product or class of products that are close substitute for each
other(Philip kotler, pp no 222).instead of looking only substitute same product it is necessary to
look the same product & same customers need or serve the same customer group.
My study is concerned with oil industry in which the product(s) are same offered to customers
but differentiation in access ,availability , outlets .,services offered, technical advancement are
concerned .through these aspects any company can win the market share , heart share & mind
share of customers. Where price is not an issue.
In oil industry the key players are PSO (66.9%), SHELL (21.6%), CALTEX (7.1%), APL (2.6), &
TOTAL (1.0). These are major competitors (players) of oil industry. The study is consisting of
five players but due to the unavailability of complete data of CALTEX, APL & TOTAL, and then
the only two companies are selected for study purpose i.e. (PSO & SHELL).
4.2 STEP 02 IDENTIFY THE COMPETITOR STRATEGIES
As the Pso and Shell are the two major close competitors in oil industry and each is working on
different strategies for sky-scraping business. PSO & SHELL have adopted the following
strategies in various aspects of business
54
• Business Strategy
• Mkg Strategy
• R &D Strategy
• Financial Strategy
• Human Resource
• Manufacturing
• Long Term Gain
• Same Prices & Rapid
Growth
• Design To Cost
• Aggressive Full
Utilization
• Co-operative &
Company Wide
Incentives
PSO
(a)Business Strategy
Long Term Gain is the main strategy of business employed by PSO on the basis of 1) a
cautious, wait –and- see posture in order to minimize the probability of making costly decisions
2) strong emphasis on marketing of products & services. because it’s a first obligation being a
national company to operate in rural areas of country either they earn a good profit or not
.secondly because of public natured company it has a business where there are tribal dispute
that had threatened many times to working staff but still have business in these sites. Company
wants to maintain its name coverage through out the country jus at to win the mind share.
(b) Manufacturing /inventory Strategy
In Pakistan oil industry rely on crude oil supply from Middle East countries mostly, but it is refined
in the country by Attock and Parco refinery to make the finished products. Pso has a no own
refinery again it depends on supply from these in land refineries although it possess a high
storage capacity and also because of government support Pso is entertained by refineries at top
priority. It means Pso have strong vertical integration they have a no fear of supply from
refineries.
55
(c) Mkg. Strategy
• To win by prices philosophy, this mkg concept is not applicable in oil industry although the
other services can attract the customer and create mushroom sales in market. Rapid
Growth of outlets is a step taken by PSO so that there is spread out of PSO network but
its favoritism by GOP that all licensees of outlet opening are granted to first PSO than to
others.
• PSO has posed It self as defender organization by aggressively maintaining prominence
with in the current market.
(d)Research & Development Strategy
PSO always works on the development of its product and services but because of government
intervention and political influences it has not so far done. Most of the time company has
introduced many ideas has developed but in relation to cost effect after that it is launched by
competitors.
(e)Financial Strategy
To win the major contracts the PSO has offered many of the heavy transaction on credit basis
so other company can’t get these order (KESC supply, steel mill for lube supply, wapda, IPP’s).
The Aggressive Full Utilization of all finance (from own equity/bank loans/govt securities) by
company to drop the other companies sales. Even though in mid of the time they block the
supply of FO to the companies for recovery but initially to win the bid every thing is done by
PSO on agreed term basis. It seems as PSO become bold & aggressive in order to maximize
the probability of high market share by exploiting all references.
(f)Human Resource
It is state owned company, most of the recruitments are on the permanent basis, little quota
system and also the unions are in power in public sector organizations. The talent if these
people possess it is in their potential not in work because of helpful environment & have no fear
of job if they will just occupy the seat (look busy, do nothing). These people are manager not
leader, their temperament is co-operative not initiator because it is well known to them
incentives are always distribute Company Wide; there is a no difference in worker and hard
worker. Take a recent example of share distribution among employees by PSO to company
56
wide although not on merit basis. (PSO NEWS bulletin, March 2010)
SHELL
• Business Strategy
• Mkg Strategy
• R &D Strategy
• Financial Strategy
• Human Reso urce
• Manufacturing
• Margin Orientd
• Deregulation & Controlled Gro wth
• Features And Quality Design To Performance
• Conservative ,No Debt
• Competent & Individual Incentives.
(A)BUSINESS STRATEGY
Shell has adopted margin-oriented business model that has focused on high margin products
rather than high volume products.
Shell Pakistan has taken a congregate view in the oil marketing business. Since the years shell
had done business in product mix strategy but because of saturated market with intense
competition & decreasing volume in Mogas business due to high prices and high sales of HSD
but again inventory problem, instead of fighting all out to generate POL volume, the company has
shifted its focus towards a high margin product mix fueling profitability going forward. With its
leadership status established in the lubricant business, the management of Shell has devised a
strategy to maximize profitability in cheap alternative fuel sources like CNG (company has
decided to make full investment in Cng business because of vacuum & cheaper product). Now
the company's revised business model is based on margin oriented rather than on mix product
sales.
57
(b)Manufacturing /inventory Strategy
It is already discussed that PSO and shell both don’t possess own refineries they both rely on
supply from Attock and Parco refineries but PSO is top most in supply. Like PSO, SHELL has
own storage capacity to keep inventory for almost 28 days but less capacity than PSO. All
companies in PAKISTAN are free to import the crude oil and refined product but reluctant to do
this because of shortage in storage capacity. Due to this they can’t store the oil when price are
low in international markets.
(c)Marketing Strategy
Since the year 2000 Government of Pakistan has made the oil sector deregulated so the prices
are same through out the country but in March 2010 because of transportation charges from port
at Karachi to different provinces of Pakistan now the prices are vary from area to area but not
company to company. the main step taken by SHELL for mkg is that the New Vision Retail
outlets with extra and diversified services that attract the customers .SHELL has well behave
manners of industry for doing business they always learn how to do business in industry under
norms. so that they have earn the share in spite of buying the share keeping in view of this
philosophy they with draw the sales up to some extent in FO ( hold of PSO to WAPDA .IPP’s)
(d)Research & Development Strategy
Shell has advanced its name briskly working on Features and Quality Design to Performance
concept .The company is initiator in NVR, quality testing equipment, mobile services, and
customer preference to its product is high because of customer loyalty too its brand as of
international repute.
(e)Financial Strategy
Shell has an international business in different continents along to Pakistan and has attractive
growth. After 2004 the business of Shell in Pakistan is not at parity in last 50 years because of
many reasons including (prices, opec policies, new entrants .instable political situation) the
company has decreased its new investment in petroleum products especially although the full
investment is made in CNG business and lubricants (potential of growth).
58
Keeping in view the above facts the financial strategy of company works on two principles
I. Conservative means they are abide to standard no compromise on any aspect of business.
II. No Debt shell has safeguarded its business by keeping it up in assets against the liabilities.
(f)Human Resource strategy
Competent & Individual Incentives are the main motives of shell human resource strategy. They
have an idea that core competencies are created in the organization when high competencies
are hired and those who are distinguish in their performance then those people can be entice.
(See further in rating)
4.3 STEP 3 Identify the Company & Its Competitors Objectives
• PSO
• High Sales Volume
• Profit Maximization
• Average Quality
• Easy Access
• Crowded Infrastructure
• Maximization & Delivery Through Out The Country
• SHELL
• Sales Growth (Controlled)
• Satisfying
• Quality Standard
• International Value
• Technological & Service Leadership
4.4 Step 4 Assess the Company & Its Competitors under Strengths and Weakness
Each company can measure its own & competitors strengths and weakness by collecting key
data
a) In rating (qualitative) terms like through customer awareness, product quality, product
availability, technical staff, and selling staff. A questionnaire is design and send to the customers
of all provinces through mail and their response is given in table below.
b) In financial (quantitative) terms on sales, cash flows profit margin, return on investment,
new investment and capacity utilization. For this purpose ratio analysis is done in detail.
59
a) Rating (Qualitative) Terms Analysis
CUSTOMERS RATING ON KEY
SUCCESS FACTORS
4
2
SELLING
STAFF
19
15
total
4344SHELL
2434PSO
TECHNICAL
ASSISTANCE
PRODUCT
AVAILBILITY
PRODUCT
QUALITY
CUSTO MER
AWARENESS
COMPANY
NAME
Excellent (4), Good(3), Fair(2),Poor(1)
The above factors for rating are competitively tracked to measure the market share minds share
and heart share of customers.
Pso enjoys high market share because of high availability but falling its mind share and heart
share due to low quality technical assistance and selling staff. In disparity SHELL is increasing its
market share on the basis of high mind share and heart share.
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After rating of customers on key success factors PSO & SHEL position under SWOT is like that
SWOT Analysis of PSO
STRENGTHS WEAKNESSES
Existing Resource Base.
Storage capacity
Retail outlets
Plastic money
Finite Supply Of Indigenous oil
Lower brand image
Frictional Employment.
Efficiency and productivity are at sub-optimal
level.
OPPORTUNITIES THREATS
Alternative Uses OF Existing Facilities.
Upstream Activities
Oil Deregulation.
Geographical Diversification.
NEW ENTRANTS
Distribution Margin
Volatile prices
Emergence of Bio fuels
Attock Group eye PSO as takeover candidate
I. STRENGTHS
(a) Existing Resource Base (STORAGE)
Refineries and OMC`S have key installation and terminals to receive and store crude and
petroleum products in Karachi (kemari, korangi, zulfiqarabad and so on), Mahmmodkot (mid
country) and Morgah (Rawalpindi). In addition, the PARCO pipeline system has its own terminals
at korangi, Gujarat (mid country).Faisalabad and machike.These key installations and terminals
are the primary supply points for the transportation of petroleum products to different depots
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throughout the country .There are nineteen (19) installations (including a few joint installations
owned by all OMCS) which feed smaller depots in the vicinity, and 56 depots owned by the
OMCS which feed institutional customers and retail out-lets. Total storage capacity provides a
cover of 21 days consumption.
The map has a good exhibit of OMC`S position in storage capacity. Out of 19 installations PSO
hold 08, Shell hold 05, Caltex hold 05 while TPL and APL have not at all and as for distribution of
56 depots is concerned , PSO possess 27,shell have 15, Caltex of 12, APL only 01 but TPL is in
still foundation for infrastructure development.
Figure#4.1 POL infrastructures
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From base year 1998 -07 the storage capacity was being held by OMC`s and refineries in detail
is given in fig 4.1.
The total storage capacity in 98 is 1849847 M.Tons out of which crude is 376600 M.Tons
(20.3%) & of product is 1473247 M.Tons (79.6%) that reach up to total 2660509, crude 830614
(31.2%) and of product 1829895 M.Tons (687%).The journey of ten years increased the refinery
capacity up to 45% but still need more improvement to reduce the reliance on product import.
In a range of storage capacity about three- quarters of product storage is for HSD and fuel oil.
About 55%of total storage capacity is held by refineries. About 45% of total refinery storage
capacity is held by PARCO.
OMC`S hold nearly 1.0 million tons of storage capacity, with PSO having nearly 80% of this
capacity. Most of the OMC`S storage is for finished products, of which nearly half is HSD. Fuel oil
storage is relatively small compared to volume consumed in the country, because a number of
the large end users (WAPDA, KESC, and so forth) have their own storage facilities.
(b) RETAIL OUTLETS
Most petroleum products are marketed ex-depot, but motor spirits (gasoline, HOBC) and HSD
are sold through retail outlets. As of July 2006 total retail outlets are 5670, stations with modern
facilities are 2627 and with CNG are 34.
The rapid pace of life, means today’s customers are looking for smart, simple and time conscious
solutions .Out of total 5670 retail outlets PSO is enjoying a cap of 3750.
Co Name 1998 1999 2000 2001 2002 2003 2004 2005 2006
PSO 3475 3610 3737 3838 3820 3808 3794 3740 3750
Retail Outlets of Pso
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Primarily due to an increase in the number of retail outlets, the sale of HSD has increased from
89 million liters to 130 million liters and volume of MOGAS has risen from 7.5 million liters to 16.2
million liters. In order to feed and supply the pumps at remote areas they make arrangements
with other OMC`s.
PSO has started a retail rationalization program (those retail outlet don’t portray a positive image
of company) since 2001 and closed 100 outlets up to 2006.
(b) PLASTIC MONEY
As the saying goes in marketing “you should be the first and fast”. Among PSO unique
initiatives, a new foundation of turning the plastic into petrol by plastic cards was introduced.
This concept was used for white oil product particularly for MOGAS & HSD at the forecourt level
due to flexible credit guideline.
The plastic card business was introduced in FY02 to provide flexibility and convenience while
ensuring security, preventing misuse, pilferage and economization simultaneously reducing the
need to carry cash. PSO has introduced a wide array of plastic cards catering to specific needs
and requirements. Following cards were introduced:-
PSO Loyalty Card is a mileage card enabling customers to earn loyalty points every time they
come for fueling at PSO through their personalized card.
The Privilege Loyalty Card is similar to the Loyalty Card where the PIN based mileage card
enables customers to earn and redeem loyalty points at PSO station as well as brand partner
outlets or exchange them for a discount at selected merchant outlets.
PSO Fleet and Corporate Card: The credit-based cards were offered for companies work time.
The Fleet Card is a vehicle specific card that tracks the purchase of by each individual’s billing
profile. The Corporate Card works on an each individual spending profile reducing administrative
procedure in fuel allocation.
PSO Prepaid Card: The prepaid card is a substitute for carrying cash, debit and also enable the
card holder to economize personal expenditure on fuel.
Since the advent of the plastic card concept, PSO has expanded its network to over 170 cities
where these cards are accepted at over 1,200 outlets out of the total 3,700 outlets. The Fleet and
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Corporate Card customer base has increased from 2,650 customers in FY05 to over 4,000 in
FY06 and prepaid card sales have surged by 20%YoY in FY06. In FY05, PSO also successfully
launched a co-branded PSO-UBL road mile card. The plastic card business has assisted PSO to
increase retail level sales for Mogas and HSD. Even in a declining volume scenario, the growth
in the plastic card business will enable the company to maintain market share and volume.
II. Weaknesses
(a) Finite Supply / production Of Indigenous oil
Crude oil is a natural product and obtained by drilling deep into the earth, deep sea and offshore
through varieties of machineries and then after refining the crude petroleum. There are many
countries where petroleum existence is common. Such as Saudi Arabia, Kuwait, Qatar, Bahrain,
Iraq, Iran ,India, Jordan, Egypt, Turkey, USA, UK Canada , Indonesia Nigeria, Germany ,France,
Italy ,Venezuela, Colombia etc. Many of these are the members of OPEC countries, who control
the production and supply of crude oil in terms of barrel annually.
Pakistan is also an oil producing country and according to one estimate presently the total
reserve potential in the country is 27 billion barrels and country consumption in different sector is
nearly 18.5 million tons/ year. The country imports more that 14 million tons of petroleum
annually. The current crude oil production met only 17% of the total demand for domestic
consumption. The balance requirement is imported involving large expenditures of foreign
exchange.
Global supply of crude oil is governed by the OPEC. It comprises ten developing countries, oil
exporting countries and it coordinates the petroleum policies of the member nations to ensure the
price stability of oil prices in the international markets. OPEC`S oil exports comprises 55% of the
oil traded internationally and hence, the variation in production levels impact global prices.
Political shocks in any county of OPEC can seriously affect oil supply and prices have been
observed during gulf wars.
Pakistan crude oil imports originate from the Middle East gulf, largely from Saudi Arabia under a
govt to govt contract that refineries fulfill.
Refineries are free to import crude to satisfy the balance of their requirements and these have
been procured from Saudi Arabia and Iran. More recently, Parco has also imported crude oil from
65
Abu Dhabi but more than half of their imports consist of Arabian light crude.
Oil crisis is not a one night story but it started since 1979 till to yet. The causes for this big issues
clear from these proceedings
❖ 1979 further reduction by OPEC due to Iranian revolution
❖ 15 years of high oil prices end at beginning of 1986
❖ 1990 fear of supply due to Person gulf crisis
❖ OPEC, the cartel of oil producers, accounts for about half of the world’s crude oil exports
and attempt to keep the prices roughly where they want either by squeezing or supplying
supplies to the market.
❖ In the past OPEC used to wait for prices to drop before they cut the output .But now things
have changed, OPEC is now acting more aggressively, announcing production cuts to
pre-empt any awakening in prices. In past, oil companies traditionally re-built their stock
when there was weaker demand and prices were lower but it is difficult to do this now.
❖ 2001 experienced economic recession triggered by sept11, 01 incident in the USA
followed by coalition military operation in Afghanistan. Pakistan’s proximity to Afghanistan
and a war –like situation on its border with India put the country’s economy under
tremendous pressure resulting n lower domestic consumption.
❖ 2003 witnessed global economic downturn, indolent trade and business uncertainty by
Iraq crisis & unfavorable business environment in Asia due to SARS EPIDEMIC.
❖ Like Pakistan the world major oil consumers remain dependent on Middle East for their oil.
Recent violence in Iraq and probable us attack on Iran only to save Israel has raised fears
about an interruption to supplies. Iraqi exports have been cut by sabotage attacks on oil
facilities. The reduction in supplies has been relatively modest but it has caused some
doubts about Iraq’s longer term prospects of becoming a large and stable oil exporter.
❖ Probable us war on Iran which is highly controversial has also increased tensions in the
region particularly and world wide in general. Any attack on Iran will be a mayor event for
the world oil markets world economy might not be able to stand on its foot in at least
medium term.
66
Analysts also view political tension in non –middle east states in Nigeria and Venezuela having
the potential to disrupt exports and drive up world prices. In the Persian Gulf, economic hardship,
anti-Americanism related to the Arab-Israeli conflict, and the resource patrimony-style
propaganda of Iraq’s former Baathist regime and other radical governments have propelled
demands for higher oil prices from the Arab street._ Saddam Hussein described the Gulf War as
a struggle over a U.S. conspiracy to deprive the Iraqi people and other Arab nationals of the right
to garner lair_ value for their national patrimony –oil resources. Al-Qaeda leader Osama Bin
Laden has also agitated the population to seek higher rents for oil.
(b) Lower Brand Image
Being a state owned entity PSO has lower brand image in comparison of its major competitor i.e.
shell (name carries as an international image).Because of brand name the sales of lubricants is
highly affected. The sales of lubricants stems from the fact that it is the only completed de-
regulated product white oil product segment where the profit margin range from 30-35%.
In industry level the lubricant sales volumes have grown at a CAGR of 05% during the research
period (Heavy-duty engine oil (45%) followed by passenger car oil (20%) and industry main
contributors20%), generating 85% of total lubricant sales volume.
PSO achieved more or less 30-32% in lubricant sales during this study Period. Company also
acquired major contracts of lube supply to Pakistan steel, KPT & BP exploration in 2003 but was
not able lead to shell.
Again it was decline in 2005-06 because of fire incident at lube manufacturing terminal at
korangi. Out of three –four oil/lubricants the credit of lubricant sales goes to castrol (international
renowned brand) as passenger car oil.
Co Name 97 98 99 00 01 02 03 04 05 06
PSO 23.37 31.52 26.81 23.37 21.4 20 19.3 22 26
Pso Lube share in %
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(c)Frictional Employment
Being a government owned entity the most of policy makers are the influential of government,
owing to this efficiency and productivity are at sub-optimal level.
In early 2000 when reforms were taken in oil & gas sector that create a spirit of competitiveness
in markets. Indeed of having strong infrastructure and high storage capacity with life of 50 years
of operation with national flag unfortunately PSO was lacking the high caliber professionals at top
level. At that time it was realized by ministry to keep away from intervention in recruitment if they
want to see the company in comparison of other competitors as the best. Consequently the
major post was filled with personnel of repute. After that one initiative taken in FY01, the
management also undertook "rightsizing" exercise whereby approximately 600 employees were
made redundant through a golden handshake scheme at a total cost of PkR815mn. From over
2,800 employees in FY01, PSO has currently squeezed its workforce to approximately 1,970
employees. No doubt after corporate level changes company had made good progress but
simultaneously team work spirit was not observed that can promote the efficiency with modern
technology. Many groups in one association have some reluctance with new mgt because of
requirement of improvement in performance.
Noticeably in 2006, 17 non mgt employees entered into the mgt cadre with the recognition of
outstanding performance. If obviously there is an potent according to new paradigm is in their
skills then it is a matter of pride for company but if it’s unlikely then it is a sign of burden on
company.
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As a national entity mostly employment is based on influences where the space (job) (s) is
occupied but talents prophesy is not. Frequently changes are observed at corporate level like the
managing directors are changed without any major cause declared to public.
If the mgt offers the high performance recognition award these are also violated on the basis of
nepotism & favoritism.
Very surprisingly the company at present employs the services of some 580 outsourced
employees.
(D) Geographical Diversification
PSO's extensive network is a dual-edged sword. Approximately 1200 outlets out of 3700 are
placed due to geographical expediency and social responsibility rather than viability. These are
located in remote areas generating negligible profitability. If we observe the market share or
sales per day of petroleum products in remote areas of Balochistan & N.W.F.P, that is were little
to earn. In fact, in these areas because of tribal conflicts perilous events were faced by company
like dispute in between the company staff (at pumps, installations, depots) with local persons.
III. OPPORTUNITIES
(a) Alternative Uses OF Existing Facilities.
Islamic Republic of Pakistan is a fast growing consumer economy. The relation ship between
energy consumption and economic growth is a well established fact. Yet in Pakistan its co
relation remains a question mark .Pakistan’s policy makers often get confused whether economic
growth leads to energy consumption that energy consumption is the engine of economic growth.
Like other developing countries Pakistan is also an energy intensive growing economy, and as in
most other non-oil producing countries its energy needs are meet by large quantities of imports.
The AGCR of net consumption of total energy is 6.4%.The share of oil, gas and electricity is
48%, 30% (of which more of half is used in electricity) and 15% respectively. The share of
imported oil was 85% of net consumption of oil in 2006-07, which is about40% of total net
consumption of total energy in the country.
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Thus, to meet its growing needs of energy, Pakistan faces both energy constraints from the
supply side and demand management policies. Energy sector in Pakistan comprises of
electricity, gas, petroleum and coal. The primary commercial energy supplies increased to
estimated amount of 60 million tons of oil equivalent during 2006-07 as compared to 57.9 in 05-
06 and 55.5 in 04-05.
According to economic survey of Pakistan, consumption of petroleum products has decreased by
an average rate of 0.4% per anum from 96-97 to 2005. According to latest available” Pakistan
energy year book 2006 compiled and published by HDIP, there is an increase of 4.18% in 2005-
06 where as estimated growth for the 06-07 is 5%based on few facts, the reason for estimate for
already closed year is that HDIP has not yet issued the financial numbers of 06-07.
The slower growth rate of primary energy supplies can be attributed to
(1) Lower consumption of HSD in transport sector (2) sharp reduction in coal imports by Pakistan
steel.
The decline in primary energy supplies has been compensated by sizeable increase of 20% in
hydel generation. The share of natural gas in primary energy supplies reached 50.04%followe by
oil 28.4%hydroelectricity 12.7% coal 7.0% nuclear electricity 1.0 and LPG 0.4%.
In recent days international oil price touched 100 dollar per barrel where as OGRA is going to
increase oil prices in Pakistan by almost Rs8, this would be the first revision in 19 months.
This huge increase will definitely bring new heights in inflation rate. World has witnessed new
heights of oil prices in recent days. During the last fiscal year, Pakistan used billions of dollars of
its prestigious tax payer’s money for import of furnace oil. Secondly, expensive fuel is not only
issue; fuel handling capacity in Pakistan is also an emerging issue.
In addition to huge financial burden on the economy and people, the situation also raises some
new issues of the securities of supplies. Secondly, expensive fuel is not only issue; fuel handling
capacity in Pakistan is also an emerging issue. Fuel handling capacity in Karachi is reaching its
maximum ad with the construction and operation of new sea port at Gwadar, the problem does
not seem to resolve as since long fuel has been transported from Karachi to rest of other country
but now onward it might also be coming from Gwadar.
The other suitable sources available to OMC`s as substitutes product for energy are CNG, LPG,
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COAL and LNG.
(b)CNG Dynamics
The advent of Compressed Natural Gas (CNG) has made considerable in roads as a substitute
for motor gasoline consumption. Pakistan, at present, is the largest Asian consumer and the third
largest consumer of CNG behind Argentina and Brazil globally. The GOP has promoted the use
of natural gas as an alternative to liquid fuels considering the burden on the import bill of crude
oil as well as environmental benefits relative to high emission fuel oils. CNG conversion has
increased at a 5-year CAGR of approximately 46% accounting for roughly 45% of potential
convertible vehicles. We expect this figure to increase to 57% by 2010 with a 4-year conversion
rate CAGR of 17%. CNG stations have increased at a phenomenal rate due to an attractive
investment risk return profile. In FY01, there were 165 CNG stations located across the country
where at present the number has increased almost five fold to 930 CNG stations located across
the country. The concentration of CNG stations is primarily in Punjab with 58% concentration
followed by Sindh and NWFP with 19% each.
With an estimated 145 co-located sites equipped with CNG facilities, PSO is the market leader
among oil-marketing companies with 18% market share in total CNG sales volume followed by
Shell Pakistan with an estimated market share of 12%. However, about 52% of the total installed
CNG stations are located on independent premises accounting for 58% of total CNG sales
71
volume.
Policy is in place to ensure that a substantial disparity exists between prices of gasoline and
CNG in order to promote the use of natural gas as an alternative to petrol. Consumer prices are
uniform across the country and are determined by market forces. The input gas price and final
consumer price is fixed for operators therefore margin or "Operator Margin" is determined by the
difference in sum of input gas price, taxes and other expenses from the fixed consumer-selling
price.
Co Name 1999 2000 2001 2002 2003 2004 2005 2006
PSO 01 15 30 44 71 107 145 150
Pso Cng stations in Pakistan during 99-2006
(c)LPG
Liquefied petroleum gas is another substitute of energy fuels ,used worldwide for cooking and
heating, especially in areas without connection to piped natural gas. The co LPG business unit,
supported by 04 plants with combined capacity of 750MY/day. At the last of 2007 PSO has
maintained its momentum by registering an increase of 34% over last years in its sales volume
that attained a 25 year high of 21000 MT. This enables a company to enhance its market share
by 1% to around 5%.Plans are afoot to further strengthen its infrastructure and to improve its
market position in this high value sector.
(d)Upstream Activities
With the ability to leverage post privatization, we feel PSO's vast network and infrastructure
places have been set aside considering the impending privatization, though market rumors have
spurred linking PSO with the upcoming mega refinery project in district Hub, Balochistan. With
tremendous potential companies do venture to concentrate the upstream activities in the oil and
gas sector. The recent trend in the oil and gas sector shows upstream oil and gas entities moving
towards downstream activities ensuring consistent supply.
With relatively low barriers to entry in Pakistan's exploration and production sector and the
recent emerging trend of vertically integrated oil & gas entities, PSO could potentially be the first
downstream player to venture into upstream activities post privatization.
Coastal Refinery: One of the key expansion developments envisioned by the current
72
management on the horizon includes the establishment of a refining complex, which is likely to
reduce the import of HSD (shortfall of approximately 4-5mn MT annually) and FO (shortfall of
approximately 1mn MT annually). However, the refining plans at present to leverage
approximately PkR32bn, we see PSO's refining dreams becoming a reality. Secondly, with
Pakistan becoming a strategic corridor through Gawadar for China's rapidly increasing oil needs
and refining capacity under constraint within the region, the long-term strategic viability of such a
project increases manifold.
(e)White oil pipeline project
Subsequently PARCO formed a joint venture with Pak-Arab Pipeline Company (PAPCO) with a
51% equity stake in project. PSO, SHELL, CALTEX is also part of the joint venture with a
12%,26% & 10% respectively equity stake. The pipeline has capacity to transport 4.5mn MT of
HSD per annum. As far as the impact on HSD volume is concerned the WOPP has
decommissioned approximately 4,000 tankers that were previously used to supply HSD demand
upcountry. WOPP
o Capacity 14mn MT per year
o Length 817kms
o Diameter 26"
(f)Oil Deregulation
Since oil & Gas establishment to 1990`s oil prices were regulated or controlled by government
with that Perception that government wants to provide Consumer Protection. , Limits profits of
OMC`s, Uniform pricing across regions.
Since early 2000, an ambitious, pro-market, reform program is being implemented, and
gradually, the straightjacket under which the industry used to operate is being dismantled. As a
result, the sector has changed dramatically over the past few years.
If the oil prices are deregulated in relation to international scenario then the industry can get
some benefits.
o Petroleum Downstream Activity is not a natural monopoly;
o Many players and potential players
o IOCs, Local firms become Independents
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o Newcomers innovative, creative
o Consumer Oriented pricing
o Transparent pricing
o Measurement of efficiency – net backslider to knock on the door than compete.
Effective to Jan 2001 the govt allowed OMC`s to import fuel oil & LPG under the self mgt pool
and also authorized the OCAC to notify the prices on fortnightly basis according to prescribed
formula, although the staged deregulation of POL industry has also posed stiff challenges for
retention of sales volume and market share but at the same time if the OMC`s have high storage
capacity and affordable to import the attractive volume from abroad then they can enjoy this
threat or policy of govt as an opportunity. As it is discussed in detail in previous chapter the PSO
have a stock capacity to total 2660509, crude 830614 (31.2%) and of product 1829895 M.Tons
(687%) at different ports.
Since deregulation in July 2001, things have changed dramatically due to linking of domestic
prices with international price fluctuations and traditional inventory gains earned by all OMC`s
(not only particular PSO) vanished owing to sharp price movements. The company saved
substantial amount by importing HSD at a cost efficient price thus passing on the benefit of
reduced cost to the end-users also in 14 out of 19 price revisions since september1, 2002
company import cost of HSD was less than the refinery’s. Further more, out of 16 prices
revisions in 2003 PSO`s price was less than the competition 13 occasions, resulting in passing
on the benefit of competitive buying to end users, to a tune of Rs:900 million.
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IV. Threats
(a)Volatile oil pricing
At present PSO is dominant in holding inventory (strong in storage capacity) in comparison of
other OMC`s which is also a cause of its market leadership. In hold of this position the PSO is
not isolate from volatile price effect. Higher oil prices, though beneficial for the current position, if
passed on in the form of higher domestic POL product prices could worsen the sales volume
situation in a long term perspective. But if sudden any decrease in prices at international level
definitely it is to be bear by company at storage cost that would start also affecting its earning.
(b)Distributor Margin
Distributor Margin - deregulation with a twist
The GOP, in order to stimulate foreign investment, started to reform key sectors of the economy
where foreign interest was visible.
Effective from 1st July 2000, the GOP deregulated the price of fuel oil after which the price of
Liquefied Petroleum Gas (LPG) was deregulated in September of the same year. In 2001, the
GoP allowed for self-management of the freight pool system implemented by OMC`s through the
OCAC and in 2002, the OCAC was given charge to review POL product prices on a fortnightly
basis as per the GoP price mechanism.
Subsequently, in July, 2002, the GOP further raised distribution margins for all regulated
products to 3.5%. The sector's largest volume generating product, HSD was deregulated at the
principal stage (covered in HSD section). However, change in the margin scenario for oil
marketing companies does not end there. Until March of 2006, distributor margins for oil
marketing companies were calculated on the final selling price inclusive of General Sales Tax.
The Ministry of Petroleum and Natural Resources (MNPR) has restructured the pricing formula
for the calculation of dealer and distributor margins. After the restructuring of the formula the
MNPR has also transferred pricing power from the Oil Companies Advisory Committee (OCAC)
to the Oil and Gas Regulatory Authority (OGRA).
Previously, OMC and dealer margins of 3.5% and 4% respectively were calculated on ex-depot
sales price inclusive of General Sales Tax (GST). The GoP in the revised formula for POL
75
product pricing has excluded General Sales Tax (GST) in the calculation of distributor and dealer
margins. In the revised formula the capped margin of 3.5% is calculated on selling price ex-sales
tax reducing the effective margin of 3.5% is calculated on selling price ex-sales tax reducing the
effective
Distributors margin revision for OMC`S
In a regulated sector, the ability to improve margins on some key products is limited and
vulnerable to government discretion.
(c)NEW ENTRANTS
Until 1999, the government tightly controlled the oil and gas industries of Pakistan. Since early
2000, an ambitious, pro-market, reform program is being implemented, and gradually, the
straightjacket under which the industry used to operate is being dismantled. As a result, the
sector has changed dramatically over the past three years, and Pakistan now leads South Asia in
sector reform.
The government actions have focused on promoting private investments in the upstream,
deregulating most of the market for petroleum products, establishing a regulatory agency for the
gas sector, and introducing market-related price caps for petroleum products. The government’s
long-term goal is to create a competitive, efficiently-run, financially-viable, and largely privatized
oil and gas sector providing supplies to a large share of the population.
The government recognizes its primary role as that of a policy formulator to ensure a level
playing field, and to act upon anti-competitive behavior.
In a saturated market with low barriers to entry, the OMC sector is witnessing increased
Mogas HSD LDO SKO
Previous Margin 2.10% 1.90% 1.40% 1.40%
Revised Margin - Effective March 15, 200 2.40% 3.0% 1.70% 1.70%
Revised Margin - Effective July 1, 2002 3.50% 3.50% 3.50% 3.50%
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competition as smaller OMC`s are attempting to increase penetration levels. The mushroom
growth of new entrants, without any investment on infrastructure and zero overheads in terms of
operations has badly affected the existing players.
Not only this but refineries also start in mkg activities Like Attock Oil group have sponsored
Attock petroleum limited in 1999 they have started its business as oil mkg companies, Total
Parco was incorporated in 2000 by the joint venture of Total finaelf and Parco (Increasing the
number of pumps with modern facilities, Cng stations, Storage terminals, attractive business in
retail to industrial users).
SWOT Analysis of SHELL
STRENGTHS WEAKNESSES
Popular Brand Name
High margin product mix.
.
Product Category Exit
Low ROE
No expansion in NVRI
OPPORTUNITIES THREATS
Flanking in CNG
FO market.
New Entrants
Distribution Margin
Variation In MOGAS & CNG
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I Strengths
(a) Popular Brand Name
One key aspect that distinguishes Shell Pakistan from rest of the oil-marketing sector is the
brand value that the Shell name carries& enjoying the world’s 89th most popular brand name,
Shell’s products benefit from higher perceived quality.
In volume terms, lube contributes approximately 1% growth in POL Product volume. However,
the importance of lubricant stems from the fact that it is the only completed deregulated white oil
product since 1996 that earn the margin at the range of 35-50%.Owing to this high growth in
profit the company has continued with its focus on Lubricants. Shell lubricant brands of Rimula,
Helix and Advance have a continue preference, contributing appreciably to profitability.
97 98 99 00 01 02 03 04 05 06
20 25 27 30 43 44 44 43 39 41
Shell Share (%) In Lubes
Shell has managed to increase its market share in the Lube product category from 40-44%
during research period also have a potential for further increase in it but because of national
entity hold by PSO, acquired major contracts of lube supply like to Pakistan steel mill, not able to
lead from its existing share but close the window of its further growth in 2003-04. However, with
the rise in competition and improving product quality from its competitors, Shell's brand name is
finding it hard to retain market share. In 2005 despite of maintaining the highest throughput per
site, Shell Pakistan is facing a declining trend.
In volume terms lube contribute approximately1% towards POL products volume However, the
importance of lube stems from the fact that it is the only de-regulated white oil product segment
where profit margin range from 35-50%.
With the posting a 5-year CAGR of 5% for the overall industry it has performed at par with
industry. Going forward, and expect Shell to leadership status in the high margin product
segment to perform at par with the industry by posting a 4-year.
(b) High Margin Product Mix
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Shell is operating on margin oriented business model that focused on high margin products
rather than high volume products. Relative to its competitors, Shell generates profitability not on
sheer volumes, but rather on maintaining a high margin product mix. The market share of shell in
the petroleum products is in good proportion available but the major profit earn by company is
owe to those products that will generate high margin in having low volume also.
If we observe the market participation of shell in petroleum products sine 97-06 it is clear in
product base of OMC`s that it is losing its share in Mogas , HSD,FO because of PSO and also
other infant companies but not exited from market in supply of these products.*(see OMC`s
product base).Even though the Shell was able to give PSO a run for its money till 2003 but by
the fortune ( aggressive marketing initiatives were taken)of PSO it was not continued further.
Shell Sales M tons Product Mix
Mogas 361,545.00 13%
HOBC 3,007.00 0%
JP 1 367,903.00 14%
Kerosene 31,928.00 1%
HSD 1,709,686.00 63%
LDO 2,828.00 0%
FO 168,786.00 6%
Lubes 55,874.00 2%
Others 2,104.00 0%
Total 2,703,661.00 100%
Sources: OCAC & AKD Estimates
Even with declining volumes witnessed in key POL products, company focus on low volume high
margin products enables the company to maintain profitability growth.
However, with the impending privatization of state-owned PSO, and expected addition to oil-
79
based thermal capacity, Shell may consider re-entering the FO product category.
II Opportunities
(A) Flanking Out In CNG
The management of Shell in view of the rising competition in the OMC sector resulting in a
squeeze on de-regulated product margins has decided to fuel future growth through the rising
demand for Compressed Natural Gas (CNG). The revised strategy calls for generating higher
margins on CNG sales revenue by seeking 100% investment in CNG infrastructure. As a result,
the company enjoys higher margins on gross CNG sales revenue relative to PSO.
Shell having a good return on equity from other regions except Pakistan (due to decrease in
sales of all POL products),make it unattractive to compete for funds from global pool and after
the good thoughts of discussion it was decided that company has undertaken a converging
strategy in the rapidly growing CNG business. Shell Pakistan undertakes complete investment in
CNG infrastructure at its retail (owned and franchised) forecourts ranging from PkR15mn to
PkR20mn. In return the company benefits from higher margins on gross CNG revenue relative to
competitor PSO which based on our estimates receives anywhere from 4%-7% on the basis of
the strategic importance of the site.
Co Name 1999 2000 2001 2002 2003 2004 2005 2006
shell 01
06 25 38 54 72 96 120
Shell share in CNG stations
80
With 120 sites equipped with CNG facilities, it is estimated Shell's market share to stand at
approximately 12% at present
The company has undertaken an ambitious program to add an additional 80-100 sites in FY06
taking the total equipped CNG sites to 220 Nonetheless, we have remained conservation in our
estimate for CNG growth to be witnessed by Shell and it is expected the company to add
mushroom growth in Cng sites in FY07.
(B) Growth in Furnace Oil
FO is the main product in the black oil segment constituting 97% of total black oil sales volume
and 32% of total POL product sales. FO is primarily used in thermal power generation where its
volume has gradually declined (between FY01 to FY05) due to higher FO prices leading
consumers to switch towards alternative thermal generation methods particularly gas-based
generation. Resultantly, FO volumes have posted a 5 year CAGR of 9%. PSO is the current
market leader in FO sales volume due to a captive market catering to independent power
producers (IPP’s) through guaranteed fuel supply agreements (FSA) & WAPDA is the 2nd
consumer and also the customer of PSO.
Rising power demand, lack of water availability and gas-supply constraints have changed the
tale for FO in FY06 & its volumes increased by 12%YoY. With Hub Power connected to the
KESC grid, expected erratic FO consumption by Hub Power to normalize going forward. For
FY07, FO sales volume expected to post a marginal increase of 2%YoY. Keeping in view the
excessive rainfall during the current monsoon season ,Going forward, with a looming power
shortfall in excess of 5,500MW facing the country by 2010, the GOP is attempting to speed up
the investment process in the power sector to set up new/additional capacity on a fast track
basis. If this occurs, FO volumes should post a 4-year CAGR of 4.7%.
In above situation of FO supply no doubt PSO will is likely to remain ahead in it subject to the
vital storage capacity is at its port and the privatization will be takeoff from the PSO. If the GOP
will be impending PSO in privatized and the calculations for the requirement of power on oil
based will remain same then shell has good opportunity to run for money in FO.
III Threats
81
(a) New Entrants
As it is already discuss in detail in PSO SWOT regarding the new reforms of 1990 to accelerate
the investment in oil sector GOP has relaxed the conditions and consequent upon the new policy
the entrance in this sector is heavily observed from private entities. Although it is a good sign of
development in the mean time also threat to existing players.
Shell being an entity of international repute, is also too much conscious from new entrants
because they aggressively pursue market share with aggressive market penetration (on product
mix category) and improvement in quality, has likely to test the brand quality and quantity.
If the new entrant has a strategy of one product then up to some extent it can be over glimpse
but unfortunates to existing players every infant company is playing a game of product mix
strategy with a rousing vision and team.
With competition rising in a saturated market shell has a need of to hunt other avenues for
revenues because in overall product mix it is gradually declining its share in key products
volumes of Mogas,HSD,JP-I. Certainly the demand of these Products decline as a cause of high
prices on one side but the second main factor is the number of its players increased.
(b) Variation in MOGAS & CNG PRICES
In view of high prices and rising competition the shell Pakistan has seen a decline in POL
(particularly in Mogas has fallen from 39%-31%) product sales volume even though having an
established brand name. In order to exceed/ maintain ROE requirements from the parent
company, since 2001 Shell has undertaken a converging strategy relative to PSO in the rapidly
growing CNG business because of having high margins on gross CNG revenue because huge
number of customers transport sector have a second choice CNG after the high oil prices of
Mogas. The price difference in between the Mogas & CNG is of 50%.
Because of high volatile prices of MOGAS, its sales volume has been decline from 5% - 11%
during 2000-06, but sudden change is observed from July –Dec 2008 when oil prices dipped
from $147/ barrel-$45/ barrel. This oil price change has also changed the behavior of consumers
because the price of MOGAS is almost 59/ liter but before July 2008 it was near to 79/ liter. The
major usage of Mogas remains with the transport accounting for approximately 98% of overall
sales of the product.
82
The advent of CNG along with its (Mogas) volatile availability and price it is estimated that 45%
of the vehicles have been converted to CNG. However, debate hinges upon whether current
price differential policy between Mogas and CNG can be sustained for long as the GOP is
already under pressure on the fiscal deficit side gas users - both commercial and non-
commercial.
Thus, over the next three it is reasonable to postulate that the price differentials will inevitably
narrow. This is then likely to reduce the price differential between Mogas & CNG leading to
demand growth more in line with long term trends.
As it is already discussed in detail (Cng flanking) that because of low sales growth in all POL of
SHELL , rising competition and increasing number of entrants in the oil sector resulted in a
squeeze on the deregulated product margins, the management of shell has decided to fuel
future growth through CNG and its revised in their strategy of 2003-07 that 100% investment is
granted to shell Pakistan from the parent company for CNG business .But if the prices difference
will not maintain in between MOGAS & CNG than it will be impossible for the shell to have good
payback from Cng business.
However, given the predictability in determining consumer consumption habits, we remain our
Mogas estimate with a 4-year volume CAGR of 1% going forward.
(C) Volatile Oil Prices
In 1990 oil prices were observed $16 a barrel as Iraq increased its production at the time of
Asian financial crisis when demand for oil fell. In 2000 it rapidly changed and reached $ 35/
barrel , $40-50 in 2004,in shoot up to $60 in 2005 and by early august2006 hit $65,September
2007 have a figure of $80 with a one month gap it become $90 in October. The next
psychological watershed of $100 was briefly breached in early 2008, but the price fell again until
the end of February after which it remained and rose well above this new setting because of
geopolitical tension over Iranian missile tests the worst position in oil prices trend was observed
and likely
83
March12, 08 $110
May 09, 08 $125
May 21, 08 $130
June 26, 08 $140
July 03, 08 $145
July 11, 08 $147
In the mean time it was predicted that it will go up to $150 by the end of Dec may be it touch a
round figure of $200 in 2009 but not happened likely
Aug 11, 08 $112
Sept 15, 08 $100
Oct 11, 08 $ 78
Dec 04, 08 $ 45
One can believe that volatile oil prices are the consequences of world political situations that
artificially exposed as gap in between the demand for crude oil and the limits of how much of it
can be produced.
Every one has observed that a remarkable hike in the price of oil in summer of 2008 was driven
partly by a period of brevity when global demand for oil outran its supply. The OPEC nations
were encouraged to ramp up their production to get the price down for western nations who
would be unable to maintain their demands for oil if its price remains at such high and
relentlessly increasing levels.
When there was a prediction of oil prices may reach at $150 in Dec 2008 but it became$45 &
FOR 2009 it was expected$200 but because of trend of dipping effect since august 2008-feb
2009 it is forecasted as $20/ barrel.
84
Some analyst have argued that if it is going to reach at $20 in 2009 then it will be a short lived
event, because of limits of production( at this price upstream activity are being cancelled
because it is lower than its production cost).
In this position of crude oil price the status of oil marketing companies’ is also worse because of
uncertain about either prices will further go up or come down.
It is already discussed in PSO volatile price higher oil prices, though beneficial for the current
position, if passed on in the form of higher domestic POL product prices could worsen the sales
volume situation in a long term perspective. But if sudden any decrease in prices at international
level definitely it is to be bear by company at storage cost that would start also affecting its
earning.
IV Weaknesses
(a)Product Category Exit
With rising power-demand leading to higher off-take for furnace oil, Shell has not properly timed
its exit strategy from the product category.
As it is already discussed in the opportunity section of shell in FO that if PSO will be privatized at
the govt tale and in the mean time there is Rising power demand, lack of water availability and
gas-supply constraints, looming power shortfall in excess of 5,500MW facing the country by
2010, the SHELL has a good opportunity to avail this chance but the exercise is being done by
SHELL is to focus on product mix strategy is creating a weakness for this company because by
this way they can not make proper arrangement of infrastructure for its ensured availability and
its supply at the time of need. If company wants to really enjoy the market of this product that has
required a strategic cognition for re-entering this product before the time.
(b)Low ROE
As for the shell ROE the position is less in comparison and down with high difference with the
passage of time because of additional expenditure as (petroleum development levy charges,
advertising expenses and international crude and its subsequent refined product prices)
problems that Pso experience.
85
(c)No expansion in NVRI
Shell is already loosing its brand equality because of rising competition ,not only this there is also
a losing trend is observe on the record of Mogas and HSD because of PSO and other rising
penetration from new entrants like APL also. Loosing the business in major earning drivers and
no attractive returns available within this region, Shell Pakistan is finding it difficult to wrestle for
the global pool of funds from the parent company and consequently Shell Pakistan has not
undertaken any expansion of its retail network and the company only has approximately 588
retail forecourts in Punjab* against over 2000 sites of PSO expansion in sight of its retail network,
the company only has approximately 588.
B) In Financial (Quantitative) Terms
1) Profitability ratios
Profitability ratios measure the firm's use of its assets and control of its expenses to generate an
acceptable rate of return.
(a) Net profit margin
Profit margin, Net Margin or Net Profit Ratio all refer to a measure of profitability. It is calculated
using a formula and written as a percentage or a number.
Net Income
Profit margin = ------------------------------
Net Sales Revenue
The profit margin is mostly used for internal comparison. It is difficult to accurately compare the
net profit ratio for different entities. Individual businesses' operating and financing arrangements
vary so much that different entities are bound to have different levels of expenditure, so that
comparison of one with another can have little meaning.
86
2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 average
PSO
2.4 2.2 2.2 2 1.7 1.2 1.7 2.3 1.5 1.9
1.88
SPL 2.3 2.2 1.7 1.4 1.3 1.4 2.1 1.8 1.4 1.4 1.7
0
0.5
1
1.5
2
2.5
2006 2005 2004 2003 2002 2001 2000 1999 1998 1997
PSO
SPL
Figure # 4.1 Profit Margin of PSO & SHELL(%) During 97-06
In the above figure we see that the performance of the PSO in the net profit margin has little
better that SPL except year 2000, 2001and 2006 where the SPL have little bit better net profit
margin than PSO the average of SPL has little bit better position than PSL.. The average net
profit margin results of PSO, SHEEL, are 1.88, 1.7 respectively.
SHEL was progressive from 97-000 in profit earning because of increase in sales volume and
also of high prices but decline in 01 by 07% (1.4) because of lower price gain , increase in
operating cost due to transport expenses as part of government’s deregulations initiatives, high
advertising expenses & publicity expenses because of increasing competition . Gradually
moving towards the success company again reverts back to the position of 2.3% profit mainly in
result from the increase in distribution margin.
87
(B)Return on Equity (ROE)
Return on Equity (ROE, Return on average common equity, and return on net worth) measures
the rate of return on the ownership interest (shareholders' equity) of the common stock owners.
ROE is viewed as one of the most important financial ratios. It measures a firm's efficiency at
generating profits from every dollar of net assets (assets minus liabilities), and shows how well a
company uses investment dollars to generate earnings growth. ROE is equal to a fiscal year's
net income (after preferred stock dividends but before common stock dividends) divided by total
equity (excluding preferred shares), expressed as a percentage.
Net profits after taxes
Return on equity (ROE) = -------------------------------------------------------
Stockholders' equity or tangible net worth
But not all high-ROE companies make good investments. Some industries have high ROE
because they require no assets, such as consulting firms. Other industries require large
infrastructure builds before they generate a penny of profit, such as oil refiners. You cannot
conclude that consulting firms need better investments than refiners just because of their ROE.
Generally, capital-intensive businesses have high barriers to entry, which limit competition. But
high-ROE firms with small asset bases have lower barriers to entry. Thus, such firms face more
business risk because competitors can replicate their success without having to obtain much
outside funding. ROE is best used to compare companies in the same industry.
High ROE yields no immediate benefit. Since stock prices are most strongly determined by
earnings per share (EPS), you will be paying twice as much (in Price/Book terms) for a 20%
ROE Company as for a 10% ROE company. The benefit comes from the earnings reinvested in
the company at a high ROE rate, which in turn gives the company a high growth rate.
88
0
10
20
30
40
2006 2005 2004 2003 2002 2001 2000 1999 1998 1997
ROE
PSO
SPL
Figure #4.2 ROE OF PSO & SHELL During 97-06
The graph shows that ROE of Pso is altered significantly because of increase in expenditure
(major on advertising and unstable international prices) and debts (payments from public entities
WAPDA,KESC.IPPS ,STEEL MILLS since years in pending) for which profit was also declined.
As for the shell ROE the position is same its ROE is already less in comparison of PSO but it is
also down with high difference having same problems additional expenditure as (petroleum
development levy charges, advertising expenses and international crude and its subsequent
refined product prices) that Pso experience.
(C)Return on Assets (ROA)
The Return on Assets (ROA) percentage shows how profitable a company's assets are in
generating revenue?
This measures how efficiently profits are being generated from the assets employed in the
business when compared with the ratios of firms in a similar business. A low ratio in comparison
with industry averages indicates an inefficient use of business assets. The Return on Assets
Ratio is calculated as follows:
2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 average
PSO 36.2 32.2 27.3 28.3 25.7 21.1 22.3 30 26.1 34.4 28.36
SPL 30.9 29.5 21.1 21.4 18.3 19.6 27.2 21.7 15.3 29.8 23.46
89
Net Profit before Tax
Return on Assets = ________________________
Total Assets
0
2
4
6
8
10
12
14
2006 2005 2004 2003 2002 2001 2000 1999 1998 1997
PSO
SPL
Figure #4.3 ROA OF PSO & SHELL During 97-06
The above figure shows an average return on assets of PSO 9.34%, SPL 8.22, PSO, and SPL
has last position. It means PSO uses its assets more efficiently to earn money than other
competitors.
2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 average
PSO 10.70 10.90 9.90 12.50 9.70 7.50 7.20 10.40 6.30 8.30 9.34
SPL 11.03 1.19 9.83 9.55 8.98 8.75 5.12 5.0 6 6.5 8.22
90
2) Market ratios
(a) Earnings per Share
The EPS formula does not include preferred dividends for categories outside of continued
operations and net income. Earnings per share for continuing operations and net income are
more complicated in that any preferred dividends are removed from net income before
calculating EPS. Remember that preferred stock rights have precedence over common stock.
Net Income
Earnings per Share = ---------------------------------------
No. of ordinary Shares outstanding
Note: Only preferred dividends actually declared in the current year are subtracted. The
exception is when preferred shares are cumulative, in which case annual dividends are
deducted regardless of whether they have been declared or not. Dividends in arrears are not
relevant when calculating EPS
0
20
40
60
80
2006 2005 2004 2003 2002 2001 2000 1999 1998 1997
EPS
PSO
SPL
Figure #4.4 EPS OF PSO & SHELL During 97-06
We see in above graph that SPL has better performance in case of earnings per share, actually
management has a goal to increase the value of the shareholders’ equity, from which this prove
that SPL has more efficient policies to increase its earnings per share than PSO. The more
earning per share also gives an attraction to investor in the market, in this way the company can
2006 2005 2004 2003 2002 2001 2000 1999 1998 1997
PSO 43.9 33 24.6 23.5 18.6 15.8 15.6 18.7 18.6 24.7
SPL 70.9 55.9 43 35.8 30.3 30.1 37 25.1 19.6 23.2
91
easily earn more money and can invest in more profitable projects. Average earnings per share
of PSO are only Rs. 23.7 where the SPL has Rs. 37.09. It shows a difference of Rs. 13.39 more
of SPL on average earnings per share than PSO.
Shell has been able to post high earning per share other than industry players. However, it
recorded negative earnings in 06 due to escalating oil prices and slack demand for POL
products, which make up the major source for the company earnings.
(b) Market value per share
Market value per share of SPL is better than PSO. Average MVPS of SPL is Rs. 312.8 and Rs.
210.4 of PSO during last 10 years. This indicates the overall efficiency of the management, to
increase the value of the share which is the main goal of management, because this increases
the wealth of the stock holders’ equity. In this regard a researcher can easily conclude that
overall operational efficiency of SPL is better than PSO.
0
100
200
300
400
500
600
2006 2005 2004 2003 2002 2001 2000 1999 1998 1997
PSO
SPL
Figure #4.5 Market value per share of PSO & SHELL During 97-06
2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 average
PSO 307.3 382.8 255.84 227.95 139.5 132.72 162.2 93.5 76.3 326 210.4
SPL 480.8 553.0 348.3 422.4 221.2 279.9 259.0 160.6 168.6 234.3 312.8
92
(c)Dividend Payout ratio
Dividend payout ratio is the fraction of net income a firm pays to its stockholders in dividends.
Dividends
Dividend payout ratio = --------------------------------------------
Net Income for the same period
The part of the earnings not paid to investors is left for investment to provide for future earnings
growth. Investors seeking high current income and limited capital growth prefer companies with
high Dividend payout ratio. However investors seeking capital growth may prefer lower payout
ratio because capital gains are taxed at a lower rate. High growth firms in early life generally
have low or zero payout ratios. As they mature, they tend to return more of the earnings back to
investors.
0
20
40
60
80
100
2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996
DPOR
PSO
SPL
FIGURE #4.5 DPOR OF PSO & SHELL DURING 97-06
In above graph we can see that PSO has more payout ratio since 1997 to 2002 but during 2003
and 2004 SPL has more payout ratio than PSO but again PSO has more payout ratio than SPL
after 2004. Average payout ratio of PSO has 65.69, whereas SPL has 55.94. So we can say that
SPL is retaining approximately 10% more in the business than PSO. It shows a good sign to
increase the value of stockholders’ equity.
2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 average
PSO 77.5 78.8 71.3 68.1 80.7 63.3 64.1 58.8 53.8 40.5 65.69
SPL 7:12 14:24 81.4 97.8 59.4 41.5 44.6 49.8 43.4 36.6 55.94
93
Shell dividend payout ratio of 2003 is Very high in last ten years because it representing a full
payout of profits available after taking into accounts the requirements of white oil pipeline
investment
SPL stood on second position in dividend payout ratio. Average payout ratio of PSO has
RS.15.15, where as shell have Rs 21.15. It has shown that shell has a good sign to increase the
value of stock holder’s equity.
(d) Price Earnings ratio
The P/E ratio (price-to-earnings ratio) of a stock (also called its "earnings multiple", or simply
"multiple", "P/E", or "PE") is a measure of the price paid for a share relative to the annual income
or profit earned by the firm per share. A higher P/E ratio means that investors are paying more
for each unit of income. It is a valuation ratio included in other financial ratios. The reciprocal of
the PEE ratio is known as the earnings yield.
0
2
4
6
8
10
12
14
2006 2005 2004 2003 2002 2001 2000 1999 1998 1997
PSO
SPL
Figure #4.6 EPS OF PSO & SHELL During 97-06
Above graph shows an average price earnings ratio equal to 8.73 % of PSO and 8.53 % of SPL,
so there is not a significant difference in this regards, in spite of this some points of price
earnings ratio of PSO is more it means PSO pays some more price than SPL for earnings.
(e) Profit after tax
2006 2005 2004 2003 2002 2001 2000 1999 1998 1997
PSO 43.9 33 24.6 23.5 18.6 15.8 15.6 18.7 18.6 24.7
SPL 70.9 55.9 43 35.8 30.3 30.1 37 25.1 19.6 23.2
94
Profit after the percentage of sale of SPL is greater than PSO. But have little difference in their
profit after tax. The average profit of companies shown below in the table.
0
0.5
1
1.5
2
2.5
2006 2005 2004 2003 2002 2001 2000 1999 1998 1997
PROFIT AFTER TAX AS % OF SALES
PSO
SPL
Figure #4.7 PROFIT AFTER TAX OF PSO & SHELL During 97-06
The growth in profit an after sale of shell was progressive from 97-00 but shocked during 01-04
mainly a result of high selling prices and a superior product mix providing enhanced margins.
This was bolstered by inventory gains. In this pursuit Pso was also on the same course but not
defeat shell.
4.5 Step 5 Selecting Competitors To Attack Or Avoid
This step creates a good sense to which a company can attack or avoid competing in a market.
This choice is added by conducting a customer value analysis, which will reveal the company’s
strengths and weaknesses relative to various competitors.
The major steps for value added analysis are
2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 Average
PSO % 2.1 2.2 2.2 2 1.7 1.2 1.7 2.3 1.5 1.9 1.88
SPL % 2.3 2.2 1.7 1.4 1.3 1.4 2.1 1.8 1.4 1.4
1.7
95
a) Identify the major attributes that customer’s value
In oil industry it is discussed in detail in previous chapters that there is no any strategy that
can be applicable on prices but there are some other attributes that customers value like
product quality, Visionary look, inventory, infrastructure, other conjugated to non -fuel
services i.e. tier shop. Lube changing, car wash, tuck shop. etc
b) Assess the quantitative importance of the different attributes.
Assessment of different attributes in quantitative terms is very tough .To explore the most
reliable answer of this step there is need of survey through questionnaire from various
class of customers to check the divergence of customer on different attributes in rating
form.
Assess the company’s and competitor’s performances on the different customer values
against their rated importance.
Below the respondent answer is plotted on two attributes in perceptual mapping form.
1) Product quality 2) service availability, the position in graph shows that shell is high in
preference by customer in both attributes in comparison of PSO.
Figure #4.8 perceptual mapping on Product quality & service availability,
Shell
PSO
HIGH
HIGH
LOW
LOW
Service
Availability
PRODUCT QUALITY
96
Below the respondent answer is plotted on two attributes 1) visionary look 2)Inventory, the
position in graph shows that shell is high in preference by customer in visionary look but
PSO possess high inventory.
Figure #4.9 perceptual mapping on inventory & visionary look
Below the respondent answer is plotted on two attributes 1) Quality Testing
2)Infrastructure, the position in graph shows that shell is high in preference by customer in
Quality Testing but PSO have strong infrastructure
Figure #4.10 perceptual mapping on quality testing & infrastructure
Shell PSO
HIGH
HIGH
LOW
LOW
Quality Testing
Infrastructure
Shell PSO
HIGH
HIGH
LOW
LOW
Visionary Look
Inventory
97
c) Examine how customers in a specific segment rate the company’s performance against a
specific major competitor on an attribute by attribute basis.
d) Monitor customer values over time
Although customer values are stable on short term basis but it can be change from time to
time because of changes in technology, services other climatic changes. So that the above
analysis is redone after 18 months and the graphs were likely same in all factors of
analysis only a little improvement is recorded in PSO quality testing technology
Figure #4.11 perceptual mapping on quality testing & infrastructure
in the above graphs it is clear that all the factors remain same after taking view of same
customers on same questionnaire then there is little improved difference is observed in quality
testing technology of PSO in contrast of shell .
Shell
HIGH
HIGH
LOW
LOW
Quality Testing
Infrastructure
PSO
98
4.5 STEP 05 BALANCING CUSTOMER AND COMPETITOR ORIENTATIONS
At this stage each company has a need of to finalize the own business strategy for future.
According to model there are two possible traditional strategies are available.
1) Product centered:-in the first stage company paid little attention to customers & competitors
being a beginner, they just want to introduce the own product or when the company have a
monopoly. Like PSO during 19====
2) Customer centered:-it means a situation when company always in search of better to best
positions to identify new opportunities and set a strategy course according to evolving needs
of customers that makes long-run sense, given its resources and objectives. Like shell had
adopted this strategy always there were initiator in introducing the related diversified and
unrelated diversified services to customers when prices were fixed by government as
uniform.
3) Competitor centered:-it means a situation when company moves are basically dictated by
competitor’s action and reaction. Like PSO. Its history have record that after 99 reforms
nothing is done as an initiator. most of the time they introduced many schemes like NVR
outlets, quality testing mobilization, staff training, large bill boards, lubricants and other
unrelated diversification strategies likely tuck shop, tier shop, utility bills acceptance and
kiosk are the outcomes of their reaction to shell strategies.
It means that PSO had done a lot for business but it moves based on its competitor moves
albeit it has market share more than 61%.As a result, it doesn’t move in a predetermined
direction toward a goal. It does not know where it will end up; since so much depends on
what the competitor s decide to do.
99
But being a researcher I suggest another approach that is marketing centered strategy. By this
strategy a company should be vigilant to pay attention to customer needs as well as to
competitor’s strategies. This strategy has more advantages over the above both customer and
competitor centered strategy. This approach have imminent to check the customer changing
needs by the time flexibility and also cautious about that what my close competitor is trying to
cater this need. No doubt it is very tough tracing but possibility is concerned if the staff is well
trained in identification of customer’s flexibility in needs/demand and competitors views about
future outlook.
Figure #4.12 BALANCING CUSTOMER AND COMPETITOR ORIENTATIONS
Product oriented Customer oriented
Competitor oriented Market oriented
Competitor
Centered
Customer
Centered
NO YES
NO
YES
100
CHAPTER 05
CONCLUSIONS & SUGGESTIONS
5.1 CONCLUSIONS
1. Until 1990, the govt tightly controlled the oil sector, all the decisions were made on political
basis so that ill investments were made without considering there impacts on economy,
consumers etc .consequent upon this the sector become burden on government & very
smallest decisions had to be made in centralized manner.
2. From 1990-2001 petroleum policies reform were being implemented, and slowly gradually
government useless nosiness from oil and gas sector are being dismantle. (One has to
recognize that sector reforms require time given in particular the complexity of the issue,
the need to appease stakeholders, and the necessity to secure broad ownership of the
programs at all the levels of government and general public both.)
3. Before reforms major flaws were pragmatic like ambiguity in decision making, monopoly,
a narrow-minded policy was working for grant of mkg license, no any access regime,
Issues of subsidies, diversion to automotive sector corruption etc.
4. Refineries were not free to contract their own transportation arrangements for receiving
imported crude supplies and they are using national shipping lines even though it is
expensive.
5. There was a need to induce the competition among infrastructure providing companies.
6. An attractive vacuum is available in strategic stocks/storage capacity (over and above
commercial requirements) of petroleum products.
101
7. Until competition develops, maintain price caps only at import parity level and at retail
level.
8. The rationale for the freight pool is to equalize as far as possible the retail prices of key
petroleum products across the Pakistan is fully demolished and it created adverse impact
on economy likely (1) petroleum prices don’t reflect their scarcity value in the different
locations(2) it promotes malpractices, typically by claiming longer distances than those
covered in reality.
9. There is imbalance is created in consumption pattern of petroleum products because of
high variation in prices. Thus variation is observed due to heavy taxes (on gasoline
because it is the promise of GOP with Parco guarantee on profit until 2008. thus any
reduction in Parco profit it will be bear by the GOP & in turn they are covering in the form
of heavy taxes, nut this would tend to reduce demand, increased exports and further
distortions in market. Not only this but smuggling of gasoline from Iran is increased that is
sold in Pakistan at usual rates.
Conceptually, the growth in demand for key POL products to emanate from:-
a) Furnace oil – Power Policy Reformation (Thermal power back in vogue). With power demand
projected to grow at 8%-9% per annum, faced with gas supply constraints (to convert current
oil-based thermal generation to gas would require the allocation of an additional 591mmcfd of
gas) and hydel variation, oil based thermal generation is set to come back into play
strongly.
b) Lubricants – Robust growth in large scale manufacturing, infrastructure development
backed by cement/power capacity additions. Automotive oils are also expected to continue
witnessing higher off-take on the back of continued resilience in automobile sales. Marine oils
are likely to benefit from increasing trade activity particularly with Gwadar port operations.
102
c) Jet Fuel – Growth momentum to continue on the back of domestic as well as 7export growth
towards Afghanistan.
HSD – Direct co-relation to develop once again with projected GDP growth rates allowing for
change in sector dynamics.
d) Mogas – Mogas market share has been cannibalized by the highly subsidized.
e) CNG over the last 5 years. However, given gas supply constraints and fiscal deficit
containment need, the subsidy on CNG is unlikely to be sustained.
f) Thus, going forward, FY08 onwards, expected the price disparity between Mogas and CNG
to narrow leading to normalization of Mogas volumetric growth.
CONCLUSIONS FOR PSO PREMISED UPON
1) An Accumulate rating on PSO with average target sale of PkR349.40 imply a potential
upside of 15% to current market price.
2) It is expectation re-rating of PSO's target price upon privatization, which should unlock the
potential of an unleveraged balance sheet.
3) PSO is likely to be the biggest beneficiary of the expected rise in POL product volumes on
the back of a captive market for FO supply while its expanding plastic card business is
building a loyal retail franchise.
4) On the valuation front, PSO is trading at a discount of 13% to discount cash flows (DCF)
based target price and a prospective future if the cash flows have same pattern for years.
5) In terms of Net Profit Margin PSO did well on the inventory that it keeps.
6) The ROE of PSO has been higher over the years because it achieves more sales relative
to its equity and asset base.
7) PSO has the highest payout ratios as they are well-established.
103
8) The current movement in oil and gas sector is be evidence for inclination of upstream
sector to downstream business because of assurance in supply. A good example of attock
refinery and Parco have turned into down stream sector (Attock petroleum and Total
Parco) respectively. Pso with strong infrastructure, retail network, storage capacity, depots
and installations is most viable to enter in upstream sector especially in exploration
production.
9) If GOP tries to control a severe demand-supply gap in electricity (5,500MW by 2010), gas
supply constraints prevalent this auger well for PSO as it will be the biggest supplier of FO
and commands a market share of 79%.
10) Pso still can’t recruit well trained technical staff that can satisfy the exclusive
demands of public and cue to this their mind and heart share is affected.
11) Product quality and quantity is also issue for company
CONCLUSIONS FOR SHELL PREMISED UPON:
1) Shell is working on margin oriented business model & has squeezes on de-regulated
products by focusing on high margin product mix not on high volume.
2) SHELL is the market leader in lubricants and earns a high margin (35%-50%) across the
lube products. No doubt consumers have strong belief on the quality and standard of
shell.
3) An Accumulate rating on Shell with an adjusted (25% bonus) target of average sale
PkR505.00 implying a potential upside of 8%.
4) Shell unattractive sales in Pakistan created a problem for funding from international pool
because it is observed that the return on its investment on infrastructure by company is
unfair.
5) In view of its margin-oriented business model, Shell has shifted its focus toward high
margin products rather than generating profitability on sheer volume.
6) In terms of valuation, Shell currently offers a potential upside of 7% to discount cash lows
(DCF) based fair value.
104
7) Shell earning per share in trade is Rs10.2, furthermore the stock offers a potential
dividend yield of 6% at current market price.
8) In terms of Net Profit Margin Shell did well on the inventory that it keeps.
9) The ROE of shell has been lower over the years because it does not achieve more sales
relative to its equity and asset base.
10) Shell has the highest payout ratios as they are well-established.
11) ROA of shell is not well because of it has not the assurance of supply from group
companies.
105
5.2 SUGGESTIONS
1) The long term outlook for the oil marketing sector remains positive, dovetailing the
turnaround in the macroeconomic environment and consequent expected domestic POL
product demand over the next years. Based on the current economic outlook for Pakistan
and prevailing market valuations, I have hope that there is an opportunity to accumulate
oil marketing scrip.
2) Over-weight stance on the oil marketing sector is based upon robust economic growth
lying ahead, which should help overall POL product volumes to pick up at CAGR of 6%.
With a weakening in global crude oil demand & supply trend during97-07, it is expected
average crude oil benchmark Arab-Light prices to retreat to US$60-US63 a barrel for
FY07. However the average domestic POL product price level is expected to remain
sticky at current levels or at worst, decline marginally.
3) Major reforms
4) Refineries should be free to contract their own transportation arrangements for receiving
imported crude supplies .they should have incentives to engage in competitive markets
and should not require to use national shipping lines irrespective of is not economical.
5) There is a great need of to induce the competition among infrastructure providing
companies.
6) The government should create with the co-operation and participation of private sector
an industry wide entity for strategic stock, which will own, maintain and carry strategic
stock through development charges (levy fee) in the price chain.
7) It is strongly required to reduce the number of depots under the freight pool from 29 to
say 18 or up to 14 in coming fiscal years, this will allow for greater competition among the
secondary freight market and benefit to consumers, and ensure the road tanker industry’s
restructuring, improve the quality of services and safety and lower the transportation cost
element in final price. It is highly suggested to prepare plan for handling transport fleet
redundancies.
8) A rationale policy is required to developed that control the high prices because of heavy
106
taxes so that balance is created in consumption pattern of petroleum products
9) If luck has support to PSO then at least 6% growth in sales will be expected from the FO
supply to WAPDA & other IPP’s.
SUGGESTIONS FOR PSO IS PREMISED UPON
1) 13% to discount cash flows (DCF) of PSO on the basis of based target price indicate
prospective future if the cash flows have same pattern for years.
2) It is strongly suggested to Pso that increase the inventory because of national flag
because it raises its profit margin.
3) IF it sales will increase (mainly due to FO) definitely the return on assets will increased
and that company can clear the major obligations of its history like bad debts of refineries.
4) It is best for PSO to integrate vertically by getting entry in upstream sector With relatively
low barriers in exploration and production sector and Secondly, the trend in Pakistan
where consortiums are formed to explore and develop particular areas could allow PSO
to start of as an operator.
5) FO is largely consumed by WAPDA after IPP`S and its requirement is increasing
because of high electricity demand in country. No doubt the thermal power are shifted to
gas base because of high oil prices in international markets, but as such there is also a
constraint in gas supply (Cng business man are also in crisis ) so it is badly hoped that
there is also a tune towards oil based thermal plants, PSO is likely to remain ahead of its
competition in its supply to WAPDA as demand rises, given its ability to meet large-scale
tenders due to the company's extensive storage capacity Going forward, with 4,085MW
of planned capacity additions coming online by 2010, PSO’s FO sales to grow at a 4-
year.
107
6) There is extremely required to recruit well trained and skilled staff so that the complaints
of public dealing can be get rid of and customer preference will be increase.
7) Quality is the main criteria of loyal customer towards any product preference even though
price is not subject, it’s a bad luck of PSO that having no preference by customers for
gigantic quality belief. Do that act that prove quality, a fault is in measurement is also a
problem.
SUGGESTIONS FOR SHELL IS PREMISED UPON
1) Shell has to revise the strategy in future if the Pso will be privatized and oil based
thermal plant will continue along the rising demand and production of electricity , then
shell has to re enter in the category product(FO).
2) Don’t take the competitors ill in attack be cautious about their quality improvement since
three years Pso is trying to compete in lube by introducing the new brand with
international stamp.
3) In order to control the low profitability and its devised by SHELL company
has undertaken a congregate strategy in the rapidly growing Cng market. Now there is no
further investment by shell in petroleum product infrastructure development and expansion
but 100% investment is made on Cng.
4) If the storage capacity will be increased for extra inventory then company can ear high
margin on inventory.
5) If company wants to get it back in good position in ROE they have to start a business
from where high margin is expected but investment is required.
6) It is very tough in Pakistan to assure the supply from refinery all the times because two
best refineries has already started a business in downstream sector (APL, TOTAL).Try to
get no gap in supply from refineries.
108
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113
ANNEXURES
114
2006 2005 2004 2003 2002 2001 2000 1999 1998 1997
Sales Volume (Million Tons) 9.8 9.7 8.6 10.8 11.5 12.6 12.7 12.1 12.7 11.9
Sales Revenue 352,515 253,777 195,130 206,376 182,323 195,039 135,040 115,636 121,345 109,508
Marketing & Administrative expenses 3,428 3,219 2,634 2,465 1,907 2,065 1,788 1,428 1,372 1,339
Profit before Tax 11,654 9,191 6,263 6,209 5,137 3,451 3,581 3,356 2,826 3,746
Profit after Tax 7,525 5,656 4,212 4,030 3,188 2,251 2,231 2,671 1,846 2,046
Profit before tax as % of sales
3.31 3.62 3.21 3.01 2.82 1.77 2.65 2.90 2.33 3.42
Profit after tax as % of sales
2.13 2.23 2.16 1.95 1.75 1.15 1.65 2.31 1.52 1.87
Capital Expenditure 717 1,506 2,096 1,643 1,430 1,254 967 397 408 821
Shareholders' Equity 20,813 17,545 15,446 14,264 12,396 10,666 9,987 8,899 7,082 5,947
No. of Shares Outstanding
172 172 172 172 143 143 143 119 99 83 (in million)
Gross Profit ratio 4.9 5.4 4.7 4.3 3.7 3.3 4.2 4.5 4 5.1
Net Profit ratio 2.1 2.2 2.2 2 1.7 1.2 1.7 2.3 1.5 1.9
Return on Shareholders' Equity 36.2 32.2 27.3 28.3 25.7 21.1 22.3 30 26.1 34.4
Annexure I PAKISTAN STATE OIL
115
2006
2005
2004 2003 2002 2001 2000 1999
Share capital 438 351 351 351 351 351 351 351
Reserves 9,676 7,952 6,781 5,501 5,470 5,039 3,258 4,421
Shareholders' equity 10,114 8,303 7,132 5,852 5,821 5,390 4,772 4,051
Break up value 231 237 203 167 166 154 136 116
Dividend per share 30 35 35 35 18 12.5 16.5 12.5
Bonus 1:04 1:04
Profit before tax 4,599 3,643 2,189 1,900 1,572 1,630 2,013 1,341
Profit after tax 3,108 2,451 1,508 1,255 1063 1056 1299 881
Earnings per share of Rs.10 70.92 55.92** 43 35.8 30.3 30.1 37 25.1
Price earnings ratio 6.78 9.89** 8.1 11.8 7.3 9.3 7 6.4
Current assets to current liabilities 1.13 1.1 1.00 0.9 1.2 1.20 1.2
1.2
Number of days stock 27 22 22 16 24 14 18 18
Number of days trade debts 14 10 8 6 5 3 3 4
Performance
Profit after tax as % of average capital employed 33.6 31.4 21.4 21.1 18.6 20.3 28.6 20.8
Annexure II SHELL PAKISTAN LIMITED
116
NAME---------------------------------------- GENDER -------------------------------
-
AGE-------------------------------------------
QNOI Have you any vehicle, if yes, which one?
Ans------------------------------------------------------.
QNO2 Since how many years you have that vehicle?
Ans------------------------------------------------------.
QNO3 is it on petrol /diesel/Cng?
Ans------------------------------------------------------.
QNO4 On which company outlet you vehicle is fueled?
Ans------------------------------------------------------.
QNO5 How many years you are refueling from this company?
Ans------------------------------------------------------.
QNO6 What reason behind your this company preference.
Ans------------------------------------------------------.
QNO7 Are you sure about the quality of product?
Ans------------------------------------------------------
QNO8 Are they providing accurate quantity as it mentioned on meter?
Ans------------------------------------------------------.
Annexure III
Questionnaire
117
QNO9 Any time you ask for after sale service?
Ans------------------------------------------------------.
QNO10 How much time you stand on outlet for fueling?
Ans------------------------------------------------------.
QNO11 Was any other service provided to you during refueling?
Ans------------------------------------------------------.
QN012 Are you also using the lube from same company?
Ans------------------------------------------------------.
QNO13 Do you know about any other company and its product range and
quality?
Ans------------------------------------------------------.
QNO14 Have you tried other company product ?
Ans------------------------------------------------------.
QNO15 Why you switch over to new company?
Ans------------------------------------------------------.
QNO16 How much time you were there for fuelling?
Ans------------------------------------------------------.
QNO17 Which aspect impresses you at first instant?
Ans------------------------------------------------------.
QNO18 Are you using the new company lube now ?
Ans------------------------------------------------------.
QNO19 How was the service of technical staff of new company?
Ans------------------------------------------------------.
118
QNO20 How was the after sale service of new company?
Ans------------------------------------------------------.
QNO21 Now you are the user of new one or move back to old one fir future?
Ans------------------------------------------------------.
QNO22 What are the main factors of preference for any one company?
Ans------------------------------------------------------.
QNO23 What you suggest to others if someone about your experience for
both company?
Ans------------------------------------------------------.
QNO24 Please gives comments on the basis of following factors in view of
Excellent, Good, Fair, Poor for rating purpose.
COMPANY 1 COMPANY2
▪ Quality
▪ Quantity
▪ Quality Testing
▪ Infrastructure
▪ After Selling Service And
▪ Selling Staff
THANKS