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of BP's corporate owned stations. Declining operations in several potential locations and the
tensions associated with operating in the oil business are also potential threats.
Porters Five Forces Analysis of BP
Porter (1980, p. 80) outlines the five forces model to analyze an organization's
competiveness. These include threats of entrants, bargaining power of suppliers, bargaining
power of buyers, threats of substitutes and rivalry among existing competitors. The oil and gas
industry in which BP operates traditionally require massive financial investments in very
expensive infrastructure. Huge capital investment is necessary to cover expenses such as
building pipelines, drilling wells, building access roads and acquiring land. BP has an asset value
of $236.0 billion (Honnungar, 2011). Considering the cost of market entry and economies of
scale in the industry, the threat of new entrance is low.
There are a number of substitute products such as hydroelectricity, nuclear energy, coal,
wind power and solar energy. However, most are still in the developmental phase, besides, the
cost of production of substitute products is often extremely high. The importance of oil in
fuelling cars, running industries and generating electricity makes it essential and useful to sectors
of the economy. Threats of substitutes is therefore, low since alternative products are less
competitive. The oil and gas industry have considerable number of suppliers ranging from
private corporations to governments. There are also a number of potential buyers similar to BP.
Besides, BP's vertical integration in its operations is similar to that of its key competitors (Stiel,
2003). The bargaining power of suppliers is consequently rated as medium.
The products offered by players in the oil and gas industry are often not much different
from those offered by their competitors. As a result, buyers tend to choose products with either
lower prices or that have better terms. On the flipside, buyers are many, hence even if a cross
