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CASE STUDY

CASE: 10

BP-MOBIL and the Restructuring of the Oil Refining


Industry.

Here there is a case of BP (British Petroleum) and Mobil Oil


Company which were agreed for joint venture on February 29,
1996. The case saws various information about Industry value
chain, Customer demand, Information about European industry,
Information about BP, MOBIL and it’s competitors.

While studying the case, there are certain questions which arise
in the mind and are very important. The questions are
- How BP and Mobil’s competitors would respond to the
move. Was it the beginning of industry-wide realignment?
- What would the two companies have to do to turn their deal
into a success?
- Was the deal a masterstroke or insufficient?
- What would Mr. Browne (CEO of BP) have to do to keep
the performance of BP on track?

The solution of above mentioned questions is as follows.

 The first question arise is what would the two companies


have to do to turn their deal into a success?
Ø The possible solution is the, they can make certain change in
their partnership deal.

Ø They have good market share and strong companies


domestically but they are failing in international market. As they
are strong domestically, they both combined enter in new market
internationally to gain international market share or capture
international market.

Ø They both combined should go for international trading,


Research and develop good new technique for refining or modify
existing techniques. As they joint with one another, they can
share their knowledge and resources to each other to make their
venture successful.

Ø Mobil is weak in Europe for downstream operations, while BP


also weak in U.S. At the same time, Mobil has a good position in
the U.S. market so they can enter in each others market and
make better position in market. They can use the one another’s
strategies and tactics to serve the market to run venture
successfully.

Ø Mobil is 3rd largest oil company of Europe and BP is also one of


the large petroleum company. By merging with each other they
become a very strong organize and compete with other
organization effectively. They can bring together different
products, services, management systems. And culture as well as
workforces to competing successfully.

Ø To become a successful market leader they both jointly take


benefit of economics of scale.

 Was the deal a masterstroke or insufficient?

As we can see that deal carries both advantages and some


disadvantages also with it. Here deal looks like more insufficient
rather than a masterstroke. The reasons the deal is insufficient
are as follows:

Ø Here analysts can’t determine that whether the deal is


partnership, merger, acquisition or other form.

Ø There was no change in the ownership of assets and equity of


companies that is not more profitable any of company. If certain
changes have been made in this than management of both can
take good decisions about future planning.

Ø Here, companies are not going for international market which is


a big mistake of them because by merging their company get
position among the companies which largest producers of oil in
the world.
Ø The aim of merger is to bringing together different products,
services, management systems, culture and workforce but it is
more problematic in this deal because BP and Mobil continued to
compete as independent corporations in petrol and other
business elsewhere in the world.

 What would Mr. Browne (CEO of BP) have to do to keep


the performance of BP on track?

Mr. Browne has to make certain change in this deal such as


adopting strategies for growth and developments, achieving
economics of scale, capture the international market etc.

Ø Mr. Browne has to change some of its marketing strategies and


adopt new strategies of marketing or he can upgrade its two-
pronged strategy of marketing. In refining, its strategy should to
sell or close unprofitable refineries, upgrade others and generally
improve operating reliability.

Ø He has to increase non fuel revenue and to pursue expansion


in Eastern Europe where it planned to quadruple its 100 service
stations.

Ø Acquire the independent distribution charringtons for the U.S.


distribution.

Ø In U.S. Company’s aggressive restructuring and assets


disposal had not quite solved the problem of high costs and
assets quality so solve this problem is very essential for Mr.
Browne.

Ø The BP has weak position in the U.S. market whereas Mobil


have a good position in U.S. market so to take maximum
advantage from the Mobil to increase market position of BP in
U.S. market.

 How BP and Mobil’s competitors would respond to the


move. Was it the beginning of industry-wide realignment?
Royal Dutch / Shell and Exxon were major competitor of BP and
Mobil Oil Company. Mobil comes third after shell and Exxon in
European oil market. Other competitors are Agip, Elf Aquitaine,
Repsol etc.

Ø Shell had world’s largest corporation. Its operations in over 100


countries covered exploration and production of oil and natural
gas, refining, marketing and chemical, as well as coal mining,
polymers, crop protection products, and various metals. In
Europe, shell was second largest refiner after Exxon. Shell had
also formed a joint venture with Agip and Conoco to take a 49
percent stake in two Czech refineries.
Ø Exxon, the former standard oil of New Jersey was world’s
largest oil company in term of revenue. Exxon had cut back on
refining investments and was focusing on reducing costs. In
refining, the size and integration of its assets gave it a cost
advantage. In marketing, it started a fierce price war in Britain
with its “price Watch” campaign, which promised to match any
competitor’s price within five kilometers.
Exxon starting new investment in the area of Eastern
Europe. It had also formed marketing joint ventures in Hungary
with state company AFOR. And in Poland with a German partner.

In other competitors, Agip form joint venture with shell. Elf


Aquitaine was planning to leave the British market and
expanding in Eastern Europe. It also formed a joint venture with
Russian consortium and German public authorities. Repsol,
Spain’s largest industrial company’s strategy was to defend its
domestic position while expanding natural gas exploration and
production.

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