Porter's Five Forces Analysis on British Petroleum

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make products which are not greatly differentiated and pose an exit barrier which is very high in its industry. In addition to the high level of rivalry and high exit barriers, there are also high fixed cost and slow industry growth, which characterize Oil and Gas sector.

Bargaining Power of Suppliers

In a robust and well-organized market, the suppliers have a strong bargaining power at their disposable, complemented with the availability of a few substitutes, where-as the switching costs to other suppliers are high. The suppliers have a strong bargaining power in the oil and gas industry. The countries having huge reserves of oil and gas are the ones who have these strong suppliers, i.e., the main suppliers of oil. OPEC countries such as Iran and Saudi Arabia are counted as the prime among such suppliers. In the oil and gas industry, a basic requirement to be achieved is the low costs of production and a focus to achieve on economies of scale, complemented with the lower costs of production. Additionally, a high level of technical expertise is indispensable for a supplier to demonstrate the competencies which increase its bargaining power in this industry. In terms of demand-supply, the more the supply from suppliers, the cheaper is the commodity – shifting the supply curve to the right.

Bargaining Power of Buyers

The term, “Bargaining power of buyer” means how much of control does the buyer have to suppress the price of the energy products further downwards and negotiate for a higher level of quality or even services in addition. When buyers decide to make a purchase in large quantities, they are armed with large buying powers, this also holds true when the switching cost of the buyer is low and when the buyers are extremely sensitive to the price. However, the bargaining power of the buyer is low in this particular industry. Oil and gas as a commodity don’t have a strong brand loyalty and differentiation in terms of the end user product is significantly low. There are several options switch from the oil of one particular company to another company who provides the same product at a competing quality and service parameters. Buyers are led to go into the favor of lower prices on account of these factors.