Kuwait Petroleum Corporation 2009 Case Notes Prepared by: Dr. Victor Sohmen Case Author: C.P.

Rao

A.

Case Abstract

Kuwait Petroleum Corporation (KPC) (www.KPC.com.kw), with its headquarters domiciled in the State of Kuwait, was founded in 1980 as an umbrella organization to manage the State of Kuwaits rapidly diversifying oil interests. Thus, it is the apex business organization of the oil industry in Kuwait. It is also one of the worlds major oil and gas companies and its activities are focused on petroleum exploration and production, refining, marketing, petrochemicals, and transport. As support and development of the Kuwaiti economy predominantly depends on its oil industry, the performance of KPC is critical for the Kuwaiti economy. These impact the development of national human resources, maintaining superior commercial and technical expertise, and proactively managing the environmental, health, and safety aspects related to KPCs businesses. Although global oil demand has been increasing in recent years, the oil industry is characterized by intense competition, especially for value-added end-use products. In addition, certain trends in the overall business environment have significant implications for the future prospects of the oil industry in general, and for KPCs diverse businesses. The environmental concerns and global warming trends with the concomitant development of alternate energy sources and new technologies may have an adverse impact on the oil industry, including the operations of KPC. Hence, the companys top management directed the its strategic planning team to review current operations and develop a strategic plan taking into account the expected future trends that will impact the oil industry in general, and KPCs operations in particular.

B.

Vision Statement (Actual)

Our vision is to be the leading oil company in Kuwait and the Middle East, providing impactful and diverse contributions to the support and development of the Kuwaiti economy.

C.

Mission Statement (Actual)

As one of the worlds leading oil companies, KPCs mission is to manage and operate our integrated worldwide activities focused on petroleum exploration and production, refining, marketing, petrochemicals, and transport in the most efficient and professional manner, in addition to growing shareholder value while ensuring the optimum exploitation of Kuwaiti hydrocarbon resources.

Mission Statement (Proposed)

Our mission at Kuwait Petroleum Corporation (KPC) is to be a producer of high quality (6,8) hydrocarbon resources (2) and refined petrochemical products (2) for use by commercial and domestic customers (1) across Kuwait, (3,5) and international customers (1) who value quality (4,7,8) products and services (2) using the latest technology(4), as we efficiently manage (9) and operate our integrated worldwide (3) Copyright 2011 Pearson Education Limited

exploration, production, and refining activities (4,5) to expand and transform (6) the company to be the most efficient and productive entity in the business (6,7). 1. 2. 3. 4. 5. 6. 7. 8. 9. Customer Products or services Markets Technology Concern for survival, profitability, and growth Philosophy Self-concept Concern for public image Concern for employees

D.

External Audit

CPM Competitive Profile Matrix The Competitive Profile Matrix (CPM) identifies a firms major competitor(s) and its own particular strengths and weaknesses in relation to its strategic position. KPCs relative strengths and weaknesses based on the case details are portrayed in the weighted scores. As KPC is an international player, and the leading monopoly oil producer in Kuwait, no local competitors have been identified in the case; however, the case mentions a slew of competitors from various continents. Therefore, three foreign competitors who are ranked above KPC (rank: #15) are featured herein, and will be considered as representative of the overall foreign competition faced by KPC. These are: Aramco (rank: #1 - Saudi Arabia); ExxonMobil (rank: #5 - USA); and, PetroChina (rank: #12 - China). Their weighted scores are estimates based on their strengths and weaknesses in terms of the critical success factors explicitly or implicitly reflected in the case. It can be seen that there are several areas in which KPC is able to compete well with the overseas competitors: in terms of global expansion, KPC has an extensive reach into Asia, NW Europe, USA, and Arab countries. Similarly, KPC is internationally competitive in technology, product lines, management, and price competition. As for customer loyalty and advertising, unfortunately, KPC is lagging behind Aramco and ExxonMobil. However, KPCs mandate to excel in technology, management, product quality and image, will enable redressing of these sensitive areas. The companys strong position in the domestic market and its significant contribution to the Kuwaiti economy, should lend long-term viability to the Kuwaiti monopolist. Therefore, the Critical Success Factors score of 3.84 for KPC can be considered commendable for a Middle-Eastern player.

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Aramco KPC Rating ScoreWeighted Rating

ExxonMobil

PetroChina

INTERNATIONAL COMPETITORS ScoreWeighted Rating Rating 3 2 2 3 3 2 2 1 2 2 3 ScoreWeighted 0.30 0.24 0.16 0.27 0.30 0.20 0.18 0.06 0.20 0.16 0.24 2.31 ScoreWeighted 0.40 0.48 0.32 0.36 0.40 0.30 0.36 0.24 0.40 0.32 0.32 3.90

Critical Success Factors Price Competition Global Expansion Management Technology Product Lines Customer Loyalty Market Share Advertising Product Quality Product Image Financial Position TOTAL Opportunities

0.10 0.12 0.08 0.09 0.10 0.10 0.09 0.06 0.10 0.08 0.08 1.00

Weight 4 4 4 4 4 3 4 3 4 4 4

0.40 0.48 0.32 0.36 0.40 0.30 0.36 0.18 0.40 0.32 0.32 3.84

3 3 3 4 3 3 4 3 3 3 4

0.30 0.36 0.24 0.36 0.30 0.30 0.36 0.18 0.30 0.24 0.32 3.26

4 4 4 4 4 3 4 4 4 4 4

1. The Kuwaiti economy depends largely on its oil industry the performance of KPC is therefore critical 2. KPC has access to 29 producing oil fields, and 1,045 producing oil wells. East Asia is now witnessing significant economic growth and an increasing demand for oil and its distillates 3. KPC has the technology to meet high product standards for the most stringent future quality specifications in the world 4. Developing countries that do not currently seek high product standards due to substandard infrastructure may be good targets for market penetration Threats 1. The environmental concerns and global warming trends with the concomitant development of alternate energy sources and new technologies may have an adverse impact on the oil industry 2. Although global oil demand has been increasing in recent years, the oil industry is characterized by intense competition, especially for value-added end-use products 3. Competition seems to be increasing with the appearance of new companies from emerging economies 4. In recent years, environmental pollution has dominated as a major concern all over the World, and will impact oil companies 5. Governmental regulations in many countries and the trend towards tightening product specifications make it difficult to market the current production slate

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External Factor Evaluation (EFE) Matrix An External Factor Evaluation (EFE) Matrix allows strategists to summarize and evaluate economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive information. KPC is in a comfortable position as the industry leader in Kuwait with a high reputation for quality; and this provides the necessary capability to harness opportunities in the external environment because of a favorable climate for non-oil producing businesses (represented by several of KPCs subsidiaries) that the Kuwaiti government encourages, in order to diversify the economy.

Key External Factors Opportunities 1. The Kuwaiti economy depends largely on its oil industry the performance of KPC is thus critical 2. KPC has access to 29 producing oil fields, and 1,045 producing oil wells 3. East Asia is now witnessing significant economic growth and an increasing demand for oil and its distillates 4. KPC has the technology to meet high product standards for the most stringent future quality specifications in the world 5. Developing countries that do not currently seek high product standards due to substandard infrastructure may be good targets for market penetration Threats 1. The environmental concerns and global warming trends with the concomitant development of alternate energy sources and new technologies may have an adverse impact on the oil industry 2. Although global oil demand has been increasing in recent years, the oil industry is characterized by intense competition, especially for value-added end-use products 3. Competition seems to be increasing with the appearance of new companies from emerging economies 4. In recent years, environmental pollution has dominated as a major concern all over the world and will impact oil companies 5. Governmental regulations in many countries and the trend towards tightening product specifications make it difficult to market the current production slate Total

Weight

Rating

Weighted Score

0.10 0.12 0.08 0.10 0.12

4 4 2 3 3

0.40 0.48 0.16 0.30 0.36

0.10

0.30

0.10

0.30

0.10 0.08 0.10 1.0

3 3 2

0.30 0.24 0.20 3.04

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The average total weighted score is considered to be 2.5. A total weighted score of 4.0 indicates that a firm is responding in an outstanding way to existing opportunities and threats in its industry. That is, the firms strategies effectively take advantage of existing opportunities and minimize the potential adverse effects of external threats. A total score of 1.0 indicates that the firms strategies are not capitalizing on opportunities or avoiding external threats. The total weighted score of 3.04 here suggests that KPC has recognized the opportunities and threats it faces, and needs to embark on a serious review of its potential for growth, its capabilities, and its limitations. Consolidation of existing capabilities and markets, as well as expansion into new markets in Asia and the Arabian Gulf may sustain the vision of KPC to be the oil and gas market leader of choice beyond the shores of Kuwait. Product Positioning Matrix After markets have been segmented so that a firm can target particular customer groups, the next step is to find out what customers want and expect. Many firms have become successful by filling the gap between what producers see and customers perceive, as good service. Product positioning entails developing schematic representations that reflect how a firms products or services compare with their competitors regarding dimensions most important to success in the industry. Two such matrices are presented below for KPC and the representative foreign competitors Aramco, ExxonMobil, and PetroChina indicated above. Product Positioning Matrix for Global Expansion vs. Technology
Technology (High)

KPC

Aramco ExxonMobil

PetroChina
Global Expansion (low) Global Expansion (High)

Technology (Low)

As depicted in the Product Positioning Matrix above for Global Expansion vs. Technology, KPC is quite competitive with Aramco and ExxonMobil, and ahead of PetroChina on the technology dimension, but behind them in global expansion as it is focused only on parts Copyright 2011 Pearson Education Limited

of Asia, Europe, and the USA, with plans for further expansion into Asia and the Arabian Gulf. Product Positioning Matrix for Product Lines and Product Image

Product Lines (High)

ExxonMobil KPC Aramco

PetroChina
Product Image (low) Product Image (High)

Product Lines (Low)

It can be seen from the above Product Positioning Matrix for Product Lines vs. Product Image that KPC is in a strong position on both dimensions thanks to its high prioritization of unremitting quality in its products, and the patronage of the Kuwaiti government in maintaining a high public and international image. Aramco and ExxonMobil are also strong on both dimensions with their extensive international clout and public image. PetroChina is seen to be lagging somewhat behind the other three players on both dimensions.

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E.

Internal Audit
Strengths 1. KPC is a highly profitable and performance-driven company 2. KPC has a world-class reputation for all of the companys products 3. The company encourages continuous learning by the employees in all areas related to its business 4. KPC has an integrated portfolio of both upstream and downstream activities 5. KPC currently has foreign markets in Asia, NW Europe and the U.S., and proposed markets in Africa and the Arabian Gulf Weaknesses 1. KPC needs to improve its production efficiency by enhancing the technology of the production process 2. KPC refinery products need to meet better quality specifications to more stringently satisfy customer needs 3. The monopoly hold of KPC in the Kuwaiti oil and gas market may result in increased pricing and reduction of quality 4. KPC lacks joint venture partnerships upstream or downstream that could promote technology transfers and international market viability 5. The KPC exports of refined products to neighboring Arabian Gulf are far less than its exports to South-East Asia, Europe and the U.S., which can be logistically uneconomical

Internal Factor Evaluation (IFE) Matrix A summary step in conducting an internal strategic-management analysis is to construct an Internal Factor Evaluation (IFE) Matrix. This strategy-formulation tool summarizes and evaluates the major strengths and weaknesses in the functional areas of a business, and it also provides a basis for identifying and evaluating relationships among them. Itemized below are the strengths and weaknesses of KPC from the information provided, there are equal numbers of strengths and weaknesses.

Key Internal Factors Strengths 1. KPC is a highly profitable and performancedriven company 2. KPC has a world-class reputation for all of the companys products 3. The company encourages continuous learning by the employees in all areas related to its business 4. KPC has an integrated portfolio of both upstream and downstream activities

Weight

Rating

Weighted Score

0.12 0.12 0.08 0.10

3 4 2 3

0.36 0.48 0.16 0.30

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5. KPC currently has foreign markets in Asia, NW Europe and the U.S., and proposed markets in Africa and the Arabian Gulf Weaknesses 1. KPC needs to improve its production efficiency by enhancing the technology of the production process 2. KPC refinery products need to meet better quality specifications to more stringently satisfy customer needs 3. The monopoly hold of KPC in the Kuwaiti oil and gas market may result in increased pricing and reduction of quality 4. KPC lacks joint venture partnerships upstream or downstream that could promote technology transfers and international market viability 5. The KPC exports of refined products to neighboring Arabian Gulf are far less than its exports to South-East Asia, Europe and the U.S., which can be logistically uneconomical Total

0.10

0.30

0.10 0.10

4 2

0.40 0.20

0.08 0.12 0.08 1.00

2 4 2

0.16 0.48 0.16 3.00

Regardless of how many factors are included in an IFE Matrix, the total weighted score can range from a low of 1.0 to a high of 4.0, with the average score being 2.5. Total weighted scores well below 2.5 characterize organizations that are weak internally, whereas scores significantly above 2.5 indicate a strong internal position. In light of this, KPCs position with a score of 3.00 reflects a somewhat strong internal position, consistent with its world-class reputation, integrated upstream and downstream activities, and moderate international presence and expansion capabilities.

F.

SWOT Strategies

Any organization, whether military, product-oriented, service-oriented, governmental, or even athletic, must develop and execute good strategies to win. A good offense without a good defense, or vice versa, usually leads to defeat. Developing strategies that use strengths to capitalize on opportunities could be considered an offense, whereas strategies designed to improve upon weaknesses while avoiding threats could be termed defensive. Taking into consideration the above identified External Audit of the Opportunities and Threats (OT) and the Internal Audit of Strengths and Weaknesses (SW), a SWOT Matrix can be compiled and is presented below as: SO (strengthsopportunities) Strategies; WO (weaknesses-opportunities) Strategies; ST (strengthsthreats) Strategies; and, WT (weaknesses-threats) Strategies. Matching key external and internal factors is the most difficult part of developing a SWOT Matrix, requiring good judgment and there is no one best set of matches.

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Strengths 1. KPC is a highly profitable and performance-driven company 2. KPC has a world-class reputation for all of the companys products 3. The company encourages continuous learning by the employees in all areas related to its business 4. KPC has an integrated portfolio of both upstream and downstream activities 5. KPC currently has foreign markets in Asia, NW Europe and the U.S., and proposed markets in Africa and the Arabian Gulf

Opportunities 1. The Kuwaiti economy depends largely on its oil industry the performance of KPC is therefore critical 2. KPC has access to 29 producing oil fields, and 1,045 producing oil wells 3. East Asia is now witnessing significant economic growth and an increasing demand for oil and its distillates 4. KPC has the technology to meet high product standards for the most stringent future quality specifications in the world

S-O Strategies 1. KPC should expand its market by meeting the demand for oil and its distillates by developing countries including East Asia 2. KPC should develop the lucrative Arabian Gulf, European, and U.S. markets

Weaknesses 1. KPC needs to improve its production efficiency by enhancing the technology of the production process 2. KPC refinery products need to meet better quality specifications to more stringently satisfy customer needs 3. The monopoly hold of KPC in the Kuwaiti oil and gas market may result in increased pricing and reduction of quality 4. KPC lacks joint venture partnerships upstream or downstream that could promote technology transfers and international market viability 5. The KPC exports of refined products to neighboring Arabian Gulf are far less than its exports to South-East Asia, Europe and the U.S., which can be logistically uneconomical W-O Strategies 1. KPC should enter into joint venture partnerships for its upstream and downstream activities 2. KPC should focus its exports to the nearest countries such as those in the Arabian Gulf, Europe, and South Asia to avail of logistical economies

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5. Developing countries that do not currently seek high product standards due to substandard infrastructure may be good targets for market penetration Threats 1. The environmental concerns and global warming trends with the concomitant development of alternate energy sources and new technologies may have an adverse impact on the oil industry 2. Although global oil demand has been increasing in recent years, the oil industry is characterized by intense competition, especially for value-added end-use products 3. Competition seems to be increasing with the appearance of new companies from emerging economies 4. In recent years, environmental pollution has dominated as a major concern all over the World, and will impact oil companies 5. Governmental regulations in many countries and the trend towards tightening product specifications make it difficult to market the current production slate

S-T Strategies 1. KPC could invest in the development of alternate sources of energy 2. KPC could acquire newly entering competitors from emerging economies, availing of its world-class reputation and extensive upstream and downstream resources

W-T Strategies 1. KPC needs to work on its production efficiency and quality through technology transfers by horizontal integration

SO Strategies use a firms internal strengths to take advantage of external opportunities. KPC could expand its market by meeting the demand for oil and its Copyright 2011 Pearson Education Limited

distillates by developing countries including East Asia. Also, KPC could develop the lucrative Arabian Gulf, European, and U.S. markets. WO Strategies aim at improving internal weaknesses by taking advantage of external opportunities. KPC could enter into joint venture partnerships for its upstream and downstream activities, and could also focus its exports to the nearest countries such as those in the Arabian Gulf, Europe, and South Asia to avail of logistical economies. ST Strategies use a firms strengths to avoid or reduce the impact of external threats. KPC could invest in the development of alternate sources of energy, and could acquire newly entering competitors from emerging economies by availing of its world-class reputation and extensive upstream and downstream resources. WT Strategies are defensive tactics directed at reducing internal weaknesses and avoiding external threats. KPC needs to work on its production efficiency and quality through technology transfers by horizontal integration.

G.

SPACE Matrix

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The Strategic Position and Action Evaluation (SPACE) Matrix below indicates whether aggressive, conservative, defensive, or competitive strategies are most appropriate for a given organization. The axes of the SPACE Matrix represent two internal dimensions: (Financial Strength [FS] and Competitive Advantage [CA]) and two external dimensions: (Environmental Stability [ES] and Industry Strength [IS]). These four factors are perhaps the most important determinants of an organizations overall strategic position.

FS
Conservative
+7 +6 +5 +4 +3 +2 +1

Aggressive

K P C

CA

IS
-7 -6 -5 -4 -3 -2 -1 -1 -2 -3 -4 -5 -6 +1 +2 +3 +4 +5 +6 +7

Defensive

-7

Competitive

ES

Financial Strength (FS)* Return on Investment Leverage Liquidity Working Capital Cash Flow (*These figures are best estimates based on performance and market realities, as the case does not provide financial information) Financial Strength (FS) Average Competitive Advantage (CA)

4 4 4 4 5

Environmental Stability (ES) Risk involved in business Technological Changes Price Range of Competing Products Competitive Pressure Barriers to Entry

-2 -3 -3 -3 -1

4.2

Environmental Stability (ES) Average Industry Strength (IS)

-2.4

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Market Share Product Quality Customer Loyalty Product Life Cycle Technological Know-how Control over Suppliers & Distributors Competitive Advantage (CA) Average Y-axis: FS + ES = 4.2 + (-2.4) X-axis: CA + IS = (-1.8) + (4.4)

-2 -1 -3 -2 -2 -1 -1.8

Growth Potential Financial Stability Ease of Market Entry Resource Utilization Profit Potential Technological Know-how Productivity, Capacity Utilization Industry Strength (IS) Average

6 4 4 4 5 4 4 4.4

= +1.8 = +2.6

The directional vector of the SPACE Matrix above indicates that KPC is in Quadrant I of the SPCE Matrix. Therefore, according to the results of the SPACE Matrix, it is recommended that KPC embark on an Aggressive Strategy on a growth trajectory in the promising oil and gas business in Kuwait and in overseas locations through its subsidiaries. The company should thus balance all extant external and internal realities impinging on it. According to the SWOT profile, the company could avail of horizontal integration (acquiring similar firms towards oligopoly or monopoly) through selective joint venture partnerships with strong foreign firms. KPC is already forward integrated (taking ownership of distribution channels and nodes such as warehouses and retail store chains), and backward integrated (acquiring firms providing raw bitumen) through its subsidiaries. It appears from the overall strategic thrust of the various analyses including the CPM, EFE, IFE, SWOT, and Product Positioning Matrix, that KPC is unlikely to adopt an unrelated diversification strategy, but a related diversification strategy, as the companys mainstay is the production and refining of oil and gas from its ownership of highly productive oil and gas fields. It can therefore acquire firm(s) that could help in innovating and cost-cutting to establish KPCs presence in Kuwait and around the world with competitive pricing. KPC will thus need to embark on a market penetration and market development strategy, together with product development to meet quality, price, and demand for various market segments in Kuwait and in existing and evolving global markets.

H.

Grand Strategy Matrix

All organizations can be positioned in one of the Grand Strategy Matrixs four strategy quadrants. The Grand Strategy Matrix is based on two evaluative dimensions: competitive position and market (industry) growth. Any industry whose annual growth in sales exceeds 5 percent could be considered to have rapid growth. KPCs sales growth is unknown based on information provided in the case, but its market leadership, monopoly, government patronage, and high market share puts the company in a healthy annual growth trajectory. Appropriate strategies for an organization to consider are listed in sequential order of attractiveness in each quadrant of the matrix. Firms located in Quadrant I of the Grand Strategy Matrix are in a strong strategic position with rapid market growth. For these firms, continued concentration on current markets (market penetration and market development) and products (product development) is an appropriate strategy (see also the SPACE Matrix above). As it would be unwise for a Copyright 2011 Pearson Education Limited

Quadrant I firm to shift notably from its established competitive advantage(s), KPC should consolidate and expand its market. When a Quadrant I organization has excessive resources, then backward, forward, or horizontal integration may be effective strategies in the case of KPC, horizontal integration has been recommended in the SPACE Matrix analysis. When a Quadrant I firm is too heavily committed to a single product, then related diversification may reduce the risks associated with narrow product lines. KPC has several successful and diversified product lines, which could be further extended through related diversification. As a Quadrant I firm, KPC can take risks aggressively to make inroads into new global markets in Asia, Europe, and the U.S.
Rapid Market Growth

Quadrant II

Quadrant I

KPC

Weak Competitive Position

Strong Competitive Position

Quadrant III

Slow Market Growth

Quadrant IV

1. 2. 3. 4. 5. 6. 7.

Market development Market penetration Product development Backward integration Forward integration Horizontal integration Related diversification

I.

The Quantitative Strategic Planning Matrix (QSPM)

The only analytical technique in the literature designed to determine the relative attractiveness of feasible alternative actions is the Quantitative Strategic Planning Matrix (QSPM), which comprises Stage 3 of the strategy-formulation analytical framework. This technique objectively indicates which alternative strategies are best. The QSPM uses input from Stage 1 analyses and matching results from Stage 2 analyses to decide objectively among alternative strategies. That is, the EFE Matrix, IFE Matrix, and Copyright 2011 Pearson Education Limited

Competitive Profile Matrix that make up Stage 1, coupled with the SWOT Matrix, SPACE Matrix, and Grand Strategy Matrix that make up Stage 2, provide the needed information for setting up the QSPM (Stage 3). The QSPM is a strategic decisionmaking tool that allows strategists to evaluate alternative strategies objectively, based on previously identified external and internal Critical Success Factors. Like other strategy-formulation analytical tools, the QSPM requires good intuitive judgment. The left column of a QSPM consists of key external and internal factors (from Stage 1), and the top row consists of feasible alternative strategies (from Stage 2). Specifically, the left column of a QSPM consists of information obtained directly from the EFE Matrix and IFE Matrix. In a column adjacent to the Critical Success Factors, the respective weights received by each factor in the EFE Matrix and the IFE Matrix are recorded. The top row of a QSPM consists of alternative strategies derived from the SWOT Matrix, SPACE Matrix, and Grand Strategy Matrix. These matching tools usually generate similar feasible alternatives. However, not every strategy suggested by the matching techniques has to be evaluated in a QSPM. Strategists should use good intuitive judgment in selecting strategies to include in a QSPM.

Key Factors

Weight

Strategy 1 KPC should focus its exports to the nearest countries such as those in the Arabian Gulf, Europe, and South Asia to avail of logistical economies AS TAS

Strategy 2 KPC should develop the lucrative Arabian Gulf, European, and U.S. markets

Strategy 3 KPC should enter into joint venture partnerships for its upstream and downstream activities

AS

TAS

AS

TAS

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Opportunities 1. The Kuwaiti economy depends largely on its oil industry the performance of KPC is thus critical 2. KPC has access to 29 producing oil fields, and 1,045 producing oil wells 3. East Asia is now witnessing significant economic growth and an increasing demand for oil and its distillates 4. KPC has the technology to meet high product standards for the most stringent future quality specifications in the world 5. Developing countries that do not currently seek high product standards due to substandard infrastructure may be good targets for market penetration Threats 1. The environmental concerns and global warming trends with the concomitant development of alternate energy sources and new technologies may have an adverse impact on the oil industry 2. Although global oil demand has been increasing in recent years, the oil industry is characterized by intense competition, especially for value-added end-use products 3. Competition seems to be increasing with the appearance of new companies from emerging economies 4. In recent years, environmental pollution has dominated as a major concern all over the world and will impact oil companies 5. Governmental regulations in many countries and the trend towards tightening product

0.10

--

--

--

--

--

--

0.12 0.08

3 --

0.36 --

4 --

0.48 --

2 --

0.24 --

0.10

0.30

0.30

0.40

0.12 3 0.36 2 0.24 1 0.12

0.10 -------

0.10 2 0.20 3 0.30 3 0.30

0.10

0.30

0.20

0.20

0.08

--

--

--

--

--

--

0.10

--

--

--

--

--

--

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specifications make it difficult to market the current production slate TOTAL 1.0 Strengths 1. KPC is a highly profitable and performance-driven company 0.12 2. KPC has a world-class reputation for all of the 0.12 companys products 3. The company encourages continuous learning by the 0.08 employees in all areas related to its business 4. KPC has an integrated portfolio of both upstream 0.10 and downstream activities 5. KPC currently has foreign markets in Asia, NW Europe 0.10 and the U.S., and proposed markets in Africa and the Arabian Gulf Weaknesses 1. KPC needs to improve its production efficiency by 0.10 enhancing the technology of the production process 2. KPC refinery products need to meet better quality 0.10 specifications to more stringently satisfy customer needs 3. The monopoly hold of KPC in the Kuwaiti oil and gas 0.08 market may result in increased pricing and reduction of quality 4. KPC lacks joint venture partnerships upstream or 0.12 downstream that could promote technology transfers and international market viability 5. The KPC exports of refined products to neighboring Arabian Gulf are far less than 0.08 its exports to South-East Asia, Europe and the U.S., which can be logistically uneconomical SUBTOTAL 1.00 SUM TOTAL ATTRACTIVENESS SCORE

1.52

1.52

1.26

4 4 --

0.48 0.48 --

4 4 --

0.48 0.48 --

4 4 --

0.48 0.48 --

3 4

0.30 0.40

3 4

0.30 0.40

4 3

0.40 0.30

0.30

0.30

0.40

0.40

0.30

0.20

0.16

0.24

0.08

0.36

0.24

0.48

0.16

0.24

0.16

3.04 4.56

2.98 4.50

2.98 4.24

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J.

Recommendations

Strategy #1:- It is recommended that KPC should focus its exports on the nearest countries such as those in the Arabian Gulf, Europe, and South Asia to avail of logistical economies.

K.

Epilogue

KPCs top management had directed the companys strategic planning team to review the companys current operations and develop a strategic plan taking into account the expected future trends that will impact the oil industry in general, and KPCs operations in particular. This case analysis has delved into the strengths and weaknesses of KPC, together with the opportunities and threats facing the Kuwaiti oil and gas giant. Future oil industry trends and geographical realities have also been taken into account to provide a more holistic picture. To bolster its business interests, KPC has several subsidiaries covering both upstream and downstream activities. Each subsidiary operates a different oil service activity: from onshore and offshore exploration and production through refining, petrochemicals, local and international marketing, and retailing and marine transportation. These are: (1) (2) (3) (4) (5) (6) (7) (8) Kuwait Oil Company (KOC) Oil & Gas production and exploration Kuwait Gulf Oil Company (KGOC) Oil production from joint operations with AGOC Kuwait National Petroleum Company (KNPC) Oil refining & products marketing Kuwait Petroleum International (KPI) Petroleum products production and marketing Kuwait Petrochemical Industries Company (PIC) Petrochemical production & exports Kuwait Oil Tanker Company (KOTC) Oil Transportation through owned marine fleet Kuwait Aviation Fueling Company (KAFCO) Supply of plane fuel at Kuwait Airport Kuwait Foreign Petroleum Exploration Company (KUFPEC) Oil & Gas excavation

Following a multi-pronged analysis using judgment and reasoning coupled with numerical and graphical outputs, three strategic choices have been presented herein for KPC: (1) KPC should focus its exports to the nearest countries such as those in the Arabian Gulf, Europe, and South Asia to avail of logistical economies. (2) KPC should develop the lucrative Arabian Gulf, European, and U.S. markets. (3) KPC should enter into joint venture partnerships for its upstream and downstream activities. According to the comprehensive and decisive Quantitative Strategic Planning Matrix (QSPM), Strategy #1, with the highest Sum Total Attractiveness Score (STAS) [ 4.56], has emerged as the best option among the three promising alternatives. This involves a closer look at the nearer countries such as those in the Arabian Gulf, South Asia, and Europe for logistical economies through local market penetration, expansion, and consolidation. With the world-class reputation that KPC enjoys, it should be possible for Copyright 2011 Pearson Education Limited

the company to reach the neighborhood markets before venturing further to far-flung locations such as the U.S. (Strategy #2) where stronger players such as ExxonMobil, BP, and Chevron-Texaco are already competing. As for entering into joint venture partnerships with upstream and downstream activities (Strategy #3), these would be feasible in the future to enhance production and distribution efficiencies. KPC ranks seventh in world crude oil production with 2,500,000 bpd. It ranks a respectable 12 out of the top 100 oil companies. The destruction of Kuwaits oil industry during the first Iraqi occupation (19901991) was extensive, but damage to exploitable reserves was estimated at only about 2 percent. Several hundred oil wells and gathering stations required replacement. All three domestic refineries were beyond operation. By mid-1994, however, nominal production capacity of crude from Kuwait and its share of the Neutral Zone was around 2.4 million bpd, and the refineries capacity was back to pre-invasion levels. KPCs rise from the ashes to being a world-class player in the highly lucrative and competitive oil and gas industry is indeed laudable for a relatively small country in the Arab world.

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