Indian Oil Corporation

Industry analysis:
IOC is an Indian state-owned oil and gas corporation and is 88th worlds largest organisation
according to Fortune Global 500 list. Main products of Indian Oil Corp. are petrol, diesel, LPG, auto
LPG, aviation turbine fuel, lubricants and petrochemicals. IOC operates 10 of the 22 petrol refineries
in India and IOC has 31% share of total refining capacity in India.
Porter five force analysis:
Porters five force model helps in analysing the performance and efficiency of overall industry taking
into account five factors(forces) which are believed to play a crucial role in analysing profitability of
particular firm operating in that industry. 3 major forces are from horizontal competition and two
other are from vertical competition. Under the horizontal forces category are threat from new
entrants, existing players, and substitutes. Under the vertical forces category are bargaining power
of suppliers and buyers.
Power of suppliers:
Due to the non-availability of sufficient fossil fuel resources in India, energy suppliers in India are
heavily dependent on import of raw materials for energy production. So the petroleum industry in
India is at the mercy of importers (mainly OPEC). Suppliers enjoy a lot of power over fixing prices to
supply IOC and it in turn affects the selling price and profit of IOC. These days situation has been
changing, IOC is calling tenders from all the suppliers (including non OPEC suppliers) and whoever
bids to supply at lowest price is considered for supplying raw materials to IOC. By calling tenders
from different suppliers top petro companies were successful in reducing power of suppliers over
them.
Power of buyers:
Petroleum has 2 types of customers- industrial buyers and individual buyers. Industrial buyers buy it
from suppliers like IOC. There are many suppliers for them BP, SHELL etc. these buyers from
upstream suppliers have an incentive to limit the supply and make profit. Industrial consumers
generally buy large quantities from suppliers and they have considerable bargaining power as they
have well established distribution channels also and if they switch to another firm there is a huge
loss to IOC or such firm. For individual customers price matters a lot, because switching cost is low
they can always switch to a supplier who sells at lower cost. And government intervention is high in
some industries because of its share in them and it pushes these industries to provide fuels at
cheaper or subsidised costs and it leads to heavy losses for firms. Overall buyers have good
bargaining power over Oil industry firms.
Now let us consider horizontal forces
Threat from existing players:
Competition in Oil industry is fierce because of trading in commodities. Customers are very sensitive
to price change and brand value doesnt matter a lot when trading in commodities, so oil companies
try to reduce the cost instead of product differentiation. This cost reduction can be obtained by

efficient operation. Gulf oil has full acquired the buses segment, servos share consists of Lorries and
trucks. With regard to Valvoline it has its market share from the drillers and other heavy equipment
users. And finally Castrol has targeted bike segment and high end users. So, from the above scenario
we can say that there is more rivalry among existing players in this oil industry. Profitability of any
form in this industry depends on its distribution network and Indian Oil has very well established
network of fuel stations and household gas distributors.
Threat from substitutes:
There are many substitutes for oil products available in market due to technical advancements and
concern for environment. We have coal, solar, chemical, wind energies substituting energy from oil.
For example we have electrical bikes available in market which doesnt require oil to run and we
have solar pump sets available these days even government is giving subsidies on alternative fuels.
These substitutes pose a great threat to oil industry in long run.
Threat from new entrants:
Setting up an Oil company involves pumping lot of capital before realising any profit from
operations. It is estimated that nearly $450 million is required as an investment for setting up Oil
Company in India. Oil industry is characterised by its economies of scale which says the more
industry produces better of it is in terms of cost reduction and profit realisation. For anyone to enter
Oil industry it is becomes difficult to sustain because of increase in interest on capital and it takes
some time to realise profit. And high level of expertise is required for exploration and operation of
Oil Company as it is highly prone to accidents and there can be loss of life and transportation should
be handled carefully as there are instances of Oil spills which resulted in heavy penalties. Profits
realised depends on how good a firm maintains its distribution network so new entrants finds it very
difficult to enter the space. Sectors like this are regulated by government agencies so first entrant
has the advantage of getting licences earlier and in easy manner than new entrant. We can conclude
new entrant poses less threat to established players.
Competitive Strategy:
Since Oil products has become commodities Indian Oil Corp. has been following Cost leadership
strategy instead of product differentiation.
Cost leadership:
Cost leadership can be obtained by reducing cost of production, increasing efficiency of operation
and production. Indian Oil spends little on advertising. But by selling at very low cost compared to its
competitors Indian Oil has gained large customer base. And it has selected strategic locations for its
plants abroad so that it would reduce the cost of transport and will ensure prompt delivery.

Differentiation:
Indian Oil is concentrating more on differentiating itself from its competitors in packaging and
customer service aspects rather than on product differentiation. It has outsourced its packaging
activities by inviting tenders so that it can concentrate on its core competency.