National And International Competition Commerce Essay

Published: Last Edited:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

Schlumberger Ltd is the worlds leading supplier of technology, integrated project management and information solutions to customers operating in the oil and gas industry. (, accessed 15/3/10)

For the purpose of this assignment we chose Schlumberger Trinidad Inc (SLB Trinidad) as the focused SBU. SLB Trinidad falls within the geographical area of LAM and the geomarket Venezuela/ Trinidad and Tobago (VTT). SLB Trinidad has been in existence for 78 years in Trinidad, they are the service leaders in oil and gas upstream industry, supplying customers in both upstream and downstream markets.

Within Trinidad are the SBUs, Artificial Lift (ALS), Completions Services (CPS), Drilling and Measurement (DBM), Well Testing (WTT), Wireline (WL), Well Services (WSV), Schlumberger Information Services (SIS) and Data Consultancy Services (DCS). These segments comprise Trinidad Operations.

Figure - SLB Geographical Locations and SBU's Source: Researcher & Group

1.2 Schlumberger's Vision, Mission, Objectives, Strategy and Tactics (VMOST)

Vision - To be the leading developer of technology and the best-in-class provider of value-added solutions to optimize reservoir performance

Mission - Our purpose is to help our clients optimising their reservoir's performance, with more efficient production and increased recovery without increasing lifting cost.

Objectives -

To provide customized solutions to our clients

To provide excellence in service delivery

To provide increased customer value

Strategies - Mergers, Acquisitions and Diversification


Preparation of future technologies

Identification and acquiring of smaller, profitable companies that either supply SLB or take SLB's market share


Figure - PESTLE analysis Source: Researcher & Group

Political - The global energy markets are volatile due to threat of geographical instability and therefore the risk factors associated with doing business in this industry is very high to medium. The government of Trinidad and Tobago established the Petroleum Act framework which grants licenses and contracts of petroleum operations to both local and foreign investing companies.

Economical - The oil and gas prices are determined by the production quota set by OPEC and therefore the world oil and gas prices determines SLB's revenue.

Social - Schlumberger over years increased Corporate Social Responsibility through Schlumberger Excellence in Educational Development (SEED) program where they share their passion for learning science creating opportunities for the youths at the St. Benedict's College and Point Fortin College in 2005 and 2007 respectively, donating PCs, providing schools with high speed internet connection and upgrade school's laboratory.

Technological - Schlumberger continues developing and innovating high technological equipment permitting opportunity to provide customers with high quality products and services.

Legal - Intellectual Property (IP) laws are governed by the laws of Trinidad which gives Schlumberger the competitive edge.

Environmental - SLB risks losing contracts with top clients if non-conformance with eco-environment. Industry experts suggest that oil and gas may last only for next 20 years and therefore SLB may need to look at other forms of investments.


C:\Documents and Settings\NSennon-ransome\Local Settings\Temporary Internet Files\Content.IE5\MS8RQT2H\Capture[1].JPG

Figure - Porter's Five Forces Source: Researcher & Group

3.1 Porter's Five Forces (see Appendix)

The five forces framework by Michael Porter was developed to determine the industry attractiveness. In order for companies to sustain competitive advantage and profitability they ought to understand the environment in which their strategic business unit (SBU) operates. The five basic competitive forces were used to analyse SLB Trinidad environment.

3.1.1 The Threat of New Entrants

Threat of new entrants is low for SLB Trinidad due to new entrants must have high capital requirements, this is imperative if they are to successfully compete.

3.1.2 The Threat of New Substitutes

The main threat of substitution is technology rejuvenation and advancement, where competitors must ensure continuous spending on research development and innovation in order to meet customers demand. Innovation in technology encourages the customers to drift from one product to the other.

3.1.3 The Bargaining Powers of Buyers

The cost of switching SLB to one of their competitors is high. There are long-term (3 years) contracts signed between SLB and their customers. If there were no long term contracts the threat would be considered low due to SLB customers can easily shop around for better prices with no associated risk.

3.1.4 The Bargaining Powers of Suppliers

SLB is unable to switch cost from one supplier to another, switching costs are high, SLB's operations are solely dependent on the high-quality products. SLB brand is powerful and differentiated.

3.1.5 The Intensity of Competitive Rivalry

SLB's competitors such as Halliburton and Baker Hughes all have similar strategies such as acquisitions and mergers and thus rivalry is high within this service industry.


Figure - Industry Life Cycle Source: Researcher & Group

SLB Trinidad operates in a mature industry; demand for services in oil and gas exploration and production industry began decreasing in 2008 and 2009 due to fall in oil prices. This caused marginal competitors to exit the market due to limited attractiveness predicted for the oil and gas industry.


SLB's Trinidad success relies strongly on Customer, Competitor and Corporation according to Ohmae's 3 C's model; together, forms the strategic triangle.

5.1 Customer Base Mix

The Oil and Gas industry focus should include both upstream and downstream markets. There should be a mix of both International Clients (BP, BG and EOG) and National Clients (NP, PETROTRIN and NGC).

5.2 Competition

Operations in different Geographical Areas and Sectors: Geographic and Sector Fragmentation - Companies must have operations in forecast growth geographies and exposure to subsectors such as sea land drilling.

Development or Ownership of Specialist Technology - Companies must have the expertise and skills required in developing and improving technologies used in the oil and gas industry.

 5.3 Corporation

Experienced Management Team & Highly Trained Workforce - Companies must have highly skilled management team and workforce and must encourage product innovation capabilities amongst staff.


Figure - Competitor Analysis Source: Researcher & Group

Figure - BCG Matrix Source: Researcher & Group

6.0 Competitors

Key competitors within the oil and gas service industry are Schlumberger, Halliburton, Baker Hughes, BJ Services and Tucker Energy Services Ltd. Schlumberger leads this industry as can be seen in Figure 5.

The BCG Matrix (figure 6) indicates that SLB and Halliburton are cash cows with high market shares however exist in low market growth and therefore it can be implied that limited investments are required. Baker, BJ and Tucker all have low market share in a low growth market.

6.1 Competitors VMOST

All competitors VMOST are analogous to SLB. Their Vision statements focus mainly on providing excellent customer service. SLB Vision varies as it clearly states that their desire is to be leading developer of technology as well as providing excellent service. Competitor objectives illustrate their focus on key success factors with emphasis placed on advancements in technology and workforce.

6.2 Competitors' Strengths

Technological, Skilled workforce and Core values

6.3 Competitor Weaknesses

Low market share, Low capital investment in Research & Development


7.0 Market Segmentation

Schlumberger market dynamics are its market segmentation which is business to business, where SLB service its clients such as BP, BG, EOG, Repsol, BHP and Petrotrin directly; there are rarely any involvement of third parties.

7.1 Intensity of Customer Rivalry

Customer rivalry is not high as BP leads the upstream oil and gas exploration and production market, BPTT produces 66% of Trinidad's gas and 25% of oil. Petrotrin leads the oil industry with 33% of market share as per Trinidad and Tobago Oil and Gas Report Q1 2010 (Business Monitor International, 2009).

7.2 Concentration of Customer Base

Customer Base is high due to more than 25% of revenues come from SLB main customers.

7.3 Customer Buying Behaviour

SLB's customers buy through submission of bids and tenders, when price of oil and gas.

7.3.1. Customers may buy for one of two reasons:

Values, Quality and Solutions - Customers tend to make rational decisions and are concerned about budgets, durability and return on investment for their organization (opportunities).


Figure - Spectrum of Turbulence Source: Researcher & Group

This results in a high turbulence level of 4.25 where the visibility of the future becomes unpredictable and will result in emergent approaches to strategic development.


Figure - Resource Audit Source: Researcher & Group

It is imperative for Companies to have superior resources which are protected within the industry it operates to earn sustainable profits and return on investments. Figure 7 are essential resources of Schlumberger capabilities and these capabilities are the primary basis for SLB competitive advantage.


10.0 Recruitment and Selection

Schlumberger Trinidad recruits and selects its human resources through universities such as University of Trinidad and Tobago, University of the West Indies and Technical Institutes. SLB Trinidad is committed to hiring local people.

10.1 Performance Management

Schlumberger manages its employee's performances through the performance appraisal process called SLP-3. SLP-3 measures performance against objectives, which are reviewed quarterly and yearly.

10.2 Training and Development

SLB is said to have the most respected training programs in the industry both with regard to technical development as well as managerial and soft skills development which are used to train employees from all nationalities.

10.3 Rewards and Motivation

Employees can reward each other for performing jobs that are beyond the call of duty; this recognition reward is reviewed and approved by management prior to rewarding the employee.


Figure - Value Chain Analysis Source: Researcher & Group

11.1 Value Chain Analysis

The Value Chain is a model which was created by Michael Porter in 1985, it analyses the primary and secondary activities and figure 8 shows the specific activities through which SLB Trinidad creates value and competitive advantage.

SLB can create cost advantage and manage cost by reducing cost in both primary and secondary activities or by restructuring the value chain, better control of cost drivers will lead to cost leadership.

11.2 Schlumberger (SLB) competences from the value chain

Human Resources In the last 25 years the company has recruited, trained and developed more than 200,000 professionals. Recruitment of the right people for the job is sourced mostly from graduate schools. Their highly skilled knowledge workers deliver quality service to customers. SLB is the only company in the industry who has schools for their employees located in Dubai, Houston, Russia and France.

Technology Development - SLB leads the industry with its innovative technology, research and development and having the most patents.

Procurement - The SWPS system is used by SLB to procure its goods both locally and internationally. This system once effectively used allows for fast delivery of products at a cheaper cost taking advantage of discounts through bulk buying.

Inbound Logistics - SLB is backward integrating by merging with Smith International, this reduces bargaining power of suppliers.

Marketing and Sales - SLB mainly employs its human resources and brand reputation to market their services and products unlike their competitors who outsource this role.


Figure - Value System Source: Researcher & Group

Some of SLB's core suppliers within the value system are SLB Technology Corp, SLB Manufacturing Ltd, Smith International and Stabil Drill.

SLB in May 2010 finalised their merger agreement with Smith International, this merger will allow SLB to get high quality products at low cost. SLB can pass reduce cost to their customers, therefore gaining competitive advantage on low cost and differentiation.


Figure - Mc Kinsey 7S Source: Researcher & Group

SLB Values

People thrive on the challenges of excelling in any environment and the dedication to safety and customer service worldwide is SLB's greatest strength. Commitment to technology and quality is the basis for their competitive advantage. Determination to produce superior profits is the cornerstone of their future independence of action and growth.

Leadership - In 2003 SLB's CEO Andrew Gould was appointed to office and within a small timeframe he transformed the company by increasing return on capital to double digits. Gould's positive transformation of SLB was noted by its Stakeholders.

Management Style - Gould traditional and conservative style was credited with reasserting cohesion within SLB corporate culture. Managers have different styles of leadership, some autocratic and participative.

Styles - Transformational leadership style which encourages work life balance. Management style can also be situational.

Staff -diversified workforce with 140 nationalities working in approximately 80 countries

Culture - SLB does not have a 'nationality' which describes its culture but operates in a global fashion throughout the world. Considered to be one of their greatest strength is the diversified workforce with many nationalities and background working together.

Skills - Highly skilled, technical professional

Structure - Multi-divisional, the sharing of divisional competences facilitates the corporation's efforts to develop economies of scale

Strategy - Acquisitions/mergers

Systems - Formal procedures for carrying out operations and procedures


Figure - VRIO Framework Source: Researcher & Group

Technical Knowledge and Experience - Valuable to Schlumberger, but not rare to the industry, not costly to imitate and is exploited by competitors.

Technology and Innovation - SLB continues to lead the industry with technical innovation by introducing new technologies.


Figure - Anthony's Triangle Source: Researcher & Group

Schlumberger is divided into three levels of management, Strategic, Management and Operational and then into functional areas such as Human Resource, Operations, Marketing and Sales and Finance and Accounting.

At the strategic level managers develop strategies, policies and procedures for sustainability, looking at both the internal and external environment. At this level their main focus is linking changes in the external environment with their organisational capability. These directives are then disseminated to upper Management, Operational and Functional staff for implementation and conformance.


16.0 Core Competences

The Core Competence model by Hamel and Prahalad (1990) looks at the core strengths of an organization. SLB strengths are in research and development, technical innovation, skilled and knowledge works and its brand image and reputation. SLB's core competences must focus on corporate strategy which will be developed through continuous development and augmentation.

Figure - Core Competencies Source: Researcher & Group

16.1 Distinctive Capabilities

SLB has distinctive capabilities that cannot be replicate by its competitors such as innovation, brand reputation and high tier technology. These distinctive capabilities translate to successful competitive advantage.

Figure - Distinctive Capabilities Source: Researcher & Group


Figure - BCG Matrix Source: Researcher & Group

The BCG Matrix is an important portfolio management tool that determines SBUs strategic position in the market. However according to Lynch (2009, p. 359) these strategies are defined only by business growth and market share ignoring other issues.


18.0 Profitability Analysis

Figure - Profitability Source: Researcher & Group

There were steady increases in gross profit and net profit margins, year on year from 2004-, these results shows efficiency in managing their operational costs as well as good pricing and control over direct cost. In 2008-2009 due to the economic downturn and rise in prices of oil and gas profitability declined. However, owing to high financial strength they were able to sustain the downturn.

18.1 Liquidity Analysis

Figure - Liquidity Ratios Source: Researcher & Group

There was minimal increase in both current and quick ratios by 0.1:1during this period, supported by increase in short-term investments $530M, this derived particularly from a joint venture with Smith International Inc where Schlumberger acquired a 40% interest.

The favorable increase in current and quick ratio by 0.1:1, this was primarily attributable to an 18% increase in short-term investments. Inventory increased by 17% in 2008 which indicates a lower stock turnover. As confirmed by Gould, "the sharp drop in oil prices in the latter part of 2008 resulting from lower demand, higher inventories". (SLB Annual Report 2008)

Schlumberger maintained their liquid position year on year; this is a good indication that they can pay their current liabilities with current assets should it become due.

CHAPTER 19 - Competitor Financial Analysis

Figure - Competitor Financial Analysis Source:

Figure - Competitor Analysis


SLB has two to three times higher profit margins than its competitors; this indicates they are highly competitive and can have competitive advantage.


SLB's net income US$3.14B is more than three times greater than their competitor, this indicates strong financial growth.

Financial Strength

SLB is financially stronger than its competitors, comparing its return on investments and quick ratios.




Figure - "MAXI-MAXI" STRATEGY Source: Researcher & Group

The "maxi-maxi" strategy illustrates that SLB can use its strengths to capitalize on opportunities.

SLB's strong R&D and Technology can increase its opportunity in the industry due to continuous global technology advancement. SLB is financially strong and therefore will be capable to updating technology; this is also an excellent strength for back integration.

SLB's high HSE culture enhances, promote and maintain high brand equity. SLB has a highly skilled technical workforce who has the knowledge and intelligence to develop intellectual property.



Figure - "MAXI-MINI" STRATEGY Source: Researcher & Group

The "maxi-mini" strategy illustrated in figure 21 shows where SLB can use its strengths to minimize threats from the external environment.

SLB's continuous spending on R&D, technology and high technical innovation can minimise the threats from its competitors by backward integrating and hence reducing cost which can be passed on to its customers.

SLB's strong financial capital allows them to sustain the economic downturn, unlike their weaker competitors. This allows them the competitive advantage.



Figure - "MINI-MAXI STRATEGY Source: Researcher & Group

The "mini-maxi" strategy illustrated in figure 22 shows where SLB can minimize weaknesses by taking advantage of opportunities and therefore employee morale can be minimized by existing employment laws.



Figure "MINI-MINI" STRATEGY Source: Researcher & Group

The "Mini-Mini" strategy indicated in figure 23 links SLB's weakness of high cost to its threat of increase competition. A cost reduction strategy will minimize the weaknesses of high cost and avoid the threat of increase competition.


SLB is in a strategic fit with its environment which gives them the competitive advantage. Its core competencies give them a strong market position due to latest technological developments, highly skilled workforce and brand reputation, this result in a successful EVR congruence, see figure 24. However, it may be noted that SLB weakness is seen mainly in Values, Leadership & Culture which can result in the company drifting out of congruence and into the unconsciously competent organisation as seen in figure 25.

Figure - EVR Congruence

Figure - The Unconsciously Competent Organization Source: Researcher & Group


22.0 What is the problem?

In 2008 and 2009 Schlumberger was able to deliver steady and profitable growth to its shareholders; this resulted in the global economic downturn that affected revenue and profitability. Decline in oil and gas prices from $147 per barrel to $40 per barrel significantly reduced the levels of spending by SLB's customers'.

Schlumberger is known by the industry to be a high tier supplier and thus some customers such as national oil company Petrotrin that leads the downstream market eliminates SLB as their core supplier due to SLB's prices are known to be "too high". SLB's SBU - Well Services is adversely affected by this anecdote and hence their competitor Tucker Energy Services is the core supplier for Petrotrin.

22.1 What Basis?

22.1.1 Porter's Generic Strategy

According to Lynch (2009, p.303), 'Generic strategies are the three basic strategies of cost leadership, differentiation and focus open to any business'. Schlumberger is within the differentiation quadrant; its products are differentiated and hence the prices charged to clients are higher than the average market price as explained by Lynch (2009 p.305).Over the last two (2 )years SLB's clients went into aggressive negotiation for lower prices and SLB was forced to lower their prices. The researcher suggests that SLB adopts both strategies of Differentiation and Low-Cost leadership in order to maintain competitive advantage.

SLB should divert into mass production in order to achieve economies of scale. This will result in higher volume of production which will reduce unit cost. Some of the reduce cost can be disseminated to SLB's customers.

22.1.2 Industry Life Cycle

SLB is positioned in a mature industry which indicates that competitive strategies such as expanding into new markets, cutting cost and focusing on one generic strategy can defend its position as leader with strategies such as vertical integration which will achieve economies of scale.

22.2 Which Direction?

SLB has extremely high business strength however the market attraction is medium and therefore it is recommended that their investment strategies should be to protect their current market share and build up ability to counter their competition.

Figure - Portfolio Analysis Source: Researcher & Group

22.3 How?

22.3.1 Cost Reduction

SLB must implement a Lean Program through Internal Development. Lean is an industry methodology used to increase efficiency and drive waste out of company's system. Lean is customer focus and derives at what is value and non-value to the company and its customers, once identified the non-value needs to be appropraitely removed in order for SLB products and services to freely flow to their customers.

SLB needs to reduce cost within the value chain and value system; this can be achieved through mergers and acquisitions of their core suppliers. SLB can also disseminate some of the reduce cost to their downstream customers, and hence build their downstream market share, customer satisfaction and loyalty.

22.3.2 Advantages and Disadvantages of Internal Development

Advantage - Internal development has low business risk which allows for ongoing learning and more control over cost reduction by management.

Disadvantage - SLB management must attain the neccesary knowledge to plan, control, implement and monitor the lean program.


Strategic options were chosen by critically analysing the external and internal environment of SLB, thereafter, an examination was performed on SLB's Strengths, Weaknesses, Opportunities and Threats (SWOT) which resulted in the four (4) strategic options; Cost Reduction, Drilling for Fresh Water, Drilling in Deep Water and Acquisition of Tucker Energy Services.

Researcher's Chosen Option:

Option 1 - Cost Reduction through Lean Program (Elimination of Waste)

23.1 Evaluation and Justification of Cost Reduction

23.1.1 Suitability

The lean program will eliminate wastage and add value to customers and profitability to SLB. SLB will have the competitive advantage (see figure 21, "mini-mini" strategy) and make breakthroughs in the downstream market which will increase market share and thus meet shareholders and stakeholders' expectation.

Through current mergers and acquisitions vertical integration will be achieved and thus cost reduction within the value chain and value system is attainable. This reduced cost can then be disseminated to SLB's customers'.

23.1.2 Feasibility

Internally, SLB is financially strong and has the capital investment required proceeding with new project. (See Appendix E). The NPV also gives the indication that the project will be profitable.


Figure - NPV ANALYSIS Source: Researcher

The NPV analysis in figure 26 illustrates a projected cost of US$20M, with an expected Rate of Return of 20% on a three (3) year project value $40M. The NPV after 3 years is positive US$7.2M and therefore it is recommended that SLB Trinidad go ahead with this new project as the project will be profitable and worth the risk.


Figure - Sensitivity Analysis Source: Researcher

ACCA (2007/8, p.279) states that "sensitivity analysis typically involves posing 'what if' questions". Before undertaking projects it is important to note how much demand could fall before the project should be rejected, "the breakeven demand that gives the NPV zero". The lower the sensitivity margin, the more sensitive is the decision to undergo the project. ACCA The sensitivity margin for the cost reduction option is 27% and therefore the project is viable.

23.1.5 Acceptability

The Lean Program will be acceptable by stakeholders, due to expectations of higher profit margins.

Reducing cost has low business risk associated to it and as such will be accepted by shareholders and stakeholders.

This strategy is in line with SLB'S Vision, Mission and Objectives where added value will be given to their customers.

23.1.6 Rejected Options:

Option 2 - Drilling for Fresh Water

Option 3 - Drilling in Deep Water

Option 4 - Acquisition of Tucker Energy Services

23.1.7 Why rejected Options?

Options 2, 3, and 4 were our core options and all were excellent options which are strategically suitable to SLB. However, my group consist of four persons and each person choose one of the options mentioned above, hence the reason there is no such "rejected option" but more so all strategic options which coincides with SLB's vision, mission, objectives, strategies, competencies, capabilities and key success factors.

Initially we thought of other options such as forming an Alliance with national oil and gas company Petrotrin however, this rank very low in the SFA, due to Petrotrin is currently experiencing financial difficulties and the negotiations will be long-term. Also, with current elections in Trinidad and Tobago new government policies for the energy sector is uncertain.


24.1 Perspective of Managing Change

24.1.1Current State

SLB has high cost and high quality, this high cost is being passed on to their customers

24.1.2 Driving Forces

SLB Trinidad is continuously losing revenue

24.1.3 Desired State

Low cost and high quality products and services will lead to higher Profit Margins and Cost Leadership

24.2 Strategic Framework Analysis

24.2.1 VMOST

The new strategy supports Schlumberger's initial Vision, Mission and Objectives, however, another Strategy of cost leadership will be added and new Tactic where waste will be eliminated within the value chain.

24.3 What Changes?

24.3.1 The Value Chain

Activities will change to be in line with new strategy.

24.3.2 Procurement

Department needs stronger and stringent controls over the purchasing of goods so as to develop bargaining power with their suppliers.

24.3.3 Leadership and Culture

The new strategy follows a participative type of leadership.

24.3.4 Human Resource

A type of training and development is required to the team who needs to lead the strategy, they must be competent to answer questions and also implement and monitor the strategy, taking corrective actions if required.

24.3.5 Operations

Eliminating wastage when performing operations, ensuring service quality to clients

24.3.6. Communication

Strategy must be effectively communicated



C:\Documents and Settings\NSennon-ransome\Local Settings\Temporary Internet Files\Content.IE5\SE3V3CK0\Work_Breakdown_Structure[1].jpg

Figure - Work Breakdown Structure for New Strategy


Figure - BALANCE SCORECARD Source: Researcher & Group



Figure - SWOT ANALYSIS Source: Researcher & Group


Figure - SFA Source: Researcher and Group


Figure - Portfolio Analysis Source: Researcher and Group


Figure - Portfolio Evaluation Source: Researcher and Group



Johnson, G. et al., 2006. Exploring Corporate Strategy. 7th Ed. England: Pearson Education Ltd

Lynch, R., 2009. Strategic Management. 5th Ed. England: Pearson Education Ltd

Thompson, A., 2007. Crafting and Executing Strategies. 15th Ed. New York: McGraw Hill