External Environment Analysis

This essay provides an analysis of the external environment in Kuwait's oil and gas industry, including Porter's five forces analysis. It discusses the threats of potential entrants, power of suppliers and buyers, threats of substitution, and competitive rivalry. The essay also suggests four strategies that organizations can implement to mitigate these challenges. The conclusion emphasizes the importance of a competent supply chain and the role of the economy in attracting investments.

Running head: EXTERNAL ENVIRONMENT ANALYSIS
EXTERNAL ENVIRONMENT ANALYSIS
Name of the Student
Name of the University
Author Note

1EXTERNAL ENVIRONMENT ANALYSIS
Introduction
External environment based analysis is considered to be a primary study of the macro-
environment based forces that have an impact on the operations of different multinational
organizations. The growth of an organization is also based on the proper analysis of the
environment in which it operates and the levels of competition that are faced. The macro
environment based forces have a major impact on the society and organizations that are a part
of the industry. The contingencies that are a part of the industry environment have an
influence on the actions that are implemented by the firm (Ahmad et al. 2017).
Kuwait is considered to be a rich country and has been able to develop a welfare
based state for the nationals. The per capita based incomes that are gained by people in
Kuwait are quite high and business organizations are also able to operate effectively in the
country. The public finances in Kuwait are also quite healthy as debt-to-GDP ratio has fallen
to 18.8% in the year 2018 from 20.6% in 2017 (Alfraih 2018).
Porter’s five forces analysis of the competition based framework
As discussed by Al-Hemoud et al. (2019), the oil and gas based industry is considered
to be highly important for the economic condition of Kuwait. The industry has depicted huge
stages of growth in the last few years and has been able to offer high levels of contribution to
the economy of the country. The petroleum based industry that has been developed in Kuwait
is the largest and is able to provide high levels of contribution to effectiveness of the
economy. The oil reserves in Kuwait have gained the fourth largest position in the world. The
major oil companies that are currently operating in Kuwait are, Kuwait Petroleum
Corporation or KPC, Kuwait Oil Company or KOC, Kuwait National Petroleum Company
(KNPC) (AlKazimi and Grantham 2015). The industry and its effectiveness can be examined
with the implementation of Porter’s five forces model,

2EXTERNAL ENVIRONMENT ANALYSIS
Threats of the potential entrants – The entry of new companies in the oil and gas
based industry is considered to be a major force that can increase competition for
organizations that operate in Kuwait. The desire of the new organizations to gain a significant
share in the market is considered to be a major factor that is able to influence the stages of
competition that have been developed (Alotaibi and Alotaibi 2017). The important barriers
that are related to the entry of new companies in the market are, large requirements of capital,
regulations of the government, economies of scale, differentiation of products, ownership of
the resources. The delay of the entry of new companies in oil and gas based sector of Kuwait
is based on the barriers that are experienced in the country (AL-QALLAF, Owayed and Rao
2018).
Power of the suppliers – The suppliers in the oil and gas industry have high power to
affect the organizations that are operating in the market. The shortages that can take in the
supply of oil can lead to an increase in the prices. The oil based sector of Kuwait is huge and
suppliers are able to affect the prices due to the fluctuations that can take place in the external
environment. The shortage based issues are considered to be an important factor that has led
to the increase in power of suppliers in the market (Asheim 2015).
Power of the buyers – The buyers in oil and gas sector of Kuwait are also highly
powerful in nature. The field based operations of different large organizations are outsourced
to the oil companies in the country. The environment is thereby highly competitive and prices
and service quality are affected by the choice of consumers in a huge manner. The issues that
are faced by the oil and gas companies based on external factors like, political issues and
economic condition of a country are able to influence the ways by which the companies can
maintain their operations (Benmamoun et al. 2016).

3EXTERNAL ENVIRONMENT ANALYSIS
Threats based on substitution – The companies in oil and gas sector of Kuwait also
have to face indirect levels of competition from the substitute products that are offered to the
consumers. The substitute products offered by different organizations have started flooding
the market in the last few years. This factor has been able to increase pressure on the
profitability levels of the organizations (Biygautane, Hodge and Gerber 2018). The
implementation of technologies by different organizations have an impact on the ways by
which profitability can be affected in the industry. The government of Kuwait is the owner of
its oil and gas based industry. The exports are thereby influenced by the changes that take
place in the internal needs (Crystal 2016).
Competitive rivalry – The levels of rivalry among the oil and gas organization in
Kuwait are quite high. The intensity and levels of competition are influenced by the
operations of different organizations and the products and services that are offered to the
consumers. The economy of Kuwait is influenced in a huge manner by the increase in
competition levels that have taken place in the last few years. The intense competition in the
industry has also led to many legal issues that have taken place between the organizations
(Biygautane, Hodge and Gerber 2018).
The analysis of oil and gas industry of Kuwait has depicted that the competitive levels
of the industry are high and the organizations that operate in the industry need to develop
their operations based on changes that are continuously taking place in the external
environment (Dzenopoljac et al. 2018). Oil and gas is the main industry of Kuwait and the
country is influenced in a huge way by the changes that take place in the GDP rates. The
healthy economic condition of the country has an impact on the ways by which different oil
and gas based organizations are operating and providing their contribution to the economy
(Inkpen and Ramaswamy 2017).

4EXTERNAL ENVIRONMENT ANALYSIS
Four strategies that can be implemented by the firm
The issues that are being faced by the organizations in oil and gas industry of Kuwait
can be mitigated effectively with the help of different strategies that are discussed as follows,
The entry of new organizations in oil and gas industry of Kuwait is possible
with the help of joint ventures that can be made with the companies that are
already operating. Joint ventures are considered to be helpful for the entry of
organizations in an industry in which high levels of investments are required.
The new companies will be able to start their operations in the oil and gas
sector of Kuwait with the help of support that is provided by the large
organizations that are operating in the country (Benmamoun et al. 2016).
The supplier power in the industry needs to be reduced so that the
organizations are able to control prices of the products. The large
organizations can develop a huge customer base in order to maintain the
operations and ensure that an effective value chain can be formed as well
(AlKazimi and Grantham 2015). The development of a large value chain is
considered to be an important factor that has an impact on the operations and
prices of the products that are offered to the consumers. This is considered to
be important for the ways by which the organizations can face competition in
the industry (Biygautane, Hodge and Gerber 2018).
The development of a major differentiation based on services that are offered
to the customers is considered to be an important factor that can affect the
ways by which the organization can tackle competition. The direct and indirect
levels of competition provided by different organizations can be faced
effectively with the help of proper differentiation from organizations that can
provide substitute products (Dzenopoljac et al. 2018).

5EXTERNAL ENVIRONMENT ANALYSIS
The legal disputes that are faced by different organizations in the industry
have an impact on the profitability levels and margins. The companies that are
a part of the oil and gas based industry of Kuwait needs to implement the
regulations developed by the government in different operations (AL-
QALLAF, Owayed and Rao 2018). The proper implementation of regulations
is considered to be an important factor that has an impact on the operations of
the organizations. The companies will be able to operate successfully in the
industry by developing an effective team that is able to take care of issues that
are being faced in operations (Inkpen and Ramaswamy 2017).
Conclusion
The essay can be settled by stating that the organizations that operate in the oil and
gas industry of Kuwait can operate successfully with the help of a competent supply chain.
The supply chain of the organization will be able to play a key part in formation of a
profitable position of companies. The economy of Kuwait is able to play a key part in the
methods by which the oil and gas industry is able to perform and attract investments.

6EXTERNAL ENVIRONMENT ANALYSIS
References
Ahmad, N.K.W., de Brito, M.P., Rezaei, J. and Tavasszy, L.A., 2017. An integrative
framework for sustainable supply chain management practices in the oil and gas
industry. Journal of Environmental Planning and Management, 60(4), pp.577-601.
Alfraih, M.M., 2018. What drives intellectual capital reporting? Evidence from
Kuwait. International Journal of Productivity and Performance Management, 67(3), pp.571-
589.
Al-Hemoud, A., Al-Dousari, A., Misak, R., Al-Sudairawi, M., Naseeb, A., Al-Dashti, H. and
Al-Dousari, N., 2019. Economic Impact and Risk Assessment of Sand and Dust Storms
(SDS) on the Oil and Gas Industry in Kuwait. Sustainability, 11(1), p.200.
AlKazimi, M.A. and Grantham, K., 2015. Investigating new risk reduction and mitigation in
the oil and gas industry. Journal of Loss Prevention in the Process Industries, 34, pp.196-
208.
Alotaibi, A.S. and Alotaibi, J.G., 2017. An analytical assessment of Lean manufacturing
strategies and methodologies applied to Kuwait oil company (KOC). GSTF Journal of
Engineering Technology (JET), 3(4).
AL-QALLAF, Y.O.U.S.E.F.E., Owayed, F. and Rao, P., 2018. Efficient energy management
system at Kuwait Oil Company, Kuwait, a case study. Towards Energy Sustainability, p.39.
Asheim, B.T., 2015. An innovation driven economic diversification strategy for
Kuwait. Kuwait Foundation for the Advancement of Sciences, pp.1-14.

7EXTERNAL ENVIRONMENT ANALYSIS
Benmamoun, M., Sobh, R., Singh, N. and Moura, F.T., 2016. Gulf Arab E‐Business
Environment: Localization Strategy Insights. Thunderbird International Business
Review, 58(5), pp.439-452.
Biygautane, M., Hodge, G. and Gerber, P., 2018. The Prospect of Infrastructure Public‐
Private Partnerships in Kuwait, Saudi Arabia, and Qatar: Transforming Challenges into
Opportunities. Thunderbird International Business Review, 60(3), pp.329-346.
Crystal, J., 2016. Kuwait: The transformation of an oil state. Routledge.
Dzenopoljac, V., Alasadi, R., Zaim, H. and Bontis, N., 2018. Impact of knowledge
management processes on business performance: Evidence from Kuwait. Knowledge and
Process Management, 25(2), pp.77-87.
Inkpen, A. and Ramaswamy, K., 2017. Breaking up global value chains: Evidence from the
global oil and gas industry. In Breaking up the Global Value Chain: Opportunities and
Consequences (pp. 55-80). Emerald Publishing Limited.