External Environment Analysis

Running head: EXTERNAL ENVIRONMENT ANALYSIS
EXTERNAL ENVIRONMENT ANALYSIS
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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).