Economics for Business: Shell PLC Analysis and Recommendations

This report provides a comprehensive economic analysis of Shell PLC, a major player in the oil and gas industry. It begins with an introduction highlighting the external environmental factors influencing Shell's operations and their impact on international trading. A PESTEL analysis is conducted to examine the political, economic, social, technological, environmental, and legal factors affecting the company. The report then identifies and discusses Shell's current major threats, such as climate liability and environmental regulations, and opportunities, including the expansion in the Chinese market. Finally, the report explores how economic theories, specifically the market power theory of inflation, can be applied to address global increases in oil prices, offering strategic recommendations for Shell PLC. The report concludes by summarizing the key findings and the application of economic theory for the company to deal with the price rise of oil.

Economics
for
Business

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
TASK 2............................................................................................................................................4
TASK 3............................................................................................................................................5
REFERENCES................................................................................................................................7

INTRODUCTION
This report will highlight all the external environmental factors affecting the Shell PLC.
The report will include the threats and opportunities being currently faced by Shell and its impact
on its international trading activities in future. The report will also highlight the discussion of
economic theory that would mention different ways in which Shell can react to a increase in the
price of oil.
TASK 1
PESTEL analysis for Shell-
Political Factors- Political factors plays an major role by posing various factors that impact the
profitability of Royal Dutch Shell PLC in a particular country or market. The company is
operating in 70 different countries and have to face various types of political issues and risks.
Royal Dutch Shell PLC faces following issues-
 Risk of Army annexation in different countries..
 Level of misconduct and regulation levels in raw materials sector.
 Government interference and control in the oil and gas sector industries.
 Legal formalities and rules for contract enforcement by the companies with the
government of the country(Koshesh and et.al., 2019).
 Trade related regulations and tariffs for the raw materials.
 Price regulations and imposed taxes by the government.
 Industrial safety and wage regulations for the workers in the company.
 Intellectual property rights and protection.
 Employee benefits and work time regulation for the company.
Economic Factors- Economic factors comprises of factors such as exchange rates, inflation
rates, interest rates as well as economic cycle determining the aggregate demand and supply in
the economy and all other money related factors that will affect Royal Dutch Shell's operation in
different countries. The following are the economic factors and components being faced by Shell
PLC -
 Economic system of the country comprising of Traditional, Command, market or mixed
economic system being adopted by the country.
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 Exchange rates and the value of the currency in a country of operation.
 Economic and financial stability in the local markets.
 Flexibility in raising capital by Royal Dutch Shell in the country.
 Quality of Infrastructure of the integrated oil and gas industry.
 Availability of skilled workforce for the oil and gas industry.
 Competition in the markets.
 Cost of labor and the level of productivity in the economy.
 Different stages of business cycle- Prosperity, recession, recovery.
 The growth rate of economy.
 Inflation rates and the interest rates in the local market.
 Level of unemployment and education in an economy.
 Pending of consumers in the economy to understand the demand.
 Aggregate demand of the economy in Oil and Gas sector.
Social Factors- Society and its culture as well as the way of doing things creates a major impact
in organizational culture. Different beliefs and attitude of the people in the country play a major
role in how Shell PLC understands its customers in a particular market and frame different
strategies for influencing Major Integrated Oil and Gas industry customers(Ahmad and et.al.,
2017). These are some social factors that needs to be analyzed by Shell PLC-
 Population demographics and age structure of population.
 Level of skills in the people.
 Structure of different classes in a particular society.
 Level and standard of education of the people.
 Culture of the country.
 The spirit of entrepreneurship and the nature pf the society comprising their point of view
in acceptance and reject of entrepreneurship.
 Level of attitude of the people.
 Interests of the people.
Technological factors- Technological advancement is the major trend that is being used by the
various industries across the world. In order to increase the efficiency and operations the industry
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has to be familiar with the use of new technology so that it can reduce its production cost and
time, which will lead the company into several benefits(Hajizadeh, 2019). Technological
analysis will not only provide Royal Dutch Shell PLC and advantage of more productivity at
reduced cost but also pose the competitive advantage for the company. Technological factors
includes following components-
 Technological developments from the competitors.
 Impact of technology on the offerings of product.
 Impact of technology on cost structure of Oil and gas industry.
 Rate of technological innovation.
 Cost of technology transformation and adoption by the company.
Environmental Factors- Different countries have different regulations and environmental
standards that can impact the profitability and growth of the business in that country. These
regulations may include benefits as well as draw backs for the companies. Following are some
environmental factors that impact Royal Dutch Shell-
 Weather of the country.
 Climatic changes and fluctuations.
 Different laws and standards for environmental pollution.
 Laws related to the Air and water pollution by the Oil and gas industry.
 Recycling process and cost.
 Management of waste materials being released by the company.
 Country's contribution in supporting renewable energy.
 Availability of raw materials for the production.
 Endangered species of animals that would be affected by the pollution created by the
industry.
Legal Factors- In several countries there is no proper legal framework and institutions that will
come up for the protection of company's intellectual property in that country. The company must
evaluate and analyze before being operational in such countries where the organizational secret
shall have the threat from its competitors(Protasov, 2018). These are some legal factors that
Royal Dutch Shell must consider-
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 Intellectual property rights- Patents and copyrights.
 Employment law.
 Consumer protection law.
 Data protection and security.
 Discrimination law in the country.
 Anti-trust law in oil and gas industry in a particular country.
TASK 2
Current Major Threat
One of the major current threat being faced by the Royal Dutch Shell PLC is the climate
liability threat and the environmental factors issues being implemented and enforced by different
countries on the company. Netherlands environmental NGO has filed a lawsuit on Shell PLC for
the effect on climate of the country due to the company's operation. Also the Shell in US has
been facing the problem of lawsuit filed on it for the climate effect on the country. Also the New
environmental regulations issued under the Paris agreement (2016) have created a major threat
on the existing categories of product on Royal Dutch Shell company. Netherlands NGO has
issued a letter demanding the commitment of reducing its greenhouse gas emission percentage as
well as to contribute its 5% of its total annual capital investment to the ventures such as New
energy division and renewable energy capacity. The NGO has also insisted that the company
must abandon its oil and gas reserves to the zero amount that means no emissions of greenhouse
gases. The NGO also issues the warning to Royal Dutch Shell that it can be sued to the legal
actions if it fails to develop the plans relating to the demands of NGO.
Impact on Shell PLC trading activities- The threat has impacted on the operational and trading
activities as the company will be getting less returns on its capital investment. The company has
committed to reduce the greenhouse gas emissions by 50% till 2050 by investing billion dollars
in renewable energy sources. The company has also committed as per the demands of the NGO
as of investing 5% of its total annual capital investment amounting to $2 billion USD annually
on its concept of New Energy division in order to contribute towards the reduction of its
greenhouse emissions.
Current Major Opportunity
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The major opportunity for Royal Dutch Shell PLC is that the China has opened its market
for the business of oil and gas industries and is looking forward for the deals in the partnerships
with various major oil and gas company. This serves as a big opportunity for Royal Dutch Shell
PLC to expand its business by developing its partnership with the nation's biggest offshore
explorer. China National Offshore Oil Corp. issued in an agreement that consisted nine oil and
gas firms including Royal Dutch Shell of Netherlands.
Impact on the business of Shell PLC- The major impact will be the expansion of business of
Shell PLC in Chinese territory. Secondly the agreement by China National Offshore Oil Corp
covers 64,000 square kilometers in the Pearl River Basin to depth of 3000 meters which is
another big component in extracting oil from the shore. One more country will be added to the
list of Royal Dutch Shell PLC operations. The company will also be able to establish its
dominance in Asian markets through this opportunity. The company will have to invest its
resources for the expansion in Chinese market which will further give to the rise in the amount of
international trading activities resulting to the rise in revenues for the company. There wouold be
rise in the company's overall value in London Stock Exchange.
TASK 3
Economic theory and its components that can help Shell PLC to react a global increase in
oil price-
In order to deal with the issue, Royal Dutch Shell PLC can use market power theory of
inflation in which number of competitors in the same industry meet up together and decide a
single price for their product which is different from the current competitive price. This price
will be termed further as the market-power price in a particular market. With this theory all the
firms can keep their prices at a particular level as according to their benefits and also can earn
higher profits without any strategies to be implemented for marketing or consumer influence.
There are quite few firms in oil and gas industries dealing in the various petroleum products.
Here, Royal Dutch Shell PLC could meet its existing rivals and set up a single price for all of
them which will be termed as one standard price in the market. This in turn make the company in
making higher profits as the consumer will have no option and the bargaining power and the only
option to purchase the product at the offered price. Also, there will be no pricing competition
among the firms and all the firms along with Royal Dutch Shell PLC will able to survive in the
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market and the competition will be based on brand and the service provided by the company.
This will reduce the burden of price discrimination of the company and it could invest its
resources in its environmental energy saving projects and other related projects comprising of
renewable energy. This will in turn also help the community and the regions if the company
concentrates more on its sustainable use of resources as well as reducing green house emissions
and also serve better to its customers to enlarge its customer base. The company will not use its
investment or focus on profit making objective and divert its primary focus on providing service
and initiatives related to the social cause and well being of environment and nature. But there
would be major drawback as the pricing according to the firms will not benefit the customers as
they will have to pay the fixed price as offered by the firms. Also there will be no solution to the
global price rise of the oil. This will also reduce the sales volume if the customers will not
purchase the product due to its dominated high price by the firms(Akinsol and et.al., 2017).
At-last it can be justified that the use or market- power inflation theory there will be few
drawbacks to the customers as per their purchasing power, but at the end of the day the Royal
Dutch Shell PLC will serve better to its customers, perform its core responsibility towards the
environment which will benefit all the stakeholders of the company and the nature.
CONCLUSION
From the above report it is studied that how the external environmental factors affect the
business of the company. The report also studies the current major threat and the opportunity
being faced by the company and how they create impact on its international trading activities.
The report concludes by observing the application of economic theory could find out solutions
and ways for the company to deal with the price rise of oil.
REFERENCES
Books and journals
Ahmad and et.al., 2017. Evaluation of the external forces affecting the sustainability of oil
and gas supply chain using Best Worst Method. Journal of cleaner production. 153.
pp.242-252.
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Akinsol and et.al., 2017. Inflation and economic growth: A review of the international
literature.Comparative Economic Research. 20(3). pp.41-56.
Hajizadeh, Y., 2019. Machine learning in oil and gas; a SWOT analysis approach. Journal of
Petroleum Science and Engineering. 176. pp.661-663.
Koshesh and et.al., 2019. The Environmental Strategic Analysis of Oil & Gas Industries in
the Kurdistan Region Using PESTLE, SWOT and FDEMATEL. Pollution. 5(3).
pp.537-554.
Protasov, A., 2018. Economic Theory and a Constant Worry Across Time: Institutional
Failures in the Development of Theories of Inflation. In Re-Examining the History of
the Russian Economy (pp. 277-305). Palgrave Macmillan, Cham.
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