Example meso (industry) analysis from Shell
Meso analysisCompetition in business always occurs with a profit-seeking company. Competition can be divided into three basic forms: internal, external and potential. There is a mutual relationship between these three basic forms. For example, the intensity of internal competition has consequences for your power position in the business chain and therefore for the intensity of external competition.
Developments in the industry
Internal competitionThe prices of oil fluctuate quite a bit. This is because, where the oil is pumped up, a lot of money is required for the oil. These people can do this because people continue to need oil. It is very important that Royal Dutch Shell makes good agreements with these people, so that the oil prices remain at the same level and do not fluctuate that much.
The EU has made agreements with all European countries about the environment. They would reduce CO2 emissions, which will also have major consequences for Royal Dutch Shell. So they will soon have to come up with a solution for a more environmentally friendly fuel.
What is an industry? An industry is formed by the companies that belong to a certain section of the business column (branch) and therefore fulfill a certain function in the production of a certain product. In everyday speech, the term is generally used a little more widely and refers to companies that make closely related products such as shipbuilding, housing, retail, etc.
You compete with industry and business colleagues in terms of price or quality to increase market share, margin and ultimately total profit. This mutual competition in the industry is called internal competition, while mutual competition is known in an industry as external competition. Since I now deal with competition in an industry, I place emphasis on internal competition.
Given the size of Royal Dutch Shell © and the sector in which Royal Dutch Shell © is trading, you would say at first sight that internal competition does not represent much. Royal Dutch Shell © nevertheless knows its competitors. In any case, you are talking about the American, Russian and Asian oil companies. But Royal Dutch Shell © is a large energy company and not only trades in oil and gas, but also in electricity. Shell can develop in the electricity world but finds it difficult to find a hold in this sector. Nowadays Royal Dutch Shell © still tries to hold on to its investments abroad, but with the well-known aggressive product, many analysts saw and saw no future for Royal Dutch Shell ©.
Business column relationships
External competitionIf you want to know what the relationships are in a business column, you first have to know what a business column is.
A business column is a vertical diagram of companies involved in the production and distribution of a product, from primal producer, through intermediaries, to consumer specialization and a company focusing on one or only a few products from the relevant business column. With parallelization, companies perform activities that belong to different business columns, so you can speak of industry blurring.
It is undeniable that Royal Dutch Shell © is a huge company. With that growth there is also solid integration in the economic term. What exactly is integration? When you talk about integration, you are talking about the disappearance of a link in a business column (two links become one together). However, there can and will often be an extra link in a business column because a company is divesting (outsourcing) part of the production process and you are talking about differentiation. A combination of the mentioned and described terms have contributed to the growth of Royal Dutch Shell ©. It is not that it stays that way. Royal Dutch Shell © continues to develop and continues to grow. New departments have already been created. Consider the new and future energies such as the wind, water and the sun. And Royal Dutch Shell © is financially strong enough to discuss acquisitions. Who knows even about mergers. This means that the aforementioned and discussed economic terms apply even more.
Reorganisations take place and tasks are accurately and efficiently distributed so that extra costs are saved and faster and better performance can be achieved. This works well for any company, although it often concerns two companies that involve at least a thousand employees and come from the same sector. A good example is the Dutch KLM © and the French Airfrance ©. This example also emphasizes that the fact that mergers between international companies is not a problem and can also lead to favorable economic developments.
There is almost no competition at Royal Dutch Shell ©. But then you are mainly talking about horizontal competition. For oil refineries, crude oil is something that doesn't matter who it comes from because the price is the same everywhere, because oil is an indispensable source of energy and there is a steady global demand for it. That does not mean that suppliers can raise the prices of barrels of oil. You might wonder why a liter of gasoline is cheaper in Peru than in the Netherlands. That price difference is caused by the taxes and premiums that are stated on petrol differ per country. On horizontal, there is not much going on for an oil company such as Royal Dutch Shell ©. Not entirely. There is of course competition for Royal Dutch Shell ©. And that is the competition called vertical competition. With vertical competition there is competition in the business column.
The industrial column describes the phases that a product goes through from raw material producer up to and including retail trade. The various sections of the business column come into contact with each other through markets. Most products go through a number of phases in the production process before they reach the consumer as an end product. The output of one company forms input for another, and so on. The various links are thus connected to each other via the sales and purchasing market. We call the whole chain of links (including the connecting markets) in the form of independent companies that pass a product the business column.
When we talk about business columns, we also quickly talk about external competition. As mentioned earlier, external competition is mainly about competition in the business column. A business column can easily be represented in a diagram known as a model. After all, a model is a simplification of reality. Given the term vertical competition, it is logical that there is competition from the top down, of course the reverse is not true. What does this mean for the external competition of Royal Dutch Shell © and what should you think about?
Consider the external competition of Royal Dutch Shell © gas stations that compete for their well-known and quality service. Royal Dutch Shell © also manages almost all parts of the business column; from pumping oil and gas from the ground (drilling platforms) to transporting them (ships, trucks) to selling them to consumers (Shell filling stations). The relationships in the Royal Dutch Shell © business chain are therefore hardly competitive. Except between the gas stations themselves such as that of SHELL © and BP. How does Royal Dutch Shell © fight such competition? On quality and service, customer loyalty (cards, subscriptions) and customer attraction through promotions (winning prizes).