Petroleum

Compiled By: Mirza Rohail B ©Our leader – Musharraf http://presidentmusharraf. wordpress. com/ All this is all the more amazing when one considers that just six years ago, Pakistan was on the verge of bankruptcy, with only a little more than $1bn in foreign exchange reserves and its stock market teetering at 1,000 points (worth $5 billion only) and foreign debt servicing at 65% of GDP. Our exports were at a pitiful $7. 5 billion. The once ever-declining rupee stood stable at around 60-61 to a dollar since Musharraf took over. Of the 184 member countries of the IMF, Pakistan’s rate of economic growth 7% is one of the best in the world.

The Karachi stock market is now above 13,000 points and worth around $65 billion. Now foreign debt servicing has lowered to become 28%. Our exports increased to become $18 billion.

Pakistan economy is among the fastest growing economies in the world as its economy has reached the size of $170 billion from a mere $70 billion in 1999. Pakistan attracted a record FDI of $8. 6 billion in 2007-08. 2. 2007: National revenues had swelled from Rs 308 billion during 1988-99 to around Rs 800bn in 2007; and FBR estimates now 2. 8 million Income Tax payers.

Year Total CBR Direct Indirect Custom Sales Central excise 1998-99 308. 5bn 110. 4bn 198. 1bn 65. 3bn 72bn 60. 8bn 2005-06 712. 5bn 224. 6bn 487. 9bn 138. 2bn 294. 6bn 55bn 2008-09 810. 3bn 305bn – 105. 3bn 319. 3bn 80. 5bn (2008-09 Progressive) 3. Public sector development program (PSDP) has also grown from Rs 80 billion in 1999; to Rs 520 billion in 2007 and increased further to Rs 549. 7 billion in 2008.

FACT: The rate of growth in Pakistan Large Scale Manufacturing (LSM) is at a 30-year high. Construction activity is at a 17-year high. LSM: 1999-00 was 1. 5% and 2004-05 was 19. 9% and 2006-07 was 8. 6% and 2007-8 is 5%.

FACT: The Infrastructure Industries Index, which measures the performance of Seven industries, i. e. Electricity generation, Natural gas, Crude oil, Petroleum products, Basic metal, Cement and coal, has recorded a 26. 2 percent growth in Industrial sector of Pakistan.

FACT: Jan 14: Pakistan now has a total of 245,682 Educational institutions in all categories, including 164,579 (i. . 67 per cent) in the public sector and 81,103 (i. e. 100 per cent) in the private sector, reports the National Education Census (NEC-2005). The census — jointly conducted by the Ministry of Education, the Academy of Educational Planning and Management (AEPAM) and the Federal Bureau of Statistics (FBS) — reveals that the number of private-sector institutions has increased from 36,096 in 1999-2000 to 81,103 in 2005, i. e. by 100 per cent. 45,007 Educational Institutions have increased in Musharraf Era.

FACT: Pakistan is 3rd in world in Banking profitability, a report of IMF said. On the IMF chart, Pakistan’s banking profitability is on third position after Colombia and Venezuela. On the IMF chart India is on 36th position and China is on 40th position. Pakistan’s Banking sector turned profitable in 2002. Their profits continued to rise for the next five years and peaked to Rs 84. 1 ($1. 1 billion) billion in 2006 8. 11 May 2009: By producing 7. 746 tonnes of gold during the last five years – 2004 to 2008 – Pakistan joins the ranks of gold producing countries. According to the data with the Saindak Metal Limited – during the last five years – Pakistan has produced 86,013 tonnes of copper, 7. 46 tonne gold and 11. 046 tonne silver, besides the production of 14,482 tonnes of magnetite concentrate (iron), bringing in a total of $633. 573 million. 9. In 1999 what we earned as GDP: we used to give away 64. 1 % as foreign debt and liabilities. Now in 2006, what we earn as GDP: we give ONLY 28. 3 % as foreign debt and liabilities. Now we are SAVING 35 % of Our GDP for economic growth.

According to Department of Finance, External debt & liabilities (EDL) and DAWN: 1988 – $ 18 bn —–> 1990 – $ 20. 5 bn —–> 1999 – $ 38. 9 bn —–> 2000 – $ 35. 48 bn —–> 2001 – $ 37. 2 bn —–> 2002 – $ 34. bn —–> 2003 – $ 35. 4 bn —–> 2004 – $ 35. 3 bn —–> 2005 – $ 35. 8 bn —–> 2006 – $ 37. 6 bn —–> 2007 – $ 40. 5 bn —–> 2008 – $ 45. 9 bn —–> 2009 – $ 50 bn 10. According to Economic Survey 2005. Poverty in Pakistan in 2001 was 34. 46%. And, now after 7 years of Musharraf; Poverty in 2005 was 23. 9%. Poverty DECREASED by 10. 56%.

Overall, 12 million people have been pushed out of Poverty in 2001 -2005! 11. Literacy rate in Pakistan has increased from 45% (in 2002) to 53% (in 2005). And, Education now receives 4% of GDP and English has been introduced as compulsory subject from grade 1. 2. 12-4-07: The IT industry, which was virtually non-existent seven years ago, has grown to be worth $2 billion of which $1 billion is export related. It rregistered a 50% growth. 55 foreign IT companies have already entered the market. Now the sector employed 90,000 professionals. 13. 30-1-08: The government has decided to set up a modern hospital cum Medical University in collaboration with the Harvard Medical International, USA, at a cost of Rs 18 billion. The university will be built at the Defence Housing Authority (DHA), Islamabad.

A total of 2,500 students will be taught at the graduate level, while additional 600 seats will be available for postgraduate research courses. 14. Nov 2006: President Musharraf says that Pakistan will set up Nine Engineering World Class Science and Technology Federal Universities by 2008 with foreign assistance. He said the institutions of higher learning would be established in collaboration with Italy, South Korea, Japan, France, Sweden, Netherlands, Germany, Austria and China. The Cost of building these Foreign Universities will be above Rs 96. 5 billion.

The Vice Chancellors, Heads of department, Professors and Faculty of the planned university will be from these Foreign Universities; while the Examination system, Quality assurance followed and the Degree awarded will also be from these Foreign Universities. Government has approved to give at least 4% of GDP to Education in 2007 budget. In 1999-2000 there were 31 Public Universities. Now 2005-2006 there are 49 Public Universities. HEC setup 47 Universities.

• Air University (established 2002)
• Institute of Space technology, ISB (established 2002)
• Sardar Bahadur Khan Women University, Quetta (established 2004)
• University of Science & Technology, Bannu (established 2005)
• University of Hazara (founded 2002)
• Malakand university, Chakdara (established 2002)
• Karakurum International university, Gilgit (established 2002)
• University of Gujrat (established 2004)
• Virtual University of Pak, Lahore (established 2002)
• Sarhad University of IT, Peshawar (established 2001)
• National Law University, ISB (2007)
• Media University, ISB (2007)
• University of Education, Lahore (2002)
• Lasbella University of Marine Sciences, Baluchistan (2005)
• Baluchistan University of IT & Management, Quetta (2002), etc.

6-member delegation of Australian Department of Education, Science & Technology and AusAID, is visited Pakistan on the request of PM Shaukat Aziz to help Pakistan in its efforts to realign its TVET (Technical and Vocational Education and Training) according to the market needs. Chairman NAVTEC Altaf Saleem informed the delegation about NAVTEC plans to increase the capacity to train one million people annually by 2010 from the present annual capacity of 320,000. Defense Exports of Pakistan have crossed the $200 million mark as the country’s robust Defense manufacturing industry continues to expand.

This was disclosed by Major General Syed Absar Hussain, Director General, Defense Export Promotion Organization; after IDEAS 2006 Karachi. President Musharraf inaugurated an over Rs. 1. 36 billion 18 Mega Watt Naltar hydro power project. The project, completed in four years at Naltar near Gilgit. Pakistan is now in Large-scale Nuclear expansion. The reactor under construction… could produce over 200kg of weapons-grade plutonium per year, assuming it operates at full power for a modest 220 days per year.

At 4 to 5 kilograms of plutonium per weapon, this stock would allow the production of 40-50 Nuclear weapons a year,” the report said. 21. The Karachi Port Trust (KPT) and Hutchison Port Holdings (HPH) of Hong Kong will sign a concession agreement tomorrow for setting up a US$1 billion Deep-water container port, the first in Pakistan. KPT will invest $450 million for infrastructure development for the project. HPH will invest $557 million. In the first phase, a 1,500m quay wall will be built with a designed dept of 18m. 22. GILGIT: President Musharraf inaugurated the dry port in the border town of Sust, 200km north of Gilgit.

The Dry port, a Pakistan-China joint venture, was built in 2004 at a cost of Rs90 million. It is 10,000-foot high Sust Dry Port.  Dec 2006: President Musharraf said many canals, including the Thal and Raini canals, were being constructed for better utilization of the water available. He said Rs66 billion was being spent on brick-lining of 87,000 canals in the country, adding that 6,000 new canals would be brick-lined next year. The Private Power Infrastructure Board (PPIB) has approved expansion of Tarbela dam power project that would generate 960 MW costing $500 million.

President Musharraf Thursday inaugurated the Mirani Dam. Mirani Dam in Kech area of Mekran district with a catchment area of 12,000 square kilometre has been built in four years at a cost of Rs6 billion that includes Rs1. 5 billion in compensation to the affected people. It will have a storage capacity of over 300,000 million acre feet of water. Gomal Zam Dam: This project started Aug 2002 and is expected to be completed early 2008. It is located in the Damaan in NWFP. It is 437 feet high and will irrigate about 163,000 acres of land. The total costs amounts to Rs. 12 billion.

Having a gross storage of 1. 14 MAF. It will produce 17. 4 MW of electricity. 27. Mushrraf says the government is constructing the Rs40 billion Katchi Canal and Punjab had been gracious to provide land for its 350 kilometre stretch that will pass through the province. 28. The Economic Coordination Committee decided to set up a $2-billion mega Oil refinery at Khalifa Point in district Hub, Balochistan. The refinery, commissioned by 2010, would have a maximum refining capacity of 13 million tons of petroleum products – higher than the country’s total existing capacity of 12. million tons. Pakistan Steel Mills Corporation (PSMC) during the quarter July-Sept 2007 recorded the highest ever-sales figure of Rs 9. 3012 billion. The Compressed Natural Gas (CNG) sector of Pakistan has attracted over Rs 70 billion investments during the last five years as a result of liberal and encouraging policies of the government. Presently, some 1,765 CNG stations are operating in the country, in 85 cities and towns, and 1000 more would be setup in the next three years. It has provided employment to 30,000 people in the country.

The Securities and Exchange Commission of Pakistan (SECP) has registered 1,135 companies during the first quarter (July-September 2007). With the new registrations the total number of registered companies with SECP as on September 30 has reached 50,125. 32. Telecom sector has attracted an investment of $ 9 billion in last three years. It created of 80,000 jobs directly and 500,000 jobs indirectly. Corrupt & Incompetent Nawaz Sharif made one motorway M2 (Lahore – Islamabad). Under Musharraf 6 Motorways completed or under construction: M1 (Islamabad to Peshawar) – (Rs. 3 bn) – [155 km] – (started 2003 – Completed Oct 2007) M3 (Pindi to Faisalabad) – (Rs. 5. 6 bn) – [53 km] – (started 2002 – Completed 2004) M8 (Gwadar to Ratodero) – [1072 km] – (started 2004 – will complete 2009) M9 (Karachi to Hyderabad) – (Rs. 6. 3 bn) – [136 km] – ( M10 (Karachi Northern bypass) – (Rs 3. 5 bn) – [56 km] – (completed 2007) M11 (Lahore to Sialkot) – (Rs. 23 bn) -[101 km] – (started 2006 – under construction) 34. Under Musharraf various Highways under construction throughout the country. Including N5, N-25, N-35, N-45, N-50, N-55, N-65, N-70, N-75, N-80, S-1, etc.

General Pervez Musharraf inaugurated the Makran Coastal Highway (N-10) project in August 2001, consisting of Karachi-Gwadar, Pasni-Gwadar, and Ormara-Liari (Balochistan) Highways. The Liari-Ormara Highway costed Rs3. 9 billion and Pasni-Gwadar Highway Rs2. 8 billion respectively. The total length of Makran Coastal Highway is 533 kilometers. ” 36. 2-12-07: Sialkot International Airport Limited (SIAL) completed. The 1,002-acre airport is 13 km west of Sialkot and is linked by a road to Gujranwala, Wazirabad, Gujrat, Narowal, the Export Processing Zone (EPZ) and the Sialkot Dry Port Trust. 7. Ghandara International Airport (Islamabad) the first-ever green-field airport being built at a cost of $400 million; with a renowned international consultant, Louis Berger Group of USA. President Musharraf laid the foundation stone of the project on April 7, 2007 and will be completed by Dec 2010. Its total area is 3700 acres (15 km? ). 38. Major Industrial estates are being developed under Musharraf’s vision: M3 Industrial estate, Sundar Industrial estate, Chakri Industrial, Port Qasim Industrial estate, etc. 39.

Oct 2007: In the current fiscal year the Mining and Quarrying sector has registered a growth rate of 5. 6 percent. Increased growth was propelled by strong growths recorded in magnetite (30 percent), dolomite (26. 1 percent), Limestone (25. 2 percent) and chromites. The government has already started various initiatives, to discover and develop world-class copper-gold deposits in Chagai Baluchistan; by Australian Firms that would fetch $500 million to $600 million per year. Major reserves of COPPER & GOLD in Baluchistan’s Rekodiq area have been discovered in early 2006.

It has ranked Rekodiq among the world’s top seven copper reserves. The Rekodiq mining area has proven estimated reserves of 2 billion tons of copper and 20 million ounces of gold. According to the current market price, the value of the deposits has been estimated at about $65 billion, which would generate thousands of jobs. Executive Committee of National Economic Council (ECNEC) on Wednesday approved 45 developmental projects in its meeting, including six revised projects with a total cost of Rs 154. 1 billion with a foreign exchange component (FEC) of Rs 36. billion. Rs 9. 8 billion have been allocated for 91 different mega projects at Public Sector Universities across the province, said Sindh Governor Dr Ishrat-ul-Ebad Khan. Oct 2007: A fully functional TMS (Tax Management System), including profiling, withholding, return/payment filing, rectification, refunds, audit, and legal tracking is scheduled to be operational by 2007 in Pakistan, to process the tax year 2007 returns, according to World Bank. The government is providing Sui Gas facility to areas of South Punjab at a cost of Rs 1. 311 billion.

A total of 1,138 kilometre gas pipeline is being laid. The districts benefiting from these schemes mainly include Multan, Khanewal, Bahawalnagar, Rajanpur, DG Khan, Vehari and Muzaffargarh. The KHI city government’s rehabilitation of Industrial zones and improvement plan for all those four industrial zones, of the city needs to be completed in 7-8 months. Projects worth Rs 2. 5 billion and beautification Rs 4. 5 billion. 27-11-07: Pakistan Navy Ship Zarrar, the first of Multi-Role Tactical Platform (MRTP-33), was commissioned into Pakistan Navy at a ceremony at PN Dockyard. 9-12-07: City Nazim Mustafa Kamal said the construction work of 47-storey IT Tower in the vicinity of Civic Center at a cost of $200m would start soon. Around 40,000 youth would get employment in the IT Tower. It will have 10,000 call centers of which 6,000 have been booked so far. The President approved the project of laying of 940-kilometre-long “standard gauge” Railway track between Gwadar and Quetta that would cost Rs 75 billion. A German firm won the contract. To increase the income of Farmers, the Government is investing Rs7. 80 billion under which a Food Security Program will be launched.

Initially it will be launched in 1,000 villages. He said Rs 3. 60 billion would be invested in live-stocks and dairy sectors. About 1,200 model dairy farms and 2,950 cattle breeding farms will be established under this investment. Pakistan will launch a Self-controlled Remote Sensing Satellite System (RSSS) at a cost of Rs19. 3 billion to ensure strategic and unconditional supply of satellite remote sensing data for any part of the globe over the year. SUPARCO will implement it over a period of six years. President Musharraf has approved the project in principle.

Governor inaugurated the DUHS Medical Research City with Dow Diagnostic Reference and Research Laboratories and Jinnah Genome Centre as its important components. He also laid the foundation stone for a library and sports complex which houses different constituent institutions of the university. President Musharraf also inaugurated a 50-bed state-of-the-art Workers Welfare Fund Kidney Center. The first-ever kidney center in Baluchistan, constructed on 7. 5 acres at a cost of Rs385 million and having the diagnostic, dialysis, surgical and lab facilities will help the people of this area. 4. Karachi: The building of the 50-bed Kidney Centre in Landhi has been completed. Minister Muhammad Adil Siddiqui . He said that the building of this centre had been built at a cost of Rs70 million. CM Pervaiz Elahi inaugurated Pakistan’s first Software technology park (STP) on Ferozpur Road to be implemented by Punjab IT Board (PITB). The Rs 1. 5 billion project is set over area of 32 kanals; will be completed in 12 months and is expected to create direct 10,000 jobs and generate economic activity of Rs 9 billion per year.

In what is considered a major leap for Pakistan, a Polytechnic Institute is being established to produce skilled workforce that will rescue the manufacturing industry from the clutches of foreign dependence. Being built in Korangi at a cost of Rs450 million, this government-funded institute will start operating in January 2007 and prepare 500 workers by the end of first year, besides producing 22 different types of dies and moulds for aviation, telecom, pharmaceutical and other industries. Experts from Germany, Japan and Thailand assisted in developing curriculum. Police Act 1861 replaced by Police Order 2002 after 141 years.

Police force divided into three separate wings: Watch and ward, Investigation and Prosecution. Federal Minister for Commerce in order to modernize tobacco farming in the country; is setting up a state-of-the-art Tobacco Research Center in Bunner. Annually 8 million kilograms of Virginia tobacco (fine quality), worth Rs 9. 2 billion is cultivated in Bunner. Under construction. The government has formed “Pakistan Gems and Jewellery Development Company (PGJDC)” with a cost of Rs 1. 4 billion, to increase the export of gem and Jewellery from $25 million to $1. 5 billion by 2017.

In 1999, Pakistanis could only afford to buy a total of 32,461 locally assembled Cars. The latest annual figure stands at 115,000. Currently, there are 1. 3 million cars on Pakistani roads as opposed to 815,000 cars some five years ago; a 60 percent jump in car ownership. In 1999, a total of 94,881 new Motorcycles were sold in Pakistan. In 2005, Pakistanis bought or leased some 500,000 new motorcycles. ISB: To convert the Karachi Fisheries Harbour Authority (KFHA) in a style of Sydney Fish Market, the government proposes an action plan worth $10 million so as to make the KFHA a profitable authority.

Estimated, Pakistan has a fish and seafood industry worth $1. 2 billion. Exports alone are worth nearly $200 million per annum. More than 0. 8 million people rely directly or indirectly on the industry for their livelihood.

FACT: Pakistan globally ranks 10th among the countries which were among the most active in perusing pro-business policies. A report “Doing Business in 2006? co-sponsored by World Bank and International Finance Corporation (IFC). (c) ECONOMIC PAKISTAN and PRESIDENT MUSHARRAF http://economicpakistan. wordpress. com/2008/01/09/pakistan-flourishes/ http://presidentmusharraf. wordpress. com/

Reservoir engineering is a branch of petroleum engineering that applies scientific principles to the drainage problems arising during the development and production of oil and gas reservoirs so as to obtain a high economic recovery. The working tools of the reservoir engineer are subsurface geology, applied mathematics, and the basic laws of physics and chemistry governing the behavior of liquid and vapor phases of crude oil, natural gas, and water in reservoir rock. Of particular interest to reservoir engineers is generating accurate reserves estimates for use in financial reporting to the SEC (U.

S. Securities and Exchange Commission) and other regulatory bodies. Other job responsibilities include numerical reservoir modeling, production forecasting, well testing, well drilling and workover planning, economic modeling, and PVT analysis of reservoir fluids. They also compile development plans using mathematical models and select accurate tubing size and suitable equipment for their plans and move onto designing “completions”, which are the part of the well that communicates with the reservoir rock and fluids.

Next, they design systems that will help the flow. Of course, it is always important to keep a close eye on the fluid’s behavior and its production and managing how a set of different wells might interact with one another. In addition, they have to manage relationships in relation to health, safety and environmental performance. Finally, they must always keep in touch with different departments to ensure the progress is on the right track as well as keeping in touch with the clients and keeping them informed.

Reservoir engineers also play a central role in field development planning, recommending appropriate and cost effective reservoir depletion schemes such as waterflooding or gas injection to maximize hydrocarbon recovery. Due to legislative changes in many hydrocarbon producing countries, they are also involved in the design and implementation of carbon sequestration projects in order to minimize the emission of greenhouse gases. Petroleum engineers have historically been one of the highest paid engineering disciplines; this is offset by a tendency for mass layoffs when oil prices decline.

Those who have obtained a PhD receive higher salaries. Of course location and assignments influence salary. This is an international activity and many jobs are overseas. Working as a reservoir engineer can take you all over the world. You can be employed at an operating and producing company, engineering consultancies, integrated service providers, or at a specialist drilling contracting company. All work is mainly office-based and working closely with geologists on different oilfield developments. Offshore jobs require ? shift work’ which means usually twelve hours on and twelve hours off for two weeks.

Then that would be followed by a two or three week break onshore. One interesting fact that I learned is that only a small portion of petroleum engineers are women but that number is increasing due to high demand because of the oil shortages. Working as an engineer, any engineer, can both be physically and mentally tough. You can expect to travel within a working day and you can expect to tell your family that you will be absent for the night from home due to oversea work or travel. This job market is extremely sensitive to fluctuations in oil prices and the status of existing and proposed projects.

Overall, it is a tough profession that involves procuring reserves from places that predecessors deemed too difficult or not economic with the technology of the day. Any mistake made in this profession is usually measured in millions of dollars. However, reservoir engineers are held to a very high standard. In comparison, deepwater operations are almost like space travel in terms of how challenging they both are technically. One must put up with arctic conditions or those of extreme heat. In conclusion, petroleum engineering is definitely challenging but always something to consider.

Bloomberg L.P. is the privately held company, which deals with the financial, Software, data and Media. Bloomberg has its headquarters at Midtown Manhattan, New York. Founder of the company is Michael Bloomberg in 1981. The Bloomberg terminal is a computer software system that is provided by the financial data vendor Bloomberg L.P. It enables the financial professional and other professionals to access the Bloomberg professional service through which users can monitor and analyze the real-time financial data.

Uses of Bloomberg to the students, public and Companies

1. 1 Bloomberg boasts of having more than 2.3 billion users connected to the database including more than 300,000 terminal users. It is easy for the users to connect to their college Alumnus through the Bloomberg terminal.
2. Bloomberg BIO function links all related Bloomberg News Archives. It also connects the function to its biography pages.
3. It gives access to the real time data, news feeds, and messages and facilitates the placement of financial transactions and updates. It also give easy access to the market moving news be it earnings releases, interest rate announcements or statements from CEOs and politicians.
4. Companies have access to thousands of students through the Bloomberg database and their resumes. They even hire students.
5. General Public has access to all the real time and updates in the market news, which keeps them and other parties on the same page, since they all have access to the important information.
6. Visualizations in the Bloomberg is trendy and reflect countries, commodities, equities, and essentially, whatever you want.
7. Companies can do peer to peer instant messaging with traders worldwide.
8. Filter options on any topic, which enables the employees to scrap the contents as per their usefulness and requirements.

SWOT Analysis

Strengths

The Strengths of SWOT Analysis are as follows;

1. Brand Value: Ranking of the Brand Value is 51 and it is valued as $19.23 billion. In terms of Brand Value Exxon Mobil is one of the top companies in Fortune 500 companies.
2.  Market Position: It is a Multinational Company and has explored the natural gas and oil from 23 refineries and 14 countries. It has a distillation capacity of 136,000 barrels per day.
3. Revenue Generation: The diversification of sources of revenue gives them an edge over its competitors. They operate in one of the biggest economies like US, Canada, UK, Belgium, Italy, France, Singapore, Germany etc.

Weaknesses

The weaknesses of Exxon Mobil are as follows

1. Weak Financials: Exxon Mobil Revenues were down by 34.2% and the Profits came down by 50.3%
2. Increasing Debts: Exxon’s debts had significant growth in Financial year 2015. It increased from $11.581 billion to $38.687 billion.

Opportunities

1. Rising Demand: The rising demand for energy is expectedly going to increase more in future which gives Exxon Mobil a big opportunity to grow its business. The rise is expected to be around 40% from 2014 to 2040.
2. Other sources of energy: The demand for the renewable energy in the future is going to increase. The increase of demand of energy by 40% is very much expected to happen and Exxon should be prepared for that. The renewable sources are supposed to fill the increase in demand of 40%.
3.  Investment Opportunities: Exxon Mobil is investing in LNG research and Development quite heavily. Its expected that by 2040 nearly half of the natural gas demand will be met by LNG. Exxon Mobil needs to start the commercial sales for the same to take first mover of this change.

Threats

1.  Cut Throat Competition: The decline in the profits and revenues has been witnessed due to the cut throat competition and it is expected to increase in coming years.
2. Environmental Regulations: Due to the Global warming, greenhouse gases and water usage etc. the environmental laws are becoming stricter and more stringent.
3. Supply Risks: The supply risks are huge due to the excess demand of the resources and the depletion of the natural resources. Crude oil and gas are natural resources that are depleting due to excessive use of it. There are also high changes of spilling while transportation.

Exxon Mobil’s Ticker Symbol

The Strategies and policies formulating from last few years are as follows:

• Exxon Mobile has taken initiatives for the current climate change. Exxon Mobil realizes that what sectors are contributing to the fossil fuels emissions and how they are related to the oil Industries. The Oil industry itself is contributing to the 20% emissions alone in 2002. Transportation is 20%, Electricity generation is 20%, Residential & Commercial is 25% and Transportation is 20%.
• Exxon Mobil had plans to improve the energy emissions by 10% in 2002-2012.
•  Exxon Mobil has plans to invest more than $10 million dollars in the coming years to improve the energy emissions.
• Company is spending heavy in research and Development of finding the alternate source of energy because there is too much pressure on the crude oil and natural gas supply.
• Exxon Mobil has announced the new product development as they want to consider climate conscious investors and consumers as a trend that is likely to continue.

Table of Contents Page Number Introduction3 Background of the Company8 The Dilemma in Saudi Aramco Supply Chain Management10 Analysis of the operation of the Company’s Supply Chain Management12 Conclusion16 References17 Introduction: Several company managers are continuously searching for the best possible way of reducing cost and utilizing their inventories so that the company can implement cost reduction strategy.

With all prices of prime commodities are accelerating for increases to maintain the business, the challenge for manufacturing companies nowadays is to come up with a management strategy that could lessen the burden of imposing additional prices to the consumer’s purchases. Yet seemingly, it seems impossible to achieve due to the domino effect in the market offering. Starting from the raw materials to the manufacturing plant then to the manufacturing plant to its distribution centers and from the distribution centers to the consumers, the process entails expenditures either from the supplier or from the manufacturing plant.

Once transporting raw materials is affected by the movement in the prices of gasoline and oil, salary increases of its work force and additional price for the vehicle’s spare parts suppliers cannot but face the reality that they must charge additional cost to their buyers. So goes the trend. The usual thinking about a supply chain is a vertical flow of the entire materials for production that is fully integrated because it is owned by a single firm although its channels are operating independently.

Hence, an efficient coordination among the managers of its channels is demanded for the success of the supply chain. However, a supply chain need not only be limited to a single ownership of the entire process. By its definition, according to the paper of B. B. Arntzen, G. G. Brown, T. P. Harrison, and L. Trafton (1993) a supply chain is a network of facilities and distribution alternatives that begins from the procurement of materials, converting the materials into mid-way and finished products, then the distribution of the products to customers.

Supply chain is not limited to manufacturing alone but also in the service industry. There may also be expected difficulties along the entire chain due to the varying approaches from industry to industry or from firm to firm but the process proceeds as planned. Company A Company B DistributorCustomers Raw Materials manufacturing plant Finished Product Company This may sound simple but a realistic supply chain actually embraces several finished products with shared components, facilities, and capacities.

Materials flow does not come only from one single network but from other networks also. At times, different modes of transportation are considered and usually the bills of materials for the finished products are both costly and enormous. R. H. Ballou, (1992) believes that traditional supply chain still operate along this pattern but on this case the supply chain deviates from the old practice of supply chain and paved the way to another model of creating an effective cost reduction strategy. In the supply chain, according to M. C. Cooper and L. M.

Ellram (1993) the main focus lies on the mistake of materials, unnecessary information and unpredictable finances as they move from their supplier, to the respective manufacturer then to the wholesaler passed on the retailer before finally reaching the consumer. However, another view was presented by J. B. Houlihan (1985) because his notion of supply chain is involved in coordinating and integrating these flows for inside the company and its relation with other companies. The ultimate goal of all effective supply chain management is to reduce inventory but available when needed hence, minimize the cost of production.

The product flow consists of the progress of goods from supplier to customer. Information flow is the transmittal of orders and keeping posted the status of the delivery. The financial flow covers the credit terms, payment schedules, and consignment title of ownership arrangement. As Cohen, et al. (1989) noted supply chain also consists of strategic decisions and operational decision levels. Strategic decisions usually entail longer time to observe its effect on the company. It requires close monitoring of the corporate strategy, but oftentimes, in many companies, it is already the firm’s business strategy.

Setting aside, operational level decisions are shorter period and concentrates mainly on the day to day basis of inventory, production, and packaging. The main objective on this level is maintaining an effective and efficient product flow from the strategically planned supply chain. Houlihan (1985) reiterates that supply chain management operates according to four major decision areas namely; business location, production input and output, materials inventory, and distribution including transportation and channels.

It should be noted that on these decision areas the elements of strategic planning and operational procedures are inclusive. It is because strategic decisions include what products to produce, and which plants to produce them in, allocation of suppliers to plants, plants to Distribution Channels, and Distribution Channels to customer markets Business location refers to the place where production facilities, warehouse, and source point are easily accessible both by the suppliers and other stakeholders of the company.

Location facilities cover an assurance of resources for a longer period due to the long term plan of the business. Considered also for an effective supply chain location are the size, number, and the possible paths by which the product flows through to the customers. This decision is important because it represents the main strategy for accessing customer markets which definitely have effect on revenue, cost, and level of service. It is determined by employing a routine check on production costs, taxes, duties and duty drawback, tariff, local content, distribution costs, production limitation and many others.

Production decision is also a critical concern in supply chain management because it entails the capacity of the manufacturing facilities to handle the production process. It is focused on detailed production scheduling. It includes the construction of the master production plan, time table on the machines, and maintenance of equipments. The elements of workload balancing and quality control that are being measured on this facility are seriously considered. Materials inventory are managed properly in the supply chain management levels of decision.

Inventories could either be raw materials, semi-finished or already finished merchandize. These materials may also be in the process between locations or in other place as in the case of outsourcing activity. The purpose of managing the inventories is to safeguard against any uncertainties that might exists in the supply chain. Holding inventories can cost as much as one half of the product’s value. Too much inventories of raw materials means slow return of investment and large inventories of finished products can cause lower prices due to overflowing supplies. The aspect of transportation viewed according to the context of H.

L. Lee and C. Billington (1992) is also another element in the supply chain management issues because it is closely associated with the inventory due to its mode of moving the raw materials or the finished products. The best mode of trading off the cost is to transport with the indirect cost of inventory associated with the type of transportation. While using air is fast, reliable, and warrant lesser safety stock, it is very expensive. Shipping by sea or by train may be cheaper but they take longer time and consumed large amount of inventories to buffer against the uncertainties associated with it.

Hence, shipment sizes, routing, and scheduling of equipments are the main factors operating in the Supply Chain Management. Another point was raised by J. M. Masters, (1993) as he discussed on the process of supply chain management and the level of decisions that have to be made on these models are enormous and require considerable amount of data. Due to the huge data requirement and the broad scope of decisions, each supply chain decision models provide approximate solutions. The operational decisions, meanwhile, address the day to day operation of the supply chain. Therefore the models that describe them are often very specific in nature.

Due to their narrow perspective, these models often consider great detail and provide very good, if not optimal, solutions to the operational decisions. As a solution for successful supply chain management, Saudi Aramco employed a sophisticated software systems, with Web interfaces and has already been in competition with the Web-based Service Application Providers or the SAP, that provide part or all of the SCM service for the company. Saudi Aramco must have been blest to be able to implement supply chain management on its production process and updated it with the use of modern day Information Technology.

In spite of the global financial problem that oil producing countries are suffering at present, Saudi Aramco still stands tall amidst financial chaos. Supply chain management is at its best at Saudi Aramco that is why there is less worry even if the prices of oil and crude went down in the global landscape. At Saudi Aramco, the corporate policies guide the supply chain to a particular and specific objective that the firm hopes to achieve (http://www. saudiaramco. com. sa/html/). 11. Background of the Company State-owned Saudi Arabian Oil Co. (Saudi Aramco) is the king of oil.

It is the world’s number one oil producer, supplying more than 10% of the world’s oil demand. The company controls proved oil reserves of about 259. 8 billion barrels. It extracts 9. 1 million barrels a day, operates refineries, markets oil internationally, and distributes it domestically. Saudi Aramco owns a fleet of oil tankers and invests in refineries and distribution networks in other countries; it also owns 239. 5 trillion cu. ft. of natural gas reserves. The company dates back to 1933, when Saudi Arabia agreed to open up a large area for exploration by Standard Oil of California now known as Chevron.

From its headquarters in Dhahran on the eastern shores of the Arabian Peninsula, Saudi Aramco manages virtually all of Saudi Arabia’s enormous hydrocarbon enterprise. From the giant Ghawar and Safaniya oil fields, the world’s largest onshore and offshore fields, to the leading-edge technology at the Exploration and Petroleum Engineering Center, and from one of the largest and most modern fleets of supertankers to refining and marketing joint ventures around the globe, Saudi Aramco is positioned to continue to play its leading role in meeting the world’s demand for oil.

Saudi Aramco revenue is estimated between 150 billion and 350 billion dollars. It varies greatly year to year due to high dependency upon hydrocarbon prices. Saudi Aramco is responsible for 99 percent of the Kingdom’s proven crude oil reserves of 259 billion barrels (41. 2 1010m? ) about a quarter of the world’s total. That is more than double the total of Iraq, the country with the world’s second largest reserves, and nearly 12 times the reserves of the United States. Saudi Aramco produces and exports more crude oil than any other company.

Recent production has averaged some 8 million barrels (1,300,000 m? ) per day. That is more than twice the output of the next highest producer and nearly five times greater than the largest U. S. oil company. Saudi Aramco maintains a maximum sustained crude production capacity of 8. 5 million barrels per day. Saudi Aramco ranks among the top ten companies in gas production worldwide. The company is also a leader in both the production and export of natural gas liquids (NGL), and a major producer of refined products.

The company produces natural gas in association with crude oil and non associated gas from deep, independent gas fields. This gas is used as fuel and feedstock for the Kingdom’s backbone industries and utilities, and for export and domestic consumption as NGL. A vigorous program is currently under way to expand gas production and processing capabilities to meet increasing demand for gas at home to power the Kingdom’s robust domestic economic growth. Saudi Aramco’s oil operations encompass the Kingdom of Saudi Arabia, including territorial waters in the Persian Gulf and the Red Sea.

Totaling more than 1. 5 million square kilometers, this area is larger than the combined areas of Texas, California, Oklahoma and Utah, or of France, Spain and Germany. Most production comes from fields in the coastal plains of the Eastern Province in an area extending 300 kilometers north and south of Dhahran. Saudi Aramco VP announced Aramco’s plans to build projects worth about 487. 5 billion Saudi Riyals (US $130 billion) in the next 5 years. Due to the unprecedented global demand for oil, Aramco announced that the number of its oil rigs will double by the end of 2006 (http://www. saudiaramco. om) Governed with its vision and holistic mission, the company is striving to make perfect its management concept and practices in order to build solid human resource foundation and company culture that would serve its competitive against other banking institutions in the entire Kingdom within the next couple of years (http://www. saudiaramco. com. sa/html/). 111. The Dilemma in Saudi Aramco Supply Chain Management Saudi Aramco is the world leader in the oil industry and it possesses the huge deposit of oil and mineral resources. It built strong and reliable ties with its market all over the world while continuously harnessing its rogressive communication with its entire supplier from manpower, facilities, equipments, construction, development projects, and community services. At present Saudi Aramco remains stable and assured of the relentless efforts of its entire people in making the company a world leader in the oil industry and a good example to follow. The entire materials and needed machineries for the oil drilling, processing, plant treatment, transportation and distribution of petroleum are provided by the supply chain from all private industrial suppliers around the Kingdom belonging to the Saudi nationals.

No imported materials are used aside from those that are not available in the kingdom. The ongoing calls for localization of Aramco’s production materials are contained in the company’s oath to support local industries and private industrial businesses in the Kingdom. One particular project that the company listed on an indefinite postponement is the envisioned 40 hectares plant facilities and accommodations at Rastanura. In the middle of 2008, Saudi Aramco invited bidders and quotations from several constructing firm around the Kingdom and to some well known companies the Gulf.

Toward the end of year, the project was awarded to Foster Wheeler Group of Companies Middle East. The said project was divided into four phases and phase one would start by March 2009. However, Foster Wheeler received a notice from the company on mid February 2009 stating that the Rastanura project would be postponed indefinitely. Foster Wheeler through its resources found out that the main reason for the postponement is the company supplier and sub contractors were heavily affected by the global financial crisis (Thajudeen, 2009).

Saudi Aramco suppliers of equipments and high quality standard materials could not meet the requirements needed by the company for the construction of its project. The cost of delivering the materials to Saudi Arabia from the place of origin almost tripled. The high price of raw materials plus low supply prompted Aramco suppliers to increase its prices too but since everything was stipulated in the contract, Saudi Aramco would not accept the new price schedule. The problem begins. Due to the company’s adherence to the Saudization program an option to change suppliers and seek foreign assistance cannot be implemented.

France and Great Britain are rich suppliers of equipments needed to continue the construction of drilling plants and community accommodations of its people. The prospect of getting from these countries will destroy the supply chain which Aramco have been protecting and preserving all those years. Japan’s Sumimoto Industry’s offered Saudi Aramco well defined and structured supply chain that could even generate a healthy foreign relation between the government of the Kingdom of Saudi Arabia and the people of Japan.

The offer was shelved temporarily and for further consideration and study. While the present economic crisis continuously spreading in some major industries in the Kingdom, Saudi Aramco remains financially firm and liquid. There is no question whether the company can provide the necessary funds for the completion of the project. There is also no doubt in the capacity of Foster Wheeler to deliver the project on time. It is only a matter of the availability of supplies that Saudi Aramco encountered some critical problems. 1V.

Analysis of the operation of the Company’s Supply Chain Management For the past several years, Saudi Aramco perfectly managed its supply chain and it can be proven by the smooth development and completion of all existing projects the company have ever made. The fact is that starting 2008 up to the present the global financial crunch created havocs and collapsed of several industries in the world. Included in this chaotic situation are some suppliers of Saudi Aramco. The law of supply and demands in Economics is pretty much at work at this time.

There seems to be a blank solution to this perennial problem at present. If this is the case, the postponement of Saudi Aramco project in Rastanura would be justified. On the second thought, there could be another better solution that could be worked on without jeopardizing the effort exerted by Foster Wheeler to win the project. An excerpt from the speech of Abdallah S. Jum’ah, President and CEO of Saudi Aramco (2002), he said “The greatest share of our investments as oil and gas producers goes to assuring that we maintain the ability to supply our products without interruption.

While such costs are burdensome, they nevertheless are critical to the sustainability of energy supply. No one can long afford to be without this lifeline. ” This was also reiterated in the speech delivered by Ali I. Al-Naimi (2002), Saudi Arabia’s Minister of Petroleum and Mineral Resources, in Washington D. C. as he claimed “we have invested billions of dollars to build production capacity and to construct diverse export routes.

The importance of the excess production capacity of Saudi Arabia has been demonstrated in more than one supply crisis in the past two decades such as the Iranian Revolution of 1978-1979, the Iran-Iraq war in 1980, the invasion of Kuwait in 1990 and the supply infrastructure crisis of 2000”. Granted that the chain of supply has a domino effect and a disruption in one unit of the chain may result to the interruption of operation of the entire system, Saudi Aramco with its huge resources could help solve the problem in terms of loan assistance to the ailing unit of the chain.

Saudi Aramco management could serve as mediator between suppliers of materials to the members of its supply chain to retain its old price schedule which would be compensated by Saudi Aramco in terms of supply of oil with no extra charges and at its lowest price. The problem is rooted in the availability of funds and not on mismanagement of the supply chain. The remedy to this kind of situation is by capital assistance. Another possible option to maintain the flow of the supply chain is by acquisition of the units in the chain that is experiencing a hard blow from the economic crisis.

Aramco could temporarily take over the financing of its production so that the unit may continue to operate and the employee would not lose their jobs. Unemployment would create additional burden to the ongoing financial crisis. Saudi Aramco has the capacity to generate production of its supply chain unless it is willing to suspend indefinitely its project with Foster Wheeler. The movement of Saudi Aramco supply is vital to its operation in distribution and expansion in order to accommodate the growing demand for oil in the world.

Saudi Aramco is also part of another supply chain and the disruption on its supply would create stoppage of production to it end user. In the same manner, the stoppage of supply from the company supply chain might also result to a decease or worst, stoppage of the company production in the long run. For as long there is still the chance to save the continuous decline of financially able company in the supply chain of Saudi Aramco, it is the best opportunity for Aramco to show its goodwill to all its allies and to the world in general.

The management team of Saudi Aramco is determined to continue to play its role in meeting the world’s demand for oil exploration & producing, refining, distribution, shipping, marketing as the leading producer of the energy that powers the world’s economies and empowers its people, committed to fulfill the kingdom development goals including developing the Kingdom’s industrial base and diversifying economy, helping creates jobs for Saudi nationals and maximizing the value of the Kingdom’s natural resources. Much more so, the Company cannot afford to create possible problems in its supply chain.

Saudi Aramco is a government owned company and it does not depend on any political pressures or compromises from any person in the country except to the King due to the monarchial form of government that Saudi Arabia has. The company structure of Aramco is bureaucratic and hierarchical that is why there is absence of threat coming from the labor sector or any human rights advocates in the international scene. Saudi Arabia law is based on Shari’ a law and its legal implications. In this case, the Company has the power to take control temporarily of its suppliers who are experiencing financial downturn.

At Saudi Aramco, there is no other power aside from the monarch and the top management level of the company. Stakeholders are not a major threat nor can they pose any threat at all. Aramco’s investment is more of partnership with other big oil producing countries and not on the individual share of investments. What can be considered to have power over the company is the presence of foreign partners as distributors and international oil producing companies that accepted Aramco’s partnership strategy in producing enough supply of world’s fuel and oil needs.

Saudi Aramco also uses Management Information and Decision Support System that delivers information to support many of its day-to-day management’s decision-making needs and supply chain operation processes. Reports, display, and responses produced by such systems provide wide range of information that the Aramco management has specified in advance to meet adequately their information needs. Such predefined information satisfies the need for awareness and updated situation of the organization in relation to its supply chain performance, financial situation and production apabilities (http://www. saudiaramco. com. sa). Saudi Aramco MIDSS provides the needed information to the Aramco’s decision makers at the operational and tactical level of the organization. Based on the data generated from the program Saudi Aramco management can determine how and when to entertain an increase of oil production, price, cost of operation, wages and purchasing ability of the company. The information takes the form of periodic, exception, and demand reports and immediate responses to inquiry.

Saudi Aramco’s web browsers, application programs, and data-base-management-software provide access to information in the intranet and other operational database of the organization. These databases are maintained by transaction processing system. The data about the business environment are gathered from the Internet or intranet when necessary and when greatly demanded. (http://www. aramco. com) Based on this technological competencies, the company is able to secure all the necessary information its suppliers might be needed at the moment so as to continue their production.

V. Conclusion The plight of Saudi Aramco supply chain management definitely lies on the hand of the company. We have learned from Saudi Aramco that the company’s supply chain has been operating perfectly without interruption. The company was able to manage its supplier’s time scheduling, processing, manufacturing, delivering, and stocking. There were minor problems along the way especially in transporting the supplies needed by the company but the problem was resolved immediately before it can cause damage to the company’s oil production.

By becoming the world leader in the oil industry the company’s long term plan must not sacrificed due to financial difficulties of its suppliers. Small problem that is left unattended became big and too difficult to solve in the near future. The same occurrence is happening to the supply chain process of the Saudi Aramco high quality materials and equipments for its development and expansionary project at Rastanura. The delay in the start of the project would lead to the extension of its completion, late performance, and finally slow production which would be advantageous to competitors. Supply chain management assures the end ompany an uninterrupted production and a continuous flow of resources from the suppliers’ supplier to the manufacturer to the consumer then back to the supplier’s supplier. The cycle goes on and on for as long as the chain remains consistent and stable. Saudi Aramco with vast resources and technological capabilities can easily detect any disruptive factor along its supply chain. Now is the time for Saudi Aramco to divert momentarily a portion of its focus to the financial status of its suppliers. V1. References: Al-Naimi, A. I. (2002) Saudi Arabia’s Minister of Petroleum and Mineral Resources, Washington, D. C. April 22. http://www. saudiaramco. com/html/speeches (access June 5, 2009) Al-Naimi, A. I. (2002) Saudi Arabia’s Approach to Oil Market Stability and Energy Security, Expanding Energy Frontiers – The Institute of Energy Economics of Japan, Osaka, Japan http://www. saudiaramco. com/html/speeches (access June 5, 2009) Arntzen, B. C. , G. G. Brown, T. P. Harrison, and L. Trafton (1995) Global Supply Chain Management at Digital Equipment Corporation, Interfaces, Journal of Operation Management, No. 231, p. 112 Ballou, R. H. (1992) Business Logistics Management, 3rd Edition, Prentice Hall, Englewood Cliffs, NJ, p. 1 – 23 Cohen, M. A. and H. L. Lee (1989) Resource Deployment Analysis of Global Manufacturing and Distribution Networks, Journal of Manufacturing and Operations Management, No. 7, pp. 81-84 Cooper, M. C. , and L. M. Ellram (1993) Characteristics of Supply Chain Management and the Implications for Purchasing and Logistics Strategy. The International Journal of Logistics Management, No. 23 pp. 4, 2, 13-24. Jum’ah, A. S. (2002) President and CEO Saudi Aramco, Calgary, Canada, June 11. http://www. saudiaramco. com/html/speeches (access June 5, 2009) Lee, H. L. , and C.

Billington (1992) Supply Chain Management: Pitfalls and Opportunities, Sloan Management Review, No. 33, Spring, pp. 65-73. Lee, H. L. , and C. Billington (1993) Material Management in Decentralized Supply Chains, Operations Research, No. 41 pp. 35-47 Masters, J. M. (1993) Determination of Near-Optimal Stock Levels for Multi-Echelon Distribution Inventories, Journal of Business Logistics, No. 14, pp. 165-195. Thajudeen, S. M. (2009) Foster Wheeler Group of Companies Middle East Region, Al Khobar, Saudi Arabia, February 15. http://www. saudiaramco. com. sa/homepage/projects (access June 5, 2009)

In Pakistan, besides making adjustments at the macro level, what is required is to make rational choices about the development of energy mix for he future to reduce the risk of oil price fluctuations in the global energy market. JELL: Energy Economics By Backslashes Introduction Oil prices have risen continuously since 2003 reaching a peak of SIS$ 137/Bibb in July 2008, but after that a declining trend has set in. In general, oil prices have always remained fairly volatile. Since sass it was the fifth main negative oil shock.

These oil price shocks in general, and the recent surge of sass in particular, have become a grave concern for the developing economies. Economists around the world are apprehensive about its potential adverse impacts in terms of creating inflationary erasures in the economy, increasing budget deficit and balance of payment problems. 2 Fall Mali is Senior Research Economist, Pakistan Institute of Development Economics, Islamabad. Email: Mali_afia@yahoo. Com 224 Pakistan with a population of nearly 160 million has been on the path of rising GAP growth in the past few years.

But since the last fiscal year, the situation has changed. The upward trend in oil prices which continued for at least five years is regarded as one of the contributory factors. In the energy mix for the year oil accounts for 29 per cent of the total energy used in Pakistan. Although the intensity with which oil is used in total energy consumption has declined in the last few years but still it is the second largest source of energy used after natural gas, which accounts for 40 per cent.

As far as the energy intensity is concerned, it has remained almost constant since 1990-91 (that is, 1 per cent), despite the fact that the decrease in energy intensity is considered as the most promising route for reducing vulnerability to oil shocks (Bacon 2005). With oil being the second largest source of energy used along with almost a constant rate of its production, Pakistan is heavily dependent on oil imports from Middle East exporters (Saudi Arab playing the lead role) (Figure 1).

Almost 82 per cent of the demand for petroleum products in the country is met through imports. Pakistan spent almost 57 per cent of export earnings on oil imports in (Government of Pakistan 2008). Therefore, the international oil price Figure 1. Pakistanis Oil Production and Consumption, Thousand Barrels per Day (1990-91 to 2007-08) Source: Pakistan Energy Year Book (various issues), published by Hydro Carbon Development Institute of Pakistan, Ministry of Petroleum and Natural Resources, Government of Pakistan. HTH Cast Economic journal, 1 1, 2 (2010): 223-244 225 fluctuations have a direct bearing on the macro economy of the country, especially on the oil price-GAP relationship. The share of net oil imports in GAP has increased substantially from -3. 13 in 1990-91 to -7. 43 in 2007-08. With such a high ratio, unless country is running in surplus, or has extremely large foreign exchange reserves, high oil price leads to severe macroeconomic adjustments. The goal in this article is, therefore, to shed light on the nature of the impact of oil shocks on the macroeconomic conditions of Pakistan.

First, this article will analyze the impact of oil price on the output growth of Pakistan using the open economy IS function along with the monetary policy function, assuming the positive role of the State Bank of Pakistan (prepare monetary policy) to sustain price stability and output growth. Second, this study will examine the non-linear relationship between oil prices and output. If there exists a non-linear relationship then what is the critical value or threshold level after which it becomes negative.

The article is organized as follows : introduction is followed by the discussion on theoretical linkages and an overview of empirical literature. Pakistanis macroeconomic situation with reference to oil prices is discussed in the third section. In the fourth section, the methodology and data are explained. In the fifth section empirical results are analyzed. The sixth section reflects on some policy implications drawn from the findings. Final section is the conclusion. Theoretical and Empirical Background Theoretical Linkages Higher oil prices are expected to affect a macro economy through various channels.

Oil price increase leads to a transfer of income from importing to exporting countries. It changes the balance of trade between countries and exchange rates. Net oil-importing countries normally experience deterioration in their balance of payments, putting downward pressure on exchange rates if the amount of oil imports and other factors remain the same. At a given exchange rate, more domestic output is needed to pay for the same volume of oil imports. If the domestic currency depreciates in response to induced payments deficits, this further cuts the purchasing power of domestic income over imported goods.

Since important trading partners are also likely to suffer income losses, slower growth of external demand exacerbate these direct impacts. Higher oil prices have an oppressive tendency on the supply side as well. Since oil is used as an input in the production process, rising input costs means lower profits for producers. Lower profits may then result in the decline in investment spending. In addition, petroleum products are used to generate electricity and in the transport sector. Thus, when prices of petroleum products go up, transport 226 costs and electricity bills will also go up accordingly.

This leads to inflation, reduce non-oil demand and lower investment in net oil-importing countries. Lower investment spending will in turn have a significant impact on employment and output. It would reduce real wealth and consumption spending. Moreover, tax revenues go down and the budget deficit goes up owing to the rigidities in government expenditure. Increase in budget deficit would then compel interest rates in the upward direction. 5 Fiscal imbalances would be aggravated in those developing countries that provide direct subsidies on oil products to protect poor households and domestic industry. The burden of subsidies tends to grow as international prices rise, adding to the pressure on government budgets and increasing political ND social tensions. An alternate explanation available in the literature is that it is not the rise in oil price that reduces the economic activity, but the response of the monetary policy to the oil price shock (Barky and Killing 2004). In addition, the adverse impact of higher oil prices on oil-importing developing countries is generally more evident for highly indebted countries (EIA 2004).

Overview of Empirical Literature Oil price shocks have received considerable importance in the empirical literature. Oil prices are generally viewed as an important source of economic disturbances, for he reason that the oil shocks of mid- and late-sass were followed by low growth, high unemployment and high inflation in most of the developed countries. However, on the contrary, GAP growth and inflation had remained relatively stable in much of the industrialized world after the shocks of late-sass and of 2000 (although they were of the same size and magnitude comparable to sass) (Blanchard and Gal. 2007).

But the situation remained sound only until 2007; 2008 has witnessed a worse recession around the developed world, especially in the US, in confirmation with what had happened after sass’ oil shock. Although on the empirical side Hamilton (1983) pioneered the literature on the subject, theoretically it was Bruno and Cash’ (1982) study that has analyzed in detail the effects of oil prices of the sass on output and inflation.

They took the case of I-J manufacturing and developed a theoretical model and concluded that higher input prices have played a significant role in the slowdown since 1973 throughout the Organization for Economic Co-operation and Development (COED) countries. Hamilton (1983) empirically establishes a negative relationship between oil prices and macroeconomic variables. Hamilton in a series of studies on the subject (in 1983, 1996 and 2003) established a vital role of oil price increase in most of the US recessions. He has stressed on the importance of oil prices on the macroeconomic activities.

Later on many researchers further supporting and extending on Hamiltonians earlier work, while using different estimation procedures 227 impact of an oil price increase on the behavior of different macroeconomic variables (for example, Feeder 1996; Kisser and Goodwin 1986; Sounder and Bartlett 2007; Guy and Kitties 2005; Hung et al. 2005; 2007, 2008; Lee al. 1995; Moor 1989). The focus in most of these studies was on the developed countries. They reiterated the possibility of adverse impact of rising oil prices on economic growth in these countries.

These studies present numerous theoretical perspectives on the oil price shock hypothesis, as well as empirical evidence on the impact of oil shocks on the growth, through both direct and indirect channels (Feeder 1996). In addition, it has been shown that there is an asymmetric relationship between oil price shocks and economic recession, and whether or not it depended on other variables (Lee et al. 1995; Saddlers 1999). The implication of this literature is that indirect transmission mechanisms may be the vital source through which oil price shocks have macroeconomic impacts.

Some studies have established that the increase in oil price led to a decline in GAP while the decrease in oil price does not stimulate the economic activity (Moor 1989; Moor et al. 1994). Similarly, Hooker (1996) challenged Hamiltonians findings on the ground that sample stability is important. Oil prices are endogenous, and that linear and symmetric specifications misrepresent the form of the oil price interaction. He found that oil prices do Granger cause a variety of US agronomic variables in data up to 1973 but not in the data afterwards.

Oil prices were exogenous before 1973, but not afterwards. Hung et al. (2005) empirically investigated the threshold level and concluded that the change or volatility in oil price above that level better explains its impact on economic activities. While Hissing (2007, 2008) derived the critical value of oil price above which its impact on output becomes negative. Most of the earlier studies concerning oil price shocks and volatility and economic activities have been conducted in the context of developed economies.

Research concerning the impact of oil price volatility in the context of developing countries is very limited and quite recent. 7 Raffia et al. (2008) estimated the impact for Thailand; Kumar (2005) for India; Canada and Garcia (2005) for six Asian countries including Thailand, Singapore, South Korea, Malaysia, Philippines and Japan; Jibe and Aquaria-Corbel (2008) for Tunisia; and Abscessing (2001) for Association of South East Asian Nations (SEAN), including NINE (newly industrialized economies) and COED countries.

These studies have also confirmed the negative impact of real oil prices on output and other macro variables, using different theologies, in linear and non-linear specifications controlling for asymmetries in the oil price data. In general, empirical literature has suggested that oil-importing economies are negatively affected by oil price increases. The extent to which the economies are usually hurt depends on the specific structure of different economies but as far as Pakistan is concerned no serious attempt has been made so far to empirically understand the impact of oil prices.

To my knowledge, this is the first in- depth study analyzing the direct impact of oil price shocks for Pakistan. South Asia Economic journal, 1 1, 2 (2010): 223-244 28 Pakistanis Macroeconomic Situation Before discussing methodology and empirical results, this section will examine how the macro economy of Pakistan has behaved in the last couple of years, focusing on its capacity to withstand the rising prices of 011. 8 Output Growth The economy of Pakistan has shown a high growth trend (for the last five years) (Table 1), resulting in a substantial increase in the demand for energy.

It is somehow difficult to identify the factors that have been responsible for the high growth in Pakistan in the presence of high oil prices. One of the reasons could be that the nonusers have been shielded by limiting the direct pass through of international price to domestic oil price via adjusting petroleum development levy (PDP). In addition, the extensive use of fuel subsidies in the form of price differential claim (PDP) was helped by strong foreign reserves position until in other words, it may have contained output losses in the high growth years.

In addition, the continued strong performance of the services sector and on the demand side the consumption expenditure had proved to be the main source of GAP growth in those years; here credit flow to the private sector in the form of consumer financing played significant role. 9 But since situation has started changing. Private credit is showing a downward trend (Table 1), credit to small and medium enterprises also declined, given high interest rates, because of monetary tightening and undocumented trade (Khan 2008). Foreign exchange reserves also declined.

All these factors had an adverse impact on the GAP growth in Further, the high price of oil in the international market and declining volumes of exports along with private transfers in resulted in the current account deficit equal to 8. 4 per cent of GAP, which was in surplus until 2003-()4?1. 8 per cent of GAP (Table 1). The overspent consumed its budgetary target of bank borrowing (PACK 130 billion) by January 2008, much earlier than the targeted time, and the utilization of public sector development programmer (STEPS) remained significantly lower than the allocated. 0 In short, in the beginning of oil price shock, GAP might have grown in Pakistan given the domestic policy relaxations, but the situation has changed since Fiscal Development pursuing a sound fiscal policy. The fiscal deficit declined to the level of only South Cast Economic journal, 11, 2 (2010): 223-244

Private credit (growth rate) Average ICP increase (per cent) Terms of trade (1990-91 = 100) Exports in SIS$ (growth rate) Imports in SIS$ (growth rate) Trade balance (SIS$ billion) Current account including official current transfers (in terms of GAP) in per cent Foreign exchange reserves (billion SIS$) Petroleum taxes (custom duty, excise & sales tax) (in billion PACK) Petroleum development surcharge (in billion PACK) Revenue as a percentage of GAP Surplus as a percentage of GAP Total debt (% growth) Debt-GAP ratio (%) source: MIFF (2008) and state sank of Pakistan (2008). Ere cent of GAP in but since then it is rising and reached to the level of- 7. 4 per cent of GAP in (Table 1). In the government could not keep the fiscal deficit within the projected limits because of freezing domestic oil and electricity prices besides slow growth in revenue. The high ratio of tax revenue to GAP is needed to reduce fiscal deficit. For Pakistan, revenue GAP ratio as shown in Table 1 is not very encouraging. Moreover, rapidly growing economies generally experience more rapid growth of non-oil taxation, and hence are better able to withstand the fiscal impacts of a less than fully passing on of international oil price increase.

In Pakistan, non-oil taxation is more or less the same for the last few years. While on the other side, fuel taxes have important revenue implications for Pakistan. 11 Taxes on petroleum products are the largest source of indirect revenues in Pakistan. Petroleum product prices are higher than the import parity price because while this share was only 12 per cent in 2000-01 (Table 1). 12 Moreover, rising current account deficit and a large fiscal deficit has increased the stock of total debt and liabilities by 27 per cent from PACK 5,046. 4 billion in to PACK 6,426. 4 in (Table 1). Domestic and external debt rose by 25. 6 per cent and 28. Per cent, respectively, in In addition, debt-GAP ratio which declined consecutively from 97. 7 per cent, in 2000-01 to 57. 9 per cent in goes up again to 61. 3 per cent in (Table 1). Inflation and Monetary Policy Despite the fact that the government showed reluctance in full passing on of oil price increase, high oil prices has become an important factor (along with rising house rents and shortage of food items) contributing to high inflation in Pakistan in the past few years. General price level (for virtually all goods and assets) has been increasing 9. 3 per cent in considerably very high compared to the previous years).

In and average inflation was near 8 per cent (Table 1). However, regardless of monetary tightening 3 (high interest rates) by the State Bank of Pakistan, average inflation Jumped to 12 per cent in This Jump in inflation can surely be attributed to the modernization of fiscal deficit (7. 4 of GAP), which reached 25 per cent in October 2008. Balance of Payments Our petroleum imports account for 27 per cent of total imports (and represented up to 57 per cent of export earnings) in In 1999-2000 the share of petroleum imports was 27 per cent of total imports and accounted for 33 per cent of total export earnings.

Improving terms of trade would mean that a smaller South Asia Economic Journal, 11, 2 (2010): 223-244 231 volume of exports would be needed to pay for a given quantity of imports. For Pakistan this ratio, however, is decreasing (Table 1), that is, more exports are needed to offset the burden of rising import bill. The government, however, has failed to improve the export performance. On the other hand, significant increase in imports has negatively impacted on the trade deficit. Pakistanis trade deficit has increased substantially in the last couple of years, from SIS$ 1. 5 billion in 2000-01 to SIS$ 20. 2 billion in (almost 45 per cent growth). Imports of petroleum products (in value terms) in the fiscal year have also registered a sharp increase, nearly 47 per cent (substantial increase in furnace oil import, largely for electricity generation purpose). The imports of crude oil which declined in again went up by 40 percentage points (Government of Pakistan 2008).

As discussed last few years, external financial sector (that is, remittances, US aid and foreign inflows from FAD) has shown a solid performance until It helped the overspent in the maintenance of the fiscal situation. However, this was only for a short term. The government extensively utilized this facility but had not made substantial efforts to explore other options to reduce trade deficit or explore areas that would have decreased its fiscal burden. Furthermore, Pakistanis exchange rate after remaining stable for the last four years has depreciated sharply by 1 1. Per cent in The loss in the value of rupee can surely be attributed to a combination of rise in the current account deficit, fall in the financial inflows and increase in political disturbances (State Bank of Pakistan 2008). Methodology and Data Issues This study will examine the impact of crude oil price fluctuations on output growth for Pakistan using an open economy IS function, an extended monetary policy function and augmented Phillips curve, including real effective exchange rate, debt- GAP ratio and real foreign exchange reserves. The macroeconomic model to be estimated for Pakistan is specified as follows: Y = f(Y, l, G, R, S, ?, Pop, D, F) Open Economy IS Function, I = f (II-a, Y – p, ? -6, I t) Monetary Policy Function, n = n e + NY – B ? + pop) Augmented Phillips Curve, where Y = real GAP I = real interest rate G real government spending R = real government revenue South Asia Economic 232 S = real stock price D = real total debt ? = real effective exchange rate (ERE) Pop = real crude oil price per barrel F = real foreign exchange reserves = real world interest rate n = inflation rate Tie = expected inflation rate a = target inflation rate potential output 6 = target real effective exchange rate B, N, p = positive parameters Applying the implicit-function theorem and solving for three unknowns, Y, I and n, equilibrium output is given by Y = F(Pop, G, R, S, ?, I t, D, F, n e; a, p, 6, N B, p) (1) By assuming that with the increase in real crude oil price, aggregate spending (or output) may or may not decline.

In other words, to check if the relationship between oil prices and output is linear or non-linear, a for the real oil price will be used. If the relationship is non-linear then we expect the coefficient of the squared term to be negative. With the rise in oil price inflation rate is expected to increase, Central Bank (that is the State Bank of Pakistan) is expected to raise real interest rate, which would lower aggregate spending. Further, government deficit is expected to increase. The impact of deficit spending is expected to be negative if deficit crowds out public saving and resource inflow encourages corruption and resource outflow (Squid and Mali 2001). Rise in the crude oil price is going to output.

As discussed earlier, rising current account deficit and a large fiscal deficit as a consequence of rising price of crude oil in the global market has increased the stock of total debt and liabilities in Pakistan. At the same time, the existence of foreign exchange reserves can help sustain the impact of rising oil price thus having a positive impact on output. A higher real stock price is expected to cause households to increase consumption spending because of the wealth effect and business firms to increase investment spending (Hissing 2007). As an alternative to real stock price, real gross capital formation is used in this study and is expected to have a positive effect on real output.

Another channel through which oil prices can induce changes in real economic activity is through the exchange rates. Depreciation of Pakistani rupees is expected to have a negative influence on the real economic activity. The selection of oil price variable is difficult as well as important. Some of the empirical studies analyzing the impact of oil price shocks have used world price 233 of crude oil (in SIS$) divided by the Consumer Price Index in the US (for example, Sounder and Bartlett 2007; Hissing 2007), while some have used world oil price converted into respective country’s currency by means of the market exchange rate (for example, Abscessing 2001; Moor et al. 1994).

The main difference between the two oil prices is that oil price in domestic currency takes into account the difference in the oil price that country faces due to its exchange rate fluctuations or its inflation levels. Some of the studies have used both the variables in order to differentiate whether each oil price shock reflects the world oil price evolution or could be due to other factors such as exchange rate fluctuations or National Price Index variations (for example, Canada and Garcia 2005; Kumar 2005). In this article, both oil price variables are used alternatively, that is, real crude oil price equal to the nominal world crude oil price per barrel divided by the Consumer Price Index in the US.

Also, nominal world oil price converted into local currency deflated by the domestic Consumer Price Index. Figure 2 shows the movement of both the real oil prices (in US $ and in Pakistani rupees [PACK]). Except for the period 1980-85 (where may be as a result of high domestic prices) both the series have shown the effects of the oil shocks of 1990, 1999-2000 and 2003-04 onwards, as well as the sharp fall in the oil price after the market collapsed in 1986 and in 1998-99. The correlation coefficient between oil prices in PACK Figure 2. Real Oil prices in US$ and Pakistani Rupees Source: International Financial Statistics Database, International Monetary Fund. Note: 01 is oil prices in SIS$ and 03 in domestic currency.

The ability of an organization to re-evaluate its systems and restructures its operations in tandem with changing market forces acts as the most important aspect in facilitating its continued market dominance and sustainability. With the fast impacts of globalization turning out to be the key determinants of consumerism and management orientation, organizations have been forced to change their models of management if they are to remain not just relevant in the market, but sustainably profitable.

After its operations for close to a century as one of the global petroleum company giant, Royal Dutch Shell Group assimilated a new structure to address emerging forces more effectively. This paper provides an intrinsic evaluation of the Royal Dutch Shell Group Restructuring at the height of changing and emerging market forces. SECTION A 1) Identify and assess the main features of the Royal Dutch Shell Group’s approach to strategic management in2000. Use your findings to critically evaluate the view that the group is “a prisoner of its own illustrious history” (case p.

122 at risk of losing its leading position in the global petroleum industry. In your view, writing as if you were an analyst using the module theory to assess the situation in 2000, how could the group improve its approach? a) Main features of the royal Dutch Shell Group’s strategic management in 200. According to Alan (2009, p. 31), strategic management is a holistic approach that organizations assimilate in facilitating their internal and external efficacies towards improving profitability. As Grants (2008, p.

121) indicates, Royal Dutch Shell Group features assimilated in 2000 revitalized its key objectives and mission towards countering the new forces that threatened its long held position. To begin with, the company shifted from a geographically-based management structure, to a business sector-based structure which was considered to be more responsive and therefore capable of addressing the emerging challenges. Since the formation of the group at the onset of 20th century, Grant indicates that it assimilated a stronger geographical based structure which was seen as a better option in reaching out the new markets (2008, pp.

122-123). Notably, a geographically based structure reduced the ability of the company to not only harmonize its main operations, but created diverging outsets that culminated to overlooking emerging forces. According to the Diamond model by Michael Porter, organizations must constantly reevaluate their ability to counter market forces and therefore generate the needed competitive advantage for higher profitability (Donald, 2009, pp. 36-37). The new structure therefore increased the focus on demands of the market and government forces for the different countries the company operated in to outdo its competitors.

According to Michael, Duane and Robert (2008, p. 56), a company is defined on the basis of its success strategies assimilated in its structures. Therefore, it assimilated a leaner management structure that was seen to be more effective in generating a better focus in the management. Grant (2008, p. 121) points out that over 1000 corporate positions were eliminated to promote easier decision making in addressing key issues that threatened the company. Grant (2008, p. 127) continues to say that indeed the Royal Dutch Shell Group structure was one of the most complex as its decisions were made at the grassroots and communicated upward. Read about Dutch Lady Strength and Weaknesses

Though the new matrix did not fully manage to infuse the top-downward approach which was being employed by other companies such as Exxon, a leaner team facilitated a similar approach but with a sectoral outlook. According to the Hofstede theory, an organization culture must be able to resound harmonically with national and global shifts in facilitating higher profitability (Alan, 2009, p. 39). Royal Dutch Shell Group therefore redesigned its systems of coordination and control to infuse an intrinsically responsive mechanism that would not proactively seek new mechanism of recapturing the fast shrinking market.

Grant (2008, P. 128) explains that decision making was shifted to the business unit levels while eliminating non effective administrative layers. It is however the culture of thinking about the future in its structures that would generate critical analysis of alternatives to capture new markets while remaining ahead of the competitors. b) “Royal Dutch Shell Group is a prisoner of its own illustrious history” Royal Dutch Shell Group reaction towards the changing forces of the market appears to be strongly impacted by its historic outset.

According to Porter’s five forces model, all the forces in an organizations must be able to assess its key threats and establish responsive systems to counter them and therefore remain ahead of its key competitors in the market (Michael, 2008, pp. 45-46). Notably, despite the realization of the holistic efficacy that a top-downward approach could have in restoring Royal Dutch Shell Group to its position as the world leader in the petroleum industry, it was hard to assimilate it due to its historically highly devolved structure (Grant, pp. 125-126).

After the formation of the Royal Dutch Shell Group through merging the Netherlands-Based Royal Dutch Petroleum Company and the British-based Shell Transport and Trading Company, the two companies continued to operate as two different units. Grant further indicate that even their shares in the stock market were listed separately (2008, p. 124). Changing this format was therefore hard as it had been fully internalized and therefore risked the needed flexibility to win the market. In his view, William (2009, p. 36) points out that organizations’ management derive the needed culture that define their operations in addressing emergent issues.

However, it is worth noting that companies and organizations’ cultures should be carefully enriched with time to assimilate modernistic approaches for addressing emerging issues. At the time of its formation and indeed during the first half of the twentieth century, Royal Dutch Shell Group was largely driven by the need to expand in the low competition and high consumer demand market. Therefore, its focus failed to entrench the need of a strong management unit for addressing possible challenges. As a carry over, this effect strongly haunted the group by making it hard to easily respond to the emerging competitors.

Michael et al (2008, p. 75) point out that organizations should be able to embrace the notion of change management in facilitating constant improvement in their survival strategies. However, the rigidity assimilated in the Royal Dutch Shell Group reduced the efficacy of the devolved management acting as an effective change agents. Grant (2008, P. 123) indicates that all the systems of management structure consisted of independently operating companies and therefore could not be categorized as a formal structure.

Therefore, the complexity of this management model reduced the ability to create a similar viewpoint that could easily create consensus for addressing the new competition. It is therefore no doubt that the group operations are defined by its past outset that threatens its global position in the petroleum industry. c) How can the group improve its approach? To effectively address the challenges facing the group, it is essential that the following methods are assimilated to enrich the assimilated strategy. To begin with, the company should further seek to create more focused units towards centralizing the management structure.

As Grants (2008, P. 128) indicates, most of the Royal Dutch Shell Group competitors were fast upcoming due to assimilation of the centralized top-down approach in managing and controlling the key operations. The company should also adopt a new culture of change in its systems to facilitate easier identification of new opportunities and engaging all the stakeholders creatively in generating innovative ideas that can be used to further colonize the market. In this case, the Royal Dutch Shell Company must be able to establish the need for constant improvement to reduced stagnation observed in the first half of the 20th century.

As a result, all the managers would be innovatively involved to seek mechanisms of improving their areas of specialization. As Alan (2009, p. 53) concurs with emergent scholars on management, there is needed constant evaluation and comparison between the Royal Dutch Shell Group and other competitors in the industry. As a result, the company would not only be able to know its position in relation to them, but also understand the mechanism they employ. This would b every critical in facilitating effective enrichment of the key strategies employed to meet its objectives.

There are factors that exert pressure in the company resulting to reducing the purchasing power of potential customers and the firm‘s cost of capital argues ICMR Case Studies and Management Resources. (2007). The soaring high prices of oil i. e. crude oil have really exerted pressure on the cost of production from the manufacturing to the transport and delivery system of the products. The transport of raw materials have also been affected by this oil rising prices, resulting to sometimes slow or even unavailability of raw materials affecting the manufacturing of the soft drinks.

Unfortunately this has resulted to reducing the purchasing power of the consumer, viewing the soft drink as a luxury that they can’t afford. The company has been forced to find other ways to generate power, that less expensive, but this is unlikely, because even the electricity cost in the country is rising significantly i. e. electricity tariffs. High electricity costs, results to high cost of production.

Over the year, there has been an increasing trend where the country are experiencing a decrease in the GDP per capita, due to the ever increasing cost of living standards, high levels of unemployment due to company’s downsizing to cut down costs. The more this trend continues, the more the soft drink becomes a luxury which the local consumer can’t afford. In addition to this the New World order, has another issue on its table, that eventually will result in reducing the sales revenue of the soft-drink i. e. the increase prices of food prices which the country is also experiencing, resulting in the consumer having a lean and limited budget to purchase soft-drink since it becomes a luxury (Armstrong G. & Kotler P. 2007). The interest rates in the local banks are increasingly tremendously, due to the slow growth of economy, rising oil and food prices, hence in turn putting pressure in the cost of production of the soft-drinks.

The offering of credit facilities and overdrafts have become so expensive for the company, hence slowing down the company expansion programme together with acquiring the state-of-the art technology in the manufacturing plants, plus employing more employees that the company needs. This has coupled with the high exchange rates the country is experiencing world major currency i. e. the dollar, hence the basic raw materials for manufacturing the soft drinks has become expensive and puts a financial toll on the company. This eventually results in slowing down the sales because the customer is unable to consume the product as before.

Unfortunately again, the company can do nothing about this but adjust its prices of the soft drinks. Together with this, the high exchange rate, discourage the company from venturing another branch i. e. Coca-cola to a country which especially has moderately high exchange rates (ICMR Case Studies and Management Resources. , 2007). The environment factors have put pressure on the company so as to reduce the pollution the company emits to the environment. Hence the company is usually taxed moderately high because of its amount of pollution that its releases e. g. to the sewage system etc (Armstrong G. & Kotler P. 2007). The exchange of behaviors by the consumers has resulted to pressure the company. There is more awareness where people are encouraged to eat and live healthy and to avoid eating carbonated drinks which the Coca-Cola Company offers.

The company is loosing its consumer to fresh fruits juices. This has reduced the sales revenue and lowered down the growth and expansion of the company (ICMR Case Studies and Management Resources. 2007). There has been an increase in competition in the soft drink industries, with more companies that especially deal with food technology venturing in the soft drink business e. g. the merging of Redbull, Ribenna, and Lucozade etc. This puts the pressure in the company, because now they have to compete for the same consumers they attract. This has resulted to an increase the production i. e. the awareness campaign to be used by the company. The company receives a lot of pressure from shady business men who in turn want to take advantage of the Coca-cola brand and make counterfeit products whose standards are low compared to the real Coca-Cola Company. The ‘fake’ products are sold cheaply compared to the Coca-cola products.

This has generated to loss of revenue, together with the tarnished name for the Coca-cola brand (ICMR Case Studies and Management Resources. (2007). The changing infrastructure and technology also exerts pressure in the company. For the company to maintain its well known standards, the company has to heavily invest in the latest technology that ensures the rate of production per day is high, this together with ensuring the health and safety measures are observed in the drinks. As the technology, keeps changing and getting better and better, the company has no choice to invest in the machines (Armstrong G. & Kotler P. 2007). Kenya have good infrastructure, this helps the company in the delivery of its products, hence a country that has poor infrastructure e. g. the road network slows down the delivery of the soft drinks plus increases the consumption of fuel. This has resulted to the unavailability of the product to certain parts of the country.

Conclusion

Coca-Cola has managed to become a success because of designing a marketing mix that enables them to create a product that the customer wants at that very moment in Kenya. The quality of the product and the design are the same all round the world.

The packaging and brand name is also similar so that everyone gets the same Coca-Cola experience all over. Coca-Cola products are refreshing because of the ice cold concept. During summer or in hot weather Coca-Cola products will always be served ice cold with every Coca-Cola stand having a Coca-Cola refrigerator. The distribution of Coca-Cola product is fast and efficient due to a good relationship with retailers, wholesalers and distributors that have a large number of trucks to ferry the products from the factories to the consumers.

References

1. Armstrong G. & Kotler P. (2007). Consumer Markets: Influences on consumer behavior, Principles of Marketing. Coca cola website ICMR Case Studies and Management Resources. (2007). Consumer Behavior. Retrieved January 20, 2008 from http://www. icmrindia. org/courseware/Consumer%20Behavior/CBC03. htlm
2. Kotler, P. (2005) Principles of Marketing. New York. Melbourne Press Schaik J. L. , (2002); The Task of Marketing Management; J. L. van Schaik (Pity) ltd