OMV Case
Business Strategy
The OMV Case
Date: 23 October 2013, Vienna
Task 1:
Industry Attractiveness: Porter’s Five Forces Analysis
Risk of entry (low)
The risk of entry in the downstream oil industry for the CEE markets can be considered rather low because of several market entry barriers. First, the refining industry requires high upfront capital investments for construction of oil refineries. Second, the large incumbent firms enjoy important economies of scale which gives them a competitive edge over potential newcomers.
Third, the strong vertical integration of incumbent firms, which benefit from direct control over supply and distribution, represents another entry barrier. Thus, entering the downstream oil industry seems not very attractive.
Rivalry among established firms with similar business models (high)
Due to a period of consolidation of independent refineries in the 1990’s, the downstream oil industry is now dominated by few large players like OMV/Avanti, Shell, BP/Aral, Exxon/Esso,
ENI/Agip and regional players like MOL (Hungary), PKN Orlen (Poland) and Lukoil (Russia).
These firms compete on two generic strategies: cost leadership (e.g. Avanti) and differentiation
(e.g. OMV, BP, Shell, Agip/ENI). Additionally, incumbent firms are facing increasing competition by retailers (i.e. Tesco, Carrefour) in the low-cost segment. Due to over-capacity in gasoline and undersupply of diesel fuels competition is intense. Limited differentiation possibilities lead to additional rivalry. Finally, the existence of high exit barriers also increases competition. As a result, competition in the downstream segment is very intense.
Bargaining Power of Suppliers (low)
Unless not outsourced, OMV takes care of the transportation of raw oils from the production sites to the refineries on its own. Currently (2005) OMV has 5 refineries (1 in Austria, 2 in
Germany, 2 from the acquisition of Petrom (Romania)). Due to the high capacity rate in the
refining
The OMV Case
Date: 23 October 2013, Vienna
Task 1:
Industry Attractiveness: Porter’s Five Forces Analysis
Risk of entry (low)
The risk of entry in the downstream oil industry for the CEE markets can be considered rather low because of several market entry barriers. First, the refining industry requires high upfront capital investments for construction of oil refineries. Second, the large incumbent firms enjoy important economies of scale which gives them a competitive edge over potential newcomers.
Third, the strong vertical integration of incumbent firms, which benefit from direct control over supply and distribution, represents another entry barrier. Thus, entering the downstream oil industry seems not very attractive.
Rivalry among established firms with similar business models (high)
Due to a period of consolidation of independent refineries in the 1990’s, the downstream oil industry is now dominated by few large players like OMV/Avanti, Shell, BP/Aral, Exxon/Esso,
ENI/Agip and regional players like MOL (Hungary), PKN Orlen (Poland) and Lukoil (Russia).
These firms compete on two generic strategies: cost leadership (e.g. Avanti) and differentiation
(e.g. OMV, BP, Shell, Agip/ENI). Additionally, incumbent firms are facing increasing competition by retailers (i.e. Tesco, Carrefour) in the low-cost segment. Due to over-capacity in gasoline and undersupply of diesel fuels competition is intense. Limited differentiation possibilities lead to additional rivalry. Finally, the existence of high exit barriers also increases competition. As a result, competition in the downstream segment is very intense.
Bargaining Power of Suppliers (low)
Unless not outsourced, OMV takes care of the transportation of raw oils from the production sites to the refineries on its own. Currently (2005) OMV has 5 refineries (1 in Austria, 2 in
Germany, 2 from the acquisition of Petrom (Romania)). Due to the high capacity rate in the
refining