Midland Energy Resources, Inc.: Cost of Capital
Situational Analysis
For the in-depth analysis and evaluation of the company, the internal and external analysis is done by using several analytical models.
Internal Analysis
The internal strategic environment of Midland energy resources incorporation and its operations could be assessed and analyzed by using the following models.
SWOT Analysis
The Midland energy resources incorporation has been operating effectively around the globe with great significance.
Strengths
Technological Advancement: The overall strength of the company could be determined from its operations backed up with technological advancement. The company acquires highly advanced equipment to perform its regular operation effectively and efficiently around the globe.
Global Significance: The Company maintains a significant image globally with its quality of products and services. Also, the company has operating units in several countries of the world so it has achieved a strong customer base.
Differentiated Nature of Operations: The Company has a differentiated nature of work yet it is one of the leading companies in the oil and gas sector. It operates basically in three divisions with being vertically integrated.
Weaknesses
Declining Margins: The Company’s weakness lies with its declining margins for over 20 years. The decline of these margins could be because of changing economic, political, social or legal environments all around the world.
Difficulty of Approvals: For operations and further expansions of its refineries, the company requires to get approvals. It is analyzed that the company is having difficulty in getting these approval.
Opportunities
Business expansion: From the efficacy of its overall operations and considering various available investment opportunities, it can be easily said that the company has great potential for future growth and expansion with high possibilities depicting various opportunities for the company. Also, with the company operating overall the globe, the company has been able to attain a significant customer base.
Threats
Stiff Competition: Although the company acquires great significance in the industry and around the globe, there also lies various threats for the company in the form of strong and stiff competition. The company has to face strong competition, especially in its marketing and refining division because of its products being highly commoditized.
Volatile oil Prices: The oil and gas sector has always been subjected to the risk of extremely volatile oil and fuel prices that severely affects the sector’s demand and supply aspects. In 2007 the company had to deal with the historically higher oil prices.
Rigorous Environmental Regulations: For the operations related to the extractions, explorations and production of oil and gas this sector requires higher consumption of water and energy resources. For this reason the company has to deal with the rigorous and rigid policies and regulations related to the environment. (See Appendix 1)
VRIO Analysis
VRIO analysis is used for doing the internal analysis of the companies with regards to their capacities and identifying various resources that provide competitive advantages to the company. This analysis is also done by companies for the categorization of resources based on their similar attributes. (See Appendix 2)
External Analysis
To conduct an external analysis of the company, concerning the analysis of its external environment, external factors and external resources, the following models are used.
Porter’s Five Forces Model
This model is used by companies to determine various environmental factors and resources used to achieve their objectives with consideration of the impact of these factors. The Midland energy resources incorporation can achieve known significance in the world by engaging and investing in various investment opportunities and efficient allocation and utilization of its resources. Besides that, the company could reduce the extent of threats due to higher industrial competition by providing differentiation in its products and services according to its consumer preferences.
Midland Energy Resources Inc.’s Cost of Capital Spreadsheet for Students Porter’s model explain the competitive environment of an organization. Porter model is used to reduce the risk of an organization for longer period and aim to increase the profitability of products. This model is well fitted for the making an achievable vision and mission which organization achieve by attaining the short term and long term goals. The profitability of an organization depends upon the following factors:
- Threat of new entrants
- Threat of substitute product
- Bargaining power of supplier
- Bargaining power of buyer
- Competitive Rival vary
Threat of New Entrants
Threat of new entrants are faced by every company because the market produce opportunities on regular basis so the chances for competition of new entrants increase day by day. But the midway handle this threat by improving their products and services by offering additional advantage products by lowering pricing. Midway apply the cost reducing strategy and increase the research and development of the organization.
Threat of Substitute Products
Midway resources also face this challenge because in the market the most of their products are available to the competitors. Due to improvement in the technology. Because of the availability of products the profit of the company can be suffer. Midway must offer the products by adding them extra value propositions. Midway must focus on the customer basic needs rather then examine their purchasing power.
Bargaining Power of Supplier
Because of the competition in market the suppliers bargain strongly with the midway resources company for increases the prices of raw material. Higher the rates of raw material can negatively affect the profitability of company. If the current supplier increases the prices of raw material too much then the Midway can shift from one supplier to another. As the demand of products increases the bargaining power of supplier also increases.
Bargaining Power of Buyer
This is most affected power of market the bargaining power of buyer, whole industry directed towards buyer and the bargaining power of buyer is high because a customer always wants to purchase that product which is efficient and effective with lower prices. By understanding the pricing strategy Midway Resources can make profit for long run. Midway can launch new products with higher innovation. Midway must make the strong base of existing as well as new customers.
Competitive Rivalry
Rivalry with existing competitors can be win by satisfying the customers by producing them the products with higher benefits having less pricing. The Midway Resources Company survives in a very competitive market. Midway can get higher profit by making the differentiation and positioning of their products. Midway believes to make good relations with competitors for increasing market size. (See Appendix 3)…………
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