Rivalry in the Oil and Gas Field Service Industry
This is due to the demand of oil and gas in the United States and the world. It is also because international firms are beginning to come in the United States to compete with US firms for business. In comparison, US firms operating internationally generally make a significant amount more revenue from the business activity that goes on worldwide.Price competition is often the primary factor in determining which contractor is awarded a contract, although quality of service, operational and safety performance, equipment suitability and availability, reputation, and technical expertise are also factors. ” (IBIS WORLD) Most of the contracts for service are awarded through competitive bidding. In order to compete for profits it is imperative that companies in this industry look to create a competitive advantage and proper business strategy. “Large companies can offer a broad range of services.
Small firms can compete effectively by specializing in a particular type of service or geographic area. ” (First Research) The Oil and Gas Field Service industries concentration is low. Even though their biggest companies do possess what seems to be considerable percentages of the market share they do not create a monopoly situation. The majority of the industry is small companies. “About 78. 7% of the industry firms employ fewer than 20 people, and 95. 6% of firms employ fewer than 100 people. ” The overall level of strength for intensity of competitive rivalry in the Oil and Gas field services industry is high.
The fact that it is hard to exit the industry creates higher rivalry. “Due to the fact that oil and gas operations are highly energy and labor intensive, fixed costs are high and market is hard to exit as leaving would require significant divestments of assets specific to the business. ” (Marketline) Many of these assets like equipment and machinery depreciate causing the company to lose money. Also, fixed costs being high makes companies maintain their volume which escalates competition. The fact that the industry is growing and projected to continue this way the more companies will enter the market making it more competitive.
However, with increasing growth it also gives the companies already in existence a chance to improve income. “The Mining Support industry has a low level of concentration, with the four largest firms accounting rougly 15. 7% of industry revenue. ” (Ibisworld) With the concentration being low the industry has many companies that compete. In the Oil and Gas industry it is easy to swap products which creates low switching costs. When it comes to oil and gas many people choose whichever product or service is cheaper at that time so having repeat customers can be challenging.
The overall products one company offers are not much different from others. The fact that this industry has low product differences creates higher competition. Higher competition is because there are not really any alternatives companies can use to attract customers. The lack of diversity also goes along with this idea. Some companies have technologic diversity over companies like Halliburton who uses Shale or have vertically integrated into other areas, but for the most part they are all acquiring oil and gas the same way.
Main players activities are usually geographically and vertically integrated however most of them present similar business models. ” (Marketline) The oil and gas field service does have intermitten overcapacity creating more rivalry than normal at times. In this industry the demand fluctuates due to the market. At small periods of time companies supply will exceed demand. These firms will then compete more aggressively trying to get rid of the excess supply.