Coopetition

From Wikipedia, the free encyclopedia

https://en.wikipedia.org/wiki/Coopetition 

Coopetition or co-opetition (sometimes spelled "coopertition" or "co-opertition") is a neologism coined to describe cooperative competition. Coopetition is a portmanteau of cooperation and competition. Basic principles of co-opetitive structures have been described in game theory, a scientific field that received more attention with the book Theory of Games and Economic Behavior in 1944 and the works of John Forbes Nash on non-cooperative games. Coopetition occurs both at inter-organizational or intra-organizational levels.

Overview

The concept and term coopetition and its variants have been re-coined several times in history.

The concept appeared as early as 1913, being used to describe the relationships among proximate independent dealers of the Sealshipt Oyster System, who were instructed to cooperate for the benefit of the system while competing with each other for customers in the same city.

Inter-organizational

The term and the ideas around co-opetition gained wide attention within the business community after the publication in 1996 of the book by Brandenberger and Nalebuff bearing the same title. Until today this remains the reference work for both researchers and practitioners alike.

Giovanni Battista Dagnino and Giovanna Padula's conceptualized in their conference paper (2002) that, at inter-organisational level, coopetition occurs when companies interact with partial congruence of interests. They cooperate with each other to reach a higher value creation if compared to the value created without interaction and struggle to achieve competitive advantage.

Often coopetition takes place when companies that are in the same market work together in the exploration of knowledge and research of new products, at the same time that they compete for market-share of their products and in the exploitation of the knowledge created. In this case, the interactions occur simultaneously and in different levels in the value chain. This is the case in the arrangement between PSA Peugeot Citroën and Toyota to share components for a new city car—simultaneously sold as the Peugeot 107, the Toyota Aygo, and the Citroën C1, where companies save money on shared costs while remaining fiercely competitive in other areas.

Several advantages can be foreseen, as cost reductions, resources complementarity and technological transfer. Some difficulties also exist, as distribution of control, equity in risk, complementary needs and trust.

It is possible for more than two companies to be involved in coopetition with one another. Another possible case for coopetition is joint resource management in construction. Sadegh Asgari and his colleagues (2013) present a short-term partnering case in which construction contractors form an alliance, agreeing to put all or some of their resources in a joint pool for a fixed duration of time and to allocate the group resources using a more cost-effective plan.

Marcello Mariani (2007) examined that in practice policy makers and regulators can trigger, promote, and affect coopetitive interactions among economic actors that did not intentionally plan to coopete before the external institutional stakeholders (i.e., a policy maker or regulator) created the conditions for the emergence of coopetititon.

Sadegh Asgari, Abbas Afshar and Kaveh Madani (2013) suggested cooperative game theory as the basis for fair and efficient allocation of the incremental benefits of cooperation among the cooperating contractors. Their study introduced a new paradigm in construction resource planning and allocation. Contractors no longer see each other as just competitors; they look for cooperation beyond their competition in order to reduce their costs.

Intra-organizational

At the intra-organizational level, coopetition occurs between individuals or functional units within the same organization. Based on game theory and social interdependence theories, some studies investigate the presence of simultaneous cooperation and competition among functional units, the antecedents of coopetition, and its impact on knowledge sharing behaviors. For example, the concept of coopetitive knowledge sharing is developed to explain mechanisms through which coopetition influences effective knowledge sharing practices in cross-functional teams. The underlying argument is that while organizational teams need to cooperate, they are likely to experience tension caused by diverse professional philosophies and competing goals from different cross-functional representatives.

Examples

In 1913 by the Sealshipt Oyster System  In 1937 by Rockwell D. Hunt

Around 1975 by Doug Chamberlin in a class at Adrian College, responding to an instructor's request for an appropriate new word with which to refer to "conflict over how to divide up the benefits produced by cooperation". Incorporated in 1981 college textbook Thinking About Politics: American Government in Associational Perspective (N.Y: D. Van Nostrand, 1981), chapter 9, p. 257.

In the decade of the 1980s, V. Frank Asaro wrote and circulated his 314-page non-fiction work Between Order and Chaos is Coopetition, aka Balance Between Order and Chaos, which culminated in a letter from best-selling author Spencer Johnson dated February 9, 1990, urging its publication. This resulted in the later publication of Universal Co-opetition; The Tortoise Shell Game, a novelization of co-opetition; and the non-fiction A Primal Wisdom (2014), corollary to the novel. (2nd. Ed., Finalist 2015 USA Best Book Awards for nonfiction and philosophy.)

Around 1992 by Raymond Noorda to characterize Novell's business strategy.

In 1995, Daniel Ervin, CEO of Phoenix Fire Inc., which is an international business development agency that focuses on building business partner channels for technology companies, started using the word Coopertition to describe the approach of creating a partnership between two or more competing software vendors. This type of partnership enables vendors with nominal overlap in their solution portfolio to quickly gain more market share together than when they are operating apart.

In 2000, FIRST Robotics had a competition game titled Co-Opertition FIRST. In 2009, FIRST cofounder Dean Kamen received a patent titled "Method for Creating Coopertition" (spelled as one word, with no hyphen), which involves giving FIRST Robotics teams some points scored by other teams, to encourage cooperation even as they compete. US FIRST now claims a trademark on the term on its Web site.

In the mid-2000s, "coopetition" began to be used by Darrell Waltrip to describe the phenomenon of drivers cooperating at various phases of a race at "high speed" tracks such as Daytona and Talladaga where cooperative aerodynamic drafting is critical to a driver's ability to advance through the field. The ultimate goal for each driver, however, is to use the strategy to win.

One of the examples of coopetition in practice in high technology context is the collaborative joint venture formed by Samsung Electronics and Sony formed in 2004 for the development and manufacturing of flat-screen LCD Panels. Coopetition is becoming more critical in high technology contexts because of several challenges such as shrinking product life cycles, need for heavy investments in research and development, convergence of multiple technologies, and importance of technological standards. While it is quite challenging to engage in coopetition (or cooperate with a competitor), coopetition engagements are helpful for firms to address major technological challenges, to create benefits for partnering firms, and to advance technological innovations that benefit the firms, the industry, and consumers.

In 2009, the importance of coopetition was emphasized for Small and Medium-Sized Enterprises (SMEs). As technological battles intensify and technologies become more complex, SMEs face numerous challenges such as rising R&D costs, high risk and uncertainty in technological development, and lack of resources to pursue large-scale innovation projects. SMEs can more effectively deal with these problems if they work together by combining their own resources and expertise and develop their collective ability so that they can compete effectively with large firms and advance technologies they may not be able to advance alone.

In 2012 and 2013, the concept of 'Coopetitive Knowledge Sharing' was inspired by inter-organization research literature toward developing a Coopetitive Model of Knowledge Sharing that explains (1) how coopetition should be conceptualized, (2) What forms coopetition (three formative constructs of outcome (goal, reward), means (task related), boundary (friendship, geographical closeness, sense of team belonging) interdependencies), and (3) How coopetition and its interrelated components interact and influence knowledge sharing behaviors in cross-functional software teams. This series of publications in the Journal of Systems and Software and Information Processing & Management conceptualize and operationalize the multi-dimensional construct of cross-functional coopetition, and present an instrument for measuring this construct. Cross-functional coopetition is conceptualized with five distinct and independent constructs, three of them are related to cross-functional cooperation (task orientation, communication, interpersonal relationships), and two are associated with cross-functional competition (tangible resources and intangible resources).

In 2013 Compassion Games International, an activity of the Charter for Compassion, used "coopetition" to describe their annual games between cities about who can commit the most acts of kindness and compassion.

In 2014 the Caring Citizens' Congress, an Empathy Surplus Project, used "coopetition" to describe how to create "compassion primaries," where candidates for party office try to find allies in the other parties to cooperate around advancing freedom, compassion and human rights as governing principles.

Porter's five forces analysis

From Wikipedia, the free encyclopedia

https://en.wikipedia.org/wiki/Porter%27s_five_forces_analysis 

 

A graphical representation of Porter's five forces

Porter's Five Forces Framework is a method for analyzing competition of a business. It draws from industrial organization (IO) economics to derive five forces that determine the competitive intensity and, therefore, the attractiveness (or lack thereof) of an industry in terms of its profitability. An "unattractive" industry is one in which the effect of these five forces reduces overall profitability. The most unattractive industry would be one approaching "pure competition", in which available profits for all firms are driven to normal profit levels. The five-forces perspective is associated with its originator, Michael E. Porter of Harvard University. This framework was first published in Harvard Business Review in 1979.

Porter refers to these forces as the microenvironment, to contrast it with the more general term macroenvironment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information. The overall industry attractiveness does not imply that every firm in the industry will return the same profitability. Firms are able to apply their core competencies, business model or network to achieve a profit above the industry average. A clear example of this is the airline industry. As an industry, profitability is low because the industry's underlying structure of high fixed costs and low variable costs afford enormous latitude in the price of airline travel. Airlines tend to compete on cost, and that drives down the profitability of individual carriers as well as the industry itself because it simplifies the decision by a customer to buy or not buy a ticket. A few carriers – Richard Branson's Virgin Atlantic is one – have tried, with limited success, to use sources of differentiation in order to increase profitability.

Porter's five forces include three forces from 'horizontal' competition – the threat of substitute products or services, the threat of established rivals, and the threat of new entrants – and two others from 'vertical' competition – the bargaining power of suppliers and the bargaining power of customers.

Porter developed his five forces framework in reaction to the then-popular SWOT analysis, which he found both lacking in rigor and ad hoc. Porter's five-forces framework is based on the structure–conduct–performance paradigm in industrial organizational economics. Other Porter strategy tools include the value chain and generic competitive strategies.

Five Forces

Threat of new entrants

Profitable industries that yield high returns will attract new entities. New entrants eventually will decrease profitability for other firms in the industry. Unless the entry of new firms can be made more difficult by incumbents, abnormal profitability will fall towards zero (perfect competition), which is the minimum level of profitability required to keep an industry in business.

Michael E. Porter differentiates two factors which can have an effect on how much of a threat new entrants may pose:

Barriers to entry

The most attractive segment is one in which entry barriers are high and exit barriers are low. It's worth noting, however, that high barriers to entry almost always make exit more difficult.

Michael E. Porter list 7 major sources of entry barriers:

• Supply-side economies of scale
• Demand-side benefits of scale
• Customer switching costs. These are well illustrated by structural market characteristics such as supply chain integration but also can be created by firms. Airline frequent flyer programs are an example.
• Capital requirements – clearly the Internet has influenced this factor dramatically. Web sites and apps can be launched cheaply and easily as opposed to the brick and mortar industries of the past.
• Incumbency advantages independent of size (e.g. customer loyalty and brand equity)
• Access to distribution channels
• Government policy such as sanctioned monopolies, legal franchise requirements, patents, and regulatory requirements.

Expected retaliation

For example, a specific characteristic of oligopoly markets is that prices generally settle at an equilibrium because any price rises or cuts are easily matched by the competition.

Threat of substitutes

A substitute product uses a different technology to try to solve the same economic need. Examples of substitutes are meat, poultry, and fish; landlines and cellular telephones; airlines, automobiles, trains, and ships; beer and wine; and so on. For example, tap water is a substitute for Coke, but Pepsi is a product that uses the same technology (albeit different ingredients) to compete head-to-head with Coke, so it is not a substitute. Increased marketing for drinking tap water might "shrink the pie" for both Coke and Pepsi, whereas increased Pepsi advertising would likely "grow the pie" (increase consumption of all soft drinks), while giving Pepsi a larger market share at Coke's expense.

Potential factors:

• Buyer propensity to substitute. This aspect incorporated both tangible and intangible factors. Brand loyalty can be very important as in the Coke and Pepsi example above; however contractual and legal barriers are also effective.
• Relative price performance of substitute
• Buyer's switching costs. This factor is well illustrated by the mobility industry. Uber and its many competitors took advantage of the incumbent taxi industry's dependence on legal barriers to entry and when those fell away, it was trivial for customers to switch. There were no costs as every transaction was atomic, with no incentive for customers not to try another product.
• Perceived level of product differentiation which is classic Michael Porter in the sense that there are only two basic mechanisms for competition – lowest price or differentiation. Developing multiple products for niche markets is one way to mitigate this factor.
• Number of substitute products available in the market
• Ease of substitution
• Availability of close substitute

Bargaining power of customers

The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes. Firms can take measures to reduce buyer power, such as implementing a loyalty program. Buyers' power is high if buyers have many alternatives. It is low if they have few choices.

Potential factors:

• Buyer concentration to firm concentration ratio
• Degree of dependency upon existing channels of distribution
• Bargaining leverage, particularly in industries with high fixed costs
• Buyer switching costs
• Buyer information availability
• Availability of existing substitute products
• Buyer price sensitivity
• Differential advantage (uniqueness) of industry products
• RFM (customer value) Analysis

Bargaining power of suppliers

The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes. If you are making biscuits and there is only one person who sells flour, you have no alternative but to buy it from them. Suppliers may refuse to work with the firm or charge excessively high prices for unique resources.

Potential factors are:

• Supplier switching costs relative to firm switching costs
• Degree of differentiation of inputs
• Impact of inputs on cost and differentiation
• Presence of substitute inputs
• Strength of distribution channel
• Supplier concentration to firm concentration ratio
• Employee solidarity (e.g. labor unions)
• Supplier competition: the ability to forward vertically integrate and cut out the buyer.

Competitive rivalry

For most industries the intensity of competitive rivalry is the biggest determinant of the competitiveness of the industry. Having an understanding of industry rivals is vital to successfully marketing a product. Positioning depends on how the public perceives a product and distinguishes it from competitors‘. An organization must be aware of its competitors' marketing strategies and pricing and also be reactive to any changes made. Rivalry among competitors tends to be cutthroat and industry profitability low while having the potential factors below:

Potential factors:

• Sustainable competitive advantage through innovation
• Competition between online and offline organizations
• Level of advertising expense
• Powerful competitive strategy which could potentially be realized by adhering to Porter‘s work on low cost versus differentiation.
• Firm concentration ratio

Usage

Strategy consultants occasionally use Porter's five forces framework when making a qualitative evaluation of a firm's strategic position. However, for most consultants, the framework is only a starting point and value chain analysis or another type of analysis may be used in conjunction with this model. Like all general frameworks, an analysis that uses it to the exclusion of specifics about a particular situation is considered naïve.

According to Porter, the five forces framework should be used at the line-of-business industry level; it is not designed to be used at the industry group or industry sector level. An industry is defined at a lower, more basic level: a market in which similar or closely related products and/or services are sold to buyers (see industry information). A firm which competes in a single industry should develop, at a minimum, one five forces analysis for its industry. Porter makes clear that for diversified companies, the primary issue in corporate strategy is the selection of industries (lines of business) in which the company will compete. The average Fortune Global 1,000 company competes in 52 industries.

Criticisms

Porter's framework has been challenged by other academics and strategists. For instance, Kevin P. Coyne and Somu Subramaniam claim that three dubious assumptions underlie the five forces:

• That buyers, competitors, and suppliers are unrelated and do not interact and collude.
• That the source of value is structural advantage (creating barriers to entry).
• That uncertainty is low, allowing participants in a market to plan for and respond to changes in competitive behavior.

Also, the last chapter of the book: "Age of agile" attributes the bankruptcy of Porter's firm to the outdated nature of his model around competitiveness instead of creating customer value and not making the customers at the center of the universe, i.e customer centricity.

An important extension to Porter's work came from Adam Brandenburger and Barry Nalebuff of Yale School of Management in the mid-1990s. Using game theory, they added the concept of complementors (also called "the 6th force") to try to explain the reasoning behind strategic alliances. Complementors are known as the impact of related products and services already in the market. The idea that complementors are the sixth force has often been credited to Andrew Grove, former CEO of Intel Corporation. Martyn Richard Jones, while consulting at Groupe Bull, developed an augmented five forces model in Scotland in 1993. It is based on Porter's Framework and includes Government (national and regional) as well as pressure groups as the notional 6th force. This model was the result of work carried out as part of Groupe Bull's Knowledge Asset Management Organisation initiative.

Porter indirectly rebutted the assertions of other forces, by referring to innovation, government, and complementary products and services as "factors" that affect the five forces.

It is also perhaps not feasible to evaluate the attractiveness of an industry independently of the resources that a firm brings to that industry. It is thus argued (Wernerfelt 1984) that this theory be combined with the resource-based view (RBV) in order for the firm to develop a sounder framework.

Resource-based view

From Wikipedia, the free encyclopedia

https://en.wikipedia.org/wiki/Resource-based_view 

The resource-based view (RBV) is a managerial framework used to determine the strategic resources a firm can exploit to achieve sustainable competitive advantage.

Barney's 1991 article "Firm Resources and Sustained Competitive Advantage" is widely cited as a pivotal work in the emergence of the resource-based view. However, some scholars argue that there was evidence for a fragmentary resource-based theory from the 1930s. RBV proposes that firms are heterogeneous because they possess heterogeneous resources, meaning firms can have different strategies because they have different resource mixes.

The RBV focuses managerial attention on the firm's internal resources in an effort to identify those assets, capabilities and competencies with the potential to deliver superior competitive advantages.

Origins and background

During the 1990s, the resource-based view (also known as the resource-advantage theory) of the firm became the dominant paradigm in strategic planning. RBV can be seen as a reaction against the positioning school and its somewhat prescriptive approach which focused managerial attention on external considerations, notably industry structure. The so-called positioning school had dominated the discipline throughout the 1980s. In contrast, the resource-based view argued that sustainable competitive advantage derives from developing superior capabilities and resources. Jay Barney's 1991 article, "Firm Resources and Sustained Competitive Advantage," is seen as pivotal in the emergence of the resource-based view.

A number of scholars point out that a fragmentary resource-based perspective was evident from the 1930s, noting that Barney was heavily influenced by Wernerfelt's earlier work which introduced the idea of resource position barriers being roughly analogous to entry barriers in the positioning school. Other scholars suggest that the resource-based view represents a new paradigm, albeit with roots in "Ricardian and Penrosian economic theories according to which firms can earn sustainable supranormal returns if, and only if, they have superior resources and those resources are protected by some form of isolating mechanism precluding their diffusion throughout the industry." While its exact influence is debated, Edith Penrose's 1959 book The Theory of the Growth of the Firm is held by two scholars of strategy to state many concepts that would later influence the modern, resource-based theory of the firm.

The RBV is an interdisciplinary approach that represents a substantial shift in thinking. The resource-based view is interdisciplinary in that it was developed within the disciplines of economics, ethics, law, management, marketing, supply chain management and general business.

RBV focuses attention on an organisation's internal resources as a means of organising processes and obtaining a competitive advantage. Barney stated that for resources to hold potential as sources of sustainable competitive advantage, they should be valuable, rare, imperfectly imitable and not substitutable (now generally known as VRIN criteria). The resource-based view suggests that organisations must develop unique, firm-specific core competencies that will allow them to outperform competitors by doing things differently.

Although the literature presents many different ideas around the concept of the resource-advantage perspective, at its heart, the common theme is that the firm's resources are financial, legal, human, organisational, informational and relational; resources are heterogeneous and imperfectly mobile and that management's key task is to understand and organise resources for sustainable competitive advantage. Key theorists who have contributed to the development of a coherent body of literature include Jay B. Barney, George S. Day, Gary Hamel, Shelby D. Hunt, G. Hooley and C.K. Prahalad.

Concept

Achieving a sustainable competitive advantage lies at the heart of much of the literature in strategic management and strategic marketing J and Smithee, A. "Strategic Marketing and the Resource Based View of the Firm," Journal of the Academy of Marketing Science R The resource-based view offers strategists a means of evaluating potential factors that can be deployed to confer a competitive edge. A key insight arising from the resource-based view is that not all resources are of equal importance, nor do they possess the potential to become a source of sustainable competitive advantage. The sustainability of any competitive advantage depends on the extent to which resources can be imitated or substituted. Barney and others point out that understanding the causal relationship between the sources of advantage and successful strategies can be very difficult in practice. Thus, a great deal of managerial effort must be invested in identifying, understanding and classifying core competencies. In addition, management must invest in organisational learning to develop, nurture and maintain key resources and competencies.

In the resource-based view, strategists select the strategy or competitive position that best exploits the internal resources and capabilities relative to external opportunities. Given that strategic resources represent a complex network of inter-related assets and capabilities, organisations can adopt many possible competitive positions. Although scholars debate the precise categories of competitive positions that are used, there is general agreement, within the literature, that the resource-based view is much more flexible than Porter's prescriptive approach to strategy formulation.

The key managerial tasks are:

1. Identify the firm's potential key resources.
2. Evaluate whether these resources fulfill the following criteria (also known as VRIN criteria:
   • Valuable - they enable a firm to implement strategies that improve its efficiency and effectiveness.
   • Rare - not available to other competitors.
   • Imperfectly imitable - not easily implemented by others.
   • Non-substitutable - not able to be replaced by some other non-rare resource.
3. Develop, nurture and protect resources that pass these evaluations.

Definitions

Given the centrality of resources in terms of conferring competitive advantage, the management and marketing literature carefully defines and classifies resources and capabilities.

Resources

Barney defines firm resources as: "all assets, capabilities, organizational processes, firm attributes, information, knowledge, etc. controlled by a firm that enable the firm to conceive of and implement strategies that improve its efficiency and effectiveness" 

Capabilities

Capabilities are "a special type of resource, specifically an organizationally embedded non-transferable firm-specific resource whose purpose is to improve the productivity of the other resources possessed by the firm." 

Competitive advantage

Barney defined a competitive advantage as "when [a firm] is able to implement a value creating strategy not simultaneously being implemented by any current or potential competitors."

Classification of resources and capabilities

Firm-based resources may be tangible or intangible.

Tangible resources include: physical assets such as financial resources and human resources including real estate, raw materials machinery, plant, inventory, brands, patents and trademarks and cash.

Intangible resources may be embedded in organisational routines or practices such as an organization's reputation, culture, knowledge or know-how, accumulated experience, relationships with customers, suppliers or other key stakeholders.

They are particularly valuable in resource-based view because they give companies advantages in using resources. For example, patents make it impossible for other firms to use their resources in the same way and brand might be the only thing differentiating the product from the competitor’s.

Resources and capabilities may also be intraorganizational or interorganizational:

While RBV scholars have traditionally focused on intraorganizational resources and capabilities, recent research points to the importance of interorganizational routines. Routines between organizations and the ability to manage interorganizational relationships can improve performance. Such collaboration capabilities are, in particular, supported by contract design capabilities. An efficient use of contracts in the management of interorganizational relationships can facilitate the transfer of information, enhance organizational learning, and help develop relational capital.

The resources are divided into two critical assumptions:

Heterogeneous: It is the assumption that each company has different skills, capabilities, structure, resources and that makes each company different. Due to the different forms of employment and amount of resources, organizations can design different strategies that promote competitiveness in the market.

Immobile: It is the assumption that is based on the resources that an organization owns are not mobile, in other words, at least in short terms, cannot be transferred from one company to another. Companies can hardly obtain the immobile resources of their competitors since those resources have an important value for companies.

RBV and strategy formulation

Firms in possession of a resource, or mix of resources that are rare among competitors, are said to have a comparative advantage. This comparative advantage enables firms to produce marketing offerings that are either (a) perceived as having superior value or (b) can be produced at lower costs. Therefore, a comparative advantage in resources can lead to a competitive advantage in market position.

In the resource-based view, strategists select the strategy or competitive position that best exploits the internal resources and capabilities relative to external opportunities. Given that strategic resources represent a complex network of inter-related assets and capabilities, organisations can adopt many possible competitive positions. Although scholars debate the precise categories of competitive positions that are used, there is general agreement, within the literature, that the resource-based view is much more flexible than Porter's prescriptive approach to strategy formulation. Hooley et al. suggest the following classification of competitive positions:

• Price positioning
• Quality positioning
• Innovation positioning
• Service positioning
• Benefit positioning
• Tailored positioning (one-to-one marketing)

Criticisms

A number of criticisms of RBV have been widely cited, and are as follows:

• The RBV is tautological
• Different resource configurations can generate the same value for firms and thus would not be competitive advantage
• The role of product markets is underdeveloped in the argument 
• The theory has limited prescriptive implications.

Other criticisms include:

• The failure to consider factors surrounding resources; that is, an assumption that they simply exist, rather than a critical investigation of how key capabilities are acquired or developed.
• It is perhaps difficult (if not impossible) to find a resource which satisfies all of Barney's VRIN criteria.
• An assumption that a firm can be profitable in a highly competitive market as long as it can exploit advantageous resources does not always hold true. It ignores external factors concerning the industry as a whole; Porter’s Industry Structure Analysis ought also be considered.

Energy crisis

From Wikipedia, the free encyclopedia

https://en.wikipedia.org/wiki/Energy_crisis 

An energy crisis is any significant bottleneck in the supply of energy resources to an economy. In literature, it often refers to one of the energy sources used at a certain time and place, in particular those that supply national electricity grids or those used as fuel in Industrial development and population growth have led to a surge in the global demand for energy in recent years. In the 2000s, this new demand — together with Middle East tension, the falling value of the U.S. dollar, dwindling oil reserves, concerns over peak oil, and oil price speculation — triggered the 2000s energy crisis, which saw the price of oil reach an all-time high of $147.30 a barrel in 2008.

Causes

The gasoline shortages of World War II brought about the resurgence of horse-and-wagon delivery.

Most energy crisis have been caused by localized shortages, wars and market manipulation. Some have argued that government actions like tax hikes, nationalisation of energy companies, and regulation of the energy sector, shift supply and demand of energy away from its economic equilibrium. However, the recent historical energy crisis listed below were not caused by such factors. Market failure is possible when monopoly manipulation of markets occurs. A crisis can develop due to industrial actions like union organized strikes and government embargoes. The cause may be over-consumption, aging infrastructure, choke point disruption or bottlenecks at oil refineries and port facilities that restrict fuel supply. An emergency may emerge during very cold winters due to increased consumption of energy.

Large fluctuations and manipulations in future derivatives can have a substantial impact on price. Large investment banks control 80% of oil derivatives as of May 2012, compared to 30% only a decade ago. This increase contributed to an improvement of global energy output from 117 687 TWh in 2000 to 143 851TWh in 2008. Limitations on free trade for derivatives could reverse this trend of growth in energy production. Kuwaiti Oil Minister Hani Hussein stated that "Under the supply and demand theory, oil prices today are not justified," in an interview with Upstream.

Pipeline failures and other accidents may cause minor interruptions to energy supplies. A crisis could possibly emerge after infrastructure damage from severe weather. Attacks by terrorists or militia on important infrastructure are a possible problem for energy consumers, with a successful strike on a Middle East facility potentially causing global shortages. Political events, for example, when governments change due to regime change, monarchy collapse, military occupation, and coup may disrupt oil and gas production and create shortages. Fuel shortage can also be due to the excess and useless use of the fuels.

Historical crises

• 1970s energy crisis - caused by the peaking of oil production in major industrial nations (Germany, United States, Canada, etc.) and embargoes from other producers
  • 1973 oil crisis - caused by an OAPEC oil export embargo by many of the major Arab oil-producing states, in response to Western support of Israel during the Yom Kippur War
  • 1979 oil crisis - caused by the Iranian Revolution
    
• 1990 oil price shock - caused by the Gulf War
• The 2000–2001 California electricity crisis - Caused by market manipulation by Enron and failed deregulation; resulted in multiple large-scale power outages
• Fuel protests in the United Kingdom in 2000 were caused by a rise in the price of crude oil combined with already relatively high taxation on road fuel in the UK.
• North American natural gas crisis 2000-2008
• 2004 Argentine energy crisis
• North Korea has had energy shortages for many years.
• Zimbabwe has experienced a shortage of energy supplies for many years due to financial mismanagement.
• Political riots occurring during the 2007 Burmese anti-government protests were sparked by rising energy prices.

Kuwait's Al Burqan Oil Field, the world's second largest oil field

• 2000s energy crisis - Since 2003, a rise in prices caused by continued global increases in petroleum demand coupled with production stagnation, the falling value of the U.S. dollar, and a myriad of other secondary causes.
• 2008 Central Asia energy crisis, caused by abnormally cold temperatures and low water levels in an area dependent on hydroelectric power. At the same time the South African President was appeasing fears of a prolonged electricity crisis in South Africa."Mbeki in pledge on energy crisis". Financial Times. Retrieved 2008-02-10.
• In February 2008 the President of Pakistan announced plans to tackle energy shortages that were reaching crisis stage, despite having significant hydrocarbon reserves,. In April 2010, the Pakistani government announced the Pakistan national energy policy, which extended the official weekend and banned neon lights in response to a growing electricity shortage.
• South African electrical crisis. The South African crisis led to large price rises for platinum in February 2008 and reduced gold production.
• China experienced severe energy shortages towards the end of 2005 and again in early 2008. During the latter crisis they suffered severe damage to power networks along with diesel and coal shortages. Supplies of electricity in Guangdong province, the manufacturing hub of China, are predicted to fall short by an estimated 10 GW [DJS-Hour?]. In 2011 China was forecast to have a second quarter electrical power deficit of 44.85 - 49.85 GW.
• Nepal experienced a major energy crisis in 2015 when India imposed an economic blockade on Nepal. Nepal faced shortages of various kinds of petroleum products and food materials which severely affected Nepal's economy.
• The Gaza electricity crisis is a result of the tensions between Hamas, who rules the Gaza Strip, and the Palestinian Authority/Fatah, who rules the West Bank over custom tax revenue, funding of the Gaza Strip, and political authority. Residents receive electricity for a few hours a day on a rolling blackout schedule.
• 2019 California energy crisis

Emerging oil shortage

“Peak oil” is the period when the maximum rate of global petroleum extraction is reached, after which the rate of production enters terminal decline. It relates to a long-term decline in the available supply of petroleum. This, combined with increasing demand, significantly increases the worldwide prices of petroleum derived products. Most significant is the availability and price of liquid fuel for transportation.

The US Department of Energy in the Hirsch report indicates that “The problems associated with world oil production peaking will not be temporary, and past 'energy crisis' experience will provide relatively little guidance.”

Mitigation efforts

To avoid the serious social and economic implications a global decline in oil production could entail, the 2005 Hirsch report emphasized the need to find alternatives, at least ten to twenty years before the peak, and to phase out the use of petroleum over that time. Such mitigation could include energy conservation, fuel substitution, and the use of unconventional oil. Because mitigation can reduce the use of traditional petroleum sources, it can also affect the timing of peak oil and the shape of the Hubbert curve.

Energy policy may be reformed leading to greater energy intensity, for example in Iran with the 2007 Gas Rationing Plan in Iran, Canada and the National Energy Program and in the USA with the Energy Independence and Security Act of 2007 also called the Clean Energy Act of 2007. Another mitigation measure is the setup of a cache of secure fuel reserves like the United States Strategic Petroleum Reserve, in case of national emergency. Chinese energy policy includes specific targets within their 5-year plans.

Andrew McKillop has been a proponent of a contract and converge model or capping scheme, to mitigate both emissions of greenhouse gases and a peak oil crisis. The imposition of a carbon tax would have mitigating effects on an oil crisis. The Oil Depletion Protocol has been developed by Richard Heinberg to implement a powerdown during a peak oil crisis. While many sustainable development and energy policy organisations have advocated reforms to energy development from the 1970s, some cater to a specific crisis in energy supply including Energy-Quest and the International Association for Energy Economics. The Oil Depletion Analysis Centre and the Association for the Study of Peak Oil and Gas examine the timing and likely effects of peak oil.

Ecologist William Rees believes that

To avoid a serious energy crisis in coming decades, citizens in the industrial countries should actually be urging their governments to come to international agreement on a persistent, orderly, predictable, and steepening series of oil and natural gas price hikes over the next two decades.

Due to a lack of political viability on the issue, government mandated fuel prices hikes are unlikely and the unresolved dilemma of fossil fuel dependence is becoming a wicked problem. A global soft energy path seems improbable, due to the rebound effect. Conclusions that the world is heading towards an unprecedented large and potentially devastating global energy crisis due to a decline in the availability of cheap oil lead to calls for a decreasing dependency on fossil fuel.

Other ideas concentrate on design and development of improved, energy-efficient urban infrastructure in developing nations. Government funding for alternative energy is more likely to increase during an energy crisis, so too are incentives for oil exploration. For example, funding for research into inertial confinement fusion technology increased during the 1970s.

Kirk Sorensen and others have suggested that additional nuclear power plants, particularly liquid fluoride thorium reactors have the energy density to mitigate global warming and replace the energy from peak oil, peak coal and peak gas. The reactors produce electricity and heat so much of the transportation infrastructure should move over to electric vehicles. However, the high process heat of the molten salt reactors could be used to make liquid fuels from any carbon source.

2010s oil glut

Rather counterintuitively, the world economy has had to deal with the unforeseen consequences of the 2015-2016 oil glut also known as 2010s oil glut, a major energy crisis that took many experts by surprise. This oversupply crisis started with a considerable time-lag, more than six years after the beginning of the Great Recession: "the price of oil [had] stabilized at a relatively high level (around $100 a barrel) unlike all previous recessionary cycles since 1980 (start of First Persian Gulf War). But nothing guarantee[d] such price levels in perpetuity".

Social and economic effects

The macroeconomic implications of a supply shock-induced energy crisis are large, because energy is the resource used to exploit all other resources. Oil price shocks can affect the rest of the economy through delayed business investment, sectoral shifts in the labor market, or monetary policy responses. When energy markets fail, an energy shortage develops. Electricity consumers may experience intentionally engineered rolling blackouts during periods of insufficient supply or unexpected power outages, regardless of the cause.

Industrialized nations are dependent on oil, and efforts to restrict the supply of oil would have an adverse effect on the economies of oil producers. For the consumer, the price of natural gas, gasoline (petrol) and diesel for cars and other vehicles rises. An early response from stakeholders is the call for reports, investigations and commissions into the price of fuels. There are also movements towards the development of more sustainable urban infrastructure.

In 2006, survey respondents in the United States were willing to pay more for a plug-in hybrid car

 

Global New Investments in Renewable Energy

In the market, new technology and energy efficiency measures become desirable for consumers seeking to decrease transport costs. January 30, 2008 Planet Ark. Examples include:

• In 1980 Briggs & Stratton developed the first gasoline hybrid electric automobile; also are appearing plug-in hybrids.
• the growth of advanced biofuels.
• innovations like the Dahon, a folding bicycle
• modernized and electrifying passenger transport
• Railway electrification systems and new engines such as the Ganz-Mavag locomotive
• variable compression ratio for vehicles

Other responses include the development of unconventional oil sources such as synthetic fuel from places like the Athabasca Oil Sands, more renewable energy commercialization and use of alternative propulsion. There may be a Relocation trend towards local foods and possibly microgeneration, solar thermal collectors and other green energy sources.

Tourism trends and gas-guzzler ownership varies with fuel costs. Energy shortages can influence public opinion on subjects from nuclear power plants to electric blankets. Building construction techniques—improved insulation, reflective roofs, thermally efficient windows, etc.—change to reduce heating costs.

Crisis management

An electricity shortage is felt most acutely in heating, cooking, and water supply. Therefore, a sustained energy crisis may become a humanitarian crisis.

If an energy shortage is prolonged a crisis management phase is enforced by authorities. Energy audits may be conducted to monitor usage. Various curfews with the intention of increasing energy conservation may be initiated to reduce consumption. For example, to conserve power during the Central Asia energy crisis, authorities in Tajikistan ordered bars and cafes to operate by candlelight."Crisis Looms as Bitter Cold, Blackouts Hit Tajikistan". NPR. Retrieved 2008-02-10.

In the worst kind of energy crisis energy rationing and fuel rationing may be incurred. Panic buying may beset outlets as awareness of shortages spread. Facilities close down to save on heating oil; and factories cut production and lay off workers. The risk of stagflation increases.

2007 Russia–Belarus energy dispute

From Wikipedia, the free encyclopedia

https://en.wikipedia.org/wiki/2007_Russia%E2%80%93Belarus_energy_dispute 

 

Druzhba pipeline goes from Russia through Belarus to other European countries

The Russia–Belarus energy dispute began when Russian state-owned gas supplier Gazprom demanded an increase in gas prices paid by Belarus, a country which has been closely allied with Moscow and forms a loose union state with Russia. It escalated on 8 January 2007, when the Russian state-owned pipeline company Transneft stopped pumping oil into the Druzhba pipeline which runs through Belarus because Belarus was siphoning the oil off the pipe without mutual agreement. On 10 January, Transneft resumed oil exports through the pipeline after Belarus ended the tariff that sparked the shutdown, despite differing messages from the parties on the state of negotiations.

The Druzhba pipeline, the world's longest, supplies around 20% of Germany's oil. It also supplies oil to Poland, Ukraine, Slovakia, the Czech Republic, and Hungary.

Background

Oil pipelines in Europe and Northwestern Asia.

For a long time, the gas price for most of the former USSR republics was significantly lower than for the Western European countries. In 2006 Belarus paid only $46 per 1000 m³, a fraction compared to $290 per 1000 m³ paid by Germany. The annual Russian subsidies to the Belarusian economy were around $4 billion, as Russian president Vladimir Putin said on 9 January 2007. In 2006 Russia announced a higher price for 2007. After Alexander Lukashenko, President of Belarus, rejected this price change, and without a new treaty, Gazprom threatened to cut gas supplies to Belarus from 10:00 MSK on 1 January 2007. Both sides finally agreed on the following terms:

• Russian gas to be sold to Belarus for $100 per 1000 m³ (compared to Gazprom's original request of $200 per 1000 m³)
• Belarus to sell Gazprom 50% of its national gas supplier Beltransgaz for the maximal price of $2.5 billion 
• Gas prices for Belarus to gradually rise to the European market price by 2011
• Belarus's transit fees for Russian gas to increase by around 70% 

Another part of the energy dispute is the dispute over oil. In 1995, Russia and Belarus agreed that Russia would not impose any customs on oil exported to Belarus. In exchange, the revenues from this oil processed in Belarus would be shared by 15% for Belarus and 85% for Russia. In 2001, Belarus unilaterally canceled this agreement while Russia continued its duty-free exports. Lukashenko's state kept all the revenues, and many Russian oil companies moved their processing capacities to Belarus. On this arrangement, Russia also lost billions of dollars annually. Belarus imposed a tariff of US$45 per ton of oil flowing through the Druzhba pipeline, prompting Russia to claim that the move was illegal and to threaten retaliation, since it contradicts bilateral trade agreements and worldwide practice. Only imported or exported goods are being tariffed while transit goods are not objects of tariffing. Russia rejected paying the newly imposed Belarusian tariffs.

In compensation, Belarus began siphoning off oil from the pipeline. According to Semyon Vainshtok, the head of Russia's pipeline monopoly Transneft, Belarus had siphoned off 79,900 metric tons of oil since 6 January. Vainshtok said this was illegal and the move was made "without warning anyone." In response, Russia stopped oil transport on 8 January.

A Belarusian team led by Vice-Premier Andrei Kobyakov flew to Moscow on 9 January to pursue a solution but initially reported that they had not been able to start negotiations.

On 10 January, the Belarusian government lifted the tariff, and Russia agreed to start negotiations. The oil flow was resumed at 05:30 GMT on 11 January. In the wake of the dispute, Gazprom acquired 50% stake in the Belarusian gas pipeline operator Beltransgaz for 2.5 Billion USD.

August 2007 developments

Following the alleged violation of previous agreements and the failure of negotiations, on 1 August 2007 Gazprom announced that it would cut gas supplies to Belarus by 45% from 3 August over a $456 million debt. Talks are continuing and Belarus has asked for more time to pay. Although the revived dispute is not expected to hit supplies to Europe, the European Commission is said to view the situation 'very seriously'. Following overnight negotiations in Moscow, on 3 August, $190 million of the debt was repaid, and Belarus was given a further week to pay the remainder or face a 30% cut in supplies.

As of 8 August Belarus has fully paid its $460 million debt for Russian natural gas supplies, ending a dispute between the country and Gazprom [RTS: GAZP].

Related disputes

The situation is reminiscent of other recent price tensions between Russia, one of the world's energy superpowers, and other states since the start of 2005. These have resulted in increases in the prices paid for gas by Moldova (now paying US$170 per 1,000 cubic meter), Georgia (US$235 per 1,000 cubic meter) and Ukraine (following the 2006 Russia-Ukraine gas dispute, which also resulted in a 4-day cut to European gas supplies).| with Azerbaijan having recently stopped oil exports to Russia.

On 29 July 2006 Russia shut down oil export to Mažeikių oil refinery in Lithuania after an oil spill on the Druzhba pipeline system occurred in Russia’s Bryansk oblast, near the point where a line to Belarus and Lithuania branches off the main export pipeline. Transneft said it would need one year and nine months to repair the damaged section. Although Russia cited technical reasons for stopping oil deliveries to Lithuania, Lithuania claims that the oil supply was stopped because Lithuania sold the Mažeikių refinery to Polish company PKN Orlen.

Impact

All IEA member countries who are net oil importers have legal obligation to hold emergency oil reserves, which is equivalent to at least 90 days of net oil imports of the previous year. Furthermore, under the EU regulations there is obligation to hold reserves equivalent to 90 days of consumption, so unlike the gas dispute with Ukraine in 2006, consumers were not affected. Poland had an 80-day oil reserve. The Czech Republic reported drawing oil from its 100-day reserves. Had the dispute prolonged, it is likely that alternative supplies would have been secured. International oil prices were not significantly affected.

The involved countries have, however, expressed concerns about the reliability of the Russia-Belarus oil pipeline and Belarus as an oil middleman supplier.

The events have also provoked renewed discussion on the government policy of phasing out nuclear power in Germany.

Reaction

The European Union has demanded an "urgent and detailed" explanation, according to a spokesman for Energy Commissioner Andris Piebalgs.

Piotr Naimski, Poland's deputy economics minister who is responsible for energy security, stated "This shows once again that arguments among various countries of the former Soviet Union between suppliers and transit countries mean that these deliveries are unreliable from our perspective."

German Economy Minister Michael Glos stated that the dispute showed that "one-side dependencies must not be allowed to develop."

Following a meeting with European Commission President José Manuel Barroso in Berlin, German Chancellor Angela Merkel condemned the action, stating "It is not acceptable when there are no consultations about such actions". Commenting on the importance of trust in energy security, she said "That always destroys trust and no trusting, undisturbed cooperation can be built on that." Merkel continued by saying "We will certainly say to our Russian partners but also to Belarus that such consultations are the minimum when there are problems, and I think that that must become normality, as it would be within the European Union." Barroso said that "while there is no immediate risk to supplies, it is not acceptable" for such actions to be undertaken without prior consultation.