Analysis of the External Environment of the U.S. Oil and Gas Field Machinery and Equipment IndustryBani Iturriago FarfanDr. Shengsheng HuangMGMT 4308 – Strategy and Business Management14th December 2017Executive SummarySegmentation refers to the division of groups that have similarities between them; each division is called a segment. Each of these segments are groups that are or have similarities within them and from this it is possible to analyze which factors affect an industry. In the U.S. Oil and Gas Field Machinery and Equipment Industry the following six segments will be analyzed: Demographic, Economic, Political/Legal, Socio-Cultural, Technological, and Global. Not all the factors that affect each of these segments will be mentioned; only the ones that have a significant impact in the industry will be examined. In the demographic segment the drivers would be the rising or declining affluence, income level and geographic distribution of the population. In the Economic segment, the drivers are the price and the supply and demand in the industry. For the Political/Legal Segment the drivers are environmental laws, government regulations, and political conditions. In the Socio-Cultural segment the driver mentioned is the environmental protection. For the technological segment, the advances and innovation of the technology that drives the industry and finally for the Global segment, the driver are supply and demand and the geopolitical movements.General Environmental AnalysisThe focus of this general external environment will be the U.S. Oil and Gas Field Machinery and Equipment Industry. Most of the factors mentioned affect the industry locally, with some exceptions for segments that factors are from an international perspective. Demographic Segment Demographic factors help distinguish consumer groups. These factors are essential for segmenting consumption groups because they demonstrate changes in society which can be related to consumer’s wishes, preferences and product use rates. In the Oil and Gas Field Machinery and Equipment Industry the demographic factors that affect are: rising or declining affluence, income level and geographic distribution of the population. The first factor in this segment is the level of income, which can vary and modify in a certain way the industry. In the case of fuel, income is a factor because if the income of the population decreases, the demand will decrease, the opposite would happen if the income increases. The second factor is rising or declining affluence will dramatically impact the growth and change of the industry. The reputation of oil and gas company will also affect the business in the industry. That is why these companies try to maintain a good profile and demonstrate that they are social and environmental conscious. Lastly, the factor that is one of the biggest contributors to the oil industry is the geographical distribution of the population, which is the size and how distributed is the population, the more people, the more business there is. In other words, more work that means an economy with more movement. Economic Segment In the economic segment, the main factor that influences the US Oil and Gas machinery and equipment industries is the prices of crude oil. The growth of the USA oil and gas industry has become more evident with the large fluctuations in prices. In 2008, the price of crude oil reached a peak of $150 per barrel. Global demand at that time exceeded supply. The impact of the 2008 financial crisis sent the price back to down, but soon recovered due to insatiable demand from China. Then, in mid-2014, the price fell again. This coincided with the growing fear of a slowdown in the Chinese economy and with the boom in of the production of shale oil, which had caused net imports of oil and gas products in the US. Even with prices falling, OPEC members, led by Saudi Arabia, continued to produce at record levels. Their main objective was to protect the market share, but in reality they were trying to challenge the US shale oil industry, which had a much higher production cost. As a result of the overproduction, many of the drillers in the USA stopped their production. However, the technology continues to develop and the cost of shale oil production is decreasing, so the numbers relative to this sector in the USA they are increasing again. The trend for the economic segment is that the supply and demand of oil and gas are expected to rebalance, but more time will be needed for global overproduction to be reduced and for levels to return to normal stages.Political/Legal SegmentThe oil and gas machinery and equipment industry is influenced by factors in the political and legal segment. These factors are environmental laws, government regulations, and political conditions. The first factor in this segment is the environmental laws; these laws directly impact the oil and gas machinery and equipment industry because if the machines or procedures that are used to extract the oil are not in accordance with the environmental laws, the demand for these machines will come down, because companies need to comply with the law. The industry has to pay close attention to environmental laws to supply machines and equipment according to environmental regulations. The growth of the industry depends on the technological advances of the machinery and the search for a path that, without abandoning efficiency, avoids the increase in emissions of polluting gases due to their effects on climate change, such as storms, hurricanes, floods, waves of heat, among others, which are more frequent and intense, as well as the elevation of the temperature of the planet.The next factor is government regulations, it is directly related to the control that the government has over its soils (either on-shore or offshore). In the government lies the responsibility of granting permits on companies and ensuring that their actions are in accordance with the law and safeguard society. The trend is in accordance on how strict the laws become, if the companies have a hard time producing oil, the price would therefore increase. The last factor in this segment is the political conditions, this means, that depending on the government in due time the oil and gas industry will be affected. This is because the ease or difficulty of the laws depends on the government’s vision at the time. Especially in the United States where the political parties have a difference of thought regarding the oil and gas industry. The machine and equipment industry will be affected positively or negatively depending on this. Socio-Cultural SegmentThe sociocultural segmentation maintains within itself two types of subdivision of which, one is the social i.e. the social classes in which the people obtain their needs according to their economic position. And the cultural ones that are characterized by the type of customs, traditions and forms or models through which a society behaves. In the case of the U.S. Oil and Gas Field Machinery and Equipment Industry, the socio-cultural segment is influenced by the consciousness of environmental preservation. Nowadays, due to the easiness for the population to obtain information, people are more aware of the damage that the oil industry has had to the environment over the years. That is why; there are more and more activist groups that watch over environmental protection. These groups are against many of the practices of these companies, not only putting pressure to the companies themselves to change their practices, but also the government to establish more stringent regulations on oil and gas companies. These pressures to conserve the environment directly affect the oil and gas machinery and equipment industry since it is the first one that is affected by the supply and demand of its products.Technological Segment The technological segment plays the most significant role in the U.S. Oil and Gas Field Machinery and Equipment Industry. The technological developments impacted the USA economic segment for the oil and gas industry in a major way. These technological developments allowed the oil to be extracted from the shale, which benefited the production of crude oil in the country. The Oil and Gas Field Machinery and Equipment Industry began growing as a result of this and it also created a new scenario in the global oil and gas industry supply and demand. The technology aims to direct and drive the oil and gas companies to add value to the business value chain through innovation, knowledge and the development of competitive advantages. The scientific and research activity stimulates the constant generation of technological products that meet the needs of the business and materialize in methods, processes, products, equipment, tools and software, among others. Although there is technology in the US for the exploitation of the oil found in the deposits, the high costs of exploitation in addition to the high environmental impacts may be an obstacle to the development of their exploitation, given the levels of crude prices. Global SegmentAlthough it sounds a bit simplistic, the interaction between oil and gas and supply and demand is the most important factor that determines their prices. In fact, oil supply and demand tends to follow well-studied processes, with the fundamental premise that oil is a limited and exhaustive good. The supply in the oil and gas market is particularly linked to geopolitical movements. For example, in wars, the factor that determines a change in oil prices is not the change of supply but rather demand. This occurs as oil-importing countries sharpen world demand to increase their reserves; while supply tends to remain the same as a generalized disorder for political reasons (war) is very unlikely given the great geographical distance of the countries exporters. In the specific case of the offer, there are important factors such as the production, exploration, distribution and investment of oil fields, refineries, field machinery, equipment and services linked to the oil industry. Given the complexity of rapidly producing more oil, supply tends to be inflexible and pushing prices up, especially when the global oil sector is at full capacity because of excessive demand. This can and often has an influence on the investment of the oil sector, which in the medium and long term creates vicious cycles of supply and price. With respect to global demand, the factors with higher incidence tend to be economic growth, population growth, and substitutes for oil. In the first two cases the relationship is quite clear: the more an economy grows and the more population there is that requires oil, the more demand there will be. In recent years, this double growth has occurred mainly in developing countries. Similarly, when there an economic recession, the demand tends to be reduced and therefore the prices of oil go down. As has been said, the equation between supply and demand is very important. SummaryWith respect to the U.S. Oil and Gas Field Machinery and Equipment Industry all six segments are a major influence. The relationship between the factors in each of the segments was observed. Each of the segments plays a role, even if small in the next segment. The segments that were most associated were the economic, socio-cultural, political/legal, and technological segments. For example, in the economic segment, the technological advances in the U.S. played a major role in the industry. These technologies are closely related to the socio-cultural segment which is the need for environmental laws, which is where the political/legal segment takes place. In conclusion, although all the segments can be analyzed separately, together they make the industry run its course and continue to advance with the passage of time.