some strategic considerations on the location of

SOME STRATEGIC CONSIDERATIONS ON THE LOCATION OF ROAD CONVENIENCES

Liezle Marx-Froneman (94/0342/6)

Thesis

submitted in compliance with the requirements

for the degree

Doctor Commercii (Strategic Management)

in the

Department of Business Management

in the

Faculty of Economic and Management Sciences

at the

Rand Afrikaans University

JOHANNESBURG June 2003

Promoter: Prof N Lessing

TO WHOM IT MAY CONCERN 2003-07-01

This is to certify that I have edited the thesis of L Marx-Fronemann entitled, SOME

STRATEGIC CONSIDERATIONS ON THE LOCATION OF ROAD CONVENIENCES, for

language usage and technical aspects.

EM Lemmer

104 Charles St

Brooklyn 0181

email: lemmeemrciunisa. ac. za

L MARX-FRONEMAN Some strategic considerations on the location of road conveniences June 2003

ACKNOWLEDGEMENTS

My sincere appreciation and gratitude to my promoter Professor Nic Lessing for his

encouragement, inspiration and guidance during my thesis.

My sincere thanks and gratitude also goes out to the following parties:

My husband for his patience, understanding, support and encouragement during the

long hours spent on research.

My mother and father for their financial support and encouragement during both my

Masters as well as Doctorate degrees.

All the respondents who gave me their time and thereby enabled a clearer insight to be

gained in the competitive petroleum industry.

And most importantly, to God Almighty for supplying me with the necessary strength

and abilities.

ii


OVERVIEW OF DOCUMENT

PAGE

SYNOPSIS vii

SINOPSIS ix

LIST OF ACRONYMS AND ABBREVIATIONS xi

LIST OF FIGURES AND TABLES xiii

LIST OF EXECUTIVES WITH WHOM INTERVIEWS WERE CONDUCTED xvi

CHAPTER 1: ORIENTATION 1-1

CHAPTER 2: ROAD CONVENIENCES LOCATIONAL ANALYSIS:

A STRATEGIC APPROACH 2-19

CHAPTER 3: STRATEGIC CONSIDERATIONS:

MACRO ENVIRONMENT 3-75


MARKET ENVIRONMENT 4-141


MICRO ENVIRONMENT 5-195

CHAPTER 6: PRACTICAL GUIDELINES FOR THE PIRC OWNER 6-251

BIBLIOGRAPHY 282

iii


CONTENTS Page

Synopsis vii

Sinopsis ix

List of acronyms and abbreviations xi

List of tables and graphs xiii

List of executives with whom interviews were conducted xvi

CHAPTER 1 ORIENTATION 1-1

1.1 Background 1-2

1.2 Statement of the research problem 1-5

1.3 Research objectives and components of study 1-9

1.4 Research methodology and constraints 1-14

1.5 Closure 1-18

CHAPTER 2 ROAD CONVENIENCES LOCATIONAL ANALYSIS: A STRATEGIC APPROACH 2-19

Synopsis 2-20

2.1 Introduction 2-21

2.2 Overview of South African Petroleum Industry 2-22

2.3 Locational analysis 2-31

2.4 Strategic management approach 2-52

2.5 Closure 2-74

iv


CHAPTER 3 STRATEGIC CONSIDERATIONS: MACRO ENVIRONMENT 3-75

Synopsis 3-76


3.2 Composition of the macro environment 3-86

3.3 Technological environment 3-88

3.4 Economic environment . 3-101

3.5 Socio-cultural environment 3-114

3.6 Physical environment 3-122

3.7 Political-governmental/Institutional environment 3-125

3.8 International environment 3-135

3.9 Closure 3-138

CHAPTER 4 STRATEGIC CONSIDERATIONS: MARKET ENVIRONMENT 4-141

Synopsis 4-142


4.2 Composition of the market environment 4-144

4.3 Consumers 4-155

4.4 Competitors 4-162

4.5 Intermediaries 4-175

4.6 Suppliers 4-176

4.7 SWOT analysis: market environment 4-180

4.8 Closure 4-193


CHAPTER 5 STRATEGIC CONSIDERATIONS: MICRO ENVIRONMENT 5-195

Synopsis 5-196


5.2 Vision and mission of the micro environment 5-198

5.3 Micro environment and its management 5-209

5.4 Micro environment and its resources 5-219

5.5 Micro environment business culture 5-228

5.6 Distinctive competencies of the micro environment 5-229

5.7 Closure 5-249

CHAPTER 6 PRACTICAL GUIDELINES FOR THE PIRC OWNER 6-251

Synopsis 6-252


6.2 What PIRGs need to consider 6-254

6.3 Obtaining a sustainable competitive advantage 6-257

6.4 Tactics to realign a PIRGs strategy 6-266

6.5 Key decisions for a PIRC 6-275

6.6 Closure 6-279

BIBLIOGRAPHY

282

vi


SYNOPSIS

NAME: Marx Froneman L

DEGREE: DCom (Strategic Management) [Thesis]

TITLE: Some strategic considerations on the location of

road conveniences

UNIVERSITY: RAU

PROMOTER: Prof. N Lessing

DATE: June 2003

The South African Petroleum Industry is very competitive and is vital to the economic

growth of the country. It is the basis for much of the nation's productivity, from keeping

national transport flowing to producing products and services. The South African

Petroleum Industry Association (SAPIA) was formed to further matters of common

interest amongst competitive providers of Petroleum Industry Road Conveniences

(PIRCs), and to promote good ethics, high industrial standards, competent governance

and effective communications within the industry.

PIRCs are distributed on most South African roads. This study emphasises and

focuses on the location of PIRCs on national routes only. Various factors and theories,

which influence the location of a PIRC, are analysed by means of a literature study,

personal investigation and practical experience. Attention is given to the physical and

legal aspects, which can influence the location of a PIRC. Thereafter, the macro,

market and micro considerations are discussed. Particular attention is given to Porter's

Five Forces of Competitiveness and the value chain.

Synopsis vii


Some strategic considerations are formulated to serve as a basis for decision-making

on the location of a future PIRC, whereby a concept investigation framework is set up

to facilitate decisions with regard to location decisions.

Location plays a critical role in the future and profitability of establishing a PIRC. The

three key determinants (micro, macro and market environments) are identified as

having a significant impact of strategic considerations on the location of road

conveniences.

It is found that PIRGs are distribution channels, designed and located to fulfil the needs

of travellers/customers. To ensure the profitability of a future PIRC, the location site

must be accessible, costs must be minimised and relocation must be avoided.

The findings of this study serve as a source of reference for potential owners of PIRCs,

who are attempting to formulate and implement a strategy within a context that is best

described as being uncertain, complex and subject to continuous change. To

conclude, a specific action plan and guidelines are formulated to practically implement

general strategic considerations on location.

Synopsis viii


SINOPSIS

NAAM: Marx Froneman L

GRAAD: DCom (Strategiese Bestuur) [Proefskrif]

TITEL: Some strategic considerations on the location of

road conveniences/ Strategiese oorwegings vir die

vestigingsplek vir verskaffers van padgeriewe

(Proefskrif in engels voorgele)

UNIVERSITEIT: RAU

PROMOTOR: Prof. N Lessing

DATUM: Junie 2003

Die Suid-Afrikaanse petroleum bedryf is baie mededingend en is noodsaaklik vir die

ekonomiese groei van die land. Dit dien as 'n basis vir die land se produktiwiteit, en is

nie net verantwoordelik vir die gladde vloei van nasionale vervoer nie, maar ook vir die

basiese produksie van goedere en dienste. Die Suid-Afrikaanse Petroleum Industrie

Assosiasie (SAPIA) was gestig om enige verdere gemeenskaplike belange tussen

mededingende PIPG Verskaffers (Petroleum Industrie Pad Geriewe Verskaffers) en om

die groei etiek, hoe standaarde in die bedryf te bevorder en te handhaaf, goeie bestuur

en goeie kommunikasie te verseker.

PIPG is versprei dwarsoor Suid Afrika se paaie. Die doel van hierdie studie fokus slegs

op die vestigingsplek van PIPGe op nasionale paaie. Verskeie faktore en teorieo, wat

wel die vestigingsplek van 'n moontlike toekomstige PIPGe kan beInvloed, word

ontleed in die literatuurstudie, personlike ondersoeke en praktiese ondervindinge.

Aandag word gevestig op die fisiese en wetlike aspekte, wat wel die vestigingsplek van

Sinopsis ix


PIPGe kan beinvloed, asook die volgende aspekte van makro; mark- en mikro-

omgewings in aggeneem en voorspellings oorweeg word.

Moontlike strategiese oorwegings word geformuleer om as 'n basis te dien vir moontlike

besluitneming op die vestigingsplek van 'n toekomstige PIPG, asook 'n konsep

navorsingsraamwerk opgestel word om besluite te fasiliteer met die oog op

vestigingsplekke.

Vestigingsplekke speel 'n kritiese rol in die toekoms en winsgewendheid van die

oprigting van 'n PIPG. Drie uitstaande determinante word geidentifiseer wat 'n

betekenisvolle impak uitoefen op die strategiese oorwegings op die vestigingsplek van

pad geriewe, binne 'n globale besigheids omgewing, naamlik die mikro, makro en mark

omgewings.

Dit is duidelik dat PIPGe distribusie kanale is, wat ontwerp en gevestig is om in die

behoeftes van padverbruikers te dien. Om die winsgewendheid van 'n toekomstige

PIPG te verseker, moet die vestigingsplek toegangklik wees, kostes moet

geminimaliseer word en verskuiwings van vestigingsplekke totaal en al vermei word.

Die bevindinge van hierdie studie dien voorts as 'n verwysingsbron vir verdere

navorsing vir eienaars van PIPGe, en poog om strategies te formuleer en implementeer

binne die strategies in die omgewing wat as onseker, kompleks en onderworpe aan

voortdurende veranderinge geassosieer kan word. Om op te som, 'n spesifieke aksie

plan word geformuleer om die praktiese strategiese oorwegings en riglyne te

implementeer.

Sinopsis

L MARX-FRONEMAN

Some strategic considerations on the location of road conveniences June 2003

LIST OF ACRONYMS AND ABBREVIATIONS

Abbreviation Expansion

Explanation

Head of business enterprise who directs operations

The total value of final goods and services produced within the boundaries of a country

A trade union looks after the interests of labour it does not supply labour

Disadvantaged South Africans in the period up to 1994

Responsible for the international petroleum industry environmental conservation projects

Government body created in 1995 to maintain and develop South Africa's 7 000km national road network and to manage assets with an estimated value of R135 billion

All organisations to unify and co-ordinate the petroleum policies of the 12 major oil producing and exporting countries that comprise its membership

Petrol station situated on a national road which supplies convenience products and services to meet the needs of customers

Indication of the performance of a capital investment

The association formed to further matters of common interest amongst competing oil companies within the industry

CEO

Chief Executive Officer

GDP

Gross Domestic Product

COSATU Congress of South African Trade Unions

HDSA Historically Disadvantaged South Africans

IPIECA International Petroleum Industry Environmental Conservation Association

NRA

National Roads Agency

OPEC

Organisation of Petroleum Exporting Countries

PIRC

Petroleum Industry Road Convenience

ROI

Return on Investment

SAPIA

South African Petroleum Industry Association

List of acronyms and abbreviations xi


SARMC South African Refining & An association that represents the Marketing Companies common interests of the petroleum

refining and marketing industry in South Africa, and promotes an understanding of the industry's contribution to economic and social progress with all stakeholders

List of acronyms and abbreviations xii


LIST OF FIGURES AND TABLES

PAGE

Figure 2-1: Strategic analysis for a PIRC 2-24

Table 2-2: Convenience stores offer wide variety of convenience products 2-28

Figure 2-3: Supply-side and demand-side factors in location decisions 2-34

Figure 2-4: Four factors deserve careful consideration in determining a good location for a PIRC 2-42

Figure 2-5: Porter's Generic Strategies 2-56

Figure 2-6: The Five Forces Model of Competition 2-61

Figure 2-7: Building blocks of competitive advantage 2-70

Figure 2-8: Determinants of National Competitiveness Advantage; Porter's Diamond 2-72

Figure 3-1: The external and internal environments of PIRGs 3-79

Table 3-2: Composition of the macro environment 3-80

Figure 3-3: Factors that improve productivity in the world economy 3-95

Figure 3-4: Levels of social responsibility 3-120

Figure 3-5: Managerial political strategies 3-129

Figure 3-6 The political system and its functions 3-134

List of figures and tables


Table 4-1: Major product market shares — petrol percentages 4-149

Table 4-2: Major product market shares — diesel percentages 4-149

Table 4-3: Petrol price breakdown 4-151

Table 4-4: Diesel price breakdown 4-152

Table 4-5: Marketing of petroleum activities return 4-153

Figure 4-6: The consumer buying behaviour 4-159

Table 4-7: Capacity of South African refineries 4-178

Table 4-8: South African refineries 4-178

Table 4-9: SWOT analysis: what to look for in sizing up a PIRC's strengths 4-183

Table 4-10: SWOT analysis: what to look for in sizing up a PIRC's weaknesses 4-185

Table 4-11: SWOT analysis: what to look for in sizing up a PIRC's opportunities 4-187

Table 4-12: SWOT analysis. what to look for in sizing up a PIRC's threats 4-190

Table 5-1: The nine essential components of a mission statement for a PIRC 5-208

Table 5-2: Three levels of planning for a PIRC 5-211

Figure 5-3: Different levels of management in a PIRC 5-216

Figure 5-4: The main activities and subactivities of human resource

management 5-221

List of figures and tables xiv


Figure 5-5: A fundamental motivation model

Table 5-6: Motivational theories

Table 5-7: Maslow's hierarchy of needs

Figure 5-8: The Porter-Lawler extension of expectancy theory

Figure 6-1: The sustainable competitive advantage

Figure 6-2: Strategic thrusts

5-233

5-236

5-237

5-242

6-258

6-263

List of figures and tables xv


LIST OF EXECUTIVES WITH WHOM INTERVIEWS WERE

CONDUCTED

Interviews were conducted with the following executives in order to gain an

understanding as to strategic considerations on location:

NAME POSITION PIRC PROVIDER/OWNER

BARNARD, D OWNER PIRC owner: Umvoti

BASSON, D OWNER PIRC owner: Three Sisters

DRUMGOOLE, C EXECUTIVE PIRC provider

FRIEDERICK, E EXECUTIVE PIRC provider

KING, R OWNER PIRC owner: Estcourt

LINGENFELDER, R OWNER PIRC owner: Colesberg

MAKASI, W OWNER PIRC owner: Midrand

MARX, PA OWNER PIRC owner: Middelburg

McCLLELAND, C EXECUTIVE SAPIA

RADEBE, M EXECUTIVE PIRC provider

VAN NIEKERK, P OWNER PIRC owner: Kimberley

VENTER, W OWNER PIRC owner: Worcester

Note:

The Company names of the PIRC owners and providers may only be divulged to the

examiners of this thesis, as they have requested to remain anonymous.

List of executives with whom interviews were conducted xvi

L MARX-F RONEMAN Some strategic considerations on the location of road conveniences June 2003

CHAPTER 1 ORIENTATION

PAGE

1.1 BACKGROUND 1-2

1.2 STATEMENT OF THE RESEARCH PROBLEM 1-5

1.3 RESEARCH OBJECTIVES AND COMPONENTS OF STUDY 1-9

1.4 RESEARCH METHODOLOGY AND CONSTRAINTS 1-14

1.4.1 Literature study 1-14

1.4.2 Internet 1-15

1.4.3 Interviews 1-16

1.4.4 Limitations of the study 1-17

1.5 CLOSURE 1-18

Chapter 1: Orientation


CHAPTER 1: ORIENTATION

"Starting a franchise outlet in the wrong location is like opening a water

sports shop in the Karoo. It just cannot work"

Ebersohn 2002:4

1.1 BACKGROUND

South Africa is the leading economic power in Africa as well as a key player in the

African oil industry (Mbendi 2000a:Internet). The history of the oil industry in South

Africa goes back to early 1884, when the first oil company (name of company not

disclosed) was established in Cape Town. The industry has grown and matured since

then. Today the country processes approximately 20 million tons per annum of crude

and consumes 23 million tons of liquid fuel products, of which 45 percent is gasoline

and 26 percent diesel (Mbendi 2000a:Internet).

The petroleum industry is vital to the economic growth of a country. The South African

Petroleum Industry Association (SAPIA) was formed in July 1994. The aim was to

further matters of common interest amongst competing oil companies and to promote

competitiveness within the industry. The founding members of South Africa's Refining

and Marketing Companies (SARMC) were:

BP Southern Africa (Pty) Ltd.;

Caltex Oil (SA) (Pty) Ltd.;

Engen Petroleum Ltd.;

Shell South Africa (Pty) Ltd.;

Total South Africa (Pty) Ltd.;

Zenex Oil (Pty) Ltd.

Zenex Oil (Pty) Ltd. is no longer an independent SAPIA member since it has become

part of Engen Petroleum Ltd. During 2000, two companies joined SAPIA, namely Sasol

Ltd. and Tepco Petroleum (Pty) Ltd. In 2001, the only new member that joined SAPIA

Chapter 1: Orientation 1-2


was Mossgas (SAPIA 2001:Intemet). With the formation of PetroSA (Pty) Ltd. in 2002,

PetroSA replaced Mossgas as a member. Tepco Petroleum (Pty) Ltd. became part of

Shell South Africa (Pty) Ltd. during 2002 (Mbendi 2003:Internet). SAPIA aims to

represent the common interests of the petroleum refining and marketing industry in

South Africa, and to promote understanding of the industry's contribution to economic

and social progress with all stakeholders (Mbendi 2000a:lnternet).

SARMC represents the common interests of the petroleum refining and marketing

industry in South Africa, and promotes an understanding of the industry's contribution

to economic and social progress with all stakeholders (SAPIA 2001:Intemet). SAPIA

operates under a Board of Governors drawn from the SARMC. The mission of SAPIA

is "... to do all it can to assist the industry to deliver petroleum products to the South

African economy at world competitive prices. It is deeply aware of the need to make

South Africa a competitive nation and of the role that liquid fuels availability and cost

will play in achieving this target" (SAPIA 2001:Internet).

The biggest challenge facing the South African Petroleum Industry is that it is becoming

more and more competitive. In South Africa there are well established PIRCs

(Petroleum Industry Road Conveniences) to meet the needs of customers and boast

the widest geographical spread.

PIRCs are distributed on the country's national routes and include sites with

convenience stores on several highways. The emphasis of this study is placed only on

PIRCs on national routes. PIRCs are dedicated to provide not only information for

road-travel in South Africa but are also committed to making travellers' road trip safer,

more reliable, more informative and fun, thereby providing a vast network of

conveniently located service stations across South Africa. PIRCs are located on major

national routes, and are named the following: BP Express, Caltex Star Stop, Engen

One-Stop, Exel, Shell Ultra City, Tepco and Total Petroport.

For many of the above PIRC providers the selection of a location is a one time

decision, made only when the business is first established or purchased. Too often this



critical issue is dealt with in an overly superficial manner by both PIRC owners and

PIRC providers. PIRC owners, due to their inexperience in business, often blindly trust

the opinions of their PIRC providers. Some PIRC providers, on the other hand, rely

almost completely on PIRC owners to find their own locations. A PIRC can only be

successful if three components are in place according to Ebersohn (2002:4), namely

the offering or opportunity, the operator and lastly and most importantly, the site.

Ebersohn (2002:5) further argues that "... as much as 80% of the success of a

business can be attributed to the site. Great care and effort must be put into its

selection. Selecting a location is neither easy nor simple." Finding a suitable location

requires an in-depth demographic study of the proposed site. A mistake can lead to

financial disaster.

Frequently, however, a business considers relocation, but PIRC owners need to avoid

this costly option. The lasting effects of location decisions are of extreme importance.

Once a business is established, it is costly and often impractical, if not impossible, to

pull up stakes and move. If the decision on location is particularly poor, the business

may never be able to get off the ground, even with adequate financing and superior

management ability. The choice of the geographical location for the premises of PIRCs

is of extreme importance, and could even be a crucial factor. The petroleum industry

oil companies and the future owner of a PIRC should jointly decide on the location in

considering the following: the location factors, business environment (including the

micro, macro and market environments) and management process.

An investigation of the potential site for a PIRC will reveal its good and bad features

and consequently refer to the four key factors of Longenecker et al. (1997:215). The

factors in the investigation process are: personal preference, customer accessibility,

environmental conditions and resource availability. These critical factors should be

considered when choosing a site for a PIRC. While business opportunities exist in all

geographical areas, the strengths and weaknesses of those areas must be evaluated

(Longenecker et al. 1997:215).



According to Cronje et at (2000:60) "... an organisation is an integral part of its

environment and its management should therefore adopt a policy of organisational

Darwinism to ensure its business does not become extinct in a rapidly changing world

in which only the fittest can survive."

A business environment consists of three distinct environments, namely micro

environment, market environment and macro environment. Hellriegel & Slocum

(1996:91) argued that for all organisations the critical environment constraints are their

actions in relation to the competitors in the industry. When changes occur in the

market environment that affect any competitor, the consequence will be that the key

players in the industry will require some degree of adaptation.

The research problems to be addressed in this study are discussed in the next section.

1.2 STATEMENT OF THE RESEARCH PROBLEM

There is a very strong incentive to create an ideal business environment for road

conveniences, not only on a macro level but also micro and market level, which should

also be socially responsible. Socially responsibility means that the business should

constantly consider the consequences of its decisions and actions on the society in

which the business operates (Cronje et aL 2000:86). Social responsibility of a business

is a topic of many media reports and debate in South Africa. For the contemporary

manager to perform business effectively, a thorough knowledge and application of

these concepts are necessary.

Social responsibility is a broad term highlighting the need for responsibility in many

divergent spheres of businesses, such as poor working conditions or increase in

inflation. The crux of social responsibility is, however, the insistence of the community

that a business should in every respect be a good corporate business. In a future

South Africa such pressure will intensify and may even result in nationalisation, which is

the ultimate form of social insistence on the redistribution of wealth (Cronje et at

2000:6).



Business organisations, such as PIRCs, should constantly consider the consequences

of their decisions and actions. Social responsibility can be described as follows: "Just

as a large company seeks to conserve its assets and conserve its future survival by

reinvesting part of its profits, so it could seek to conserve and improve the social

environment in which it does business, in the hope that it will be able to continue to do

business in the future, preferably in a better environment than it has at present"(Cronje

et aL 2000:87).

The social responsibility of PIRC providers, has certain marketing benefits for sponsors,

such as the Arrive Alive campaign (year of establishment not disclosed) on national

routes. Since the launch of the Arrive Alive as the lead campaign for the promotion and

enforcement of road safety and road-user responsibility in South Africa, road fatalities

have fallen by an average of 7,4 percent (Transport 2001:Internet).

The decision-makers' role on the location of PIRCs involves the development of

interpersonal relationships and the gathering and analysing of information. According

to Griffin (1996:649), a location of an enterprise is the u... physical positioning or

geographic site of facilities and it must be determined by the needs and requirements of

the organisation". The location for a potential site should be convenient for customers

and have profitable growth potential (Thompson & Strickland 2001:14). Ebersohn

(2002:5) argues that a demographic study to determine the location for a PIRC is

essential. PIRC providers should not save on start-up costs by avoiding a professional

demographic study.

Business managers evaluate and choose strategies that they think will make their

business successful. Businesses become successful because they possess some

advantage relative to their competitors (Pearce & Robinson 2000:294). Franchise

brands buy trust from customers and more than one franchise brand in a convenience

location, increases the value of the location (Ebersohn 2002:5).


MARX-FRONEMAN Some strategic considerations on the location of road conveniences June 2003

Owners of PIRCs may be regarded as entrepreneurs who use information at their

disposal to achieve positive changes in the form of a new product or idea, or

restructuring of businesses and also knowing how to deal with solving problems.

Each PIRC needs to function as an environment in which various events and variables

influence its activities. These events could present opportunities or they could present

threats. It is essential for every PIRC to be aware of variables and events as these can

have a fundamental effect on the day-to-day activities of Road Conveniences. The

primary importance for these businesses are the opportunities and threats they face

that are essential for the growth and continued existence of the future of businesses

such as PIRCs. The impact, which a business environment has on.a business, plays a

significant role in its future success. "Business depends on the environment in which it

operates, on the one hand, and the environment in which the business operates

depends on the business to satisfy its needs on the other (Cronje et al. 2000:35).

More and more PIRCs are entering the market in South Africa, and many are struggling

to survive, as competition grows stronger. Customer service becomes of overriding

importance in an environment in which PIRCs try to survive and compete with one

another. A PIRC will have to learn more about marketing of services offered, by

providing fast, efficient, and convenient customer services and also needs to establish

a differential advantage that will ensure long-term survival.

A strategic analysis involves both an external analysis (the analysis of the customer,

competitors, market and environment) and an internal analysis (which includes

performance analysis, the analysis of strategically important organisational

characteristics and portfolio analysis).

Ebersohn (2002:6) states that starting a new PIRC at the wrong location is too often a

critical issue that is dealt with in an overly casual and superficial manner. The perfect

location varies from sector to sector, making it impossible to point out any spot and

pronounce it as being perfect. What works for some businesses may not work for

others.



The !acetonel analysis of a business is normally challenged by formidable problems,

because the geographic location is fixed. In real estate, there are three factors that

influence the value of the property, namely location, location and location. Lord Sieff,

the head of the United Kingdom based 'Marks and Spencer' retail organisation voiced

"There are three important things in retailing — location, location and location" (Slack et

al. 2001:159).

The reason why location is so significant is that geographically it cannot be changed.

Although the economic value can change, due to external circumstances such as the

introduction of a nearby toll road, the construction of a highway, or the erection of or

building of a highway in vicinity, and changing the overall attractiveness of the

immediate vicinity. In the case of PIRC providers the problem is more complex. Apart

from the normal business considerations on location, there is an added dimension,

namely the location has to cope with the convenience and road safety of the road user

as well.

PIRGs are located on national routes and therefore it means there are restrictions on

location. The key location players are, PIRC owners, managers and providers

determine the location for a new PIRC and there is no gentleman's agreement between

the different key players. However, because of a new regulation by the Department of

Transport stipulating that the distance between the PIRGs should be at least 12

kilometres, a suitable location might not be obtained.

The research problem can be summarised as follows:

Because location plays a critical role in the future and profitability of establishing a

PIRC, owners are inevitably placed under pressure to be successful and they need to

know how to meet the challenges. To maintain a competitive advantage over rivals,

strategic considerations need to be devised for locational analysis and, in order to do

this an action plan must evolve from the strategic considerations.

All the above mentioned elements will have an effect on the location of a future PIRC.



1.3 RESEARCH OBJECTIVES AND COMPONENTS OF THE STUDY

The primary objective of this research is to identify possible strategic

considerations on the location of a PIRC, which will give it a competitive

advantage over other PIRGs.

This study sets out a specific action plan and guidelines, which are formulated to

implement practically the general strategic considerations on location. The following

research objectives have been established in order to discover some strategic

considerations on the location of road conveniences. For the purpose of this research,

the following objectives are set:

Objective 1: Gain conceptual clarity and provide an overview of locational analysis on

road conveniences, by pursuing a strategic approach to obtain a

competitive advantage and the strategic implications thereof.

Objective 2: Create an awareness of the impact that the macro environmental

determinant has on the formulation and implementation of a strategy for

the location of road conveniences.

Objective 3: Explore the impact of the market environmental determinant on the

formulation and implementation of a strategy for the location of road

conveniences.

Objective 4: Acquire an understanding of the influences, which the micro

environmental determinant has on the formulation and implementation of

a strategy for the location of road conveniences.

Objective 5: Emphasise the importance of a locational analysis and a competitive

advantage; to provide a practical framework, with reference to the insights

gained in realising the preceding objectives, for the implementation of

strategic considerations in the location of road conveniences.



The research document and its chapters have been aligned with the support of the

research objectives. Attention is given to the fulfilment of the specific research

objectives in the chapters of the study. The components of the study are divided in six

chapters and are influenced by both the research objective as well as the intended

research methodology.

Objective 1: To conduct an overview of locational analysis: a strategic approach

for a Road Convenience to obtain a competitive advantage (Chapter 2)

1.1 Explanation of the objective

The purpose of locational analysis is to achieve competitive advantage within rivalry.

According to Porter (in Pearce & Robinson 2000:86), the nature and degree of

competition in an industry hinge on five competitive forces, namely; the threat of new

entrants, the bargaining power of customers, the bargaining power of suppliers, the

threat of substitute products and services, and the jockeying among current

contestants.

To follow a proactive approach for strategic market management implies that, rather

than merely detecting and reacting to change, a PIRC anticipates or even creates

change. In this approach the strategy development process is driven by dynamic

characteristics of the micro, macro and market environments. The critical strengths

and weaknesses clarify the areas where strategic changes may yield the greatest

payoff, and indicate where industry trends promise to hold significance as either

opportunities or threats. An understanding of this area is critical in order to determine

future opportunities and threats for PIRCs in a competitive industry.

1.2 Points included in the chapter to achieve the objective

Chapter 2 serves as an introduction to the study of strategic management within

competitive rivalry. To provide an overview of the locational factors, the petroleum

industry's business environment and the implementation of a strategic approach must

be considered.

Chapter 1: Orientation I-10


The location decisions for a PIRC represent an integral part of the strategic

management process. Chapter 2 deals with the issues of road conveniences and

location for these PIRCs. This chapter specifically deals with:

evaluating the importance of PIRGs;

analysing the various factors and theories which influence the location of PIRGs on

national routes;

understanding the changes and developments affecting the petroleum industry;

evaluating the objectives and reasons for locational analysis;

the consideration and evaluation of the forces for competitive advantage over rivals.

Objective 2: To determine some strategic considerations for the location of Road

Conveniences on the macro-environment (Chapter 3)


The external environment variables constitute the uncontrollable external forces in the

environment operating at times in the macro environment and are referred to as

megatrends. Contemporary literature on management divides the macro environment

into six variables, namely - technological, economic, social, physical, institutional and

international factors. This environment presents PIRGs with opportunities, threats and

constraints. The changing megatrends in the business environments can also be

caused by macro variables.


Chapter 3 provides strategic considerations on businesses that operate within a wider

macro-environment containing variables that directly or indirectly exert an influence on

the business. It deals with the macro environment issues of PIRGs and specifically

covers:

evaluating the macro environment of PIRCs;

analyses the various variables and theories which influence the changes in the

macro environment of PIRGs.

Chapter 1: Orientation


Objective 3: To determine some strategic considerations for the location of Road

Conveniences on the market-environment (Chapter 4)


The market environment (also called the task environment) is encountered "outside"

and "inside" the business. The strategic considerations for the location of PIRCs are

explored in the market environment from a strategic perspective. The variables of the

market environment give rise to particular opportunities and threats. Management has

therefore no control over the market environment, but may influence the variables

concerned through strategy.


Chapter 4 deals with the issues of the market environment of PIRGs. In this

environment all the variables become relevant for every business, since they determine

the nature and strength of competition in any industry. The variables discussed in this

environment are consumers, competitors, intermediaries and suppliers. This chapter

specifically deals with what extent the external/macro environment will influence the

planning of PIRC owners in respect of future decisions. Threats of new entrants,

suppliers, buyers, product substitutes, and the intensity of rivalry among competitors

directly influence a PIRC and its competitive actions and responses.

Objective 4: To provide some strategic considerations for the location of Road

Conveniences on the micro-environment (Chapter 5)


By studying the internal (micro) environment, PIRGs determine what they can do. The

objective is to acquire an understanding of the micro environment and explore the

strategic considerations for the location of PIRGs in this environment.


Chapter 5 deals with the business itself. The variables discussed in this environment

are the vision, mission and strategic objectives, the action plans of the business, the



various functions of management, and the resources of the business that are under the

direct control of management. They will influence the market environment through the

strategy that it employs to protect, maintain or increase its share of the market.

Businesses may apply a marketing strategy in which pricing and advertising can be

employed to increase the market share. A proper matching of what a PIRC can do with

what it might do allows the development of strategic intent, a strategic mission and

formulation of strategies. Strengths and weaknesses are used in the positioning of the

PIRC in relation to its environment.

Objective 5: To emphasise the importance of locational analysis in creating

competitive advantage; to provide a practical framework for implementation on

some strategic considerations in the location of road conveniences (Chapter 6)


From the preceding discussions, this study concludes with a summary of findings

drawn from the study. Final conclusions are made with regard to all objectives set for

this study. Special attention is given to location factors, and how to obtain competitive

advantage over other PIRCs. Recommendations are also made with the view of further

research.


Chapter 6 provides management with meaningful strategic information, which can be

helpful in decision-making purposes, whereby PIRGs will gain competitive advantage.

According to Porter (2002:39), in order to be competitive and to survive, a business

such as a PIRC can gain a competitive edge over its rivals in the market by adopting all

the following strategies: overall low-cost leadership, differentiation, and business focus.

Provide a strategy development which involves gathering information analysing the

strategic context, precipitating strategic decisions, developing strategic implementing

plans outside the planning cycle, and introducing concepts, models and methods that

are useful to the strategy development process.



Mintzberg (in Smit & Cronje 1999:164) suggests that past strategy strongly influences

current strategic choices. Conclusions from this chapter are vital outflows of the study

and they were drawn from the research findings. The recommendations of this final

chapter outline the additional areas of inquiry, based on the results of the research.

Finally, research and other conclusions will be stated, closing remarks made and any

possible remaining uncertainties will be pointed out.

1.4 RESEARCH METHODOLOGY AND CONSTRAINTS

The relevance of the study, in determining the location of a PIRC is a scientific

research. Cooper & Schindler (1998:13) define scientific research as " ... a systematic,

controlled, empirical, and critical investigation of natural phenomena guided by theory

and hyemperical, and critical investigation of natural phenomena guided by theory and

hypotheses about the presumed relations among such phenomena." Both the terms,

systematic and controlled in the above definition refer to the degree to which the

observations are controlled and alternative explanations of the outcome are ruled out.

Divergent research methods were incorporated to ensure the reliability and scientific

validity of the study.

1.4.1 Literature study

"A review of literature is aimed at contributing towards a clearer understanding of the

nature and meaning of the problem that has been identified."

De Vos et al. 2002:127

Mouton (2001:87) points out that "The literature review encapsulates much more than

just reviewing the literature, in fact literature review refers to a scrutiny of all relevant

sources of information." The background, overview of road conveniences, location and

strategic considerations thereof are based on a study of a wide variety of literature.

This includes scientific books, articles in professional journals, research reports, the

Internet, newspapers and magazines.



The term Strategic Management is theorised in many different ways in modern

literature. Strategic management should be used by top management to obtain a

continuing long-term planning process in which management identifies and implements

the various action plans, to keep up to date with the different changes in the modern

business world.

The models and methods covered in this study include customer research, scenario

analysis, competitor strengths, technology forecasting, interviewing experienced

strategists, value chain analysis and customer based competitor identification.

Sources utilised were textbooks as well as managerial, financial and industry-related

magazines and journals published locally and abroad. The literature study forms a

major component of this study and plays an important role in the achievement of all the

objectives.

The information knowledge portals: Mbendi. The source, Mbendi, is an information

system search portal. This is only a search information system and many sources were

obtained from the Mbendi information system. Mbendi is not an author and although

there are many references to Mbendi, it is only because the author is unknown.

The primary focus of this study is centred on strategic considerations for the suitable

location of PIRGs. Literature study is undertaken to gain a sound theoretical

understanding of the concepts, issues and management practices involved. The

theoretical foundation established during the literature research forms a frame of

reference for the empirical study.

1.4.2 Internet

In the past, scientific communication occurred largely by means of journals and books.

With the advent of the Internet an information explosion has occurred serving as a lively

sounding board of research. According to Gaiters (1996:320) "The Internet not only

saves much time, but it also serves as an information service that is available day and

night, with an unlimited number of books and resources that can be researched over an



unlimited period of time." The Internet should not be seen as a substitute for traditional

forms of literature review, but rather a means of making new and recent information

available expeditiously.

The importance of the Internet cannot be over emphasised in the pursuit of satisfying

the hunger for information and knowledge. The Internet is the greatest, fertile

repository of answers and information ever created by humankind. It comprises the

main source of information on the petroleum industry.

1.4.3 Interviews

Interviewing is the predominant mode of data or information collection. Seidman

(1998:1) states that "... one interviews because one is interested in other people's

stones. Stories are a way of knowing. The root of the word 'story' is the Greek word

bistorc which means one who is wise and learned and telling stories is essentially a

meaning-making process." Thus every word that people use in telling their stories is a

microcosm of their consciousness.

Interviews are interactional events and interviewers are deeply and unavoidably

implicated in creating meanings that ostensibly reside within participants (Holstein &

Gubrium 1995:3). Both parties, the researcher and participant are thus necessarily and

unavoidably active and involved in meaning-making work. Morse (1991:61) refers to

conversation rather than an interview, as conversation implies a discussion and

captures the attitude of the interaction. The conversation, like the interview, has a

central focus but is not one-sided. Interviewing the participant involves description of

the experience, as well as reflection on the description.

The personal and telephonic interviews were conducted with PIRC owners and

executives of PIRC providers in order to gain an understanding, as to the location of

potential PIRCs and their profitability. The interviews where conducted on a semi-

structured basis, utilising the insights gained from the literature study as a frame of

reference for conducting the interview. Raw facts through interviews, document

searches, observations and research are used in the study. Interviews were conducted



with members of top management from the SARMC petroleum industry, such as the

managing directors of PIRC providers and owners of PIRCs. The interviews were

essentially conducted on an informal but semi-structured basis with the accent on

flexibility. It was imperative to contact the people who are responsible for deciding on

the location of future PIRCs.

The strategic considerations on the location of a PIRC is deemed to be a sensitive

issue in the competitive petroleum industry. The researcher is therefore dependent on

their goodwill and PIRC owners and executives, brand names may only be divulged to

the examiners of this thesis. All PIRC owners and executives were guaranteed

confidentiality, as they requested that their brand names remain anonymous.

1.4.4 Limitations of the study

The limitations of this research are mainly based on the following facts. Firstly, the

availability of some critical information represented one of the most significant

obstacles to the research. Secondly, the complex nature of the topic being studied

presents a limitation. In theory, verification of the research could be achieved through

interviews (inputs derived from industry experts). Thirdly, the confidentiality of

information of the study from PIRC providers, regarding locational factors, who were

reluctant to co-operate. A substantial portion of the location factors could be

constructed from the information that was available from industry experts, and the

application of fact-based methodology. These inputs were combined to obtain the

findings and conclusions.

Participants of various PIRC providers and PIRC owners were, however, not asked to

divulge sensitive information, but to respond to questions on more general superficial

research basis, based on their past experience The study only focuses on PIRCs

situated on national routes, which were actively involved before 31 May 2003. The

information presented is reliable, accurate and scientific in order for it to be useful to

PIRC owners and PIRC providers for selecting a location.

Chapter 1: Orientation I -17

L MARX-FRONEMAN


1.5 CLOSURE

Some useful general rules that apply to the location of PIRCs are high visibility, good

accessibility, parking and an uncluttered and large signage space. The objectives

formulated for this study all culminate in providing insights into finding a suitable

location for a PIRC.

PIRGs of the future will have to be flexible and willing to use themed merchandise if

they are to continue to lure customers. The location of a PIRC is the integral part of the

business and customers visit a PIRC because of where it is, rather than what it looks

like.

PIRC providers and PIRC owners need to decide on the location, which will be a

convenient for customers to visit in and collect a few items, and provide customers with

excellent service at the pump. A PIRC needs to identify the critical factors that are

required to remain competitive, and one critical factor that determines whether the

PIRC is competitive is its location. This is crucial in determining how much trade and

higher or lower value lines are carried. A successful PIRC needs to stay ahead of

competition and location plays a big part in the success of a future PIRC. The

researcher's vision is that this study can be used for the selection process of a location

for a PIRC, in order to enable the PIRC to maintain a competitive advantage in a very

competitive petroleum industry.



CHAPTER 2: ROAD CONVENIENCES LOCATIONAL ANALYSIS: A STRATEGIC APPROACH

CONTENTS PAGE

SYNOPSIS 2-20

2.1 INTRODUCTION 2-21

2.2 OVERVIEW OF SOUTH AFRICAN PETROLEUM INDUSTRY 2-22

2.2.1 The business environment 2-23

2.2.2 SAPIA members 2-25

2.2.3 Petroleum Industry Road Conveniences (PIRG) 2-27

2.2.4 South African Roads Agency 2-29

2.3 LOCATIONAL ANALYSIS 231

2.3.1 Objectives of the location decisions 2-32

2.3.2 The importance of location 2-40

2.3.3 Reasons to consider for location 2-41

2.3.4 Levels of the location decision 2-48

2.4 STRATEGIC MANAGEMENT APPROACH 2-52

2.4.1 Generic strategies 2-54

2.4.2 Five forces analysis 2-59

2.4.3 Planning for competitive advantage 2-69

2.5 CLOSURE 2-74

Chapter 2: Road conveniences locational analysis: a strategic approach 2-19


SYNOPSIS

One of the most important decisions for a PIRC is to determine the physical location of

the business. It is the most crucial factor and least flexible element of strategy for many

businesses.

The place of establishment of a PIRC must contribute to the optimal performance of the

business. The decision as to where to establish the PIRC is extremely important if the

business wishes to be successful. Decisions cannot be based merely on emotion or

made haphazardly. The PIRC must first consider certain factors thoroughly before

deciding on a location. A PIRC must consider all the locational factors, micro, macro

and market environments and implement a strategic approach to be successful, when

choosing location. The location decisions for a PIRC represent an integral part of the

strategic management process.

Chapter 2 deals with the issues of Road Conveniences and location for these PIRCs,

considering a strategic approach.

More specifically the chapter deals with a number of different dimensions relating to the

location of a PIRC, namely;

evaluate the importance of road conveniences;

analyse the various factors and theories which influence the location of a PIRC on

national routes;

understand changes and developments affecting the petroleum industry;

understand the reasons for locational analysis;

understand and evaluate the forces for competitive advantages over rivals.

Collectively, the above-mentioned focus areas support objective 1 (as described in

chapter 1), namely to provide an overview of locational analysis: a strategic

approach for a Road Convenience to obtain a competitive advantage.



2.1 INTRODUCTION

"Each business has its own ideal place of establishment and each place of

establishment has its own cost and income implications that will affect the efficiency

of the establishment°.

Le Roux et at 1999:65

Longenecker et at (1997:207) assert choosing a location is a one-time decision for

many businesses, made only when the business is first established or purchased.

Frequently, however, a business considers relocation to reduce operating costs, getting

closer to its customers, or gaining other advantages. Longenecker et at (1997:207)

argue "The lasting effects of location decisions are what make them so important"

Once a business is established, it is often too costly and impractical, if not impossible

for the business to pull up stakes and move argues Longenecker et at (1997:207). If

the choice of location is particularly poor, the business may never be able to get off the

ground, even with adequate financing and superior managerial ability.

The lasting effects of location decisions are what make them so important. The choice

of location is much more vital to some businesses than to others. The site chosen for a

PIRG can make or break the business because it must be convenient for customers.

Location is the most crucial factor and least flexible element of strategy for many

businesses. Evaluation of prospective locations requires analysis of strategic

compatibility, accessibility, legal considerations and economic factors (Bearden et al.

2001:331). Thompson & Strickland (2001:202) make the remark that "A company's

potential for gaining competitive advantage based on where it locates its activities or

being at a disadvantage because rivals have lower-cost locations is a matter of

considerable strategic concern." The differences in wage rates, worker productivity,

inflation rates, energy costs, tax rates, government regulations and the like create

sizeable variations in costs from region to region. Some regions have cost advantages

because of lower input costs, especially with regard to labour, relaxed government

regulations or unique natural resources. In such regions, the low-cost businesses have

competitive advantage over rivals with sites in regions where costs are higher.



Thompson & Strickland (2001:202) argue that "The quality of a business environment

also offers locational advantages — the government is anxious to attract foreign

investments and go all out to create a business climate that outsiders will view as

favourable."

PIRCs are a vast network of conveniently located service stations across South Africa,

on major national routes, and are involved in customer service, where travellers can

spend time to refresh and relax for a safer, more leisurely journey. Wilkons (2002:6)

comments that "If you don't give customers at the pump excellent service, they won't

utilise the shop or restaurant"

This chapter examines the issues of road conveniences and establishing the location

for PIRCs to obtain a competitive advantage. It begins with a brief overview of the

importance, objectives and reasons that a PIRC must consider when making location

decisions, the nature of these decisions and a general procedure for developing and

evaluating strategies to obtain competitive advantage over rivals.

2.2 OVERVIEW OF SOUTH AFRICAN PETROLEUM INDUSTRY

"Rigged is the best word to describe the petroleum industry world-wide. And rigged it is

in South Africa too, tied up in regulations, with assets in the hands of a club of

petroleum companies oligopolists."

Addison 2001:39

The petroleum industry is vital to economic growth to the country and is the basis for

much of the nation's productivity (Mbendi 2001a:Internet). The chairperson of the

Parliamentary Committee on Minerals and Energy, Mr. Duma said that "... in

development of our energy industries we must ensure that jobs are created,

opportunities are opened up for small business, and that previously disadvantaged

South Africans are given extensive opportunities in ownership and management'

(Mbendi 2001b:lnternet). The major petrol markets are in the Gauteng area of South

Africa, and companies with easy access to this region from their petrol stations are at a

strategic advantage (Mbendi 2000a:lnternet).



The South African Petroleum Industry is in the throes of transformation from the

industry that served the apartheid era of secrecy and boycotts to a model more in line

with the democratic and economic needs of the new South Africa (Mbendi

2000a:lnternet). Petroleum is primarily marketed through PIRG Providers in South

Africa (Mbendi 2000g:lnternet).

2.2.1 The business environment

"If you do not know where you are going, you might end up somewhere else."

Stengel (in Aaker 2001:18)

"A company that succeeds in tomorrow's uncertain world will have a special kind of

leader."

Furphy 2002:87

When reviewing the business environment, it is patently evident that the future is not

merely an extension of the past. Pretorius (2001:10) states that "Yesterday's success

won't guarantee tomorrow's profits." The only reality to face is that the business world

today has changed forever. When one looks at South Africa today, perhaps now for

the first time, Pretorius (2001:11) contends a... we are not experiencing the new South

Africa but the real South Africa, because in the past, we had our own version of the

Berlin Wall — Apartheid. Today that Wall has disappeared and we are exposed to all

our country's stark realities."

According to Pretorius (2001:10), the characteristics of the current business

environment are:

it is ever changing, fast moving and complex;

it is very similar to what is happening internationally;

it is volatile, very sensitive to international and local turmoil;

it is ultra competitive because of global competition and local deregulation;

it is being affected to a greater degree by the power of information technology and

the Internet;

customers want it all, and staff members have high expectations;

there is a deluge of new entrants and opportunities every day;

the challenge is to become globally competitive or perish.



The South African business environment has become more competitive. Figure 2-1

shows an overview of the external analysis and internal analysis that provide the input

to strategy development, and the set of strategic decisions that is the ultimate output for

a PIRC.

Figure 2-1: Strategic analysis for a PIRC

STRATEGIC ANALYSIS FOR A PIRC CONSIST OF: EXTERNAL ANALYSIS

(Chapter 3: macro: chapter 4: market environments)

Customer analysis: Segments, motivations, unmet

needs.

1

Competitor analysis: Identity, strategic groups,

performance, image, objectives, strategies, cost structure.

i Market analysis:

Size, projected growth, profitability, entry barriers, trends, key success

factors.

Environmental analysis: Technological, institutional

(governmental), economic, cultural, physical, international, scenarios.

INTERNAL ANALYSIS

(Chapter 5: micro environment)

Performance analysis:

Profitability, sales, customer satisfaction, product quality, brand

associations, relative cost, new products, employee capability and

performance, product portfolio.

Determinants of strategic options:

Past and current strategies, strategic problems, organisational

capabilities and constraints, financial resources and constraints

strengths, and weaknesses.

OPPORTUNITIES, THREATS AND

STRATEGIC STRENGTHS, STRATEGIC UNCERTAINTIES

WEAKNESSES, PROBLEMS,

N

CONSTRAINTS & UNCERTAINTIES

STRATEGY IDENTIFICATION AND SELECTION: Chapter 6: Conclusions and recommendations on the location of PIRCs

Identify strategic alternatives and select strategy Implement the operating plan Development, evaluation and implementation of business strategies

Source: Compiled from own research



2.2.2 SAPIA members

SAPIA was formed to further matters of common interest amongst competing

petroleum companies and to promote, within the industries, good ethics, high industrial

standards, good governance and good communication (Mbendi 2001a:Intemet).

Despite the differences among members of SAPIA and the strong competitive spirit,

they are in agreement on the key issues that affect South Africa and the petroleum

industry. SAPIA supports the adapting liquid fuel regulations, moving into an era of

less regulation. Government's desire is to ensure that a part of the petroleum industry

is owned by Historically Disadvantaged South Africans (HDSA) (Mbendi

2001c:Internet). SAPIA believes that while regulation of fuel prices and margins

continues, it is important not only to combat rising fuel prices, but also to enable fair

returns for refineries, marketers and retail dealers (owners of PIRGs) to enable

maintenance and development to take place (Mbendi 2001c:Internet).

Maule (chairperson of SAPIA) says that the member companies of SAPIA are pleased

and privileged to be part of a new way of delivering transformation and growth in an

industry, which not only provides fundamental inputs into the South African economy,

but also makes a major contribution to the development, growth, value creation and

employment (Mbendi 2001c:Internet).

SAPIA's main objectives in the petroleum industry are as follows (Mbendi

2001d: I nternet):

SAPIA's mission is to do all it can to assist the industry to deliver petroleum

products at world competitive prices;

SAPIA seeks to achieve its mission by fostering amongst its members a desire to be

a world class petroleum industry, and encouraging co-operation between members

on matters such as inhibiting competition;

SAPIA seeks to promote and encourage consultation among members, government

and other organisations on matters of mutual and public interest;



SAPIA represents the petroleum industry in national and international forums and

acts as a source of information on the industry as a whole.

In mid 2000, the Government, the dealer organisations and SAPIA embarked on a

media information campaign to ensure public awareness of the Monthly Pricing

System. According to the director of SAPIA, Mr C. McClelland (Mbendi

2001e: Internet), "SAPIA believes that the increased level of understanding by the public

of the factors that influence the prices of petroleum products has been beneficial in that

consumers have reacted to price changes with pragmatism. Nevertheless, high pump

prices have dampened demand and volumes sold have declined in many sectors."

In an environment in which margin on sales are regulated, it is important that the

mechanisms be fair to all. This means that returns should be adequate to encourage

the required level of investment in the petroleum industry, but not so high as to

prejudice the consumer.

The mechanisms should also encourage efficiency and relate returns and prices to

world markets. The Government White Paper on Energy (Mbendi 2001e:lnternet) has

stated clearly that regulation by Government will remain in place until the empowerment

of HDSAs has been achieved. The South African White Paper on Energy recognises,

therefore, that the petroleum industry has to:

remain internationally competitive;

supply quality products at internationally competitive prices;

maintain appropriate health, safety and environmental status;

extend ownership within the industry to the HDSA.

(BP 2001:Internet)

According to SAPIA's director, McClelland, SAPIA accepts this view, but for

transformation to be sustainable it is therefore imperative that the regulatory system

develops fair prices, stability and fairness for consumers and all other parties involved.


L MARX-F RON EMAN Some strategic considerations on the location of road conveniences June 2003

2.2.3 Petroleum Industry Road Conveniences (PIRC)

"Floating along the highway, the petrol stations often seem as nice havens in the

wasteness, breaking the monotony of driving with their signs beckoning you to stop by

for some food or petrol on the way"

Festoy 2002:Internet

PIRGs are vast networks of conveniently located service stations on major national

routes. Marx (2002:Interview) comments that "... with fast efficient service, the

customer will be back on the road quickly, when on a tight schedule, will spend time to

refresh and a more leisurely journey"

Petrol stations have been in South Africa for a long time, but the role of the petrol

station has changed from just offering petrol and basic car maintenance services to

now becoming a catering point for many different needs. PIRGs today are service

centres selling fresh food, gifts, and petroleum products. The competition among

different petroleum companies increases the need for huge glaring signs, with a visible

design on national routes (Festoy 2002:Internet).

"Like sands through the hourglass, so are the days of our lives", famous words from the

American soap opera. Nonetheless, the saying holds true for many in the convenience

food industry, which is constantly expanding and evolving. The emphasis in many

households has shifted from cost to time as the premium asset, with limited time

available for food preparation and eating. These aspects fuel the demand for meals

that are easy to prepare. Moagi (2002a:23) says that today's generation is growing up

in an environment were it is driven by convenience, and expanding choices allow

consumers access to wider product ranges and refinement of likes and dislikes.

Siegel (1996:313) acknowledges that road conveniences "... make the products and

services available at convenient times." A PIRC is open 24 hours a day making it more

convenient for customers travelling on national routes. A convenience store must be

located in a convenient place where consumers can enter and leave rapidly.



Wilkons (2002:6) argues that customers these days expect a whole range of services

when they stop at a road convenience. "Finding ATM, lotto and airtime at the same

place as their bread and milk is what customers want, and if you are not offering these

services, you may just find your valued customers going somewhere else."

Convenience stores such as PIRCs are constructed on national routes such as BP

Express, Engen One Stops, and Shell Ultra Cities. Convenience stores can be seen as

quick-service eateries specialising in "one-handed" food items, which you can eat with

one hand while driving with the other. Convenience stores provide a wide variety of

convenience products as indicated in table 2-2.

Table 2-2: Convenience stores offer wide variety of convenience products

Convenience

products

Description

Basic product • easily accessible, familiar and frequently purchased products

Competitive prices • affordable prices

Outlets • convenience stores & widespread distributions throughout

national routes

Essential products • include bread, milk, toilet paper, snacks & petroleum products

Impulse products • include candy bars, chewing gum, tabloid newspapers

Emergency

products

• include baby nappies, camera films, road maps, wake-up alert

tablets, candles in stormy weather and umbrellas


PIRCs features may include different fast food options, shopping, Internet and courier

facilities. On the Internet side, the service can include a high tech interactive route

planner, on-line access to traffic reports and news and weather information geared to a

traveller's need. The level of service from the forecourt through the shop must be of a

high standard and promotional activity and advertising campaigns should keep the

customers coming in.



According to Bearden et al. (2001:183) convenience products are "... items consumers

do not want to spend much time shopping for. Buyers of convenience products

typically want to make a quick purchase at the most convenient location. Although they

may prefer a specific brand, they will buy something else if that brand is not available."

As indicated in table 2-2 they range from essential products to products bought on

impulse or in an emergency.

Customers need to know the service that is offered at a PIRC. Word-of-mouth, in store

signage. Posters and signs outside the store, media advertising, and flyers will spread

the word. Wilkons (2002:6) says that customers will go out of their way to frequent

convenience stores that offer what they need. The ATM is becoming an essential

addition to PIRGs. "The profitability of today's retail industry depends on customer

traffic and customer spend. This is achieved by having money available where and

when the customer needs it" (Wilkons 2002:6).

2.2.4 South African Roads Agency

The South African Roads Agency was established in April 1998 by Act 7 of 1998 . of

Parliament as an independent statutory company in co-operation with the Minister of

Transport (Transport 2002:Internet). According to Nazir Alli, CEO of the NRA (National

Road Agency), "the most significant change to the role of government in roads, other

than regulating and policy making, is that of apportioning financial risk to the party best

able to deal with it" (Transport 2002:Internet).

The purpose of the NRA is "... to maintain and develop South Africa's 7 000 km

National Road Network and to manage assets with an estimated value of more than

R135 billion" (Transport 2002a:lnternet). The NRA has the following principal tasks:

strategically plan, design, construct, operate, rehabilitate and maintain South

Africa's national roads;

deliver and maintain a world class primary road network to South Africa;

generate revenues from the development and management of its assets;

undertake research and development to enhance the quality of South Africa's roads;

advise the Minister of Transport on matters relating to South Africa's roads;



upon request from the Minister of Transport and in agreement with a foreign

country, to finance, plan, construct, acquire, provide, operate and maintain roads in

the country.

The NRA mission is to be sensitive to needs of the country, within its financial capacity.

The NRA will provide and manage a sustainable National Road Network, which

reduces the cost of road transport and promotes economic growth and the quality of life

(Transport 2002:Internet).

The road user's pay principle is now a well-known concept on major limited-access

national roads. The concept has facilitated the private sector for funding on totally

commercial grounds, and not only for the initial construction of the roads but for their

ongoing maintenance, which exceeds the initial construction cost over the life span of

the road. According to the NRA (Transport 2002:Internet), there have been two types

of toll roads in South Africa since 1995:

state toll roads: are funded through loans with a government guarantee;

private sector-financed and maintained toll roads: these are operated by private

sector companies through a Concession Agreement with the NRA in respect of

each toll road.

The NRA faces the challenge of managing its substantial portfolio as well as raising the

necessary finance to expand the road network. It will have to seek and consider new

funding instruments in order to procure the funds it needs on the most favourable terms

possible in the future. In view of the improved security available from known sources of

revenue, the NRA will look increasingly to the private sector for investment capital in

South Africa's road transport infrastructure and will rely less on government (Transport

2002:Internet).

The NRA will maintain close relationships with those industries, which have a stake in

the planning, and provision of national roads. It will need to be sensitive to the needs of

road users and the economic development that emanates from road infrastructure.



2.3 LOCATIONAL ANALYSIS

"Location is the physical positioning or geographic site of facilities, it must be

determined by the needs and requirements of the business"

Griffin 1996:649

"Location is the geographical positioning of an operation relative to the input resources,

other operations or customers with which it interacts"

Slack et al. 2001:159

Slack et at (2001:159) maintain that not all businesses can logically justify its location.

Some locations are for historical reasons and others are "there because they're there".

The assumption is that the cost and disruption involved in changing location can

outweigh any potential benefits of a new location.

The location of a PIRC, which is in a product and service orientation industry, needs to

be in a high traffic count area. There are, however, some general rules that apply to

almost all businesses. High visibility, good accessibility, parking and an uncluttered

and large signage space are always useful. Ebersohn (2002:4) states that "Finding the

right location for a business is both a science and an art that can take years to master."

Siegel (1996: 315) states that "... where a store is located determines what consumers

will be drawn to it"

For decades people engaged in new business development have said that the value of

a place is a product of three factors: location, location and location (Czinkota et at

1996:24). Learning the location and characteristics of other places has always been

important to those interested in conducting business outside their local area.

Assessing the role of location requires more than simply determining specific locations

where certain activities take place.

Le Roux et at (1999:54) make the remark that "... the geographic location are markets

in all parts of the country, the markets in the metropolitan areas are more concentrated.



Larger markets with a wider variety of products and services are found in and around

the cities. Urbanisation and the depopulation of the rural areas have a direct influence

on the demographic distribution of market

The choice of geographical location for premises is of extreme importance for all kinds

of businesses, argues Cronje et at (2000:41 & 42) and depending on the nature of the

proposed product or service that is to be offered, the owner should decide whether the

business needs to be located near its market, near its sources or near its competitors.

Siegel (1996:313) states that when considering a location, "... ensure that the location

is appropriate, safe and convenient."

There are many factors that influence location decisions and it often happens that one

or a few reasons are so important that they dominate the decision. In service

businesses such as PIRCs, the possible dominating factors are market-related and

include traffic patterns, convenience and competitors' locations, as well as proximity to

the market. Once the most important reasons have been determined, a PIRC will try to

narrow the search for suitable alternatives to one geographic location.

2.3.1 Objectives of the location decisions

"Selecting a location is neither easy nor simple and when making a mistake on location

it can lead to disaster."

Alberts (in Ebersohn 2002:4)

"A franchise can only be successful if three components are in place."

Ebersohn 2002:4

The three components according to Ebersohn (2002:4) are the offering or opportunity,

the operator and lastly and most importantly, the location of the site. As much as 80

percent of the success of a business can be attribute to the location of the site. Great

care and effort must be put into its selection says Alberts (in Ebersohn 2002:4).



According to Stevenson (1996:359), it would seem that all businesses attempt to

identify the 'best' possible available location, however this is not necessarily the case.

In many circumstances where no single location may be significantly better than others,

there may be numerous acceptable locations from which to choose. The number of

possible locations that would have to be examined to find the best location for a

business, may be too large to make an exhaustive search practical. Consequently, it is

not the intention of identifying the 'one best' location, but rather hoping to find a number

of acceptable locations from which to choose, and to avoid choosing a location that will

create future problems.

The location decision's aim is to achieve an appropriate balance between the three

related objectives, in the view of Slack et aL (2001:161) namely:

the spatially variable costs of the operations (something changes with geographical

location);

the service the operation is able to provide to its customers;

the revenue potential of the operation.

When considering the decisions for location of a PIRC, there are a number of factors to

consider, which are concerned with minimising spatially variable costs and maximising

revenue and customer service. In this regard the location of PIRCs will have an effect

on the following factors:

Variable costs: the costs of the PIRC will probably be greatly affected by location;

Maximising revenue: the location of a PIRC will affect the revenues significantly;

Customer service: for most of the products offered by PIRGs, the customers may

often not care very much where the products were made.

Slack et aL (2001:161) argue that the location decision for any service industry

business is determined by the relative strength of the supply side and demand side

factors.


L MARX-FRONEMAN


Figure 2-3: Supply-side and demand-side factors in location decisions

SUPPLY-SIDE FACTORS

vary in such a way as to influence cost as location

varies

Labour costs Land costs Energy costs Transportation costs Community costs

Source: Adapted from Slack et at 2001:161

The supply-side influences the location decisions according to Slack et at (2001:161-

164). They are the following:

i) Labour costs

"Many retailers do not have a conscious and comprehensive salary and wage policy."

Nicolaou 2002:14

The costs of employing people with particular skills can vary among different areas in

any region. The labour costs exert a major influence on the location decision. Labour

costs are primary considerations and relate to the cost and availability of labour, wage

rates in an area, and labour productivity. Attitudes toward work ensure there are good


DEMAND-SIDE FACTORS

The business

vary in such a way as to influence customer

services/revenue as location varies

Labour skills Suitability of site Image Convenience for customers (e.g. speed and dependability)


people available at the right times and that the best use is made of those people to

optimise productivity.

"Benefits act as great incentives to get the most out of workers" (Nicolaou 2002:14).

PIRCs should consider benefits and incentives forming part of the total remuneration

package. Furthermore, it is important that the remuneration package should include

the following:

Annual bonuses: a bonus may become a norm expected by many employees as

part of their remuneration. Regardless of performance, annual bonuses

increasingly provide little or no incentive for the extra amount of work and care from

employees. Nevertheless, PIRCs should take special care in accordance with the

seniority of a position, and if possible, take into account the productivity of that

person.

Incentive bonuses: incentive bonuses are different from annual bonuses in the

sense that they depend on results and can be attached to the PIRC turnover,

profitability standards being maintained and other important criteria that determine

the success of a PIRC.

Pay increases: PIRCs need to consider the impact of inflation on employee's

salaries and wages and should therefore give increases accordingly.

Insurance: Besides the compulsory workmen's compensation insurance, PIRCs

should consider additional insurance for staff doing hazardous jobs.

Pension funds and medical aid funds: these funds are available through major

insurance companies as well as through local chambers of commerce.

Meals: "It is has been found, that where PIRCs introduce a free meal system,

productivity improves, shrinkage declines, and staff morale increases" (Nicolaou

2002:14).



Unifor ►sfieave/UIF: these are all costs that have to be budgeted for and added into

the cost of employing people. Staff require at least two sets of uniforms each.

Leave pay is compulsory under wage determination. Unemployment insurance is a

must for every PIRC and it is imperative to keep correct records.

Overtime: The bigger the PIRC, the easier it is for overtime to get out of hand. It

seems that overtime is an incentive to do overtime for the pay and not necessarily to

do more work. A PIRC needs to find the right balance between running cost-

effective labour timetables and maximising the productivity of individuals, which can

only result from a close look at how and when workers are paid (Nicolaou

2002:14&15).

Land costs

A relevant factor in choosing a location is the cost itself. Therefore land and rental

costs and acquiring costs vary between areas, especially when considering a location

both sides of the highway on national routes.

Energy costs

When a business uses large amounts of energy, it can also influence the location

decision by the availability of relatively inexpensive energy.

Transportation costs

The transportation costs for PIRGs can be considered in the following two parts:

cost of transporting inputs from their sources to the site of the operation;

cost of transporting goods for the customer to the site.

Transportation costs are considered a supply-side factor, because as location changes,

transportation costs will also change. For example, the proximity to sources of supply

dominates the location decision where the cost of transporting the petroleum to the

PIRC is very high or difficult.



v) Community factors

The community factors are those that influence the costs of PIRGs and are derived

from the social, political and economic environment of the site. These factors include

the following:

Local tax rates

Taxes can also affect the location of a PIRC and can play a role in location decisions.

Capital movement restrictions

PIRGs need to pay attention to profits in order to survive in this competitive industry.

Political stability

The period preceding 1994, South Africa had to function within a relatively isolated

context due to sanctions imposed on the country. With the political democratisation of

South Africa, the country entered a new era, one that could best be defined by Weeks

(2002:10) "... in terms of a very turbulent and highly competitive global business

environment."

Local attitudes to 'inward investment'

If competition is weak a PIRC can maintain market share and grow with less advertising

support. This approach increases the Return on Investment (ROI). Where there is

competition, the brand not only needs outstanding advertising, but also needs to be

supported by above average spending.

Language

Local people in an area sometimes do not speak English and therefore cannot

communicate fluently with customers.

Local amenities

For the loyal customers, the useful place of service is an elusive concept. Farquhar

(2002c:40) comments that competition is increasingly driving the customer to look for

value. PIRGs should work towards making shopping a pleasant experience.



History of labour relations and behaviour

The Employment Equity Act requires designated companies to submit reports annually

or bi-annually on staff members (Singh 2002:31). Designated companies are those

employing 50 persons or more, and whose annual turnover is equal to or greater than

the figures listed in Schedule 4 of the Act, per economic sector (Singh 2002:31).

Environmental restrictions and waste disposal

Weeks (2002:11) states that As environmental instability increased and it became far

more difficult to predict the future with any degree of certainty, so the concept of

strategic management evolved to remain relevant in a changing business environment "

Planning procedures and restrictions

The success or failure of a PIRC is often determined by the number of players located

in an area, therefore planning procedures and restrictions are very important.

The above community factors have a direct impact on the profitability of a PIRC. For

example, the local tax rates play an important part in the location decisions of a PIRC.

Other factors such as language spoken in the area, may not have many cost

consequences but can in practice prove to be very important.

According to Slack et a/. (2001:165), the demand-side influences are the following:

Labour skills

The local labour force abilities can have an effect on customer reaction to the products

or services which the PIRC delivers. PIRCs have to promote the development and best

use of the local labour force and encourage the involvement of workers. Marx

(2002:Interview) maintains that staff must be encouraged to take responsibility for their

jobs and believes that motivating staff is extremely important.

The suitability of the site itself

The suitability of PIRC sites has intrinsic characteristics, which can affect the ability to

serve customers and generate revenue. PIRCs want to win and maintain customers,



by offering customers value in terms of price, quality, safety and environmental impact.

These days, customers expect a whole range of services when shopping at a PIRC.

Finding an ATM, lotto and airtime at the same place as their bread, milk and petrol is

what customers want, and if a PIRC does not offer these services, the valued customer

may go somewhere else. Two factors need to be considered before a final decision is

made concerning a PIRC. Firstly, will the service which the PIRC offers, add value to

customers? Secondly, does it make good business sense? A PIRC needs to establish

that both the customer and business of the road convenience will benefit from the

value-added service and products they offer.

Image of the location

Some locations are firmly associated in customers' minds with a particular image or

brand loyalty. According to Cronje et at (2000:202) the brand loyalty is, "... when

consumers showing loyalty to certain brands, is the result of good product quality,

proven value and repeated marketing communication. A brand that does not meet

consumer demands runs the risk of losing the battle against competing brands, and

one not introduced properly will remain unknown." A PIRC with brand loyalty

consumers, who insist on the specific brand and refuse to accept a substitute product,

will make it difficult for competitors to gain a foothold in the petroleum industry.

Convenience for customers

For PIRCs, the convenience for customers is, of all the demand-side factors, the most

important one. The location has a significant effect on the ability of the PIRC

operations to serve its customers effectively. It determines the effort to which

customers have to go in order to use the PIRC. Customers need to know what

products and services are being offered by a PIRC. Word of mouth, in-store signage

as well as posters and signs outside a store of a PIRC, media advertising and flyers

can spread the word. Wilkons (2002:6) asserts that "Customers go out of their way to

frequent convenience stores that offer what they need."

Therefore, an assumption that can be made is that value-added services add value to a

customer of a PIRC. Slack et al. (2001:159) stated that location decisions determine



the relative strengths of supply side and demand side factors as indicated in figure 2-2.

Wilkons (2002:7) asserts that "By listening to your customers and asking them what

they want, you will be able to offer value-added services that make a difference to the

lives of your customers."

2.3.2 The importance of location

"It has becoming harder and harder to find prime locations at affordable rentals. To

track them down and be successful is hard to find."

Vile 2002:35

Comparing the view of Slack et aL (2001:159) with that of Bearden et at (2001:331),

and Stevenson (1996:358), it emerges that "There are three important things in retailing

— location, location and location."

If the location is wrong, it can have a significant impact on any business profits. In

choosing a location for PIRGs, a difference in location of a few kilometres can have an

enormous effect on the PIRGs profits and losses. The location decisions will have an

effect on a PIRC costs as well as its ability to serve its customers, and therefore its

revenues.

Existing companies in the petroleum industry become involved in location decisions for

a variety of reasons. These companies view locations, as part of the marketing

strategy, therefore, they look for locations that will help them to expand their markets.

The location decision, is basically in these cases a reflection of the addition of new

locations to an existing system (Stevenson 1996:358).

If the location decisions are made infrequently, they tend to have a significant impact on

a PIRC. According to Stevenson (1996:358), there are two primary reasons that

location decisions are a highly important part of a business. Firstly, it entails a long-

term commitment, which makes mistakes difficult to overcome. Secondly, those

location decisions often have an impact on investment requirements, operating costs

and revenues. A poor choice of location for a PIRC might result in excessive



transportation costs, a shortage of qualified labour, loss of competitive advantage or

conditions that are detrimental to operations and can result in loss of customers.

2.3.3 Reasons to consider for location

Location continues to play an integral part in the overall search of a PIRC. After all, 90

percent of a customer's motivation to visit a PIRC is because of where it is, rather than

what design it has. Thus, location influences what customers buy and drives

incremental purchases, says Marx (2002:Interview).

According to Longenecker et al. (1997:208), " ... only a careful investigation of a

potential site will reveal its good and bad features." Longenecker mentions that when

determining a good location the following four key factors guide the initial steps of the

investigation process, namely:

Personal preference;

Environmental conditions;

Resource availability;

Customer accessibility.

In a particular situation, one factor may be more important than the others, but each

always has an influence. These factors are depicted in figure 2-4 for consideration in

determining a good location for a PIRC.

There must be many elements in a successful PIRC. There is the preparation of the

product, cost control, administration systems, creation of new products, store design,

signage, marketing, the way the customers are served, suppliers and deliveries, back-

up deliveries in a case a supplier fails to deliver, the tracking of trends in consumer

behaviour, the strength and development of the brand, and all of these are the business

of the PIRC (Calitz 2002:4).

The views of Longenecker et al., Slack et at and Cronje et aL will be compared to

provide an overview of reasons to consider for locational analysis.


PERSONAL PREFERENCE

Friends and relatives nearby

CUSTOMER

ACCESSIBILITY

Target market

Convenience for customers


Many considerations influence location decisions. It often happens that one or a few of

the concerns are deemed to be so important that they dominate the decision. In a

service industry such as PIRGs, possible dominating reasons are market-related and

include traffic patterns, convenience, and competitors' location as well as proximity to

the market.

Figure 2-4: Four factors deserve careful consideration in determining a good

location (Longenecker et at views on reasons for location)

GOOD LOCATION

ENVIRONMENTAL

CONDITIONS

Laws and taxes

Weather

Lifestyle

RESOURCE

AVAILABILITY

Raw materials

Transportation

Labour force

Source: Adapted from Longenecker et at 1997:208



The views of Longenecker et at (1997:209) on reasons for location as illustrated in

figure 2-4 are:

Personal preference

Longenecker et at (1997:209) contend that, many entrepreneurs consider only their

home community as a location, and the possibility of relocating elsewhere never enters

their mind. Considering an individual who has always lived in a particular town,

however, does not automatically make the town a satisfactory business location!

Locating a business locally for personal reasons is not illogical, but there are certain

advantages. Some of these advantages include, firstly that an entrepreneur generally

appreciates and feels comfortable with the atmosphere of the home community.

Secondly, the entrepreneur can more easily establish credit. Thirdly, if potential

customers live mainly in the locality, the prospective entrepreneur probably has a better

idea of their tastes and preferences than an outsider would have. Relatives and friends

may also help to advertise the products and services.

Environmental conditions

According to Longenecker et aL (1997:210), "... a business must operate within the

environment conditions of its location. These conditions can hinder or promote

success." An environmental factor, such as the weather, can affect the desirability of

locations. Other environmental factors that can have an effect on the location, are

competition, laws and leisure attractions. Longenecker et at (1997:210) maintain that

"... obviously the best time to evaluate environmental conditions is prior to making a

location commitment"

A PIRC owner's aim in environmental conditions should be the following:

to support free enterprise;

to compete fairly and ethically and within the framework of applicable competition

laws;

to conduct business as responsible corporate members of society;

to observe the laws of the country in which they operate;



to express support for fundamental human rights in line with the legitimate role of

business;

to give proper regard to health, safety and environment, consistent with their

commitment to contribute to sustainable development.

Resource availability

Longenecker et at (1997:210) contend that, "Resources associated with operating a

business should also be considered when selecting a location. Raw materials, land,

water supply, labour supply, transportation, and communication facilities are some of

the site-related factors that have a bearing on location." The most critical

considerations in the location of resource availability are raw materials and labour

supply. This argument is supported by Stevenson (1996:360) who argues that the

primary factors to consider are raw materials, markets and labour considerations.

Stevenson (1996:360) contends that "Businesses locate near or at the source of raw

materials for three primary masons, necessity, perishability and transportation costs."

Stevenson (1996:361) further states that primary labour considerations relate to the

cost and availability of labour, wage rates in an area, labour productivity and attitudes

towards work. The skills of potential employees may be a factor, and PIRCs need to

train new employees rather than rely solely on previous experience.

Customer accessibility

Longenecker et at (1997:210) state that, "... the foremost consideration in selecting a

location is customer accessibility. Service firms am a typical example of a business

that must be located so that access is convenient for target market customers." Many

of the products, which PIRCs offer, such as snack foods and petroleum products, are

convenience goods, requiring a location close to target customers. When a PIRC

owner conducts the site selection process, these four key factors should be the

uppermost part of the locational reasons.



The views of Slack et at (2001:159) as to reasons to take into consideration in

determining location are essentially divided into two categories of stimuli, which cause

organisations to make location decisions, namely:

changes in demand for goods and services;

changes in supply of inputs to the operation.

When location decisions are prompted by demand changes it is often due to increases

or decreases in aggregated volume of demand. For example, a demand increase for a

PIRC may necessitate a need for more capacity, and it could expand its existing site to

accommodate an increase in the number of road users. According to Slack et at

(2001:159), another reason for making location decisions is based on the changes in

costs or availability of the supply of inputs to the organisation.

The views of Cronje et at (2000:42) on factors to consider for location decisions are

namely:

Sources of raw materials

PIRCs need to obtain sources of raw materials in quantities and qualities. According to

Le Roux et at (1999:67), in the past few years, improved exploitation, processing and

transportation methods, have decreased the importance of raw materials as a factor

influencing the place of establishment, and have increased the importance of location

to best serve a profitable geographic area for marketing products.

Availability of labour

PIRCs need to establish what cost required labour is available in terms of quantities,

levels of training, development potential and productivity. Stevenson (1996:40) defines

productivity as An index that measures output (goods and services) relative to the

input (labour, materials, energy and other resources) used to produce them."

Stevenson (1996:42 & 43) states that there are negative impacts on productivity and

the most pertinent are:

a lower propensity to save and a higher propensity to consume, which slows capital

formation and attracts foreign goods;



increasing government regulations add to the administrative burden of many

businesses;

an emphasis on short-term performance reduces the incentive to develop long-term

solutions to problems. In addition, in periods of inflation and increased costs of

borrowed money, businesses are hesitant to commit funds for long periods of time,

because it reduces their flexibility to take advantage of other opportunities that might

arise in the interim.

Proximity of and access to the market

PIRGs need to consider the following potential advantages over present competitors:

the current extent and potential development of the market, the perishability of

products, and the needs of customers as well as the possibility of the entry of new

competitors in the market.

Availability and cost of transport facilities

PIRCs need to identify the transport costs of raw materials and water transport

facilities. Transportation is defined as the movement of goods from the manufacturer to

the intermediaries (Strydom et al. 2000:294).

Availability and costs of power and water

These have to satisfy the needs of the prospective PIRC. Water is used for different

reasons in a business. If there is not enough water available to meet the needs of the

business, there is a negative effect in the choice of an area for establishing a business.

Power also plays an important role and should be readily available, especially with

regard to PIRCs.

Availability and costs of a site and buildings

PIRGs need to determine the size and appearance of the site and buildings with the

necessary facilities and expansion possibilities.



Availability of capital

Although this does not affect the choice of the specific location of a PIRC, it can still

play a role where the suppliers of capital set certain conditions, or where capital is such

a limiting factor that it necessitates the choice in the least expensive location.

The attitude, regulations and tariffs of local authorities

PIRCs need to understand the attitude of local authorities to the development of a new

PIRC, as well as health regulations, building regulations, property rates, water and

electricity tariffs, and the availability and costs of other municipal services.

The existing business environment

The existing business environment can influence the establishment of a planned

business, such as a PIRC, if it can supply services. The presence of established

businesses that complement the new business will make the place of establishment

more attractive to a new owner (Le Roux et at 1999:69). Every business faces a

different reality in the marketplace, depending on its products, competitors, customers,

technology and government influences. The environment in which a business operates

determines what the business must do to succeed (Strydom et at 2000:501). In the

existing petroleum environment PIRCs are located at petrol stations and they sell

products on a 24-hour basis.

The social environment

The social environment relates to the provision of satisfactory housing, educational,

medical and shopping facilities for employees, all of which have an impact on site

locations.

Climate

PIRCs need to make sure that the particular climate of an area will not have an undue

influence on the acquisition, retention and productivity of the personnel. The climate

does not influence a PIRC itself.



Central government policy -

This may either encourage or discourage the establishment of a PIRC in an area

through a direct or indirect manner such as tax concessions. Before establishing a

PIRC, the PIRC owner should first check whether there are any local industrial

incentives. A local government can also encourage or discourage the establishment of

new businesses depending on the growth potential of the area.

Personal preferences

Personal preferences which owners of future PIRCs may have for an area which their

families prefer.

2.3.4 Levels of the location decision

"Having a good location may be even more important for a service retailer than it is for

a merchandise retailer. After all, services are a perishable commodity. If it isn't

available when the customer wants it, there is no second chance."

Levy & Weitz 1998:231

A sustainable competitive advantage will accrue to those PIRCs who maintain

convenient location. Comparing the views of Slack et al. (2001:165) with that of

Longenecker et aL (1997:211-215) the levels of location are presented in three levels,

namely:

choosing the region in which to locate the PIRC;

choosing the area of the region to locate the PIRC;

choosing the specific site within the area to locate the PIRC.

These levels of location decisions affect the location of a PIRC. Therefor PIRC owners

and providers need to analyse prospective locations with extreme thoroughness.

Decisions cannot and should not be made haphazardly, in the selection process when

considering a location for a PIRC. The following factors are important to PIRC owners

and providers when choosing a region, area and site for the PIRC.

i) Choosing the region



a... regardless of the general economy's state, certain regions or markets may be more

attractive to some retailers than to others."


The location decision for many PIRCs is taken with the whole country offering possible

sites. The operational skills as well as the brand image of many service operations

such as PIRCs are transferable across regional boundaries. The marketing of certain

goods and services is more logically conducted in specific regions. It would be

misleading for a PIRC owner and provider, to think that simply because a market is

large or growing economically, that it is attractive.

According to Carlson (1993:10), when evaluating factors that provide businesses with

the most conducive environment for business success, the following needs to be

considered, when choosing the region:

State economic performances

The better the economy of the region, the better the support for new businesses. It

includes employment growth, unemployment rate, earnings growth and income

distribution.

Business vitality

The more vital and energetic the business community, the better the prospects for

future growth. This includes among other things, the level of eamings from industries.

Development capacity

Measure the resources that are needed by businesses to become and remain

competitive. This includes financial resources, quality of the use of highways and

medical care.

Small business culture

The greater the proportion of commerce in the region, the more likely the business

environment is conducive to new enterprises.



e) State business assistance environment

This measures the programmes designed to assist in business information.

0 Balanced/fair tax and fiscal system

A rational and stable tax system in a region is an advantage for a new business. This

includes the stability of revenue from taxes and the fairness of the tax burden.

A PIRC needs to consult information of this nature to evaluate regions in the country.

Other considerations in such an evaluation include nearness to the market, availability

of raw materials, labour, legal requirements and tax policies.

PIRCs should consult information of this nature when they evaluate regions. Other

considerations according to Longenecker et al. (1997:211 & 212) that need to be

evaluated are:

Neamess to the market: It is desirable to locate close to the centre of the target

market if other factors are approximately equal in importance. This is especially

true for the petroleum industry where petroleum products are obtained from

refineries.

Availability of raw materials: When raw materials are not abundantly available in all

areas, a region in which these materials abound offers special locational

advantages.

Labour force: Labour requirements depend on the nature of business. The

available labour supply, wage rates, labour productivity and a history of peaceful

industrial relations are particularly important considerations for labour-intensive

businesses.

Laws and tax policies: Every owner of a business seeks profits and therefore, all

factors affecting the financial picture are of a great concern. Local governments can

help or hinder a new business by the levying of unreasonably high taxes.



Choosing the area within the region

"The trade area, is a contiguous geographic area that accounts for the majority of the

business' sales and customers."


When a PIRC has decided in which region it wishes to locate, it will then need to

choose an area. To make the correct decisions, the PIRC must analyse various areas

in the region in terms of the competitive situation, the availability of support services

and other factors. Many of the factors, which go into deciding the region, will also play

a part in deciding the area. Some of the factors such as political stability and language

might be less of an issue, whereas land prices, the local labour force, infrastructure

development and community factors can play an important part.

Choosing the site

According to Le Roux et al. (1999:66), the place of establishment can be defined as:

"... the specific place or building where the enterprise physically exists.' It is chosen so

that the resources and activities of the enterprise can efficiently be combined to achieve

the highest profitability in the long term."

The PIRC choice of a site within an area is a different type of decision from those taken

at the two higher levels, as mentioned. The number of alternatives is far smaller when

choosing the site. At any given time, there may be just one site available and the

decision is whether to take it or not. If not the search for an acceptable site will

continue. The location factors used to accept or reject a site are concerned with the

characteristics of the specific location and its immediate surroundings. Some critical

factors to consider at this stage, according to Longenecker et al. (1997:215) are costs,

customer accessibility, area conditions, and the trend towards suburban development.

Customer accessibility is an important consideration in selecting a site for PIRCs, and it

becomes critical when evaluating a specific site.



According to Stevenson (1996:359 & 360), the general procedure for businesses

making location decisions usually consists of the following four steps.

Step 1: Decide on the criteria that will be used to evaluate location alternatives,

such as increased revenues.

Step 2: Identify important factors, such as location of markets for raw materials.

Step 3: Develop location alternatives: firstly, identify the general region for a

location. Secondly, identify a small number of community alternatives.

Thirdly, identify site alternatives among the community alternatives.

Step 4: Evaluate the alternatives and make a selection.

2.4 STRATEGIC MANAGEMENT APPROACH

"Without a strategy, an organisation is like a ship without a rudder, going around in

circles. It's like a tramp; it has no place to go."

David 1998:3

"Business strategy is now the single most important management issue and will remain

so for the next five years."

Loewen 1999:9

Strategy is defined in the Oxford English Dictionary as "The art of war or the art of

planning and directing larger military movements ... or war" (Strydom et at 2000:254).

Strategy thus has a definite military connotation. Army commanders make tactical

decisions, combine them in a strategy and then implement the strategy in order to

outwit and overcome the enemy. In the business environment, these concepts have

been proved to be popular, especially in a competitive, dynamic situation where PIRCs

continually have to formulate strategies in order to ensure survival and their profitable

existence.

The word strategy has been around for a long time. Most of the standard textbooks on

strategy offer that definition more or less as follows, according to Wright et at (1992:3)

"... top management's plans to attain outcomes consistent with the organisation's



missions and goals." According to Mintzberg et al. (1998:9), strategy is a pattern that is

consistent in behaviour over time. Griffin (1996:200) defines strategy as "... a

comprehensive plan for accomplishing an organisation's goals."

Porter sees strategy as necessarily deductive and deliberate, as if strategic planning

and emergent strategy do not exist. (Mintzberg et al. 1998:119). According to Porter

(1997:162 & 163) "... if strategy is stretched to include employees and organisational

arrangements, it becomes virtually everything a company does or consists of. Not only

does this complicate matters, but it obscures the chain of causality that runs from

competitive environment to position to activates to employee skills and organisation."

According to Jones et al. (2000:231), strategy is "... a cluster of decisions about what

goals to pursue, what actions to take, and how to use resources to achieve goals."

According to Ferreira (2000:11), a dynamic theory of strategy, requires two critical links:

firstly, a link between what you did yesterday and what you can do well today;

secondly, a link between what you do today and what you can do well tomorrow.

To quote an anonymous author: "In the present lies the past and in what is now is

hidden what will be" (Ferreira 2000:11). In other words, the current resources and

capabilities of a PIRC, built up over the course of its history, enable the PIRC to

compete today. However, to remain competitive tomorrow requires investment in the

development of new capabilities. Linked to this has been the realisation that

competitive advantage is temporary. Whatever a PIRC can do better than a competitor

today, is likely to be copied tomorrow.

Loewen (1999:110) said that focusing on your competition is a good spur to keep you

going, but it is not what will carry you to victory. But by focusing on your customer, you

will get the victory. "Strategy is first and foremost about your customer. Yet 'how do I

beat my competition?' is typically what most people think strategy is about, and is the

'most frequently cited concern' of the majority of business leaders. Beating your

competition is the outcome of a good strategy."



According to Manning (1998:157), strategy is, "... not only about business design. It's

also about the way you act on your choices. It's about the energy, imagination, and

determination that drive you along your chosen path. It's about the speed with which

you advance, improve, and change direction. It's about the aggression with which you

attack competitors. And it's about how you surprise them with new blows from

unexpected directions."

According to Manning (1998:172), strategy falls roughly into two camps. Firstly the

environment view, which assumes that any business, is a prisoner of its environment,

that its external forces determine what it can and cannot do. The most prominent

advocate of this view is Michael Porter. Porter's large and influential body of work

argues that business profitability is determined by industry conditions, and that industry

conditions are, in turn, affected by geographic location (Manning 1998:172). Secondly,

the resource-based view assumes that the real constraints are inside and that

managers must and can overcome almost any external limitations by the application of

imagination, knowledge, finance or other assets.

During the 1960's the emphasis was on achieving 'fit' between a business and its

environment. The challenge for managers was to see the challenge to match internal

strengths and weaknesses to external opportunities and threats. By building on this

thinking, Michael Porter produced the following concepts:

generic strategy;

the five forces analysis;

the competitive advantage of nations.

Porter argued that a business had limited choices of strategy, that the profitability of a

business depends on conditions in the industry, and that industry performance was

greatly influenced by geographic location (Manning 1998:172). Businesses have to

speed up their strategy processes, but in so doing says Strebel (2002:160), businesses

in rapidly changing environments face major challenges.

2.4.1 Generic strategies



"The type of advantage and the scope of advantage can be combined in the notion of

generic strategies, or different approaches to superior performance in an industry."

Porter 2002:39

Competitive advantage according to Miller & Dess (1993:36) "... results when a

business enjoys superiority in differentiation, low cost or quick response relative to its

competitors."

For PIRCs to be successful over the long-term they must hold some advantage relative

to their competition. According to Miller & Dess (1993:149), such competitive

advantage can take one of three forms, which reflects that all customers want things:

better;

cheaper;

faster.

Thus, because the aim of operating businesses is to obtain a positive cash flow (Cole &

Mishler 1998:353). These forms can be referred to in competitive advantage as;

differentiation;

cost leadership;

quick responses.

Porter argues that there are three basic types of competitive advantages a business

can possess, namely low cost or differentiation. According to Porter (in Bennett

1997:38) "... when coping with competitive forces, them are three potentially successful

generic approaches that a business can take in order to outperform other businesses in

the industry, overall cost leadership, differentiation and focus." Porter further states

that it is rare, though not impossible for a business to pursue more than one of these

approaches successfully at any one time.

The three generic strategies for achieving above-average performance in an industry:

cost leadership, differentiation and focus (Porter 1985:11). Each of these strategies as

illustrated in figure 2-5, represents a fundamentally different conception of how to

compete.



Figure 2-5: Porters generic strategies

COMPETITIVE ADVANTAGE

Lower Cost

Differentiation

Broad Target

COMPETITIVE SCOPE

Narrow Target

1. COST LEADERSHIP 2. DIFFERENTIATION

3. COST FOCUS 4. FOCUSED

DIFFERENTIATION

Source: Adapted from Porter 1985:12 & 2002:39 and Mintzberg et al. 1998

Porter (1985:12) believes that "... being all things to all people is a recipe for strategic

mediocrity and below-average performance." In other words businesses must make a

choice among all these to gain competitive advantage. When a business engages in

each generic strategy, but fails to achieve any of them it is stuck in the middle (Porter

(1985:16).

The generic strategies concept is a widely used framework for classifying competitive

strategies, according to Burgelman et al. (1996:6). The generic strategies according to



Burgelman et at (1996:6) are: industrywide differentiation, focused differentiation,

industrywide cost leadership and lastly, focused cost leadership. Businesses pursuing

industrywide differentiation seek sustainable competitive advantage in a broad range of

industry segments, through the offering of products and services that are better than

those of competitors in terms of quality, performance and support. Businesses

pursuing focused differentiation attempt to achieve similar sustainable competitive

advantages in a narrow set of industry segments. The willingness of customers to pay

a premium price is one objective indication of having achieved differentiation.

The generic strategies make it clear that there is no one type of strategy that is

appropriate for every industry. Different strategies can coexist successfully in many

industries, but Porter (2002:39) argues that a... while industry structure constrains the

range of strategic options available, I have yet to encounter an industry in which only

one strategy can be successful." There may be different possible variations of the

same generic strategy, involving different ways to differentiate or focus. The generic

strategies as indicated in figure 2-5 are as follows:

i) Cost leadership

The cost leadership strategy aims to be the low-cost producer in an industry and is

realised through gaining experience, investing in large-scale production facilities, using

economies of scale and carefully monitoring overall operating costs (Mintzberg et at

1998:103). According to Burgelman et at (1996:6 & 7), businesses pursuing

industrywide cost leadership seek sustainable competitive advantage in a broad range

of industry segments through offering at lower prices, products and services that are

comparable to those of competitors on the relevant set of dimensions that are of

concern to customers.

The overall cost leadership for PIRGs requires a great deal of managerial attention to

cost control, without sacrificing commitment to quality and service. If a PIRG is

achieving a low-cost position it will gain above average returns in the petroleum

industry, which is intensely competitive. PIRGs will also have a greater bargaining

power with clients, whereby they can realistically cut prices (not petroleum products) to



the level of the next most efficient competition, on the same national route. By starting

from a low-cost base, PIRCs will have built in a greater flexibility to deal with increases

in the cost of petroleum products. Low cost does not mean cheap or shoddy, according

to Bennett (1997:38).

Differentiation

"Differentiation means producing something which is perceived industry wide as being

unique" (Bennett 1997:39). The unique image can take different forms and can include

brand images and awareness, Caltex, Engen, or Shell technology (example Shell V-

Power petrol, or unleaded petrol), customer service (depending on quick, efficient and

friendly service) and a wide variety of products. The differentiation strategy involves the

development of products and services, which rely on brand and customer loyalty.

According to Porter (in Bennett 1997:39), "... differentiating is a viable strategy for

earning above-average returns in an industry. It's principal advantage is that it leads to

higher margins, and the principal disadvantage is that it is an unlikely strategy for

gaining high market share."

Focus

The focus strategy seeks to serve narrow market segments. Business can focus on

particular customers, products or geographic markets. This strategy can be divided

into two: firstly, a differentiation focus, whereby the offerings are differentiated in the

market; secondly, an overall cost leadership focus, whereby the business sells products

or services at a low cost to the markets.

A focused strategy for PIRCs would be to concentrate on the following:

certain buyers / groups (include taxis, tourists, and holidaymakers);

segment of the product line (include different types of petroleum products offered

and other varieties such as beverages products);

geographic market (on national routes where travellers will use the road more often

depending on school holiday or long weekends).



The sole objective of PIRCs should be to serve a particular customer target well and to

gain a competitive advantage over other PIRCs. This results in customers receiving a

better service than that provided by competitors, who are trying to serve a broader

range of customers. The PIRC achieving a low cost position, high differentiation or

both may also potentially earn above average returns.

The generic strategy forms the foundation for the business strategy, and helps

businesses to understand what the client values and what the key purchase areas are.

The customer wants to see what is offered in the overall market. By using Porters

Generic Strategy framework, businesses must plot where they are supposed to be and

plot where other businesses are positioned in relation to their preferred position

(Loewen 1999:137).

Underlying the concept of generic strategies is that competitive advantage is at the

heart of any strategy, and that achieving advantage requires a PIRC owner to make

choices. If a PIRC owner is to gain advantage, the PIRC owner must choose the type

of competitive advantage it seeks to attain and a scope within which it can be attained.

The worst strategic error is to be stuck in the middle or to try simultaneously to pursue

all strategies, states Porter (2002:40). This is a recipe for strategic mediocrity and

below-average performance, because pursuing all the strategies simultaneously means

that a PIRC owner is not able to achieve any of them because of their inherent

contradictions.

2.4.2 Five forces analysis

"Competitive strategy must grow out of a sophisticated understanding of the structure of

the industry and how it is changing."

Porter 2002:34

Michael Porter has demonstrated that, although the competitive pressures in various

industries are never precise, the competitive process works similarly enough to use a

common analytical framework, in gauging the nature and intensity of competitive

forces. The state of competition in an industry is a composite of the five competitive


L MARX-FRONEMAN


forces according to Porter (in Thompson & Strickland 2001:80), whether it is domestic

or international, the nature of competition is embodied in these forces, namely:

Firstly, the rivalry among competing sellers in the industry;

Secondly, the potential entry of new competitors;

Thirdly, the market attempts of companies in other industries to win customers over

to their own substitute products;

Fourthly, the competitive pressures stemming from supplier-seller collaboration and

bargaining;

Fifthly, the competitive pressures stemming from seller-buyer collaboration and

bargaining.

Porter's five competitive forces are a more refined way to assess environments,

according to Griffin (1996:84).

The five competitive forces determine industry profitability because they shape the

prices businesses can charge, the costs businesses have to bear, and the investment

required to compete in an industry. The threat of new entrants limits the overall profit

potential in the industry, because new entrants bring new capacity and seek market

share, pushing down margins. Powerful buyers or suppliers bargain away to the

profits for themselves. Fierce competitive rivalry erodes profits by requiring higher

costs of competing or by passing on profits to customers in the form of lower prices.

The presence of close substitute product limits the price competitors can charge

without inducing substitution and eroding industry volume.

According to Miller & Dess (1993:64) the competitive environment refers to the situation

facing the business within its specific competitive arena. The competitive arena

combines the forces that are relevant to a business strategy, which includes

competitors, customers and suppliers. The five forces model can be utilised as an

analytical tool for examining the competitive environment. A business can survive and

succeed in the long term if it develops strategies successfully to confront the five

competitive forces, which shape the structure of the competition in the industry,

according to O'Brien (1996:402). A business can develop a variety of competitive

strategies to confront these competitive forces.


L MARX-FRONEMAN


Figure 2-6 illustrates Porter's five forces responsible for competition in a particular

industry.

Figure 2-6: The Five Forces Model of Competition

FIRMS IN OTHER INDUSTRIES OFFERING

SUBSTITUTE PRODUCTS

Competitive pressures coming from the market attempts of outsiders to win buyers over

to their products

4--

RIVALRY AMONG COMPETING SELLERS

Competitive pressures created by jockeying for

better market position and competitive advantage

SUPPLIERS OF RAW

MATERIALS, OR OTHER RESOURCE

INPUTS

BUYERS

Competitive pressures stemming from supplier-seller collaboration and

bargaining

Competitive pressures stemming from seller- buyer collaboration

and bargaining Competitive pressures coming from

the threat of entry of new rivals

POTENTIAL

NEW ENTRANTS

Source: Adapted from Porter 1979:137-145; Thompson & Strickland 2001:81


L MARX-FRONEMAN


According to Porter (1979:137-145), the five forces model is “... a powerful tool for

systematically diagnosing the principal competitive pressures in a market and

assessing how strong and important each one is."

It is also argued by Thompson & Strickland (2001:80) the five forces model is not only

the most widely used technique for competition analysis, but also relatively easy to

understand and apply. The collective strength of these five forces determines the

competitiveness in the industry and therefore its profitability (Smit & Cronje 1999:73).

According to Pearce & David (1997:76) contend that, every industry has underlying

structures that gives rise to these five competitive forces. A business wanting to cope

best with its industry environment or to influence that environment in its favour must

learn what makes the environment tick. PIRCs must understand how the five forces

work in the petroleum industry, and how they affect the company in its particular

situation

The Five-Force Model of Competition, is a key analytical tool for diagnosing the

competitive environment of PIRCs.

i) The rivalry among competing sellers in the industry

According to Mintzberg et al. (1998:102), all factors converge on rivalry. Businesses

jockey for a position, from where they may attack each other or agree to coexist. The

jockeying for position and buyer favour that goes on among rival sellers of a product or

service, is the strongest of the five competitive forces. In the petroleum industry some

of the products or services offered by PIRCs are centred on price competition, by

offering buyers the best price on convenience products such as food, and liquid

refrfreshments. PIRCs can also be centred on minimal price competition, whereby the

petroleum products such as petrol are estimated on a fixed price, and therefore the

focus is on the combination of performance features such as fast, efficient, friendly

service or being the first to offer a product.



According to Thompson & Strickland (2001:82), "Competitive jockeying among cross-

company rivals can heat up when a competitor sees an opportunity to better please

customers or is under pressure to improve its market share or profitability. The

intensity of rivalry among competing sellers is a function of how vigorously they employ

such tactics as lower prices, snazzier features, expanded customer services, longer

warranties, special promotions, and new product introductions." Every PIRC is

challenged to craft a successful strategy for competing whether the rivalry is lukewarm

or heated. The ideal strategy is to produce a competitive edge over rivals and

strengthen its position with buyers. According to Thompson & Strickland (2001:80), in

most industries the complication is that the success of a firm's strategy hinges on what

strategies its rivals employ, and what resources the rivals are willing and able to put

behind their strategic efforts. Therefore, a PIRGs best strategy depends on the

competitive capabilities and strategies of its rivals. In such a case it is a reactive

strategy, today we focus on strategic innovation as differentiation in markets.

According to Porter (1980:17-21), the following factors seem to influence the tempo of

cross-company rivalry, regardless of the industry.

rivalry intensifies as the number of competitors increases and as competitors

become more equal in size and capability;

rivalry is usually stronger when demand for the product is growing slowly;

rivalry is more intense when industry conditions tempt competitors to use price cuts

or other competitive weapons to boost unit volume;

rivalry is stronger when customers' costs to switch brands are low;

rivalry is stronger when one or more competitors are dissatisfied with their market

position and launch moves to bolster their standing at the expense of rivals;

rivalry increases in proportion to the size of the payoff from a successful strategic

move;

rivalry tends to be more vigorous when it costs more to get out of a business than to

stay in and compete;

rivalry becomes more volatile and unpredictable the more diverse competitors are in

terms of their visions, strategic intents, objectives, strategies, resources and

countries of origin;



rivalry increases when strong companies outside the industry acquire weak firms in

the industry and launch aggressive, well-funded moves to transform their newly

acquired competitors into major market contenders.

ii) The potential entry of new competitors

According to Porter (1979:138), "New entrants to a market bring new production

capacity, the desire to establish a secure place in the market, and sometimes

substantial resources with which to compete." How serious the competitive threat of

entry is on a PIRC depends on the following two factors, namely:

Firstly, barriers to entry:

According to Mintzberg et al. (1998:100), an industry is like a club where businesses

gain admittance by overcoming certain 'barriers to entry', such as economies of scale,

basic capital requirements, customer loyalty, and the establishment of their brands.

Competition is friendly in a cosy club with high barriers. Low barriers lead to very high

competition which lithe can be taken for granted.

Secondly, the expected reaction of incumbent firms to new entry:

When profits are sufficiently attractive, entry barriers are unlikely to be an effective

entry deterrent. The pool of candidate entrants is limited to enterprises with the

requisite competencies and resources, and with the creativity to fashion a strategy for

competing with incumbent firms.

When evaluating the potential threat of entry, management needs to look at the

following (Thompson & Strickland 2001:86):

Firstly, how formidable the entry barriers are for each type of potential entrant,

namely the start-up business, candidate companies in other industries, and current

industry participants looking to expand their market research;

Secondly, ask the question, "How attractive are the profit prospects for new

entrants?"

According to Yip (1982:85-93), "High profits act as a magnet to firms outside the

industry, motivating potential entrants to commit the resources needed to hurdle entry

barriers."



New entrants still face the issue of how existing firms will react when acquiring the

needed competencies and resources to attempt entry (Porter 1980:14 & 15; Porter

1979:140).

The best test for a PIRC on whether a potential entry is a strong or weak competitive

force in the market, is to ask if the petroleum industry's growth and profit are attractive

enough to induce any additional entrants. If the potential entry is a weak competitive

force, the answer is no. If the potential entry is a candidate with sufficient expertise and

resources and can add significantly to competitive pressures, the answer is obviously

yes. Incumbent businesses are driven to .fortify their positions against newcomers,

endeavouring not only to protect their market share but also to try and make the entry

more costly or difficult, when the threat of entry is stronger (Thompson & Strickland

2001:87).

To understand the pressure from new entrants to the petroleum industry, questions

were put to owners of PIRGs. The comments given by the owners of PIRGs will be

discussed in chapter 4.

iii) Competitive pressures from substitute products

There is an old saying that: "Nobody is irreplaceable!"(Mintzberg et al. 1998:102). The

competition in an industry is therefore dependent on the extent to which products in one

industry are replaceable by ones from another. According to Thompson & Strickland

(2001:88), "The competitive threat posed by substitute products is strong when

substitutes are readily available and attractively priced, buyers believe substitutes have

comparable or better features, and buyers switching costs are low." To determine just

how strong the competitive pressures are from substitute products, depends on the

following three factors: firstly, whether the substitute products are available and sell at

an attractive price; secondly whether buyers view the substitute products satisfactorily

in terms of quality, performance and other relevant attributes; thirdly, whether buyers

may switch to substitute products easily (Thompson & Strickland 2001:87).



iv) Competitive pressures stemming from supplier bargaining power and supplier-

seller collaboration

A power struggle naturally arises between business and their suppliers, because

suppliers wish to charge the highest prices for their products (Mintzberg 1998:100).

According to Thompson & Strickland (2001:88), whether the relationship between

suppliers and sellers represents a weak or strong competitive force, depend on the

following:

whether suppliers can exercise sufficient bargaining power to influence the terms

and conditions of supply in their favour;

the extent of supplier and seller collaboration in the industry.

Whenever the items provided by suppliers are commodities that are available on the

open market from numerous suppliers, they will have no bargaining power. According

to Thompson & Strickland (2001:89), whenever the suppliers to a group of rival

businesses are a strong competitive force, they have sufficient bargaining power to put

certain rivals at a competitive disadvantage. The competitive disadvantages are based

on the prices which they command the quality and performance of the items they

supply and the reliability of their deliveries.

v) Competitive pressures stemming from buyer bargaining power and seller-buyer

collaboration

Customers want prices down and quality up. According to Mintzberg et at (1998:102),

their ability to do so, depends on how much they buy, how well informed they are, and

their willingness to experiment with alternatives. According to Thompson & Strickland

(2001:90), whether the relationship between seller and buyer represents a weak or

strong competitive force, depends on the following, namely:

whether the buyer has sufficient bargaining power to influence the terms and

conditions of sale in favour of the buyer;

what the extent and the competitive importance of the seller and buyer are on

strategic partnerships in the industry.



According to Thompson & Strickland (2001:91) buyers may still have some degree of

bargaining leverage when they do not purchase in large quantities, in the following

circumstances:

if buyers' costs of switching to competing brands or substitutes are relatively low;

if the number of buyers are small or if a customer is particularly important to a seller;

if buyers are well-informed about sellers' products, prices and costs;

if buyers pose a credible threat of integrating backward into the business of sellers;

if buyers have discretion in whether and when they purchase the product.

To conclude, the strength of competition is a composite of five forces: firstly, the rivalry

among competing sellers; secondly, the presence of attractive substitutes; thirdly, the

potential for new entry; fourthly, the competitive pressures stemming from the supplier

and seller collaboration and bargaining; lastly, the competitive pressures stemming

from seller and buyer collaboration and bargaining. These five market forces determine

the ability of a PIRC to be successful.

Porter identifies numerous elements of industry structure that influence the five factors.

According to Porter (1985:5), these factors influence the creation of a competitive

advantage and are briefly stated: "Buyer power influences the prices that firms can

charge, for example, as does the threat of substitution. The power of buyers can also

influence cost and investment, because powerful buyers demand costly service. The

bargaining power of suppliers determines the cost of raw materials and other inputs.

The intensity of rivalry influences prices as well as the costs of competing in areas such

as plant, product development, advertising, and sales force. The threat of entry places

a limit on prices and shapes the investment required to deter entrants."

The more completely PIRGs understand the underlying forces of competitive pressure,

the better they will be able to assess market opportunities or threats. The forces, which

dominate industry competition, depend on certain circumstances. The challenges for

PIRGs are to recognise and understand these forces for better positioning to cope in

the petroleum industry.



According to Porter (1992:90-93), there are several fatal flaws that plague the strategic

thinking of PIRGs regarding their competitive situation, namely:

Possessing no true competitive advantage: Imitation of rivals is both hard and

risky, and reflects a lack of any competitive advantage;

Pursuing a competitive advantage that is not suitable: The PIRC must make

sure that the competitive advantage cannot be quickly imitated;

in) Misreading industry attractiveness: The most attractive industry may not be the

fastest-growing or the most glamorous industry.

The strength of each of the five competitive forces is a function of industry structure or

the underlying economic and technical characteristics of an industry, (Porter 2002:38).

The buyer power is a function of the number of buyers, how much of a PIRC sales are

at risk to any one buyer and whether a product is a significant fraction of buyer's own

costs which leads to price sensitivity. The threat of entry depends on the extent of

barriers to entry, such as brand loyalty or economies of scale. Therefore a PIRC owner

need a strategy that reduce entry barriers and nullified the competitor's advantages.

A PIRC needs to first analyse the competition in order to understand the competitive

pressures associated with each of the above forces. Secondly, it must determine

whether these pressures results in a strong or weak competitive force in the market.

Thirdly, it should think strategically about what sort of competitive strategy the PIRC will

need to employ, given the rules of competition in the industry.

The PIRC must employ a strategy to insulate the business as much as possible from

the five competitive forces, influence the industry's competitive rules in its favour and

lastly, to gain a competitive edge over competitors. The peculiarities of each of these

five forces may explain why businesses adopt a particular strategy.



2.4.3 Planning for competitive advantage

"... a competitive strategy is about being different. It means deliberately choosing to

perform activities differently or to perform different activities than rivals to deliver a

unique mix of value."

Thompson & Strickland 2001:148

"A competitive advantage exists when a business has a product or service that is

perceived by its target market customers as better than that of its competitors"

(Longenecker et at 1997:138). Competitive advantage according to Bearden et at

(2001:63) refers to the way a business tries to get consumers to purchase its

products over those offered by competitors."

Jones et at (2000:24) describes competitive advantage as u... the ability of one

organisation to outperform other organisations because it produces desired goods or

services more efficiently and effectively than they do." The most important lesson for

businesses, if they want to remain at the top of the competitive environment is to use

the business resources to build a competitive advantage. According to Jones et at

(2000:24), there are four building blocks of competitive advantages that are superior,

namely: efficiency, quality, innovation and responsiveness to customers as illustrated in

figure 2-7.

i) Increasing efficiency

Businesses are constantly seeking new ways to use their resources to improve

efficiency in today's competitive environment. To improve the productivity of the

workforce, cross training gives them a range of skills they need to perform many

different tasks. For businesses to compete successfully with other business, workers

must improve efficiency (Jones et at 2000:25).


QUALITY


Figure 2-7: Building blocks of competitive advantage

K EFFICIENCY INNOVATION

COMPETITIVE

ADVANTAGE

v /7-- RESPONSE TO

CUSTOMERS

Source: Adapted from Jones et al. 2000:24

Improving quality

Businesses should continually find new and better ways to perform the daily operations

of workers to improve the quality (Jones et al. 2000:25).

Focusing innovation

Innovation according to Jones et al. (2000:25) is "the process of creating new goods

and services or developing better ways to produce or provide goods and services."

Businesses must try to encourage workers to be innovative.



iv) Increasing responsiveness to customers

The training of employees to be responsive to customers' needs is vital for businesses

because they compete for customers with their products and services (Jones et at

2000:25).

Porter argues that innovation is what drives and sustains competitiveness. In Porter's

'Diamond of national advantage' in figure 2-8, all dimensions of competition are

categorised (Czinkota et at 1996:53). Figure 2-8 illustrates what businesses must

strive to create and maintain success through a highly localised process. The

emphasis on innovation as the source of competitiveness reflects the increased focus

on the industry and product, according to Porter (in Czinkota et at 1996:53).

Factor conditions

The factor conditions are the nation's factors of production appropriateness to compete

successfully in a specific industry. Porter states (in Czinkota et at 1996:52) that these

factor conditions are very important in the determination of trade, which is not the only

source of competitiveness. A nation's ability to continually create, upgrade and deploy

its factors, such as labour is essential. Porter (2002:74) asserts that the factors that are

essential for developing a competitive advantage in most industries, especially the

industries that are most vital to productivity growth in advanced economies, are not

inherited but are created within a nation through processes that differ widely across

nations and among industries. Selective disadvantages in factors, through influencing

strategy and innovation, often contribute to sustained competitive success.

Demand conditions

Demand conditions are the competition which the business must face in its primary

market. Businesses who are more likely to gain a competitive edge, are those who can

survive and flourish in highly competitive and demanding markets. Porter notes that it

is the character (translates character as demanding customer) of the market, and not

its size that is paramount in promoting the continual competitiveness of the business

(Czinkota et at 1996:53).


FACTOR CONDITIONS DEMAND CONDITIONS


Figure 2-8: Determinants of national competitive advantage: Porter's Diamond

BUSINESS STRATEGY, STRUCTURE, AND

RIVALRY

RELATED AND SUPPORTING INDUSTRIES

Adapted from Czinkota et al. 1996:53

iii) Related and supporting industries

"... national advantage in an industry is the presence in the nation of supplier industries

or related industries that are internationally competitive."

Porter 2002:100



The competitiveness of all related and auxiliary industries and suppliers to businesses.

A business that operates within close working relationship, proximity to suppliers and

timeliness of product will gain and maintain an industry advantage.

iv) Business strategy, structure and rivalry

Porter states that, "... no one managerial, ownership, or operational strategy is

universally appropriate. It depends on the fit and flexibility of what works for the

industry in the country at that time"(Czinkota et at 1996:53).

Successful businesses actively shore up their industry structure, creating and

reinforcing favourable industry factors. They consciously seek to push industry forces

in their favour and create a profitable future. Business must keep ahead of the

competition and build a competitive advantage that makes it difficult to emulate

(Loewen 1999:93).

In searching for a competitive edge over competitors, Arie de Geus, former Shell

strategist, said, "... the only competitive edge Shell has is the ability to learn faster than

the competition" (Loewen 1999:168)

The determinants in figure 2-8, create the context in which a nation's businesses are

born and compete. According to Porter (2002:100), these are:

the availability of resources and skills necessary for competitive advantage in an

industry;

the information that shapes what opportunities are perceived and the directions in

which resources and skills are deployed;

the goals of the owners, managers and employees who are involved in or carry out

competition;

most importantly, the pressures on businesses to invest and innovate.

A PIRC gains competitive advantage when the goals of the owners, managers and

employees support intense commitment.



There are a number of critical issues that need to be taken into consideration in order to

remain competitive. One of the most important issues is to focus on the different

departments of a PIRC. Another critical factor that determines whether the PIRC is

competitive is the location of the PIRC. The customer shops quickly and conveniently

and by analysing the requirements of customers, the PIRC can be a real convenience

to customers' needs. PIRCs should constantly be on the lookout for creative ways to

take convenience even further and stay ahead of competition. If a PIRC brand is well

established, and instantly recognised and apart from offering excellent customer

service, which is highly appreciated by customers and the premises are spotlessly

clean, the location of the PIRC ensures the success.

2.5 CLOSURE

One of the most important decisions for PIRC owners and PIRC providers is to

determine the physical location of the PIRC. The decision as to where to establish the

PIRC is extremely important for the PIRC to be successful.

The choice of a place of establishment is decisive in the continued economic existence

of a new PIRC, especially when taking into account that the lifetime of such a business

may extend over several years. Over such a long period of time, many-unforeseen

local, national and international, political, economic and socio-economic developments

and changes can influence the profitable existence of the PIRC. The emphasis is on

the importance of the PIRCs decision regarding the place of establishment.

Even though the brand of a PIRC is well established, and instantly recognised and

apart from offering excellent customer service, which is highly appreciated by

customers and the PIRC is spotlessly clean, the location of the PIRC ensures its

success, when conveniently situated.



CHAPTER 3: STRATEGIC CONSIDERATIONS: MACRO ENVIRONMENT

CONTENTS

SYNOPSIS PAGE 3-76


3.2 COMPOSITION OF THE MACRO ENVIRONMENT 3-86

3.3 TECHNOLOGICAL ENVIRONMENT 3-88 3.3.1 Technological changes 3-91 3.3.2 Technological trends 3-93 3.3.3 The impact of technology environment on PIRGs 3-98

3.4 ECONOMIC ENVIRONMENT 3-101 3.4.1 Interest rates 3-103 3.4.2 Trade cycles 3-104 3.4.3 Globalisation 3-105 3.4.4 Economic growth rate 3-106 3.4.5 Inflation 3-108 3.4.6 Monetary policy 3-110 3.4.7 OPEC fuel prices 3-110 3.4.8 The impact of economy environment on PIRCs 3-112

3.5 SOCIO-CULTURAL ENVIRONMENT 3-114 3.5.1 The demographic variables in social environment 3-115 3.5.2 Causes of cultural difference and change 3-117 3.5.3 Social responsibility and the social-cultural environment 3-117 3.5.4 Cultural trends 3-121 3.5.5 The impact of socio-cultural environment on PIRGs 3-122

3.6 PHYSICAL ENVIRONMENT 3-122

3.7 POLITICAL-GOVERNMENTAUINSTITUTIONAL ENVIRONMENT 3-125 3.7.1 The petroleum industry and political-governmental environment 3-130 3.7.2 The political systems and its functions 3-132 3.7.3 The impact of the political system on management decisions 3-132 3.7.4 The impact of the political-governmental environment on PIRCs 3-133

3.8 INTERNATIONAL ENVIRONMENT 3-135 3.8.1 Environments and management 3-136 3.8.2 Risk in the international environment 3-137 3.8.3 The impact of the international environment on PIRCs 3-138

3.9 CLOSURE 3-138

Chapter 3: Strategic considerations: macro environment 3-75


SYNOPSIS

The purpose of this chapter is to provide an insight into the impact of the macro

environmental determinant on the formulation and implementation of a strategy for the

location of PIRGs. The petroleum industry and the environment in which it operates are

not closed systems, but influence each other reciprocally.

The macro environment is located outside the PIRC and represents the environment in

which the PIRC must survive. The macro environmental variables, also regarded as

macro-forces, are outside the control of the PIRC owner or manager, who must adapt

to changes in the environment. The external environmental forces are dynamic and

represent opportunities, threats and constraints to PIRCs. The macro environment

surrounds the business and its marketing environment. It is made up of a wide variety

of variables that can affect the business directly or indirectly and which can have a

positive or negative effect on a PIRC. The individual business has no control over this

environment or the variables that operate in it. The macro environment influences all

businesses, including competitors and is characterised by a number of sub-

environments which cannot be controlled by the business but which can exert a

significant influence over it. The sub-environments can also be described as variables

or forces in the macro environment.

PIRCs cannot predict the environment with certainty. Whether they fluctuate rapidly or

slowly, PIRC owners and managers must endeavour to anticipate, for example, how

consumer/customers preferences will change, the changing political climate or

technology that will dominate. PIRCs who fail to recognise macro environmental

changes will leave themselves unprepared to capitalise in and create opportunities

within an evolving macro environmental context.

The focus of this chapter is on the environment, which surrounds and impacts on the

market and the PIRC. The emphasis is on trends in this environment, which will affect,

either directly or indirectly, the strategy formulation of the PIRC. To analyse the macro



environment effectively, it is important that the focus is on those areas, which are

relevant and important enough to the PIRC owner and manager to have a significant

impact on the strategy formulation for and implementation of the location of a PIRC.

This chapter explains the meaning and importance of the macro environment, analyses

the various variables and theories which influence the changes in the macro

environment of PIRGs. The emphasis is on the uncontrollable macro variables

(external forces) and their implications for PIRC owners and PIRC providers that cause

the changes.



3.1 INTRODUCTION

"The general environment is composed of elements in the broader society that can

influence an industry and the firms within it"

Fahey & Narayanan 1986:49

The environments of PIRCs are depicted in figure 3-1, which indicates that the

petroleum industry environment consists of three components, namely the macro,

market and micro environment. The micro environment refers to the internal

environment of a PIRC and is discussed in chapter 5. The market environment

constitutes a dimension of the external environment, and is discussed in chapter 4 of

this chapter.

The environment in which PIRC providers, owners and managers function changes

quickly, resulting in complex relationships. This not only requires a total environmental

awareness from PIRC providers, owners and managers, but also a change in

management approach. Strategic planning, taking into consideration the interaction

between the PIRC and its environment is of great importance. It has to be systematic,

integrated, geared to the future and long-term orientated.

The dynamics of the macro environment are not the only factors that are boundless. It

conveys signals whose impact on strategies is difficult to interpret and is, for the most

part, uncontrollable. Therefore special expertise is required to understand it.


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The macro environment in which a PIRC operates involves all those variables outside

the petroleum industry, which have a direct or indirect influence on the PIRC, over

which the PIRC has no control. Through an analysis of the macro environment a PIRC

can therefore attempt to define current environmental changes and adapt to future

trends and changes. This chapter explains the meaning and importance of the macro

environment in which a PIRC operates. The dynamics of the macro environment are

not the only factor that makes it difficult to comprehend. Other factors are: it is

boundless; it conveys signals whose impact on strategies is difficult to interpret; it is for

the most part uncontrollable; and special expertise is required to understand it.

The definition of an environment according to Cunningham & Saigo (2001:599) is "The

circumstances or conditions that surround an organism or group of organisms as well

as the complex of social or cultural conditions that affect an individual or community."

According to Smit & Cronje (1999:60) "South African managers are operating in one of

the most difficult business environments in the world, one where many variables have

an enormous influence on their main tasks".

Cronje et at (2000:62) and Smit & Cronje (1999:66) stated that the macro environment

exists outside the business and is characterised by a number of sub-environments or

macro variables, namely, the economic, international, institutional, physical, social and

technological environments. These sub-environments influence one another to such an

extent that they cannot be regarded as independent from one another. The effect that

these sub-environments have on a business differs from business to business and from

time to time. Each of these sub-environments are characterised by factors peculiar to

that environment (Le Roux et al. 1999:51).

A business operates within a wider macro environment, with variables that directly and

indirectly exert an influence on the environment. According to Cronje et at (2000:72),

these variables constitute the uncontrollable forces in the environment that are referred

to as megatrends. Cronje et at (2000:73) describe megatrends in South Africa as "... a

silent revolution in which political and social forces have irrevocably transformed

society".



Pretorius (2001:10) remarks "When reviewing the business environment, it is patently

evident that the future is not merely an extension of the past Yesterday's success

won't guarantee tomorrow's profits." The one reality all businesses face is that the

business world has changed forever. The following characteristics exist in the current

petroleum industry environment and the several issues that stand out are:

it is ever changing, fast moving and complex industry;

it is very similar to what is happening internationally;

it is volatile, very sensitive to international and local turmoil;

it is ultra-competitive because of global competition and local deregulation;

it is being affected to a greater degree by the power of information technology and

the Internet;

customers of PIRCs want all convenience products and services;

staff members may have high expectations;

there is a deluge of new threats, opportunities and constraints facing the petroleum

industry every day;

the challenges for PIRCs are to become globally competitive or perish.


PIRC providers need to observe the macro variables, which not only have an effect on

the market environment and on decision-making, but also on each other, therefore both

reacting to and causing changes in the business environment.

A particular cultural community with their beliefs and values decides which government

it wants and gives a mandate to form a certain political structure, which in turn

determines the community's affairs. Politics is interwoven with the economy and is

influenced by the adopted policies, and economic measures taken to achieve political

ends. The community standard of living is the result, which is stimulated by the given

needs of the community, with the support of the economy and the government.

Technology is mainly responsible for the rate of change in the business environment,

with the international environment acting as a considerable force for change in the

other variables and therefore in the total business environment. A new business



environment with new opportunities and new threats is the result of this interaction

(Cronje et at 2000:73).

According to Arens (1996:126), the macro environment can affect the purchase

decision of consumers, especially during a recession when advertisers cannot expect

to penetrate the perceptual screens of consumers who do not have enough money to

buy a certain product or service.

PIRC owners and PIRC providers have no control over the macro environment, and

influences on the macro environment variables are negligible. The environment plays a

critical role in shaping the destinies of the entire petroleum industry as well as the

PIRGs. Powell (1992:119) stated that "... the most basic tenet of strategic

management is that managers must adjust their strategies to reflect the environments

in which their businesses operate".

The macro and market environments are located outside the micro environment (PIRC)

and represent the primarily environment in which the PIRC owner and PIRC manager

must survive. The external environments are uncontrollable and the PIRC owner and

manager must adapt to changes in them. Opportunities and threats need to be

identified in these environments and within the limitations of the strengths and

weaknesses in the PIRC micro environment, the PIRC adapt to these changes.

Some of the changes that should constantly be monitored by the PIRC owners and

PIRC providers are for example, technological innovation, economic fluctuations, social

values, demographic trends and political changes. PIRC owners and PIRC providers

need to be aware of all the changes in the external (market & macro) environment in

order to adapt their strategies accordingly.

The macro environment plays a critical role in shaping the destinies of the entire

petroleum industry as well as those of PIRCs. The following comments by Miller &

Dess (1993:57) assume that the most basic tenet of strategic management is that

managers must adjust their strategies to reflect the environments in which they operate.



To understand what makes a successful PIRC, owners and providers of PIRGs firstly

need to consider the environment in which the PIRC operates and the alignment of its

strategy to that environment. The external environment of a PIRC covers a lot of

territory, essentially everything outside a PIRC control.

This chapter points out the external environmental analysis by considering what parts

of the macro environment are most important for the functioning and establishing of a

location for PIRGs.

3.2 COMPOSITION OF THE MACRO ENVIRONMENT

"The macro environment containing variables and factors outside the business which

have a positive or negative influence on the growth and continued existence of the

business and which encourage or hinder the achievement of objectives."


The macro and market environments are located outside the PIRC and represent the

environment in which the PIRC owner and manager must survive. These environments

are uncontrollable and the PIRC owner and manager must adapt to changes in them.

Opportunities and threats need to be identified in these environments.

Successful strategic adjustments to environmental changes, such as the following,

require PIRC owners to be aware of several aspects of the links between the macro

environment and the PIRGs strategy:

the macro environment usually holds both opportunities for, and threats to PIRCs:

Developments in the macro environment often provide opportunities for expansion

in terms of both products and markets but changes and trends pose serious threats

to the petroleum industry.

the developments in the macro environment change competitive battle lines: The

macro environmental changes may alter the boundaries of the petroleum industry

and can change the nature of competition.

many developments in the macro environment are difficult to predict with any

degree of accuracy, while others are readily predictable: Macroeconomic



developments such as interest rate fluctuations, rate of inflation and exchange rate

are extremely difficult to predict. However, some trends such as demographic data

on population distribution by age, ethnicity, and income levels can be forecast

accurately.

Marx et aL (1998:57) acknowledge "... these variables, which can also be described as

sub-environments or forces and have an indirect effect on businesses, include

technological, economic, demographic, political, institutional and other forces such as

the economic system in a particular country."

PIRC providers, owners and managers should constantly monitor the following macro

environmental forces, as indicated in figure 3-1 and table 3-2:

Technological environment: is responsible for innovation, changes the use of

computers, and comprises all products and services which are the result of human

expertise and skills. Ansoff (1984:18) states that "A strategy that makes sense in

economic terms must also be technologically feasible. If it is not, it will be quickly

outdated and the organisation endangered".

Economic environment: the operation of the economic system is responsible for a

variety of economic phenomena in a specific society and involves factors such as

fluctuations in interest rates, trade cycles, globalisation, economic growth rate,

inflation, monetary policy and OPEC fuel prices.

Social-cultural environment: concerns individual ways of life and customs and

standards formed by their cultures and changing social values.

Physical (demographic) environment: comprises natural resources such as mineral

wealth and flora and fauna as well as the improvements and includes demographic

trends, which include the human population in terms of size, density, location, age,

sex and profession.



Political-governmental or Institutional environment: embraces the government with

its political involvement and legislation as the main components and includes

political changes.

International environment: concerns local and foreign political trends and events

that influence organisations and the market environment. Local businesses should

always be aware of international economic trends like inflation, recession and

shortages of resources, as well as international political developments.

Source: Cant et at (1999:53)

These macro environmental variables are discussed in the following sections. The

macro environment variables are illustrated in table 3-2 and indicate the composition of

the macro environment as discussed by different authors in South Africa and the United

States.

The PIRC owners and PIRG providers have no control over this environment or the

variables that operate in it. The macro environment influences all businesses, including

those of the competitors. The PIRC owner or provider cannot control the macro

environment and the variables influence one another to such an extent that they cannot

be regarded as distinct from one another. The effect that these sub-environments (as

illustrated in table 3-2) has on a business differs from business to business and from

time to time (Le Roux et at 1999:50&51). Each sub-environment is characterised by

factors peculiar to that environment at that specific time. The implications include that

when the internal environmental characteristic changes, it will affect the external

environment and decisions by PIRC owners and providers.

3.3 TECHNOLOGICAL ENVIRONMENT

"... the methods available for converting resources into products and services."

Griffin 1996:73



There is a huge shortage of skills. We need to bring in skills and technology at the

right level. This will benefit government and commerce."

Keeton 2001:16

Technology is derived from the Greek word techne, which means art. The Greek

technologia translates to systematic treatment. Baird et al. (1990:165) explain that "...

from these roots, our modern understanding of technology is the science and study of

the practical and industrial arts". Ellul (1964:37) describes the technological society as

the creation of bodies of knowledge that enable people to accomplish certain

objectives, whether they apply to solving a manufacturing problem, writing a book,

electing a political candidate or marketing a product on television. The fact that these

knowledge tools exist and can be used repeatedly to accomplish objectives means that

they can be applied to the accomplishment of a business strategy.

Peters (2001:4) voiced that in the 21 st century there will be thousands of technological

changes that will constitute paradigm shifts and the singularity of a merger between

humans and computers that is so rapid and profound that it represents a rupture in the

fabric of human history. "If South Africa is to become globally competitive, it must

develop its knowledge base and ensure that it stays at the cutting edge of the rapid

changes in technology" (Macozoma 2002:63).

Technology is a major macro-environmental variable which has influenced the

development of many products that are taken for granted today, such as television, fax

machines, calculators, video recorders, antibiotics and lap-top computers (Lancaster

2002:Internet). One example of how technological change has affected PIRCs is in the

development of electronic point of sale data capture. The laser checkout reads a bar

code on the product being purchased and stores information that is used to analyse

sales and re-order stock as well as giving customers a printed readout of what they

have purchased and the price charged. PIRCs who also sell fast moving consumer

goods, particularly convenience products, have been forced to respond to these

technological innovations by incorporating bar codes on their product labels. In this



way, a change in the technological environment has effected the products and services

that PIRGs produce and the way in which PIRGs carry out their daily operations.

Technology is primarily responsible for changes in the environment and is continually

responsible for the pace of innovation and change. Le Roux et at (1999:56) describe

the technological environment as "The technological environment embraces all

variables that contribute to the emergence of new products and services in the market".

According to Cronje et at (2000:73), changes in the environment are generally a

manifestation of technological innovation or the process through which human

capabilities are enlarged.

Mullins (1999:596) justifies that "all this constant talk about technology is so boring. It

is only another tool and besides it is the management and performance of people that

really matters. Yes, but technology is the tool which enables people to perform and

managers must have the skills and understanding to know how to make the best use of

technology within businesses"

The technological determinism approach consists of a theorisation of technology and its

so-called effects as objectively real, attributing to it an autonomous organising force

(Knights & Murray 1994:10). The technological environment is certainly the most

dynamic force affecting humankind's final destination and material wealth (Marx et at

1998:57).

Technological innovation originates in research and development by organisations as

well as the state, and results not only in new machinery or products but also in new

processes, methods and even approaches to management that bring about change in

the environment (Cant et at 1999:35). The technological innovation also affects other

environmental variables, such as the economic growth rate, which are influenced by the

number of new inventions as well as by social change.

Every new technological development or innovation creates opportunities and threats in

the environment. Wilson et at (1996:183) remark "... carefully technological monitoring



should be done in order to ensure that emerging opportunities are not ignored or

missed". Jain (1990:148) identifies three aspects of technology, namely:

categories: include energy, material, transport, communication and information;

impetus: to satisfy defence needs, improve the well-being of the masses and to

benefit commercially; and

process of technological development: the inventions, innovations and diffusions

that appear.

Technological changes create opportunities, threats and constraints and have an

impact on PIRC providers, owners and managers who should therefore stay aware of

what is happening on the technological forefront and include these changes in the

implementation and formulation of a strategy for the location of a PIRC.

3.3.1 Technological changes

"Rapid technological change and the increasingly global nature of competition are

forcing South African firms to distribute their products more widely and quickly, cope

with environment change and reduce costs."

Hough & Neuland 2001:3

The technology category selected by PIRC providers, owners or managers will depend

on its interests. The new century is certain to usher in a period of technological change

and PIRC providers, owners and managers will experience true innovation and feel the

impact. There is ongoing technological innovation in various fields, which are

continuously offering new opportunities. Du Plessis et al. (2001:25) state that "To

analyse and capitalise on technological changes, it is vital for management to monitor

the relationship between the technology dimension and product dimension". The

technological dimension describes technologies in terms of their relationships with each

other, while the product dimension confirms the competitive position of a business. The

interaction between two dimensions suggests the desirable strategic actions (Du

Plessis et al. 2001:25).



Technological change affects managers and their business in two ways, according to

Baird et al. (1990:165). One is the impact of technology on the products created by the

industry. A high rate of technological change means products are changing rapidly.

The competition from businesses that produce state-of-the-art products often forces

other businesses out of the market. The changing technologies can also affect the

processes used to manufacture and create the products offered by the industry.

Because the technology is the core of the process that transforms inputs such as

resources, into outputs such as goods and services, the changes in production

processes and activities can have a dramatic effect on production efficiency and thus

on the ability of a business to meet the needs of its current and potential customers.

'New kinds of software could make companies both more integrated and more flexible."

Ranadive 2002:5

In a business where every second counts, to aggregate all the information and make

monitoring sure, the PIRC should have enough resources available. The challenge for

PIRCs is to change design and make use of technology, namely:

with computerisation increasing in businesses, standard organisational routines

embedded in traditional processes and operating procedures tend to become

inflexible in dealing with a rapidly changing business environment;

with the increasing change in the business environment, static assumptions in such

systems become vulnerable;

the key challenge for the future will be to design and use technology that can take

dynamically changing information into account; and

for PIRCs it implies that the technology that is being used must be able to facilitate

informal and semi-formal networks to share, for example, best practices and new

ideas in dealing with complex problems in real times.

(Maritz 2001:27)

It is essential for the PIRC provider, owner or manager to evaluate the impact of new

technology on its day-to-day activities. Failure to do so may lead to the PIRC owner

going out of business or PIRC provider no longer being competitive. The new



technology leads to a change in - the procedures and processes used by PIRC

providers, owners and managers. Through new technology new tools and mechanical

and automatic equipment are developed. These may transform procedures and make

existing procedures of the enterprise technically and economically obsolete virtually

overnight. Technological innovation and development lead to higher productivity for

PIRC owners and managers. This means better and increased production with the

same input. Computer technology and especially the personal computer are generally

regarded as aids that make businesses more productive.

3.3.2 Technological trends

Technological trends or technological events occurring outside the market or industry

have the potential to affect strategies. According to Aaker (2001:97), they "... can

represent opportunities to those in a position to capitalise. A new alternate technology

could also pose a significant threat". Every new technological development or

innovation creates opportunities and threats in the environment. The technological

innovation that originates in research and development by businesses and government

results in not only new machinery or products but also in new processes, methods and

even management approaches, that can bring about the change in the environment.

Some other constraints which technological innovation can have on environmental

variables include:

the economic growth rate of a country is influenced by the number of new

inventions;

the social change, which affects the appearance of a new product, brings about a

revolution in people's way of life.

These variables influence technology and therefore the process of innovation and

change is repeated (Cronje et al. 2000:73). New technological developments or

improvements create opportunities for the business but they can also be threats (Le

Roux et al. 1999:56).



The question that arises is, "How will technological innovation affect a PIRC?"

According to Cronje et al. (2000:75) and Smit & Cronje (1999:76) the most basic result

for technological innovation, is higher productivity. Businesses are threatened by the

ability to make more and better products in the following ways:

keener competition: to reassess the following matters, namely organisational

structure, division of labour, appointment of staff, methods of production and

different marketing strategies;

creation of complexity: a clearly discernible effect of technological innovation is the

creation of complexity;

an insatiable demand for capital: effects technological innovation in industries with

advanced technology.

Burke (1999:160-167) drew upon a variety of research sources to develop a set of

guidelines for separating winners from losers. Any business exploring new

technologies can benefit from considering each of the following guidelines:

use technology to create an immediate, tangible benefit for the consumer;

make the technology easy to use. Consumers resist wasting time and becoming

frustrated and too often new technologies are perceived as doing exactly these

things;

recognise that the customer response to technology varies.

Figure 3-3 indicates the relative role of technology in improving productivity.

The technological progress affects the business as a whole and therefore includes its

products, lifecycle, supply of materials, production process and its approach to

management. All of these influences require management to keep abreast of

technological change.


L MARx-FRONEMAN Some strategic considerations on the location of road conveniences June 2003

Figure 3-3: Factors that improve productivity in the World Economy

TECHNOLOGY

CAPITAL

QUALITY OF

LABOUR

ECONOMIES OF

SCALE

AVAILABILITY

OF RESOURCES

0% 20% 40%

60%

80%

100%

Source: Adapted from Smit & Cronje 1999:76

The impact of new technologies can be important to manage the transition to a new

technology. The appearance of a new technology, however, does not necessarily

mean that businesses based on the prior technology will suddenly become unhealthy

(Aaker 2001:99). A group of researchers studied different industries in which dramatic

new technology had emerged (Cooper et eL 1976:54-60). Two interesting conclusions

emerged that should give pause to anyone attempting to predict the impact of a

dramatic new technology. The first conclusion stated that the sales of the old

technology continued for a substantial period, because the businesses involved

continued to improve it. Thus, a new technology may not signal the end of the growth

phase of an existing technology. Businesses involved with the old technology had a



substantial amount of time to react to the new technology. The second conclusion

stated that it is relatively difficult to predict the outcome of a new technology. The new

technologies studied tended to be expensive and crude. In addition, new technologies

tended to create new markets instead of simply encroaching on existing ones (Cooper

et al. 1976:54-60).

Aaker (1988:113) concluded that certain technological innovations will not mean that

the older technology is obsolete, namely:

new technology does not necessarily smother the older technology, but can

stimulate growth, because businesses are threatened and therefore improve their

technology;

businesses using old technology have time to react to new technology;

new technology's outcome is difficult to predict, and tends to create new markets,

rather than encroaching on existing markets.

According to Cronje et at (2000:74), "Every new facet of technology and every

innovation creates opportunities and threats in the environment': Technology

innovation and inventions which are unlimited often have unpredictable consequences

and the most outstanding characteristic of technological innovation is that it constantly

accelerates the rate of change (Cronje et at 2000:74; Smit & Cronje 1999:74).

Aaker (2001:23) stated that "Technological development can change an industry and

create difficult decisions for those who are committed to profitable, old technologies".

Information technology has created a significant advantage for businesses that are able

to develop and exploit systems that allow them to service customers more efficiently

and with a personalised touch.

Now more than ever, investing in the right technology can give your business a

competitive edge. PIRC owners and PIRCs providers must use and understand the

latest information technology to simplify processes, enabling them to mitigate

complexity and rapidly identify solutions that satisfy the business requirements.



Technological forces represent major opportunities and threats that must be considered

in formulating strategies. Technological advancements can dramatically affect

businesses products, services, markets, suppliers, distributors, competitors, customers

and a competitive position (David 1998:116). Technological advancements can create

new markets, resulting in proliferation of new and improved products, change the

relative competitive cost positions in an industry and render existing products and

services obsolete. Technological changes can reduce or eliminate cost barriers

between businesses and result in changing values and expectations of employees,

managers, and customers. Technological advancements can create new competitive

advantages that are more powerful than existing advantages. No business or industry

today is insulated against emerging technological developments (David 1998:116).

New technologically improved products are constantly being introduced into the market.

If a PIRC and PIRC providers do not keep abreast of changes taking place on the

technological front, they will soon find that the PIRC products are obsolete. Blanchard

& Waghorn (1997:85) said, "If you are not involved today in creating tomorrow's

markets, or knowledgeable about what's happening in these markets, you are unlikely

to find yourself competing in them."

The government's aim is to encourage the petroleum industry to continue to introduce

leading-edge technology to South Africa and to maintain and increase the economy's

global competitiveness (Mbendi 2001b:Internet).

Technological progress consequently affects a PIRC as a whole, including its product

life-cycle, supply of materials, production processes, management approach and,

ultimately its position in the petroleum industry.

The Internet trends will affect the functioning of PIRCs. Vermeulen (2002:28) argues

"The Internet is going to be the tool that allows Africans to span the boundaries of

culture, the boundaries of language and the boundaries of geography. It is going to pull

us closer to each other and to the world." Sarpong (in Vermeulen 2002:28) comments

"1 have always maintained that if someone is hungry in Africa, you can feed them today,



you can feed them tomorrow and you can feed them next year, or you can give them

the power of information technology today — with that information, tomorrow they will

find a way to feed themselves." The Internet will have a major impact on life across

Africa and also for PIRCs, thus PIRCs need to start using it.

3.3.3 The impact of technology environment on PIRGs

"Technology does provide both opportunities and threats, some of which are direct

while others are far less direct in their impact."

Du Plessis et al. 2001:25

New technological developments are expected to change the petroleum industry to a

great deal. New findings include the fields of information technology, computer

science, biotechnology, transportation methods and the Internet. New exchange

methods, such as marketing through the Internet will emerge. Peters (2001:8)

acknowledges "The Internet is changing anything for anyone at any time, anywhere."

Much of the interest surrounding the Internet since it first made the headlines around

1994 has been the tremendous potential for business. The ability to trade with partners

electronically has been a spur for many companies to get on the Net as the saying

goes. It is faster, cheaper and has a world-wide reach (Furber 2000:85). The Internet

offers two main services, namely e-mail and the web. E-mail is the most popular

service. It has been estimated that trillions of messages are sent by people around the

world every year. It is fast, reliable and cheap and lets people communicate with

anyone else who has e-mail access. The Web on the other hand is a global network of

linked documents, of which the content ranges from business opportunities, through to .

the latest world news and places to buyers selling goods (Furber 2000:85).

Stoner & Freeman (1992:79) express that the technological variables include

advances in basic sciences such as physics, as well as new developments in products,

processes and materials". The level of technology in the functioning of the PIRC

determines to a large extent:

what products and services will be produced and offered to customers?



what equipment will be used?

how will the daily operations be managed?

Technological developments create opportunities for new products and services and

are instrumental in decreasing marketing and production costs. Advances in

information technology will also improve the speed and precision of exchange

processes, according to Meulenberg & Viaene (2002:Internet).

The impact of technology is inevitable and the areas to which the manager should pay

attention include the following:

the accelerating pace of technological change: Toffler refers to the accelerative

thrust in the invention, exploitation, diffusion and acceptance of new technologies.

An ever-greater number of ideas are being developed and the time period between

their development and implementation is shortening. Toffler developed this theme

in "The Third Wave" in which he forecasts the rapid emergence and acceptance of

telecommuting.

unlimited innovation opportunities: Entails major advances that are being made in

the areas of electronics, robotics, material sciences and biotechnology.

a concentration of effort in some industries on minor product improvements: This is

essentially defensive, as opposed to the riskier and more offensive major product

advances.

a greater emphasis on the regulation of technological change: Safety and health

regulations are most evident in the application in food and car industries. In the

entire spectrum of industry far more emphasis is placed on the idea of technological

assessment as a prelude to the commercial launch of products.

(Du Plessis et at 2001:25 & 26)

Strategic initiatives impose technological demands on the petroleum industry. These

demands are in turn translated into financial and human resource capability



requirements. Offshore and arctic exploration require different technologies than do

conventional petroleum exploration. Technology has made possible the development

of alternative fuels and sources of supply impacting the economic potential of

petroleum, both as local and world commodity. Howard (1986:56) declared that "the

appropriateness of any organisation's exploration strategy and research and

development initiatives may be influenced by the technologies it employs and the

geographic locations in which it operates':

"For decades, managers have believed that a successful business could only survive

by building a better mousetrap. That is, success could be guaranteed by continuing to

offer buyers a product that did more, did it better, was more reliable and cost less than

any similar product on the market", according to Baird et aL (1990:163). But today

there is a sharpened understanding of the limits of technology and realisation, that the

current problems are beyond the scope of technology, even the technology in the

imaginations of the brightest scientist (Baird et aL 1990:163).

Maritz (2001:20) explains "... information technology and knowledge society have

implications for businesses." The service sector in which PIRCs operate, is mostly

affected by this emerging trend and will need to provide the creation of new knowledge

to enable effective competitiveness in the knowledge economy. Knowledge

management is explored, as a concept, to enable the creation and production of

knowledge to gain a competitive advantage. These implications of information

technology and the knowledge society on PIRCs are therefore crucial to study as well

as the implications on the changing nature of economic activity related to businesses.

Technology can play a vital role in controlling the shrinkage problems of PIRCs. With a

high level of employee theft, the tills call for more attention. A PIRC needs a system to

identify specific, defined transactions, such as refunds, voids or underrings. Using

advanced technologies such as smart cards or biometric recognition systems can also

restrict access to tills (Moagi 2002b:25). Technology can thus be very helpful to PIRC

owners in this regard.



Nevertheless, technology remains one of the single most powerful forces of change in

the petroleum industry. Knowing where technology is headed and the rate of

technological change offers strategic opportunities for PIRC providers, owners and

managers. Technologies can be thought of as the tools which PIRC providers, owners

and managers can apply to daily operations to get things done more quickly, more

easily or more efficiently.

3.4 ECONOMIC ENVIRONMENT

"For all practical purposes, all businesses today is global. Those individual businesses,

firms, industries and whole societies that clearly understand the new rules of doing

business in a world economy, will prosper, those that do not, will perish. "

Mitroff (in Havenga 2002:3)

Definitions of economics have been offered by many of its practitioners and theorists in

the 200 years since its emergence as a separate discipline. The Victorian economist,

Alfred Marshall, (Bennett 1997:135) described economics as a... the study of mankind

in the everyday business of life." Bearden et at (2001:35) define the economic

environment as one which "includes factors and trends related to income levels and the

production of goods and services".

Smit & Cronje (1999:66) state that the macro environment influences factors such as

inflation, recessions, exchange rates and the monetary and fiscal policy of the

government and the wealth of the community. Technology, politics, social and

international environments influence the economic environment, while itself asserting

some influence on these variables (Cronje et at 2000:77). All these cross-influences

continuously cause changes in the economic environment, and the influences can

include the following: economic growth rate, levels of employment, consumer income,

the rate of inflation, monetary and fiscal policy and the general state of the country's

economy. These economic forces have implications for PIRC management and will be

discussed in this chapter. The movement of the world towards globalisation is a major

characteristic of the 1990s (Cronje et at 2000:77; Smit & Cronje 1999:76&77). Marx et

al. (1998:61) state "Markets need purchasing power and people. The available



purchasing power of economy is determined by a large variety of factors such as

income, price savings and availability of credit."

When considering where to build a PIRC, PIRC owners must analyse the economic

environment of the country in which it contemplates doing business. The country

analysis requires the PIRC owner to a certain extent, to understand the national goals,

priorities and policies involved. It also involves an understanding of the economic

performance of the country as indicated by the economic growth rate, inflation, budget

and trade deficits. It is important that PIRC owners and managers receive regular

updates on the current position of trends in the economy. If there is a downward trend

in the economy, PIRC owners and managers should not make decisions entailing high

economic risks. In an economic downswing, the PIRC owner and manager can benefit

by reducing their inventory of the products they offer. When there is an upswing in the

economy, PIRC owners and managers should build up inventories in good time to meet

the expected increase in demand.

Some of the most frequently mentioned problems for PIRC owners and managers in

the economic environment are the following:

inflation: affects interest rates, exchange rates and cost of living for consumers.

Inflation can especially have destructive consequences in the long-term as has

been experienced in South Africa. Consumers become more price conscious,

possibly buy cheaper substitute products and become more quality conscious.

weak currencies: A relatively weak rand in comparison with other currencies

encourages exports and makes imports more expensive. This places exporters in a

more competitive position in foreign markets. Because imports become more

expensive, the demand for local products and services are stimulated.

shortage of skilled workers: In South Africa there is no shortage of labour as such

but there is definite shortage of high-level human resources. There will have to be a

dramatic increase in the rate and level of training. Without a well-trained labour



force and higher productivity, PIRC owners and managers will not be able to

achieve its economic objectives.

war and insurrection: can affect entire economies and the incurred damage may be

spread across many different insurance lines of businesses.

weak commodity prices rapid population growth: The South African population is

approximately 45 million and there is also an unknown number of illegal immigrants

in the country. These people are a threat to South Africans considering an

estimated unemployment rate of 35 percent. The expected population growth,

changes in the age structure, growth in the total purchasing power of the black

population and the changing needs and behaviour of consumers have a decisive

effect on the markets for products and services.

The operation of the economic system is responsible for a variety of economic

phenomena in a specific society which may from time to time present opportunities and

threats to the business operating in the society (Marx et at 1998:61). Some of these

phenomena, which may change rapidly and radically in a dynamic world, are discussed

briefly in this section.

3.4.1 Interest rates

"The interest rate is the price which the borrower must pay for borrowing money."


Marx et at (1998:63) define interest rates as "... in simple terms the interest rate is the

price of credit." According to Smit & Cronje (1999:60), the economic environment

variables such as the plunging rand, high interest rates and low productivity impact

negatively on businesses. Interest rates determine the cost of borrowing money. An

increase in interest rates usually results in a decrease in spending. The level of interest

rates is the result of the demand for and supply of credit. The South African Reserve

Bank plays a key role in determining the bank rates (the rates at which commercial

banks borrow money from the Reserve Bank). A lower Reserve bank rate (repo rate)



leads to lower lending rates by the banks, which encourages individuals and

businesses to borrow money, whereas a higher bank rate means a stricter monetary

policy, discouragement of credit and reduced money creation (Marx et at 1998:63).

The South African currency, that constantly devalues makes the planning of imports

such as petroleum products and the marketing of consumer goods difficult for PIRC

providers and for PIRC owners. A relatively weak rand in comparison with other

currencies encourages exports and makes imports more expensive. This places

exporters in a more competitive position in foreign markets. Because imports become

more expensive, the demand for locally manufactured goods is stimulated (Marx et at

1998:64).

Knowledge of the economic environment facing a country or an industry helps in

projecting that industry's sales over time and in identifying special risks or threats

(Aaker 2001:24).

3.4.2 Trade cycles

"All economies are subject to cyclical changes."


A PIRC should always be aware of the phase of the economy as this clearly influences

the management, growth and continued existence of the business. Each of these

phases makes its own demand on the business, namely:

phase of prosperity: During a phase of prosperity in the economy, the business has

the opportunity to manufacture and market new products. The business therefore

has the opportunity to explore new markets and to expand its current share of the

market.

recession: The consumers' disposable incomes are lower during a recession,

therefore they are buying less. This has a direct influence on the demand for

products and services and influences the growth of the business.



• recovery phase: During the recovery phase the business must prepare for the

economic growth about to take place.

(Le Roux et al. 1999:52)

The management of PIRGs should receive regular updates on the current position of

trends in the economy, and their influence on the specific PIRC. If there is a downward

trend in the economy, the PIRC owner is not likely to make decisions entailing high

economic risks. Whereas in an economic downswing a PIRC owner can, for instance,

benefit by reducing its inventory since capital may be tied up in inventories for a

relatively long period in such a phase, because in a downswing the travellers'

preferences changes from luxury to more basic goods and influence the profit margins

of a PIRC.

3.4.3 Globalisation

"... the widening and deepening of international trade, finance, information and culture

in a single integrated world market. The globalisation is to produce the best outcome

for all as regards economic growth and human welfare."

Cronje et at 2000:77

"Globalisation is a phenomenon which is here to stay and which is and will increasingly

continue to affect all our lives."

Havenga 2002:3

Globalisation as a phenomenon is good, it is the unfair application of the concept and

the abuse thereof that makes it bad. Globalisation falls into the same category as

democracy and private enterprise. Democracy in South Africa has been lauded as an

example for the rest of the world, but in the case of Zimbabwe, democracy

Zimbabwean style cannot be a worse form of government. The private enterprise

system has been proven to be the best form of economic activity, but private enterprise

also has its dark side and Zimbabwe comes to mind again together with a whole range

of other examples, private and public. "Democracy, private enterprise and globalisation

are not bad in themselves, but the way they are manipulated for selfish ends make



them bad" (Havenga 2002:3). When globalisation is correctly employed, it can be a

major advantage for any country, but a country needs to guard against any possible

exploitation.

As a result, globalisation can pose a multitude of challenges and difficulties, for

management. South African businesses were uncompetitive in many areas for many

years during the isolation period, and the economy suffered increasingly from a lack of

international competition, investment and technological renewal. Businesses

competing in a global economy pose enormous challenges for any country (Cronje et

at 2000:77).

Successful businesses of the future will treat the entire world as their domain in terms

of meeting their supply and demand requirements. In such a globalised-market, the

domestic company will not be sustainable competitively. Globalisation is not a new

concept, but there are relative new factors that have contributed to its recent

prominence such as the opening of new markets for South African businesses and new

communications and transport technology, resulting in a major expansion of

international trade and investment (Hough & Neuland 2001:13).

The health of the economy affects price decisions as well as demand and supply

(Siegel 1996:283). Price influences the economy as acceptable prices clear the

market. Products acceptably priced are more likely to be purchased. This requires

more products to be made to replace them. Prices are influenced by economic factors

such as inflation, recession and shortages caused by the nature of politics as with the

petroleum shortages instigated by the Organisation of Petroleum Exporting Counties

(OPEC).

3.4.4 Economic growth rate

The range and number of products and services produced measure the economic well

being of a country. This standard expressed in money terms is the Gross Domestic

Product (GDP). Bearden et at (2001:35), Marx et at (1998:62), Mohr et at (1995:91),

Siegel (1996:157) and Smit & Cronje (1999:77) define GDP as "... the total value of all

Chapter 3: Strategic considerations: macro environment 3- 1 06


final goods and services produced-within the boundaries of a country in a particular

period." The GDP and particularly the real rate of growth in the GDP is a measure of

the economic well being of a society (Marc et at 1998:62). But not all industries,

sectors and economic regions benefit to the same degree from a phase of strong

economic growth.

If the economic growth rate of a nation, continues to be lower than the population

growth rate, there will be a constant decline in the standard of living. Siegel (1996:283)

defines standard of living as "a measure of a country's economic health reflecting the

kinds of products consumed, their quality and quantities". When the standard of living

is declining, consumers will experience a drop in their purchasing power, and this will

influence the changes in spending behaviour and changes in type of products and

services purchased. Le Roux et at (1999:51) state that "The economic environment

influence the personal disposable income of the consumer as well as his or her

purchasing behaviour. The consumer has limited financial means to satisfy all needs

and make decisions.

To attain a higher economic growth rate and improve the standard of living, South

African enterprises will have to export more and relations with the large regional trading

blocs will also have to be improved (Hough & Neuland 2001:27). The decline of the

value of the rand, which impacted on revenues and pleasing performance, should be

seen in the context of many leading international fuel and petrochemical companies,

showing a decline in earnings.

An ideal situation would be if every country had political stability, a low inflation rate,

and a high real growth rate. If this scenario was true, and if a company did not expand

its share in each market, it would still be able to increase revenues at the same pace as

the general growth in the economy (Hough & Neuland 2001:140).


L MARX-FRONEMAN


3.4.5 Inflation

"Inflation results in a continual rise in the prices of products and services."


"Nobody wants to hold an asset that is likely to shrink in purchasing power. If prices of

products and services rise in that country, investors will be less willing to invest if they

expect price inflation in that country."

Linden 1991:375

Inflation is an economic variable that affects the decisions that management has to

make (Cronje et at 2000:79). South Africa had a very low inflation rate during the

1960s but from the middle 1970s double-digit inflation became a regular phenomenon.

Since 1993 however, a single-digit price increase, comparable to these of the early

1970s, has again been recorded. This is because many countries have chosen to

reduce inflation and to try and maintain price stability.

The decision to curb inflation stems from the twin beliefs that inflation imposes costs on

society and will therefore reduce economic prosperity and that monetary policy can

assist in lowering inflation (Cronje et at 2000:79). During times of inflation a PIRC will

pay more for resources such as convenience products and petroleum products, and

must raise its prices to cover higher costs, where higher prices lead to lower sales and

a loss in profit.

Hough & Neuland (2001:141) explain that inflation is a dimension of the economic

environment that affects interest rates, exchange rates, the cost of living, and the

general confidence in a country's political and economic system. A high inflation tends

to force interest rates up for two reasons, stated Hough & Neuland (2001:141). Firstly,

the interest rates must be higher than the inflation so that it can reflect a real return on

interest bearing assets, otherwise no one would keep such assets and secondly, the

monetary authorities use the high interest rates to bring down inflation. Thus, PIRCs

must watch the governments of high-inflation countries to determine what economic

policies will be used to counteract inflation. The oil price shocks of the 1960s and



1970s brought with them an increase in inflation (Hough & Neuland 2001:141). The

purchasing power of money falls continually. Inflation especially in the long-term, can

have destructive consequences, as has been the case, in the past three decades.

There are a multitude of factors contributing to a high rate of inflation, but only demand-

pull and cost-push inflation are usually mentioned (Marx et at 1998:63).

PIRC providers, owners and managers must monitor the increase in the prices of the

production factors, since it has a direct influence on its own price decisions. In the

search for policy directions, PIRC owners and managers must pay special attention to

the part of the price increases, which must be shifted to the consumer: and how the

price increases can be made acceptable. The factors, which can lead to an

acceleration of the inflation process, according to Kroon (1990:69), are:

the weakening of the exchange rate;

a sharp increase in the producer price index;

the stimulation of growth and job creation;

sharp increases in state expenditure;

the lack of availability of foreign capital.

A continual rise in the prices of products and services depresses the economy because

the purchasing power of the rand and the purchasing power of the consumer decrease

as inflation increase. The consumer buys fewer products for the same amount of

money because the value of the money has decreased.

Companies dealing with high-inflation countries have difficulty in planning for the future

and running profitable operations. Such companies must change prices everyday in

order to maintain sufficient cashflow to replace inventory and keep operating. Accurate

inflation forecasting is also difficult, and so PIRC owners and providers can end up

either underpricing or overpricing their products. This practice results in a cashflow

shortage or a price that is too high for the PIRC to maintain its market share in a

competitive petroleum industry. However, in general a high inflation rate adversely

affects everyone in the national economy.



3.4.6 Monetary policy

The economic variable that can have an affect on businesses is the government's

monetary policy, which affects the money supply, interest rates and the exchange rate

and can cause disturbances in the environment. According to Lindert (1991:361), "In

any market analysis: finding out what underlying forces cause supply and demand to

change. We need to know what forces have caused the wide shifts in exchange rates".

The policy affects the business as well as the consumer through tax rates and tax

reforms.

According to Cronje et at (2000:81), the following social-economic factors have an

impact on the management of a business, namely:

the South African economy was isolated during the period up to 1994. Local

businesses were protected by high tariff barriers and became unproductive, as well

as unable to compete in international markets;

the devastating crime since 1996 has not only caused tourism to decline but has

also meant a drop in foreign investment and the involvement of the local economy;

the slow pace of privatising state assets is also of importance. Potential investors

have lost patience and have sought other opportunities.

According to Maule (Mbendi 2001c:Internet), fuel prices world-wide have reflected the

very high levels of the crude price achieved by OPEC's effective management of

production, influence on location of PIRCs.

3.4.7 OPEC fuel prices

OPEC was founded in 1960 to unify and co-ordinate the petroleum policies of the

twelve major petroleum producing and exporting countries that comprise its

membership. By setting production quotas, OPEC has been able to manipulate the

global oil price. This was noticeable in 1974, when their embargo on oil caused the

price of crude oil to soar (Mbendi 1999:Internet).

According to current research by Campbell (in Mbendi 1999:Internet), "... there is

already a price shock because of the world's growing dependence on the Middle East,



which has difficulty increasing its production rapidly enough to meet demand."

Campbell further predicts that in approximately ten years there will be an onset of

global long term shortage when the Middle East will be required to supply at least 50

percent of the world's oil and that it will not be able to meet this requirement (Mbendi

1999:Internet).

High prices have curbed consumer demand for petroleum products. In South Africa, -

the situation was exacerbated by the weakening currency of the rand exchange rate.

Rising costs and the lag in the implementation of wholesale margin adjustments, have

led to severely depressing margins in marketing, with an average return on assets for

the industry being well below 10 percent. The international refining margins in contrast,

were stronger than anticipated, and the returns delivered by refining improved over the

low single digit figures of recent years, according to Maule (in Mbendi 2001c:lnternet).

The growing world demand for crude oil, some 75 million barrels a day, (Mbendi

2001c:lnternet) has placed enormous pressure on supplies, leading to a prolonged

period of relatively high prices. The weakness of the rand has resulted in the increased

cost of crude oil and has exacerbated this affect. PIRC providers are conscious of the

cost of crude oil to the country and of the need for their operations to be efficient so as

to ensure that this input to the economy is on a globally competitive level.

The petroleum industry, both locally and globally [through the International Petroleum

Industry Environmental Conservation Association] recognises their responsibility for

sustainable development and the need to create economic wealth in a way that is

considerate to those people and environments that will impact on the petroleum

industry operations. Continuing work with relevant authorities and communities will

ensure that consistent and realistic policies are put in place.

The economic trends demand constant awareness on the part of PIRC providers and

regular reconsiderations of the mission and strategy of a PIRC.



PIRC owners and PIRC providers should carefully analyse the economic environment

of the country in order to develop effective strategies. Some of the variables of the

economic environment including the growth in gross national product, inflation,

monetary and fiscal policy, interest rates, balance of payment and devaluation or

revaluation possibilities. These variables assist the PIRC owners and PIRC providers

in forecasting aspects such as frequency of sales, availability of money, and other

forms of credit.

The economic system determines who owns and controls resources. In a market

economy, individuals allocate and control resources; in a centrally planned economy,

the government allocates and controls resources.

3.4.8 The impact of economy environment on PIRGs

PIRC owners should anticipate the environmental changes in the macroeconomic

environment in order to identify opportunities, threats and constraints. "Effective

globalisation has resulted in a situation on where we are no longer in competition with

just our neighbours and fellow Africans. The old, traditional trade barriers that all

countries built up so painstakingly around themselves are falling away" (Khoza

2001:25). Goods are pouring in over the borders of South Africa, and many of them

from the most unexpected places. It is not unheard of to find appliances in businesses

made in places like Turkme'nistan or Kiribatior. Globalisation has brought PIRCs, wide

variety of new products and also electronic technology, as computing and the Internet

make the world a smaller place.

There will be a reduction in employment for PIRCs, when the concentration in the

industry is dominated by a small number of businesses. Such concentration implies a

monopoly where prices and profits are greatly increased by the range of options

available to managers to push up prices and reduce employment opportunities.

The economic growth rate can be another constraint for PIRGs, as South Africa's GDP

has allowed a growth rate, too low to employ all the unemployed people (Marx et at

1998:62).


L MARX-FRONEMAN


Manuel (in Wood 2002:50) expresses "If any more evidence is needed that inflation is

economic enemy no. 1, the latest medium-term budget framework offers it" The

budget framework shows that inflation is pushing up government costs on all fronts.

This leads to inflationary price increases, particularly affecting the product prices of

PIRCs.

Inflation is a threat to all businesses, especially PIRGs. Inflation means rising prices.

The problem with PIRCs is that as prices for labour and products increase,

overproduction may create a situation in which the PIRGs have to drop the prices of the

products and services in order to stimulate demand. In this situation, the cost of

production is sometimes in excess of the price the product will fetch in the marketplace

(Buffett & Clark 2001:61). This means that this type of business will lose a lot of

money. The extent to which the PIRC can pass on price increases in its products and

services to its customers will greatly affect the PIRC as it is an ever changing

competitive industry.

The economic environment influences the functioning of management and location of

PIRCs in various ways. When considering the right location, the variations in economic

activities are concerned, as management of PIRCs should take careful note of the

following:

the expected duration and magnitude of the business cycle;

the current phase of the business cycle, whereby a PIRC owner will be concerned

about the economy recovering or weakening;

the possible course of the business cycle over the next six months, year or even

longer.

PIRC owners need to adapt to a strategy whereby they use the opportunities, eliminate

the threats and overcome the constraints in order to create the right location for PIRCs

in the macroeconomic environment.



3.5 SOCIO-CULTURAL ENVIRONMENT

a ... the customs, moms, values, and demographic characteristics of the society in

which the business functions."

Griffin 1996:73

Hough & Neuland (2001:72) state that there is no universally satisfactory definition of a

society, but in international business the concept of nation provides a workable one,

since the basic similarity between people is both a cause and an effect of national

boundaries. The laws governing business operations apply primarily along national

lines, within the bounds of a nation, people share essential attributes perpetuated

through rites and symbols of nationhood.

The culture consists of specific learned norms based on attitudes, values and beliefs.

Van de Vliert & Van Ypern (1996:986) state that it is not easy to isolate culture from

factors such as economic and political conditions and institutions. An opinion survey

may reflect a short-term response to temporary economic conditions, rather than basic

values and beliefs that will have longer-term effects on managing business. Hough &

Neuland (2001:73) clarify that despite these problems, considerable evidence indicates

that some aspects of culture differ significantly across national borders and have a

substantial impact on how business is normally conducted in different countries.

Le Roux et at (1999:53) define the social environment that "... reflects the

demographics of the market and the social and cultural aspects of it that influence the

market". The social environment is important because of the products, services and

standards of conduct it determines for the society, which it is likely to value. The social

environment or also known as the socio-cultural environment is "... the most sensitive

to cross-influences by other variables, especially technology and the economy, is social

changes" (Smit & Cronje 1999:79).

The social environment is where people's lifestyles, habits and values are shaped by

the culture therefore making certain demands on the business (Smit & Cronje 1999:68).

This environment affects management indirectly through people as consumers and as



employees so that its ultimate effect cm the strategy of the business should not be

underestimated.

Smit & Cronje (1999:79) say that "People are products of their society: as members of

a particular community, nation or population group they adopt the culture of that society

— that is, they learn its language, values, faith, expectations, laws and customs. This

culture — or the sum total of the way of life of a group of people — influences an

individual's lifestyle." Consumption is not only explained in economic terms as a

function of income, but also as a function of cultural and social change.

A culture is not static and a community's values, expectations, way of life and habits

change over a period of time. The culture of any country is not absolutely

homogenous, because there are numerous subcultures, based on nationality, region,

population group or geographical areas, each of which modifies the environment and

has implications on businesses.

3.5.1 The demographic variables in social environment

Le Roux et at (1999:53-55) distinguish between the following demographic variables in

the social environment:

population growth: the size and composition of the market are directly influenced by

the population growth of the country;

market composition: The market composition in terms of different ethnic groups is

another variable that must be taken into consideration by the business. The needs

and preferences of the different population groups differ. Each of these groups

have a distinctive culture and life-style;

changing role of women: A greater number of women are entering the market and

the role of women in the labour market has also changed over the last few years;

life expectancy: The life expectancy has increased and as a result of better medical

services and healthier lifestyles, it had directly influenced the market;



geographic location: The markets in the metropolitan areas are more concentrated

than markets in other areas. Larger markets with a wider variety of products and

services are found in and around the cities;

development level of the market The development of the consumer's knowledge

has a direct influence on the business. Consumers are more informed and know

precisely what they want;

changing lifestyles: Today, consumers are increasingly quality-conscious. There is

a change in their lifestyles and therefore in their needs. The quality of a product is

very important and businesses should consider aspects like their products' pollution

potential and safety standards;

healthier lifestyles: The current trend toward fitness and healthier lifestyle is another

factor for businesses to consider;

time: The convenience and efficient use of time are important to the consumer. The

consumer wants to save time as much as possible. For example, the growth of

successful convenience stores in areas. Consumers do not want to waste time

buying necessity products. The convenience and longer opening hours of

convenience stores satisfy this need.

According to Moagi (2002a:23), the emphasis in many consumer lifestyles has shifted

from cost to time as the premium asset, with working mothers, single households,

commuting and television all contributing to the limited time available for food

preparation and eating. Therefore today's generation is growing up in an environment

driven by convenience. The expanding choices allow consumers access to wider

product ranges and refinement of likes and dislikes resulting in a culture of customised

products that satisfy individual needs and desires.



3.5.2 Causes of cultural difference and change

Culture is transmitted by various patterns, such as from parent to child, from teacher to

pupil, from social leader to follower, and from one peer to another (Cavalli-Sforza et al.

1982:19). However, because of multiple influences, individual and societal values and

customs may evolve over time. Durham (1992:331) explains that change may come

about through choice or imposition. Change by choice may take place as a by-product

of social and economic change, or because of new contacts that present reasonable

alternatives.

In South Africa, 11 official languages are recognised and religion is a strong shaper of

values (Hough & Neuland 2001:75). Differences among nations that practise the same

religion can also affect business. When a religion is dominant in an area, it is apt to

have a great influence on laws and government policies. It is also apt to limit

acceptance of products or business practices that are considered unorthodox. In

countries in which rival religions vie for political control, the resulting strife can cause so

much unrest that business is disrupted.

It is important for PIRC owners and managers to remember that although changes in

the attributes of a society may come either slowly or quickly, changes will inevitably

come.

3.5.3 Social responsibility and the social-cultural environment

"... by helping others, you help yourself. Social responsibility includes the environment

in which the business functions, the employees of the business as well as the

community."


The business must accept its social responsibility not only by acting within the

limitations imposed by legislation, but also by acting responsibly towards the

community.



According to Smit & Cronje (1999:101) "A change in society's values, may have a direct

effect on the social responsibility of a business" The values and ethics can play a role

in determining what the PIRC is willing to devote to social responsibility.

The crux of social responsibility according to Cronje et at (2000:6) is "... the insistence

of the community that business should in every respect be a 'good corporate citizen',

one that produces profit for is owners and investors but simultaneously markets safe

products, combats pollution, respects the rights of employees and consumers and

assists the disadvantaged".

Corporate social responsibility, according to Shaw & Barry (1992:212), implies "... a

manager in the process of serving his own business interests, is obliged to take actions

that also protect and enhance society's interests". The overall effect is to improve the

quality of life in the broadest possible way, regardless of how quality of life is defined by

the society. Thus, the manager becomes concerned with social and economic outputs.

Capitalism is based on the ideas of Adam Smith who believed that "... in the long term,

public interests are best served by individuals and businesses pursuing their own self-

interest and that government interference should be kept to a minimum" (Lussier

1997:59). Friedman elaborates on the ideas of Smith and says that a... when a

business makes a profit it is being socially responsible" (Smit & Cronje 1999:501).

Friedman believes that diverting businesses from the pursuit of profit makes the

economy of a country less efficient and that private businesses should not be forced to

accept the responsibilities belonging to government (Smit & Cronje 1999:501). The

views of Friedman represent the one extreme and the other extremes are those who

argue those social responsibility policies should be part of company mission

statements. The levels of social responsibility are illustrated in figure 3-4 and most

managers' views fall between the two extremes, according to Ivancevich et at

(1989:638-643).



Figure 3-4 illustrates the levels of social responsibility in which businesses are

engaged. The social obligation view is the generation of profits within the legal

framework of the society in which the business operates, and represents the socially

responsible behaviour of the business. The socially responsible behaviour, according

to Ivancevich et at (1989:638-643), consists only of its economic and legal

responsibilities.

Economic responsibilities include the maximisation of the business profits, the provision

of products and services to society at a reasonable price and the creation of jobs. The

legal responsibilities refer to the business obligation to comply with the general civil and

criminal law that apply to the public and also to laws that regulate business activities.

Social reaction view holds that businesses owe society more than the mere provision of

products and services (Ivancevich et at 1989:638-643). Businesses should be

accountable for the physical, environmental and. social costs resulting from their

actions. Businesses should also respond to society's problems, thus it includes

voluntary actions by the business such as supporting worthy causes that will help

society's problem solving.

Social responsiveness according to Ivancevich et al. (1989:638-643) refers to the

sociably responsible actions of businesses that exceed social obligation and social

reaction. Socially responsiveness includes civil responsibilities such as supporting or

opposing public issues and responding to the present and future needs of society.



Figure 3-4: Levels of social responsibility

SOCIAL RESPONSIVENESS

SOCIAL REACTION

SOCIAL OBLIGATION

Source: Adapted from Ivancevich et al. 1989:638-643



3.5.4 Cultural trends

"Culture trends can present both threats and opportunities for a wide variety of

businesses."

Aaker 2001:101

Popcorn & Marigold (1997:11-12) have uncovered and studied cultural trends that will

shape the future. A proactive view of the future environment of many businesses are

provided in the following trends:

Cocooning: Consumers are retreating into safe, homelike environments to shield

themselves from the harsh realities of the outside world.

Fantasy adventure: Consumers crave low-risk excitement and stimulation to escape

from stress and boredom.

Pleasure revenge: Consumers are rebelling again rules to cut loose and savor

forbidden fruits.

Small indulgences: Busy and stressed-out people are rewarding themselves with

affordable luxuries that will provide quick gratification.

Down-aging: Consumers seek symbols of youth, renewal and rejuvenation to

counterbalance the intensity of their adult lives.

Being alive: Consumers focus on the quality of life and the importance of wellness,

taking charge of their personal health rather than delegating it to the health care

industry.

99 lives: Consumers are forced to assume multiple roles to cope with their

increasingly busy lives. Retailers serving multiple needs offer ever-faster ways to

get prepared foods.

These culture trends can affect the location of a PIRC where a more varied consumer

lifestyle would prevail, more time would be spent outside the home and consumers'

increased financial and social independence would probably reduce the number of

follow-the-leader PIRCs.

PIRCs must focus on foods that meet the customers' desire for convenience.

According to Moagi (2002a:23) "... convenience stores have seen enormous growth



over recent years with innovation both in terms of product offering and pack design."

Convenience foods offered at PIRCs encompass a wide range of products from snacks

to complete meals, from salads to dairy products. Convenience stores have boomed

with the growth of prepared salads, vegetables and fruits. Like most trends in

production and consumption, PIRCs must keep up with the developments. These

changes in consumer buying patterns require a change in stock levels at PIRCs.

3.5.5 The impact of socio-cultural environment on PIRCs

Meulenberg & Viaene (2002:Internet) explain that there are two elements of the

changing social environment of food convenience products, namely:

changes in value: values are the mental representations of important life goals that

consumers are trying to achieve and these values are relatively enduring;

changes in lifestyles: is a summary of patterns whereby people live and spend time

and money. The lifestyles of people change more rapidly and are measured on the

basis of activities, interests and opinions of people, for example health conscious

customers who prefer decaffeinated coffee.

Meulenberg & Viaene (2002:Internet) summarise socio-cultural trends in food

consumption as "... the socio-cultural context of culinary systems, which traditionally

determined what should be eaten by whom and when, has rapidly changed. Social

norms are eroding or loosening." These socio-cultural changes create opportunities

and threats for PIRCs, by stimulating new product development, repositioning of

products and the addition of services with products.

3.6 PHYSICAL ENVIRONMENT

"... comprises the natural resources in the country and it incorporates the total

management of these resources, such as water, forests etc."

Le Roux et al. (1999:56)

The physical environment also known as the ecological environment comprises natural

resources such as flora and fauna and mineral resources as well as man-made

improvements such as roads (Smit & Cronje 1999:68). Natural resources are defined


L MARX-FRONEMAN


by Cunningham & Saigo (2001:605) as "Goods and services supplied by the

environment "

Since the early 1960s, there has been a growing awareness of the need to conserve

the limited resources of natural environment. Natural resources are not unlimited,

according to Le Roux et at (1999:56), but it is essential to manage them efficiently.

The speculation on the theories of Malthus and others on the overpopulation of the

earth could become a reality (Smit & Cronje 1999:81). Businesses are becoming

increasingly aware of the physical environment and the opportunities and threats to

businesses are discernible, which include a shortage of resources, the cost of energy,

the cost of pollution and damage to the natural resources in the country.

According to Cunningham & Saigo (2001:21) "How we obtain and use energy is likely

to play a crucial role in our environmental future. Fossil fuels (oil, coal and natural gas)

presently supply about 80% of the energy used in industrialized countries. Supplies of

these fuels are diminishing at an alarming rate." The problems associated with the

acquisition and use of these fuels are air and pollution, mining damage, shipping

accidents and political insecurity, which may limit where and how the remaining

reserves are used.

According to Cronje et at (2000:88-89) businesses are faced with opportunities as well

as threats in the physical environment, namely:

scarce resources: ranges of resources are becoming increasingly scarce, such as

raw materials, energy and foodstuffs. Shortages affect the supply of products and

will aggravate inflation and cause severe increases in prices. A review of the

purchasing strategies is an attempt to find substitutes for unobtainable materials.

the cost of energy: the increasing cost of energy has a direct bearing on the

environment with threats and opportunities for businesses.

the growing cost of pollution: the cost of pollution for a community in terms of

destroyed living space.


L MARX-FRONEMAN


• environmentalism: is an organised movement by inhabitants and government

institutions in defence of the natural environment. The responsibility for a well-

ordered ecology can not rest entirely on businesses.

Classical views of competition are often based on thinking that parallels that basic law

of Newtonian physics, which explains that for every action there is an equal and

opposite reaction. Classical views of competition are based on a similar assumption:

'your loss is my gain!' But just as Newtonian physics has been supplemented by new

theories, new theories of how businesses interact with one another have emerged.

One of the biggest sources of new insights in this area comes from viewing the

marketplace not as a Newtonian machine but as an ecology, in which the rise and fall

of species depend upon their ability to evolve and coexist (Miller & Dess 1993:75). The

ecological perspective suggests that the most significant competition is not between

individual species but between coevolving ecosystems.

Every PIRG is responsible for achieving a balance between its activities and the

variables in the physical environment. A PIRG owner should strive for a balance

between achieving its objectives and responsible behaviour toward the environment in

carrying out its activities.

The impact of the physical environment on the right location for a PIRG will also depend

on the availability of resources. Natural resources are available but cannot be

increased by human efforts. The resources which South Africa has as its disposal and

which it can acquire (through imports) directly affect the location of a PIRG. The

resource shortages affect the purchasing function of a PIRG in particular because the

purchasing manager of a PIRG must find new sources of supply or substitute for the

unobtainable resource. For PIRCs to function, they should concentrate on contributing

to the conservation of the environment by minimising smoke, noise, and refuse

pollution. PIRG owners should be environment conscious and act responsibility in

matters concerning the environment.



Meulenberg & Viaene (2002:Internet) acknowledge "The degradation of the ecological

environment is a societal problem, which is relevant to agriculture, the food industry

and society at large." Many consumers and PIRCs are aware of the environmental

problems, but are not knowledgeable in this respect. Consumers cannot distinguish the

environmental friendliness of a product as such. It is a 'credence' attribute, which has

to be differentiated in the market by information provided with the product. Since

environmental friendliness offers no hedonistic utility, but satisfaction from socially

responsible behaviour, this attribute is difficult to market. However, PIRCs and

consumers appreciate environmental friendliness also, since certain products are

perceived to be associated with, for example, animal friendliness and health. Limited

consumer awareness and appreciation of environmental friendliness products makes

the promotion of environmentally friendly behaviour by consumers, PIRCs and

environmental lobbies important.

In this context it is very important to note that environmental friendly is not only difficult

to evaluate for consumers but also for experts. Experts sometimes have different

opinions about the urgency of environmental problems, such as global warming and

about the methodology of measuring environmental problems, such as life cycle

analysis. Meulenberg & Viaene (2002:Internet) argue that environmental problems

cannot be defined exclusively in terms of objective physical processes. Just as they

have their origins in particular patterns of social activity, so their significance and

meaning for all is socially negotiated. The environment is no longer something external

to society but is, in a very real sense, implicated in the complex patterns of social and

economic activity in which businesses engage. The ecological aspects are particularly

important for specific convenience products offered by PIRCs.

3.7 POLITICAL-GOVERNMENTALJINSTITUTIONAL ENVIRONMENT

"The primary components of the institutional environment are the government and its

political involvement and legislation."

Smit & Cronje 1999:68


L MARX-FRONEMAN


Decision-making by management are continually affected by the course of a country's

politics, especially political pressures exerted by the ruling government and its

institutions in the business environment. The government influences the business

environment and the business primarily as a regulating force, by promulgating and

enforcing laws. Siegel (1996:119) defines laws as "... formal statements that guide

actions and set limits and penalties for infractions". Regulations are defined as "... the

rules, standards and guidelines used by government agencies to implement laws"

(Siegel 1996:122).

The governmental-legal component of the macro environment, government affects the

business environment and the organisation primarily as a regulating institution. By

promulgating the enforcing legislation, it creates order by means of political measures,

steering agricultural and economic policy in a particular direction. The policy of the

South African government is based on maintaining the free-market system, private

ownership, freedom of vocation and public condemnation of inequality, while the

democratisation of the economy and public service is in full swing (Du Plessis et at

2001:27).

According to Certo & Peter (1993:40), the political environment comprises those

elements that are related to governmental affairs. Examples include the type of

government in existence, governmental attitude towards various ,industries, lobbying

efforts by interest groups, progress toward the passage of laws, platforms of political

parties and sometimes the predisposition of candidates running for office.

Michael Porter, who developed and popularized the idea of the value chain, is quite

definite in his view of what the aim of government should be when it tries to shape the

national value-adding effort. Porter (1990:6) said "The only meaningful concept of

competitiveness at the national level is productivity". The goals of all nations are to

achieve an ever-higher standard of living (Bennett 1997:60). Ohmae (in Bennett

1997:60) said that the philosophy and aims of the global business have superseded the

role of government. Drucker (1993:10) endorses this "... the players on the stage —

politicians, diplomats, civil servants, political diplomats and political writers — speak and



write in yesterday's terms and, by and large, act — indeed, have to act — on yesterday's

assumptions and on the basis of yesterday's realities".

Government wields powers of decision-making, which affect businesses directly and

indirectly in almost all the activities, which they pursue in their initiative to add value.

The government is a major stakeholder, which has both a direct and an indirect impact

on other stakeholders.

Government also influences the business internal and external market. It does this

internally through government expenditure, and externally through its political policy

(Smit & Cronje 1999:83). The institutional environment is important for three basic

reasons, according to Griffin (1996:74), namely:

the legal system partially defines what a business can and can not do;

pro-business or anti-business sentiment in government influences business activity;

political stability has ramifications for planning.

The government influences businesses through the fiscal and monetary policies of the

country. Interest rates available to the business also have a direct effect on the

business income after interest and taxes. The local area municipal rates can also

affect the profitability of the business. The annually tabled national budget by the

Minister of Finance affects both the business and the total economy of the country.

The business must comply with the following provisions (Le Roux et at 1999:58):

the business must have a trading licence before it can do business;

the business must register with the Receiver of Revenue;

the Companies Act contains detailed prescriptions on how a company should be

established and managed;

the business can not conclude contracts unless it complies with the provisions of the

closed contract. The business is therefore limited during the concluding of contracts

by certain statutory provisions;

certain businesses must comply with health requirements laid down by the

municipality.



All businesses have a responsibility to their employees. Although the statutory

provisions and regulations protect the rights of the employee, the existence of trade

unions is an important variable in the macro environment. Trade unions fight for the

rights of workers who are in the same branch of industry. The employee acquires

bargaining power through the trade union. Government's involvement is seen in the

acts of parliament, such as the Labour Relations Act of 1995, the Basic Conditions of

Employment Act and the Employment Equity Act (Le Roux et at 1999:59).

Many political and legal forces directly affect the way businesses operate, according to

Schuler (1996:720). Political force changes have been especially significant during the

past twenty-five years and will continue to affect businesses in the future (He!Riegel et

at 1999:101). Businesses must achieve their goals and managers must accurately

diagnose these forces and find useful ways to anticipate, respond to or avoid the

disturbances they cause.

Figure 3-5 illustrates the five basic political strategies to cope with turbulence in the

environment, namely:

negotiation: is the process by which two or more individuals or groups, having both

common and conflicting goals, present and discuss proposals in an attempt to reach

an agreement;

lobbying: is an attempt to influence government decisions by providing officials with

information on the anticipated effects of legislation or regulatory rulings.

alliance: the uniting of two or more businesses, groups or individuals to achieve

common goals with respect to a particular issue;

socialisation: is the process by which people learn the values held by a business or

the broader society;

representation: refers to the membership in an outside business for the purpose of

furthering the interests of the members' business.



(Hellriegel et aL 1999:102-105)

Figure 3-5: Managerial political strategies

POLITICAL STRATEGIES

POLITICAL-LEGAL FORCES

Negotiation Lobbying Alliance Socialization Representation

Laws Government Labour unions Political action committees Others

Source: Adapted from Hellriegel et aL 1999:102

The new political dispensation in South Africa is characterised by Smit & Cronje

(1999:60&61) by "... a host of variables that can be classified under what is known as

transformation." The pressures of transformation from politicians and politically inspired

forums to adopt Afrocentric management philosophies make a manager's job extremely

difficult.

According to Cronje & Smit (1999:60) "... many managers still do not fully understand

the implications of a changing environment, in particular affirmative action." They

further mention that the surprises and shocks that the environment has in store for

managers are not confined to South Africa. The surprises that the environment

produces are nothing more than trends that will appear and disappear, only to reappear

in a different form at a later stage.



3.7.1 The petroleum industry and the political-governmental environment

"... and as government policy is to promote smaller black business, and breed a new

black bourgeoisie with major investment holdings, this was not on. Government and

black empowerment groups demand a redistribution of ownership in the petroleum

industry.

Minister of Minerals & Energy, Phumzile Mlambo-Ngcuka

(Addison 2001:39)

The Minister of Minerals and Energy has vowed that the state will ensure that the

petroleum multinationals will cede a 25 percent stake to black economic empowerment

and the stake will be "ring-fenced" to avoid dilution (Addison 2001:39). According to

Mashaba (2000:11) "Real black empowerment can only come about by people taking

responsibility for their own empowerment".

Motshabi (2000:26) states that black economic empowerment is set for a renaissance,

not so much in popularity as an investment theme, but rather in its quality as an integral

part of daily South African business. He concludes that it is sometimes suggested that

founders are unwilling to support empowerment. Nothing could be further from the

truth and thus he recognises empowerment as playing a critical role in the future

business activity and embraces the empowerment challenge as a core focus of

business operations.

The chairperson of the Parliamentary Committee on Minerals and Energy, Duma

(Mbendi 2001b:lnternet) said in the development of our energy industries we must

ensure that jobs are created, opportunities are opened up for small businesses, and

that previously disadvantaged South Africans are given extensive opportunities in

ownership and management".

The chairperson of SAPIA (Mbendi 2001c:Intemet), Maule, said that the organisation is

pleased and privileged to be part of a new way of delivering transformation and growth

in the petroleum industry. The latter not only provides fundamental inputs into the



South African economy, but, according to Maule, is also one which makes a major

contribution to development, growth, value creation and employment. According to

Maule (Mbendi 2001c:Intemet), some of the outputs of new partnerships are already

visible and relate largely to the accelerated process of transformation of the major PIRC

providers and the emergence of new participants in different parts of the value chain.

During November 2000, SAPIA members, together with Government and

empowerment groups signed, "The Charter for the South African Petroleum and Liquid

Fuels Industry on Empowering Historically Disadvantaged South Africans (HDSAs) in

the Petroleum and Liquid Fuels Industry' (Mbendi 2001c:lnternet). The Charter

provides a framework for reaching the sustainable presence, ownership or control by

HDSAs of all facets of the industry within ten years. The strategic focus areas in the

Charter include employment equity, capacity building, ownership/control, financing,

procurement and the legislative and regulatory environment.

PIRC providers support the principles of a free market and also accept that the process

leading thereto should take account of the government's social objectives (Mbendi

2001c:lnternet). The petroleum industry is tightly regulated and the dismantling of the

present rules in which the industry operates will be a complex process. PIRC providers

believe that the critical issue concerning this period of transition, is that it needs to be

carefully managed and that the changes should preserve equity amongst participants

and enable reasonable returns to be generated in the industry, so that ongoing

investments will be encouraged (Mbendi 2001c:Internet).

The key to sustainability of the economic transformation relies heavily on capacity

building within the petroleum industry, on education and on skill development. PIRC

providers are extensively involved in investments in communities, education in

communities and in training and development of their employees (Mbendi

2001c: Internet).

For a PIRC to be successful, its management (PIRC owners and managers) must

carefully analyse the interaction between corporate policies and the political, legal and



economic environments in order to maximise efficiency. The PIRC political

environment in South Africa has important external influences on its management and

how it does business. PIRC owners and managers therefore need to establish

corporate strategies about their daily operations.

3.7.2 The political systems and its functions

The political system is designed to integrate the parts of a society into a viable,

functioning unit. A country's political system has an enormous impact on how business

is conducted domestically and internationally. It influences and is influenced by various

factors (Hough & Neuland 2001:104). The political system is also influenced by a

variety of internal factors, such as the nature of the population, the size and influence of

corporations and government bureaucracies and the strength of the politicians.

Figure 3-6 illustrates the interaction between the process functions, inputs and outputs

in any political environment. The process functions in the figure are interest articulation

and aggregation, formulation of policy alternatives and implementation and adjudication

of policies. Politicians, individuals, businesses and interest groups provide inputs

through the process of interest articulation, that is, making their desires known (Almond

& Powell 1984:8). These inputs are then aggregated through a process called interest

aggregation so those policy alternatives can be formulated that stand a chance of

making it through the political process.

The alternatives are debated and policies are made, usually by political structures such

as political parties, government bureaucracies, state and federal legislature and courts.

Next the policies are implemented and any controversial features are adjudicated

through the court process to determine if they are legal (Almond & Powell 1984:8).

3.7.3 The impact of the political system on management decisions

Every political system struggles with the balance between decentralised decision-

making by individuals and centralised regulation and control of decisions by

government (Hough & Neuland 2001:112).



PIRC owners and managers must deal with varying degrees of government

intervention, varying degrees of political stability, whereby they must understand the

critical functions that a democratic government performs in the economy. Marcus

(1993:216) identifies the following critical functions that a democratic government

should perform in the economy, namely, it:

protects the liberty of its citizens;

promotes the common welfare of its citizens;

provides for public goods such as national defence and transportation and

communications systems;

handles market deficiencies such as entry barriers and insufficient consumer

knowledge and power;

deals with spillover effects and externalities.

PIRC owners and managers should be aware of the legal systems and the nature of

the legal profession, both domestic and internationally and the legal relationships that

exist between petroleum countries. To be successful, PIRC owners and managers

must learn to deal with public institutions such as the government, governmental

agencies and government owned businesses.

3.7.4 The impact of the political-governmental environment on PIRCs

It is very difficult for an individual PIRC to influence the macroeconomic environment on

its own. However, individual PIRGs can organise together to protect their interests

more effectively. The joint and organised action may provide opportunities for PIRCs

and may cover a wide spectrum of values, namely:

PIRCs need to do joint research projects;

joint representations against or in favour of specific government actions,

complicating or facilitating business operations;

upholding certain principles in competitive situations;

joint request for the introduction of regulations to protect the petroleum industry;

joint handling of problems in the branch of the petroleum industry, such as labour

issues, training and productivity.


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The political-governmental environment can create both opportunities and threats for

PIRCs. Firstly, it can create opportunities for PIRCs, by establishing open international

markets, whereby improving the current market access through replacement of non-

tariff barriers. Secondly, it can create threats such as government influences on petrol

price controls. These taxes are levied by the government and can affect the price of a

product such as petrol, liquor and tobacco. PIRC owners should anticipate these

changes in order to establish the functioning and location of the PIRC.

3.8 INTERNATIONAL ENVIRONMENT

"... the extent to which the business is affected by or involved in businesses in other

countries."

Griffin 1996:74

The international environment influences a business and the market environment, in

which the local and foreign political trends and events exist (Smit & Cronje 1999:68).

Marx et al. (1998:74) explain "In the world we live in today there is an international or

global dimension to each of the macro-environments."

The business environment grows in complexity with more opportunities and threats if

an international dimension is added to each of the environmental factors. Businesses

that operate internationally find themselves in a far more complex environment because

each country has unique environmental forces with its own technology, economy,

culture, laws, politics, markets and competition (Smit & Cronje 1999:83). International

trends and events affect international businesses.

According to Linden (1991:1), Wations are not like regions or families. They can put up

all sorts of barriers between their members and the outside world. Being sovereign,

nations can be more indifferent to the interests of others. A region or family must deal

with the political reality that others within the same nation can outvote it,• and therefore

coerce it or tax it" Businesses must compromise within the international environment

with others who have political voice. As long as nations exist, the international



environment will play a major role in international trade that effects businesses. Linden

(1991:16) states further that "... trade results from the interaction of competitive supply

and demand".

Smit & Cronje (1999:61) state that because of mass action and poor labour relations,

South Africa can not compete against the successful nations of the world. South Africa

has not only lost ground to the rest of the world as an investment location, but also in

the rest of Africa African oil-producing countries are attracting the bulk of new

investments, where South Africa is showing an outflow of capital.

According to Hough & Neuland (2001:3), internationalisation is measured in terms of

trade, exports, imports, cross-border investment flows, international alliances and

partnerships with foreign firms, protectionism and export or import diversification. The

South African level of internationalisation has declined since 1992, while in terms of

partnerships with foreign firms, the country occupies the penultimate competitive

position among newly industrialised nations. Although South Africa's relative

competitive position has declined, the country is still rated among the top five emerging

markets in the world (Hough & Neuland 2001:3).

3.8.1 Environments and management

"While the international business environment comprises the total world environment in

its broadest sense, the relevant international environment for a multinational enterprise

would be the sum of the total of the environments of each of the nation-states or

countries with which the company trades or may have foreign affiliates"


Global issues and forces such as ongoing shifts in international financial markets,

increasing economic integration, global trends in trade liberalisation and deregulation,

far-reaching technological advances, and the increasing importance of emerging

economies and markets, can affect the petroleum industry in various ways. Therefore,

there is an exponential increase in the level of complexity as business becomes more

international in scale and in scope (Miller 1997:12).



Coade (1997:1) has identified six key areas that have a direct impact on a business's

understanding of the international business environment, namely:

success and failure in understanding the business environment;

the changing nature of the international business environment;

the competitive factors influencing the business environment;

the need for general environmental scanning;

systemising the search for international business opportunities;

the key factors driving the competitive environment.

PIRC providers, owners and managers should address these key issues and gather

relevant information to facilitate market and competitor analysis as a basis for strategic

planning and strategic formulation as part of effective international management. This

approach will most likely decrease risk and uncertainty for PIRC providers, owners and

managers and enhance performance and achieve a competitive advantage in the

global market-place.

3.8.2 Risk in the international environment

"Risk can adversely affect carefully planned outcomes and expectations

in international business."


Mead (in Yip 1995:8) identifies two types of risk, namely internal risk and environmental

risk. Internal risk is defined as the threat that internal events will adversely affect the

business's ability to implement its strategy and achieve its goals; whereas

environmental risk is defined as the threat that events in the environment will adversely

affect the business's ability to implement its strategy and achieve its goals.

PIRC owners and managers need to protect themselves against internal risks such as

fraud and incompetence, by implementing effective risk-management systems and

encouraging a positive organisational culture.



3.8.3 The impact of the international environment on PIRGs

The progress in computer, transport and communication technology has broken down

the barriers between different parts of the world and has produced the so-called 'global

village'. The international environment is especially important to PIRCs because in

particularly because of the open economy in South Africa and can therefore be directly

and strongly influenced by the international environment.

Although each national economy has its own unique macro environment, this

environment may be affected by international events. The petroleum industry, which is

affected by international events, finds itself in a complicated and highly competitive

business environment in which a large variety of forces are in effect. The major

international forces that affect PIRCs are international technology, international

economies and international politics.

Businesses that operate internationally find themselves in a much more complex

business environment, because every country has its own peculiar environmental

factors, with its own technology, economies, culture, laws, politics, markets and

competitiveness. To determine the location of a PIRC internationally, the above factors

should be studied carefully in order to adapt strategies accordingly.

3.9 CLOSURE

In a market economy businesses exist in a dynamic environment in which economic

fluctuations, changing ways of life, technological innovations, international and physical

variables as well as political trends are continually changing the macro environment

and ultimately affecting it. Knowledge of trends in the environment and identification of

environmental dimensions that largely determine the progress of a business are also

necessary for decision making to maximise profitability.

It is impossible for any business to function in total isolation. Without interaction with

the business environment, the business can not continue to exist and grow. Together

they form a complex dynamic business environment in which changes in environmental



variables continually determine the success or failure of a business. Therefore, the

business must constantly analyse the business environment.

The emphasis on the macro environment is on change caused by the uncontrollable

macro variables and their implications for management of such businesses. Although a

PIRC has no control over the macro environment, it nevertheless has to assess this

environment carefully in order to plan realistically. The planning can prepare the PIRC

for possible changes in the macro environment, allowing it to be proactive and not

reactive in its interaction with the macro environment.

The only certainty about the future is that it will be uncertain and changes will occur at

an increasing rate. Despite this caveat, there are hopeful signs that the South African

economy will exhibit strong growth. The expansion of economic freedom, more fiscal

restraints by governments, increases in investment, freer trade, and exploding

technological innovation are some of the forces supporting South African and world

growth. Although large scale wars, environmental catastrophes, political upheavals or

other events could change the picture. According to Sachs (Zachary 1997:A1 & A8),

an economist, "The positive side is spectacular. Economic growth will raise the living

standards of more people in more parts of the world than at any time in prior history".

The period ahead for PIRC providers and PIRCs is likely to be a challenging one,

operating under conflicting priorities. There need to be a balance for the desire for

regulatory control and the attainment of social objectives against the need for a more

competitive industry via the managed liberalisation process. PIRC providers and

PIRCs need to balance the necessity for environmental improvement with the urgent

need for national economic growth as well as the need to balance and maintain

affordable prices and rural development against the need for more stringent product

specifications with their higher prices.

PIRC providers support empowerment and the governments desire to ensure that a

part of the petroleum industry is owned by HDSAs (Mbendi 2001c:lnternet). PIRC



providers need not only combat rising fuel prices but also to enable fair returns for

refiners, marketers and PIRCs so that investment necessary for the maintenance and

development of the petroleum industry can take place. All stakeholders must seek to

maintain a fair and stable business environment during this period of transition.

According to Maule (Mbendi 2001c:Internet), "... a holistic approach must be taken on

decisions to upgrade fuels to protect the environment, and the billions that must be

spent on new refining systems must provide commensurate benefits for the public".

The guiding principles must be what are in the best interests of South Africa as a whole

and meeting these guidelines will help the petroleum industry contribute to the growth

of the nation.

PIRC providers, owners and managers are dependent on the environment for the

procurement of inputs and the delivery of outputs. To be able to formulate and achieve

proper goals, a constant adaptation to environmental change is essential. To be

successful, PIRC owners and managers must continually research the petroleum

industry, macro environment and make use of the opportunities and overcome the

threats. The changes in the macro environment have particular implications for PIRC

providers, owners and managers. Attention must be paid to the technological,

economic, socio-cultural, physical, political-governmental and international

environments.

To conclude, it is clear that the macro environment contains many potentially significant

opportunities, threats and constraints and that an important part of strategic

management is identifying these and developing or adjusting strategies for location of

PIRCs accordingly.



CHAPTER 4: STRATEGIC CONSIDERATIONS: MARKET ENVIRONMENT

CONTENTS

PAGE

SYNOPSIS 4-142


4.2 COMPOSITION OF THE MARKET ENVIRONMENT 4-144 4.2.1 Historical overview: PIRCs 4-146 4.2.2 Market share: PIRCs 4-148 4.2.3 The pricing of petroleum products 4-150

4.3 CONSUMERS 4-155 4.3.1 Role of customer service 4-156 4.3.2 Consumer buying behaviours 4-158

4.4 COMPETITORS 4-162 4.4.1 The possibility of new entrants in the petroleum industry 4-164 4.4.2 The bargaining power of customers and consumer 4-167 4.4.3 The bargaining power of suppliers 4-169 4.4.4 The availability of substitute products 4-169 4.4.5 The number of existing competitors 4-170 4.4.6 Strategic implications of "Five Competitive Forces" model 4-173

4.5 INTERMEDIARIES 4-175

4.6 SUPPLIERS 4-176 4.6.1 Suppliers of refining and production 4-177 4.6.2 Suppliers of capital and labour 4-179

4.7 SWOT ANALYSIS: MARKET ENVIRONMENT 4-180 4.7.1 Identifying PIRC market strengths 4-181 4.7.2 Identifying PIRC weaknesses 4-184 4.7.3 Identifying PIRC market opportunities 4-186 4.7.4 Identifying threats for future profitability of a PIRC 4-189 4.7.5 The value of SWOT analysis 4-192

4.8 CLOSURE 4-193

Chapter 4: Strategic considerations: market environment 4-141


SYNOPSIS

This chapter seeks to explore the impact of the market environmental determinant in

the South African petroleum industry as to evaluate the impact of different variables of

this environment on the strategy formulation and implementation of the right location of

PIRCs.

Most consumers are unaware of the extent to which South Africa's petroleum industry

is stifled by a maze of regulations and cartel arrangements. Each and every PIRC has

a monopoly power over fuel sales in its area. An agreement between government,

PIRC providers and PIRCs, under the so-called Fuel Rationalisation Plan, agrees that it

is illegal to open a PIRC without being advised by government to do so. There is also

no need for PIRC providers or PIRC owners to compete on the basis of price because

government determines the price of fuel and profit margins.

PIRCs should understand the continued interaction between market variables and

variables in the macro environment that give rise to changes in both these

environments.



4.1 INTRODUCTION

"Every business needs a concept of its industry. Them is a logical way of doing

business in accordance with the facts and circumstances of an industry if you can

figure it out "

Sloan 1965:1

The environment that immediately surrounds the micro-environment is the market

environment. This environment consists of consumers, competitors, intermediaries and

suppliers that are a source of both opportunities and threats to PIRC owners and

providers. The PIRC owners and providers should therefore be aware of trends in the

market environment so that they can utilise opportunities profitably and avoid threats in

good time. Smit & Cronje (1999:69) define the market environment as "The

environment that surrounds the business is known as the market or task environment."

The market environment comprises the market, suppliers, intermediaries and

competitors that are the source of opportunities and threats to businesses. The market

environment contains variables that revolve around competition and that present

challenges to management in its attempt to obtain the necessary resources or to

market the goods and services of the business profitably.

The market as a variable in the market environment, consists of people with particular

demands who manifest certain forms of behaviour in satisfying those demands. For a

PIRC to achieve any success in determining the right location will depend on a

strategy-influencing consumer buying decisions in its favour in a competitive petroleum

industry. PIRC owners need to be completely up to date on all aspects of consumer

needs, buying power and buying behaviours. The consumers, competitors,

intermediaries and suppliers are discussed in the following sections.

A free economy is efficient and in South Africa there still are concems that the process

of deregulation will be fraught with problems, such as shortages and the emergence of

a cartel. The concept of an industry begins with the concept of the customer. This

implies a precise knowledge of whom the individual is that the business intends to

target.


L MARX-FRONEMAN


4.2 COMPOSITION OF THE MARKET ENVIRONMENT

"The immediate environment outside the business is the market or task environment

with all the powers and influences intrinsic to a capitalistic-orientated system. The

market environment lies between the micro and the macro management environment

and serves as a buffer between the two."

Kroon 1990:62

According to Smit & Cronje (1999:69), a market consists of people who have needs to

be satisfied and the financial means to satisfy them by buying business' products and

services. In the market environment people have particular needs and certain

behaviours in satisfying them. Businesses need to use a successful business strategy

to influence the consumer purchasing behaviour in its favour in a competitive business

environment. Cronje et al. (2000:65) indicate "The market environment is immediately

outside the business organisation and consists of the market, suppliers, intermediaries

and competitors, who are sources to both opportunities and threats to a business."

Kroon (1990:78) states that the market concept can have different meanings:

The business comes into contact with the market in the abstract sense, namely the

sum total of the force of supply and demand where prices and quantities are

determined, irrespective of the ways in which demanders and suppliers come into

contact with each other.

In the general sense the market is something concrete. It is a place where things

are bought and sold and where the market parties come into contact physically

For the individual business, especially from the marketing point of view, the market

concept means the sum total of existing and potential consumers in the market. Not

only must the existing consumer loyalty be maintained, but the potential consumers

must also be persuaded to spend money on the goods and services of the

business.



Businesses need to familiarise themselves with all aspects of consumer needs,

purchasing power and purchasing behaviour, that are influenced by the macro

environment. Where demographic trends affect the number of consumers, economic

factors determine the purchasing power of consumers, and cultural values exert

particular influences on the purchasing behaviour of consumers. Personal disposable

income (PDI), is the portion of personal income that remains after direct tax, plus credit

repayments (loans from banks, shops or other institutions) have been deducted and

that can be used for buying consumer products and services (Smit & Cronje 1999:70).

There are two main characteristics of the consumer market, namely the number of

consumers and the purchasing power. The various characteristics can influence the

purchasing patterns or buying behaviour of the consumer market: language, age,

structure, gender distribution, marital status and the size of a family. These conditions

are directly influenced by variables in the macro environment. Therefore, according to

Cronje et aL (2000:66), "... the demographic trends influence the number of

consumers, economic factors determine the buying power of consumers and cultural

values exert certain influences on their buying behaviour." The PIRC owners and

managers should understand the continuous interactions between market variables and

the variables in the macro environment that gives rise to changes in both these

environments.

The business and its marketing management develop a strategy to influence the buying

decision of the consumers. PIRC owners and providers must keep abreast of the

motives of the consumer, the influence of the family when the consumer buys, the

consumer's psychological make-up and what and where the consumer buys, if the

PIRC wants to be successful in the market environment. Kroon (1990:78) states "It is

logical that the market and its buying habits must be thoroughly established before

business strategy as well as a marketing strategy can be formulated." The

management of a PIRC should cultivate an awareness of trends in the market

environment in order to utilise opportunities advantageously and to overcome threats.

For this, not only knowledge and information are necessary, but also knowledge

acquired through market research. The petroleum industry historical overview in the

market environment will be discussed in the following section.



4.2.1 Historical overview: PIRCs

"Rigged is the best word to describe the petroleum industry world-wide. And rigged it is

in South Africa too, tied up in regulations, with assets in the hand of club of petroleum

oligopolists."

Addison 2001:39

Addison (2001:39) states further "In the world at large, petroleum supplies and prices

are controlled by OPEC cartel, simply because they hold the lion's share of this vital

commodity without which the global economy would seize up."

It is impossible to understand the present structure of the South African petroleum

industry properly without being aware of the historical background in which the industry

was formed. During the 1920s, a number of multinational petroleum companies such

as British Imperial Oil Company (now Shell), Vacuum Oil Company (now Engen), and

Texaco (now Caltex) were selling fuel in South Africa. Before 1925, the demand for

petrol had increased but only at a marginal rate. However, between 1925 and 1935,

annual inputs of petrol increased from 168 to 784 million litres. This was mostly

because of the increase in cars, during this decade (Gritzman 1999:3).

As demand for fuel was climbing, petrol providers were benefiting from a stable cartel.

PIRC providers dictated the selling price, and any retailer who sold at above or below

the mandatory price could have their supplies terminated. This arrangement kept

prices stable, although retailers and consumers did not benefit. The government

reacted to complaints by passing the Unlawful Determination of Prices Act of 1931 and

the aim of this legislation was to leave the determination of prices to market forces.

"The inevitable result was country wide price wars which led to chaotic circumstances

throughout the petroleum industry in South Africa" (Meiring 1991:14). The assessment

did not seem rather unlikely as the legislation merely prohibited price fixing and the

maintenance of cartels. The market conditions were only chaotic for businesses with

monopoly power.



During 1937, the Act was amended and made provision for regulated prices, a

requirement that only approved petrol providers were allowed to sell fuel and a limit on

the number of petrol providers to be approved (Gritzman 1999:4). Government paid

heed to the representations of the major petrol providers when amending the Act. A

localised monopoly for individual retailers and a cartel of suppliers were entrenched by

the law. The possible new entrant of Arop into the market a few years earlier had

caused enormous price wars. Now there would be no threat of competition from an

impertinent outsider. No attempt could be made to undercut the cartel's price, as it was

illegal. No retail outlets feared infringement on their trade by competitors (Gritzman

1999:4).

The Second World War limited the development of the petroleum industry, but after the

war, by 1947, government called it: "... the perpetuation of monopolistic activities". It

was believed that "The introduction of a greater measure of competition would be the

most effective of improving services and reducing service rates" (Gritzman 1999:4).

The Act introduced many artificial rigidities and stipulated that as soon as a prospective

petrol provider complied with certain minimum requirements, petrol providers would be

obliged to install pump equipment and to supply fuel at their own expense. This led to

a surge in the number of petrol providers, and to a decrease in profits of existing petrol

providers. Government and petrol providers developed a system whereby any petrol

provider, which could not find a willing supplier, would be allocated to a petrol provider

on a roster basis. Even with free entry into the retail industry, petrol providers were

saddled with the non-optimising constraint of having to service and supply some petrol

providers at a loss. In 1951 this situation was improved, when petrol providers were

allowed to sell only one company's output (Gritzman 1999:4).

During 1951, the single brand system was introduced when a considerable change in

the retail of the fuel trade occurred. The petrol providers could save on delivery costs

since they only had to deliver to their own petrol service stations. In addition,

consumers received improved service, because there was more of an incentive for

petrol providers to upgrade facilities (Gritzman 1999:4).



In 1960 the Service Station Rationalisation Plan (Ratplan) was introduced and it has

since undergone several minor adjustments but remains substantively intact. The

Ratplan was not introduced as legislation but as an agreement among government,

petrol providers and the Motor Industries Federation, which represents petrol station

owners. The Ratplan imposed a limit on the number of petrol stations in each

geographical area, and restricted new companies to enter the market freely. Although

during 1960 Trek and Esso (now Zenex) entered the market, they still remain far

smaller than other petrol providers largely because of the Ratplan quotas (Gritzman

1999:5).

The Ratplan specifies that repair facilities must be available at petrol stations, and that

vertical integration as well as the self-service facilities are prohibited in order to protect

the jobs of petrol pump attendants (Gritzman 1999:5). Government introduced price

controls together with the Ratplan and petrol providers are not allowed to sell petrol at

any other price than the government approved price.

There were fixed margins for petrol providers and petrol station owners and no

discounting out of these margins was allowed. Any form of price discounting may result

in petrol service station supplies being cut off. This is another factor in explaining why

new entrants to the market have remained small, as they are not allowed to gain a

market share by undercutting competition. However, prices are only fixed in the retail

market, whereas in the wholesale market the prices are negotiable.

PIRGs should understand the continued interaction between market variables and

variables in the macro environment that give rise to changes in both these

environments.

4.2.2 Market share: PIRGs

The Ratplan controls the number of PIRCs to be opened by each of the PIRC

providers. The following tables on market share are provided by SAPIA (Mbendi

2001k:Internet) and McClelland (2003:Interview), figures for 2003 was not disclosed.



Table 4-1: Major product market shares - petrol percentages

COMPANY 1997 1998 1999 2000 2001 2002

Afric Oil 0,70 0,67 0,05 0,02 0,04 0,09

BP 15,80 15,92 16,13 15,98 16,24 16,37

Caltex 17,67 17,71 18,05 17,89 17,43 17,09

Engen 24,20 24,10 24,17 26,78 27,02 27,10

Exel 0,26 0,80 1,38 1,86 2,23 2,79

Sasol 6,67 6,35 6,30 6,12 6,06 4,62

Shell 18,94 18,24 17,99 17,90 17,53 17,78

Tepco 0,08 0,23 0,40 0,38 0,33 0,33

Total 13,09 13,47 13,07 13,07 13,12 13,83

Zenex 2,59 2,51 2,46

TOTAL 100,00 100,00 100,00 100,00 100,00 100,00

* In 2000, Engen acquired Zenex.

SOURCE: Adapted from Mbendi 2001k:lntemet; McClelland 2003:Interview

Table 4-2: Major product market shares - diesel percentages

COMPANY 1997 1998 1999 2000 2001 2002

Afric Oil 0,18 0,07 0,55 0,19 0,99 1,46

BP 15,92 15,60 15,28 15,38 15,73 14,95

Caltex 18,23 18,19 16,50 15,80 16,69 16,69

Engen 24,60 24,07 23,33 27,95 27,25 25,95

Exel 0,69 2,40 3,80 4,98 4,84 5,84

Sasol 0,92 0,51 0,48 0,65 0,85 0,37

Shell 19,87 19,04 18,99 18,33 17,80 17,89

Tepco 0,34 0,85 2,36 2,90 2,22 2,68

Total 14,76 14,75 14,07 13,80 13,63 14,17

Zenex 4,49 4,52 4,64

TOTAL 100,00 100,00 100,00 100,00 100,00 100,00

* In 2000, Engen acquired Zenex.

SOURCE: Adapted from Mbendi 2001k:internet; McClelland 2003:Interview



SAPIA published the product market shares as indicated in table 4-1 and 4-2,

notwithstanding a general principle that SAPIA does not publish specific information

about individual petroleum companies. The growth of the empowerment controlled

companies market shares totalled 4,29 percent for petrol and 11,35 percent for diesel

during 1999. In 2000, Engen acquired Zenex and an empowerment group acquired a

20 percent share in Engen. In 2001, empowerment groups acquired 25 percent of BP.

In 2002 an empowerment consortium acquired 25 percent of Caltex. Including 20

percent of Engen's and 25 percent of BP's and Caltex's market shares, empowerment

shares in 2002 were 12,06 percent for petrol and 17,43 percent for diesel (Mbendi

2001kinternet; McClelland 2003:Interview).

4.2.3 The pricing of petroleum products

"Rising oil prices have been a drag on the global economy, and the price of petrol at the

pump has been a drain on household budgets."

Hazel hurst 2000:18

"The petrol price in South Africa is not determined by supply and demand conditions,

but rather according to an official Government formula."

Gritzman 1999:9

The price of petrol at the pump and the maximum wholesale price of diesel are set by

government in terms of various regulatory systems (Mbendi 2001i:Internet). According

to Gritzman (1999:1) "... the benefits accrued by suppliers are unwittingly paid for by

the consumer." Gritzman explains that conservative estimates on wholesale petrol

prices are at least 20 cents per litre and are about 32 percent higher than it would be in

a fully competitive market like Singapore. Therefore, the consumers as a group are

paying out at least R2,2 billion to petroleum companies every year to increase their

profitability. The fixed prices above market levels result in dead-weight efficiency

losses. The implication of this, according to Gritzman, is that the South African

economy as a whole loses hundreds of millions of rands, every year because of fixed

prices in the petroleum industry.



There are two main constituents of the prices of the controlled products, which includes

petrol and diesel. Firstly, the external factors comprise the dollar price of the product

on world markets multiplied by the dollar/rand exchange rate. The external factors

move constantly and account for most of the movements in prices. Both the world

market price of petroleum and the exchange rate are outside the control of the

petroleum industry. The monthly pricing system, whereby the controlled prices are

changed on the first Wednesday of the month, takes account of movements in these

factors (Mbendi 2001i:lnternet).

Secondly, the internal factors comprise the rand based dealer and Petroleum Company

marketing margins, transport costs and taxes and levies. When the various internal

factors are adjusted, these movements are also included in the relevant monthly price

change. Table 4-3 shows the price build up for petrol at retail price of 419,0 c/I in June

2002. Table 4-4 shows the price build up for diesel at retail price of 363,2 c/I in June

2002 (figures for 2003 was not disclosed).

Table 4-3: Petrol price breakdown

CENTS PER

LITRE

PERCENTAGE

Basic price 226,4c/I 54,1 %

Government duties and taxes 120,5c/I 28,8 %

Dealer margin 31,2c/I 7,4 %

Industry margin 24,3c11 5,8 %

Zone differential 11,5c/I 2,7 %

Service differential 5,1c/1 1,2 %

TOTAL 419,0c/I 100 %

Source: Adapted from Mbendi 2003:Internet



Table 4-4: Diesel price breakdown

CENTS PER

LITRE

PERCENTAGE

Basic price 218,7c/I 60,2 %

Government duties and taxes 103,5c/I 28,5 %

Industry margin 24,3c/I 6,7 %

Zone differential 11,5c11 3,2 %

Service differential 5,1c/1 1,4 %

TOTAL 363,2c1I 100 %


i) The mechanics of the monthly pricing system

World petroleum and financial markets respectively drive movements in petroleum

products' prices together with the dollar/rand exchange rate, and these movements are

dealt with through the monthly pricing system. This system is based on the daily

average of five published world petroleum prices for the product concerned. These are

the posted prices of three refineries in Singapore, an assessment of the Singapore spot

market price and the posted price of a refinery at Bahrain. The cost of shipping and

related costs to South Africa is added to these prices. The resultant dollar basic price,

is converted to rand at the daily dollar:rand exchange rate for these fuel prices (Mbendi

2001(i):Intemet).

The Central Energy Fund controls the whole world system and it is prudent for the

control mechanism to be linked to world markets, as is the case in South Africa.

Internal factor movements in the rand-based elements are subject to govemment

control. These are increases in taxes and levies, transport costs and increases in the

petroleum company marketing margins and the dealer margins. The over-riding

rationale of the control of prices and margins should be to ensure that the various

stakeholders in the industry earn fair returns (Mbendi 2001i:Internet).



Different forms of taxation account for the petrol price. According to Gritzman (1999:2),

petrol is "... an inelastic good, and large increases in price cause only minor decreases

in consumers' demand." This means that petrol is a perfect target for high levels of

taxation, because consumers are effectively a captive market and they have no choice

but to purchase similar quantities of fuel, no matter what the price.

The Monthly Pricing System, includes the price build-up an industry marketing margin

controlled by government, and determined by the use of the Marketing of Petroleum

Activities Return (MPAR) system and refining margin. In table 4-5 the MPAR indicates

that the margin increases, based on each years return, and are applied for the

succeeding year. The shortfalls are not cumulative but do represent a loss of income to

the industry in the years in which increases are due but not granted. Since 1994, the

MPAR has been consistently below the lower end of the 10 - 20 percent band.

Table 4-5: Marketing of petroleum activities return (MPAR)

1995 1996 1997 1998 1999 2000 2001 2002

MPAR return °A) 9,2 6,8 8,8 9,7 7,3 4,0 3,8 -

Indicated margin Increase (di)

2,7 4,9 3,6 2,5 3,81 6,75 6,93 -

Increase granted (in succeeding year)

0,0 0,0 2,0 1,0 0,5 1,23 2,58 6,93 +

- Margin at year end (GI)

14,1 14,1 16,1 17,1 17,6 18,8 21,4 28,3

Source: Adapted from Mbendi 2003b:lnternet

- As at December 2002

4- 2,94c/I granted on 2 January 2002

1,90c./I granted on 6 November 2002

2,09c/I granted on 4 December 2002



Marketing profits

The marketing profitability is governed by the MPAR system. This system has its roots

in the 1970s when the government applied price control to various industries. Under

the MPAR system, an aggregate petroleum industry marketing profit acceptable to

government is between 10 percent to 20 percent of assets. If returns fluctuate within

the 10 percent to 20 percent band, then no increase or decrease is due. If returns go

above 20 percent, then a margin decrease is indicated. If the returns fall through the

10 percent floor, increase is indicated. When adjustments are made the new cents per

litre marketing margin is set at a level which would have a delivered 15 percent return

for the year under review (Mbendi 2001i:Internet).

Refining profits

A refinery separates crude oil into its component parts. For every 100 tons of crude,

about 93 tons of refined product is produced (Mbendi 2001i:Internet). For income to be

earned, the refining process must add value over and above the cost of the processes

and the cost of the initial 100-ton input. There are two categories of products, namely

higher value products such as petrol and diesel, and lower value products, such as

furnace and bunker fuels.

The percentage of higher or lower value products produced by the refinery depends on

three principal factors: firstly, the type of crude being refined; secondly, the equipment

used; and thirdly, the efficiency of operations. The more extensive and sophisticated

the equipment, the greater the anticipated yield of higher values products. This is not

only good for the company, but also good for the country as optimum output of high

value products saves foreign exchange on crude oil imports (Mbendi 2000i:Internet).

Botha (2003:39) sates that the South African refinery gate price will now be linked to

some of the keenest international prices, to ensure that the local refining industry

remains viable. As the local refining industry not only saves foreign currency, but also

generates forex through its export of diesel, petrol and related products.

The key point of differences are relative profitability of refineries therefore tends to be

the efficiency of operations or how management and labour maximise the yield of high



value product for a given type of crude with the available equipment. A major factor

beyond the control of the refineries is the prevailing margin between the cost of crude

oil and refined products in international markets. Petroleum is an international

commodity and these margins fluctuate in line with global trends in supply and demand

and the perceptions and sentiments of a global marketplace. World prices are outside

the control of the government. The world price of a refined product landed in South

Africa at any given time is referred to as the In Bond Landed Cost (IBLC), or the

external factors referred to in the description of the Monthly Pricing System (Mbendi

2001i:lnternet). The market environmental variables are discussed in the following

sections, with specific reference to the associated strengths, weaknesses, opportunities

and threats applicable to PIRC owners and providers.

4.3 CONSUMERS

"Customers throughout the world demand the best at all times — the best products, the

best service and the best people to serve them. It is the responsibility of every

business person to become a frontrunner in this race for global excellence and world

class performance with absolute integrity."

Du Plessis 2001:31

PIRC customers value convenience, quick responses and require extended operating

hours. It is therefore imperative for PIRC owners that customers should feel confident

that they would assess the quality of the service provided by the PIRC on the basis of

the professionalism and efficiency that accompany the service. Because petrol and

diesel prices are the same at all PIRGs, they need to focus on service excellence and

provide best quality of convenience products.

The point of departure is the consumer in the market. Knowledge regarding the

consumer is necessary since marketing-orientated management is more than just the

implementation of certain modern marketing methods. But actually it is the vision of the

owner of a PIRC, that orientates his or her whole policy and strategy according to the

needs of the market. The actual point of departure is the needs of the consumer.

These needs of the consumer and their satisfaction are aimed at the reconciliation of



two objectives (Kroon 1990:78). The targets are the maximisation of the business's

profit on the one hand and customer satisfaction on the other.

Customer satisfaction is the key to organisational success for it is the satisfied

customers who account for the repeat that a business needs to survive and thrive. The

energy, commitment, and flexibility associated with work teams promote customer

satisfaction through quick response and improved quality (Gibson et al. 1997:214). The

marketer uses the knowledge regarding the consumer to effect meaningful market

segmentation. Market segmentation is necessary because it is extremely difficult for

the marketer to satisfy different markets with one product item. The division of the total

market in more or less homogeneous consumer groups is necessary for successful

marketing and need satisfaction. PIRC owners need to simply work towards a direction

of an increase in the market share, it ensures that the marketing strategy is continually

adjusted so as to be better than that of its competitors.

Farquhar (2002a:44) explains "The past decade has seen enormous change in the

country social and economic landscape. The old perception of customers are being

forced to give way to a new reality." The petroleum industry is the interface with

consumers and its attitude has a huge influence on brand success. However, it will not

change its attitude to customers without the support of the marketer (Farquhar

2002a:44).

4.3.1 Role of customer service

"If you provide good customer service, the business will follow you — do not pursue

profits, pursue service."

Butcher 2000:28

"We want to make sure that we focus on the customer throughout, so we place the

emphasis on repeat business, while the focus remains on service delivery."

Du Bruin 2000:22



Marx (2003:Interview) states that "... offering excellent customer cam sets us apart

from the majority: but it will also increase sales and pmfds when our clientele realises

that we actually do cam about their buying experience, and we actually do care

whether they leave with a quality product or service and with all their questions

answered." Customer service is an integral part of doing business today (Harris

1996:2). Today's customer service providers must have adequate preparation to

interact effectively with today's customers. The preparation is a result of a commitment

to increase understanding of the customer service industry, the knowledge of current

trends, the ability to interpret those trends, and the development of the fundamental

skills necessary to achieve excellence.

Harris (1996:2) acknowledges "Customer service is anything we do for the customer

that enhances the customer experience." He further argues that customers have

varying ideas as to what they expect from customer interaction, therefore the service

provider must know his or her customer and strive to provide them with excellent

customer service. Kotler (1997:45) defines customer service "... summary of all the

activities involved in making it easy for customers to reason the right parties within the

business and receive quick and satisfactory service, answers and resolutions of

problems." Services are a rapidly growing and increasingly important part of today's

economy. Since services are customer driven, pleasing the customer is more

important than ever. PIRGs exist because of customers and should therefore focus on

the customer satisfaction. The prime concern of any business is that customers vote

with their feet.

The role of customer service is (Christopher et at 1991:6):

All activities required to accept, process, deliver and build customer orders and to

follow up on any activity that was not efficient.

Timeliness and reliability in getting materials to customers in accordance with each

customer's expectations.

A complex of activities involving all areas of the business, which combine to deliver

and invoice the business's products in a fashion that is perceived as satisfactory by

the customer and that advances the business's objectives.



Customer service can be seen as a process, which provides time and place utilities for

the customer and involves pre-transaction, transaction and post-transaction

considerations relating to the exchange process with the customer. Historically,

customer service has been seen from a somewhat narrow perspective. This narrow

perspective suggests that the primary role of customer service is concerned with

getting the right product to the right place, at the right time, and the focus was primarily

from a distribution and logistics viewpoint. However, a new vision of customer service

has started to emerge. This view of customer service places it in a much broader

context as a multidimensional issue with an impact on relationships with specific target

groups across a broad range of a business' activities (Cant & Machado 1998:3).

4.3.2 Consumer buying behaviours

"Consumers make many buying decisions every day."

Kotler & Armstrong 2001:171

The central question for PIRC owners, when deciding on location and considering

consumer behaviour is: "How do consumers respond to various marketing efforts the

business might use?" If a PIRC can answer this question on how consumers will

respond to different product features, prices and advertising appeals, will have a great

advantage over its competitors.

The starting point is the stimulus response model of buyer behaviour shown in figure 4-

6. Consumer's will not only respond today, but also in the changed circumstances in

five, ten or twenty years time. This figure shows that marketing and other stimuli enter

the consumer's black box and produce certain responses. PIRGs must figure out what

is in the buyer's black box. The marketing stimuli consist of the four P's, namely:

product, price, place and promotion and will change in terms of location. Other stimuli

include major forces and events in the buyer's environment: economic, technological,

political and cultural (as discussed in chapter 3). All these inputs enter the buyer's

black box, where they are turned into a set of observable buyer responses: product

choice, brand choice, dealer choice, purchasing time and purchase amount. The PIRC


BUYER RESPONSES

Product choice Brand choice Dealer choice Purchase timing Purchase amount

BUYER DECISION PROCESS

STEP 1: Need recognition STEP 2: Information search STEP 3: Evaluation of alternatives STEP 4: Purchase decisions STEP 5: Post-purchase behavior

BUYER'S BLACK BOX

Buyer characteristics Buyer decision process:

need recognition -information search evaluation of alternatives purchase decisions post purchase behaviour

MARKETING & OTHER STIMULI

Product Price Place Promotion Economical Technological Political Cultural


owner needs to understand how the stimuli are changed into responses inside the

consumer's black box, which has two parts. Firstly, the buyer's characteristics

influence how the customer perceives and reacts to the stimuli. Secondly, the buyer's

decision process itself affects the buyer's behaviour.

Figure 4-6: The consumer buying behaviour

Source: Adapted from Kotler & Armstrong 2001:171 & 193

The buyer decision process consists of five stages, namely: need recognition,

information search, evaluation of alternatives, purchase decision and post purchase

behaviour (Kotler & Armstrong 2001:193). The buying process starts long before actual

purchase and continues long after. PIRC owners need to focus on the entire buying

process rather than on just the purchase decision. This figure 4-6 implies that



consumers pass through all five stages with every purchase. But in more routine

purchases, consumers often skip or reverse some of these stages.

Need recognition

The buying process starts with the need recognition. The buyer serves a difference

between the actual state and some desired state (Kotler & Armstrong 2001:194). The

need can be triggered by internal stimuli, when one of the person's normal needs, such

as hunger on thirst rises to a level high enough to become a drive. A need can also be

triggered by external stimuli, where PIRC owners should research consumers to find

out what kinds of needs or problems arise and what leeds the consumer to a particular

product. By gathering such information, the PIRC owner can identify the factors that

most often trigger interest in the product and can develop marketing programs that

involve these factors.

Information search

"An aroused consumer may or may not search for more information."

Kotler & Armstrong 2001:194

If the consumer's drive is strong and a satisfying product is near at hand, then the

consumer is likely to buy it. If not the consumer may store the need in memory or

undertake an information search related to the need. The consumer can obtain

information from several sources. PIRC owners and providers need to market their

brand, products and services it offers and consumers can gain information by personal

sources such as word of mouth from family, friends, acquaintances or by commercial

sources such as advertising, or Websites. As more information is obtained, the

consumer's awareness and knowledge of the available brands and features increase.

Evaluation of alternatives

In this stage of the buyer decision process the consumer uses information to evaluate

alternative brands in the choices set. The consumer arrives at attitudes toward

different brands through some evaluation procedure. PIRC owners should analyse the



buying behaviour of their customers to find out how they actually evaluate brand

alternatives. Thereby, PIRC owners can take steps to influence the buying decisions.

Purchase decision

In this stage of the buyer decision process the consumer actually buys or not to buy the

product or service.

Post-purchase behaviour

In this stage of the buyer decision process consumers take further action after

purchase based their satisfaction or dissatisfaction. To determine whether the

consumer is satisfied or dissatisfied lies in the relationship between the consumer's

expectations and the product or service perceived performance. If the products and

services fall short of expectations, the consumer is disappointed; if it meets

expectations the consumer is satisfied. If it exceeds expectations, the consumer is

delighted. The larger the gap between expectations and performance, the greater the

consumer's dissatisfaction. Therefore, PIRC owners need to sell a product and service

that faithfully represent the product or service performance so those buyers are

satisfied. Bad word of mouth travels faster and farther than good word of mouth and

can quickly damage consumer attitudes about a business and its products and

services.

In recent years, changes in environment and changes in consumer circumstances have

affected the location decisions, resulting in the core focus of business being shifted

from supply to demand. Where business in the past could push products on the

market, which they thought would sell, customers can today dictate what products

should be provided. This has resulted in the supply chain evolving into a demand chain

where players perform different roles and have different responsibilities. Therefore,

PIRC owners and providers need to consider the environmental changes and

consumer buying behaviour changes, when considering location decisions.



4.4 COMPETITORS

"The only thing growing in our industry is competition."

Mthimkhulu 1999:42

One of the most important forces that a business confronts in its task environment are

competitors. According to Jones et at (2000:82), competitors are "... businesses that

produce goods and services that are similar to a particular business' goods and

services." Rivalry between competitors is potentially the most threatening force that

managers must deal with.

Every business that endeavours to market a service or product in the market

environment is constantly up against competition. According to Smit & Cronje

(1999:72), it is often competitors and not consumers who determine the actual quantity

of a particular product to be marketed, including what price should be asked for it. In

addition, businesses do not only compete for a market share for their specific product,

but also compete with other businesses for labour, capital and markets. PIRCs

compete for a share of the market and also compete with other businesses for labour,

capital and materials.

As competition is an uncontrollable element in the market environment of the petroleum

industry, as more and more competitors are entering the market, it will effect the PIRC

offering new competitive services and strategies now and for the future. A PIRC should

carefully monitor and analyse its competitors. According to Aaker (1988:64)

understanding competitors and their activities can provide several benefits. An

understanding of the current strategy strengths and weaknesses of a competitor can

suggest opportunities and threats that will merit a response. Insights into a future

competitive strategy may also allow the prediction of emerging threats and

opportunities.

Smit & Cronje (1999:72) define competition as a variable of the market environment as

"A situation in the market environment in which different businesses with more or less

the same product or service compete for the business patronage of the same



consumers." To gain an understanding of the competitive petroleum industry, it is

useful to analyse them on the basis of several dimensions (Aaker 1988:65). Their size,

growth and profitability will provide a gross measure of their relative importance. An

analysis of competitor's objectives and of past and current strategies can also provide

insights into their intentions. Some other factors which should be analysed include the

background and experience of the competitor's top management, the organisational

culture, the cost structure and the assets and skills of the competition.

The result of competition is that the market mechanism keeps excessive profits in

check, provides an incentive for higher productivity and encourages technological

innovation. Although the consumer benefits from competition, it is still a variable that

PIRCs have to consider when developing strategies to enter a market. The nature and

intensity of competition in the particular industry are determined by the five forces of

Michael Porter as discussed in chapter 2, namely the possibility of new entrants, the

bargaining power of clients and consumers, the bargaining power of suppliers, the

availability of substitute products or services and the number of existing competitors.

The state of competition in an industry is a composition of Porter's five competitive

forces. These forces are depicted in figure 2-6 in chapter 2. It is a powerful tool for

PIRCs to systematically diagnose the principal competitive pressures in the petroleum

market and assess how strong and important each one is.

Kroon (1990:79) declares "When a business strategy and hence a marketing strategy is

formulated, management must keep the actions and activities of competitors in mind."

He describes competition as "... a situation in the market environment where different

businesses in the same business sector compete for the support of the same

consumers." Such competition is characteristic of the free market economy and the

consumer benefits by it. The biggest advantage lies in the fact that the consumer and

the society's standard of living is increased by competitors' pursuing new technology

and bringing better products and services onto the market, thus encouraging

innovation. PIRCs can ask the following questions to determine the competitors'

abilities:



Who are the competitors?

Who are the target competitors?

Are competitors offering the same products and services?

What is the strength of the competitors?

What is my competitors' market shares?

What are competitors' businesses practices in general?

By answering these questions, the competitor abilities are analysed and the PIRC

owners can determine their strengths and weaknesses. Opportunities and threats of

competitors in the market environment must be identified and a business strategy

formulated accordingly. The strategy must be established so that the PIRC owner

optimally satisfies consumer needs.

4.4.1 The possibility of new entrants in the petroleum industry

The possible threat of entry into the petroleum industry is likely to enhance competition

and thereby reduce the industry's attractiveness. Unless the market is growing rapidly,

a new entry intensifies the fight for market share, thereby bidding prices down and

lowering industry profitability.

Jones et al. (2001:82) define potential competitors as "Businesses that presently are

not in a task environment but could enter if they so chose." According to Thompson &

Strickland (2001:84), "... a barrier to entry exists whenever it is hard for a newcomer to

break into the market or economic factors put a potential entrant at a disadvantage

relative to its competitors." Porter (1980:7-17) identified several types of entry barriers,

which can relate to the petroleum industry:

economics of scale: Scale economics deter entry because they force potential

competitors either to enter on a large scale or to accept a cost disadvantage and

consequently lower profitability. For a newly established PIRC, trying to overcome

the disadvantages of small size by entering on a large scale at the outset result in

long term overcapacity problems for the new entrant, until sales volume builds up. It

can also threaten the existing PIRCs market shares that they retaliate more



aggressively with increased advertising and sales promotions, whereby a potential

new entrant can be discouraged by the prospect of lower profits.

cost and resource disadvantages independent of size: Existing PIRCs may have

cost and resource disadvantages not available to potential entrants. These

advantages can include partnerships with the best and cheapest suppliers of

products and proprietary technology, equipment bought years earlier at lower costs

and favourable locations.

learning and experience curve effects: New entrants face potentially significant cost

disadvantages competing against existing PIRCs with more accumulated know-how

on learning curve benefits.

inability to match the technology and specialised know-how of firms already in the

industry: Successful entry may require technological capability not readily available

to a newcomer or skills and know-how not easily learned by the newly established

PIRC. Existing PIRCs often carefully guard the know-how that gives them an edge

in technology. Unless new entrants can gain access to such proprietary knowledge,

they cannot compete on a level playing field.

brand preferences and customer loyalty: Clients of PIRCs are often attached to

established brands. High brand loyalty means that a potential entrant must commit

to building a network of distributors and dealers, and then be prepared to spend

enough money on advertising and sales promotion to overcome customer loyalties

and build its own clientele (Thompson & Strickland 2001:85). Establishing brand

recognition and building customer loyalty can be a slow and costly process. If it is

difficult or too costly for a customer to switch to a new brand, a new entrant must

persuade clients that its brand is worth the switching costs. To overcome the

switching cost barrier, newly established PIRCs may have to offer clients a

discounted price or an extra margin of quality or service. All this can mean lower

expected profit margins for newly established PIRCs.



capital requirements: The larger the total investment needed for a new PIRC to

enter the petroleum market successfully, the more limited the pool of potential

entrants.

regulatory policies: Government can limit or even bar entry by requiring licenses and

permits. Stringent government mandated safety regulations and environment

pollution standards are entry barriers to PIRCs because they raise entry costs.

According to Thompson & Strickland (2001:86) "Whether an industry's entry barriers

ought to be considered high or low depends on the resources and competencies

possessed by the pool of potential entrants." Entry barriers can be formidable for start-

up PIRGs to compete against well-established PIRCs. But PIRC providers, given their

resources, competencies and brand name recognition, see the petroleum industry's

entry barriers as relatively easy to hurdle. The following bafflers make entry into the

petroleum industry more difficult, according to interviews with PIRC owners and

providers:

Views of Basson (2003:Interview) and Van Niekerk (2003:Interview): remark that

licensing a present PIRC and the issue of new PIRGs should only take place where

there is a genuine need.

Views of Friederick (2003:interview): barriers are that legislative constraints and

enforcement of equal standards to all key players (costly standards and adherence

to approval processes). He stated further that the best protection against any type

of competition is to operate according to world class standards (this means lowest

cost, best products and services and be customer focus).

Views of King (2003:Interview): the industry is controlled by government and by big

multinational petroleum companies. As a PIRC owner it is thus impossible to

influence entry decisions of these large players. New entrants and the existing

Ratplan prevent too many new entrants into the market.



Views of Marx (2003:Interview): that black empowerment, fuel industries, new lease

agreements, rebate policy in convenience stores, fuel margins and set up costs

make entry of a PIRC more difficult in the petroleum industry.

Views of Radebe (2003:Interview): it is already a very difficult industry to enter.

However, restrictions about where PIRGs can be developed and requirements in

terms of black economic empowerment can impact on case of entries and therefore

increase barriers for certain individuals.

4.4.2 The bargaining power of customers and consumers

"It is friendliness and the appreciation of their customers that keep people coming

back"

Patel 2002:17

"The proof of the pudding is in the eating and it certainly goes to show what constant

reinvestment and introduction of new services can do to your business."

Patel 2002:17

Consumer behaviour can be defined by Bearden et al. (2001:77) "... as the mental and

emotional processes and the physical activities that people engage in when they select,

purchase, use, and dispose of products or services to satisfy particular needs and

desires." Identifying and understanding consumer needs and preferences and their

determinants are critical in the pursuit of profitable business opportunities.

Thompson & Strickland (2001:90) state that "Buyers are a strong competitive force

when they are able to exercise bargaining leverage over price, quality, service or other

terms of sale." The leverage that consumers have in negotiating favourable terms can

range from strong to weak. Consumers have substantial bargaining leverage in a

number of situations (Thompson & Strickland 2001:90). This is the most obvious when

consumers are large and purchase a sizeable percentage of the industry's output.

Purchasing in large quantities gives a consumer enough leverage to obtain price

concessions and other favourable terms.



Blanchard & Waghorn (1997:28) remark that "Your business should be defined, not in

terms of the product or service you offer, but in terms of what customer need your

product or service fulfils." While products come and go the basic needs and customer

groups stay around and change. Nobody has to convince anybody that the customer is

king and competition is everywhere. Business leaders need to realise that they are

nowhere without the loyalty and commitment of their customers. According to

Blanchard & Waghorn (1997:54) the world has changed in such a way that today the

buyer, not the seller, is sitting in the driver's seat. "If you don't take cam of your

customers, somebody else will" (Blanchard & Waghorn 1997:54). In a competitive

petroleum industry PIRCs need to adhere to this statement.

According to Fraquhar (2002a:44), in the petroleum industry there is an interface with

consumers, and its attitude has a huge influence on brand success. The attitude to

customers will not change without the support of the marketer. Branding is important to

both consumers and marketers. From a consumer's viewpoint, branding facilitates

buying. Bearden et aL (2001:189) stated that when selecting from among branded

products, consumers purchased specific ones and were reasonably certain of the

quality. Miller (1996:18) stated that "... one study found that 67 percent of consumers

felt more confident buying familiar brands."

Brands are important to consumers and marketers, therefore many businesses focus

considerable attention to building brands (Bearden et aL 2001:189). Brand awareness

is achieved when target consumers know about a brand and call it to mind when

thinking about the product. PIRCs need to be 'big on promotions'. When clever and

innovative promotions and targeted advertising are all part of a PIRC strategy to keep

customers informed, it will ensure constant flow of customers (Volschenk & Cloete

2002:9).



4.43 The bargaining power of suppliers

Suppliers have little or no bargaining power over rivals whenever the items they provide

are commodities available on the open market from numerous suppliers with ample

capacity to fill orders (Thompson & Strickland 2001:88). The higher the bargaining

power of suppliers, the higher the costs will be. PIRGs obtain their petroleum products

from local depots and PIRC providers make it simple for PIRCs to obtain whatever is

needed from several capable suppliers of consumer goods. Most of the time PIRC

providers decide which suppliers a PIRC may and may not employ. Thompson &

Strickland (2001:89) state that "the suppliers to a group of rival firms are a strong

competitive force whenever they have sufficient bargaining power to put certain rivals at

a competitive disadvantage based on the prices they can command, the quality and

performance of the items they supply, or the reliability of their deliveries."

Thompson & Strickland (2001:89) remark that suppliers are similarly relegated to a

weak bargaining position whenever there are good substitutes for the item they supply

and buyers find it neither costly nor difficult to switch their purchases to the suppliers of

alternative items. When a company they are supplying is a major customer, suppliers

also tend to have less leverage to bargain over price and other terms of sale. The well-

being of such suppliers is closely tied to the well-being of their major customers. These

suppliers have a big incentive to protect and enhance their customers' competitiveness

via reasonable prices, exceptional quality and ongoing advances in technology of the

items supplied (Thompson & Strickland 2001:89).

4.4.4 The availability of substitute products

According to Thompson & Strickland (2001:88), "The competitive threat posed by

substitute products is strong when substitutes are readily available and attractively

priced, buyers believe substitutes have comparable or better features, and buyers

switching costs are low." Porter (1979:142) states that "The presence of readily and

attractively priced substitutes creates competitive pressure by placing a ceiling on the

prices and industry can charge for its product without giving customers an incentive to

switch to substitutes and risking sales erosion."



The availability of substitute products invites customers to compare quality, features,

and performance, ease of use, and other attributes as well as price. The competition

from substitute products pushes industry participants to heighten efforts to convince

customers their product has attributes that are superior to those of substitutes. PIRCs

provide different products that meet customers' desire for convenience. Today's

generation is growing up in an environment driven by convenience Expanding the

choices allow consumers access to wider product ranges and refinement of likes and

dislikes, resulting in a culture of customised products that satisfy individual needs and

desires. Therefore, PIRCs need to observe the consumer buying patterns and which

product brands they need to switch when using alternative substitute products.

Porter states that another determinant of the strength of competition from substitutes is

how difficult or costly it is for the industry's customers to switch to a substitute.

According to Thompson & Strickland (2001:88), typical switching costs, include extra

price premiums, the costs of additional equipment, the time and cost in testing the

quality and reliability of the substitute, the psychic costs of severing old supplier

relationships and establishing new ones, payments for technical help in making the

changeover, and employee retraining costs. When switching costs are low, it is much

easier for sellers of substitutes to convince PIRCs to change over to their products.

4.4.5 The number of existing competitors

According to Thompson & Strickland (2001:81) "The strongest of the five competitive

forces is usually the jockeying for position and buyer favour that goes on among rival

sellers of a product or service." In some industries, cross-company rivalry is centred

on price competition whereby rivals compete to offer clients the best price. Price

competition can be so lively that market prices temporarily fall below unit costs, forcing

losses on some or most rivals. In other industries, such as PIRCs, price competition is

minimal to moderate, and rivalry is focused on one or more of the following:

• offering clients the most attractive combination of performance: to deliver fast

efficient friendly service and convenient 24-hour shopping;



being first to market with innovative products: moving with the trend to ultra-modern

and convenience-packed forecourts and the shops offering consumers a wide range

of leading brands, deli foods and bakeries;

outcompeting rivals with higher-quality products;

creating a stronger brand image.

Irrespective of whether rivalry is lukewarm or heated, every PIRC is challenged to craft

a successful strategy for competing. According to Thompson & Strickland (2001:82), a

successful strategy is "... ideally one that produces a competitive edge over rivals and

strengthens its position with clients."

One big complication can be that the success of any business strategy hinges on what

strategies its rivals employ and the resources rivals are willing and able to put behind

their strategic efforts. The best strategy for a PIRC depends on the competitive

capabilities and strategies of rivals. Such interdependence means that whenever one

PIRC makes a strategic move, its rivals often retaliate with offensive or defensive

countermoves.

From a strategy making perspective, competitive markets are economic battle-fields,

with intensity of cross-company rivalry ebbing and flowing as competitors initiate fresh

offensive and defensive manoeuvres and as they endeavour to catch buyers' attention

with first one mix of weapons such as price, performance features, customer service,

and other appealing attributes (Thompson & Strickland 2001:82). The current

competitive scene is ever-changing as PIRGs act and react, sometimes in rapid-fire

order and sometimes methodically, to outcompete one another and build customer

loyalty.

According to Aaker (2001:82), the intensity of competition from the existing competitors

will depend on several factors, namely:

the number of competitors, their size and their commitment, whether their product

offerings and strategies are similar;

the existence of high fixed costs;



the size of exit barriers.

The first question a PIRC must ask is how many competitors are already in the market

or making plans to enter soon. The more competitors exist, the more competition

intensifies. A second question a PIRC needs to ask, is whether some insulated by

points of uniqueness are valued by customers'. A PIRC should apply Porter's

approach to the petroleum industry. The basic idea is that the attractiveness of an

industry or market is measured by the long term return on investment of the average

business which depends largely on the five forces that influence profitability.

PIRC owners and providers stated that it is difficult to attract customers from present

competitors, because of the following considerations:

Views of Barnard (2003:Interview): PIRC providers would like to believe that

customers have brand preferences but he believes that customers use PIRCs that

have a convenient location and good service. Therefore, according to his views, it

is very difficult to attract new customers.

Views of Drumgoole (2002:Interview): it is difficult to attract customers because of

brand awareness but he believes that profit is not the only reason to have a PIRC,

as it is all about investment and a high impact PIRC.

Views of Friederich (2003:Interview): it is difficult to attract customers, because one

has to have a reason to visit a particular PIRC. When promotions and special

events or activities are taking place on a PIRC, the PIRC will have a noticeably

higher quality of service to entice the customer to come back again and become

loyal customers. Beside this, it is important that the PIRC is in a convenient

location.

Views of King (2003:Interview): existing customers have their preferred stops,

therefore it is difficult to entice new customers. PIRC owners can attract new

customers if they improve their service, add more options to the PIRC or if

competitors' service declines.



Views of Lingenfelder (2003:Interview): it takes several months on national transient

routes to attract new customers.

Views of Makasi (2003:Interview): it is very difficult to attract new customers from

present competitors because of the transient nature of the current location of a

PIRC. A customer on national routes requires two things: good service and speed.

Views of Marx (2003:Interview): it is very difficult since most customers are brand

orientated.

Views of Radebe (2003:Interview): it is very difficult without spending a fair amount

of money. The best way is to improve and enhance the offering by, for instance,

upgrading the PIRC and improving the offerings.

Views of Van Niekerk (2003:Interview): on national routes, customers are set in their

own ways, whereby they tend to stay if not satisfied, it is thus difficult to attract

customers again if they are unhappy.

Views of Venter (2003:Interview): excellent service, permanent available products,

clean toilets and attractive gardens will attract new customers.

4.4.6 Strategic implications of the "Five Competitive Forces" model

The special contribution of Porter's Five Competitive Forces model is the thoroughness

with which it exposes what competition is like in a given market. According to

Thompson & Strickland (2001:92), "... as a rule, the stronger the collective impact of

competitive forces, the lower the combined profitability of participant businesses."

The most brutally competitive situation occurs when the five forces create a market

condition tough enough to impose prolonged subpar profitability or even losses on most

or all businesses. The competitive structure is unattractive from a profit making

standpoint if rivalry among sellers is very strong; low entry barriers allow new rivals to



gain a market foothold; competition from substitutes is strong; and both suppliers and

customers are able to exercise considerable bargaining power (Thompson & Strickland

2001:92).

In contrast, when the five competitive forces are not collectively strong, the structure of

the industry is favourable and attractive. The ideal competitive environment is one

where both suppliers and customers are in a weak bargaining position, and there are

no good substitutes, high entry barriers, and moderate rivalry among present sellers.

Even if the five competitive forces are strong, an industry can be competitively

attractive to those firms whose market position and strategy provide a good enough

defence against competitive pressures to preserve their ability to earn above average

profits.

PIRCs must craft strategies that shield the PIRC as much as possible from the five

competitive forces and that help make the rules and put added pressure on rivals.

PIRCs must identify what competitive pressure exist, gauging the relative strength of

each, and gaining a deep understanding of the petroleum industry's whole competitive

structure before developing a winning competitive strategy. The five competitive forces

model by Porter is a powerful tool for giving strategy makers the competitive insights

they need to build a successful PIRC, ideally one that enjoys a sustainable competitive

advantage.

The collective strength of these five forces determines the competitiveness in the

petroleum industry and therefore its profitability. According to Smit & Cronje (1999:74),

"The weaker the five forces, the better the chances are of good performance." In spite

of the collective strength of the five forces, PIRCs still have the task of finding a position

in the petroleum industry where the PIRC can best defend itself against these forces.



4.5 INTERMEDIARIES

Intermediaries play a vital role in bridging the gap between the wholesaler and the

consumer. According to Smit & Cronje (1999:17) and Cronje et at (2000:69) by

bridging the gap, place, time and ownership utility are created. Financial intermediaries

are financially involved in the transfer of products and services.

Smit & Cronje (1999:17) and Cronje et a. (2000:69) state that decision-making by

management in respect of intermediaries is complicated by the following:

the dynamic and ever-changing nature of intermediaries

New trends in marketing or consumption are responsible for the development of new

types of intermediaries. Some of the contemporary South African trends in this regard

are extended shopping hours, the power shift from manufacturers to large retailers, an

increase in advertising, the growing importance of black retailers and the increase in

the number of franchises.

relationships with intermediaries

This means entering into long-term agreements that again may have certain

implications for the marketing strategy. The economic power of large retailers may

have specific implications for price and advertising decisions, while product

diversification is dependent on the capacity of intermediaries.

Since 1951 when the development of the first petroleum refinery was established, there

were many calls for the construction of a petroleum pipeline between Durban and the

Highveld. The South African Railways blocked this proposal because of revenues,

which the railways stood to lose if petroleum was transported by pipeline (Gritzman

1999:8). A government enquiry published in 1958, according to Meiring (1991:28),

found that transporting fuel through pipelines would certainly be cheaper than by rail,

but concluded that for the time being railways would be able to handle traffic at least

until the 1970's. In 1962 the railways were not capable of carrying enough fuel and the

construction of the pipeline was undertaken. The South African Transport Services

was given ownership of pipelines and charged PIRC providers the exact same rate for

the less expensive piping of fuel as they would have charged for railing. PIRC



providers are not allowed to transport fuel more than 80 kilometres according to the

1930 Act (Meiring 1991:120).

PIRC providers must maintain many smaller, less efficient depots because it is illegal

for them to transport their own product over significant distances. Under Transnet, this

arrangement has continued in recent years. Therefore, the lower costs of piping have

been pocketed by the transport parastatal instead of being passed onto the consumer.

The restriction on PIRC providers causes efficiency losses by providing their own

transportation.

The new trends among intermediaries offer opportunities but at the same time certain

trends offer threats to management.

4.6 SUPPLIERS

"... the business is regarded as a system that attracts inputs from the environment and

converts them into outputs, or products and services, to be marketed in the market

environment "


The inputs required are mainly materials, including raw materials. Suppliers provide

equipment and energy and capital and labour to the business. When a business is

unable to draw the essential inputs of the right quality, quantity and price to reach its

objectives, then the business will not succeed in a competitive market environment.

The interaction between the PIRC and its suppliers are of the clearest examples of the

influence of environmental variables on a business.

Suppliers are very important for PIRCs. There are four things one needs to know to

compete in the convenience-food industry, states Schall (1999:69) namely: that you

should use the best distribution for products. Speciality distribution plays a critical role

in bringing new speciality, niche-type products to PIRC owners where smaller markets

budgets do not justify warehouse or direct distribution.



4.6.1 Suppliers of refining and production

All PIRCs in the petroleum industry depend on regular supplies of products. South

Africa is one of the major refining nations in Africa, and the products refined are both

sold in the local market and exported to East Africa, and the Indian and Atlantic

markets (Mbendi 2000f:lnternet).

Petrol was initially imported into South Africa in its finished state, however since 1954

the first petroleum refinery was completed in Durban by Standard-Vacuum Oil

Company, (Mobil), which now is the Enref refinery (Mbendi 2000a:Internet) and is

owned by Engen. In 1963 another refinery was also located in Durban by Shell and

BP, the Sapref refinery. This refinery is the largest in South Africa and was upgraded in

1991, which increased capacity by more than 30 percent (Mbendi 2000b:lnternet).

Caltex wanted to build a refinery in the same area but was persuaded by government to

invest in Cape Town and is known as the Ca!ref refinery (Mbendi 2000d:lnternet).

Before 1966, all the PIRC providers supplied their own fuel. The Calref refinery

supplied the entire Western Cape, while the Enref and Sapref refineries supplied most

of the rest of the country.

The incorporation of the South African Coal, Oil and Gas Corporation (Sasol) was

developed in 1950 (Gritzman 1999:6). During 1971 Sasol began to refine crude oil and

the refinery is know the Natref refinery and is jointly owned by Total and Sasol (Mbendi

2000e:Internet). The petrol providers and Sasol entered into an agreement under

which Sasol agreed not to exceed a pre-determined market share. In 1982 a major

discovery of natural gas was made offshore, near Mossel Bay. The PetroSA

(Mossgas) refinery produces fuels and associated products for the domestic as well as

international markets (Mbendi 2002:Intemet).

The decade of tremendous petrol shocks was in the 1970s. Oil producing countries

had managed to co-operate within OPEC and pushed the petrol price up significantly.

In 1972, petrol was traded at $2 per barrel and by the end of 1975 it was $11,53 per

barrel, whereas by 1979 the price reached a high of $30 per barrel. These huge



increases in the petrol price coupled with the strengthening of international sanctions

against South Africa. Convinced government that a further expansion of Sasol would

be necessary. Today, Sasol produces 45% of South Africa's petrol. Petrol is South

Africa's largest import and Sasol has saved the country over R3 billion in foreign

exchange per annum (Gritzman 1999:6).

The figures in table 4-7 reflect the capacity at the refineries in South Africa, since the

early 1990's. Certain additions to capacity occurred in 1998, and more are planned for

2003. PetroSA (Mossgas) came on stream in the 4 th quarter of 1992 (Mbendi

2003:Internet). Table 4-8 indicates the location and ownership of the petroleum

industry's refineries.

Table 4-7: Capacity of South African refineries

REFINERIES 1992 1997 2000

SAPREF 120 000 165 000 180 000

ENREF 70 000 105 000 115 000

CALREF 50 000 100 000 100 000

NATREF 78 000 86 000 86 000

SASOL 1, 2 & 3 150 000 150 000 150 000

MOSSGAS/ PETRO SA 45 000 45 000 45 000

TOTAL 513 000 651 000 666 000


Table 4-8: South African refineries

REFINERIES LOCATION OWNERSHIP

SAPREF

ENREF

CALREF

NATREF

SASOL 1, 2 & 3

MOSSGAS/ PETRO SA

Durban

Durban

Cape Town

Sasolburg

Sasolburg

Mossel Bay

Shell & BP

Engen

Caltex

Sasol & Total

Sasol

Mossgass

Source: Adapted from Mbendi 2000b; 2000c; 2000d; 2000e; 2002a:Internet



4.6.2 Suppliers of capital and labour

PIRCs are also dependent on suppliers of capital and labour, as it is not easy to start

the PIRC alone, because of the five competitive forces. Marx (2003:Interview) stated it

is "... not very easy to start a PIRC because of competitors on the same route, the

availability of staff and workers, return on investment, tollroads and the investment

required huge amounts." King (2003:Interview) remarked "The property is usually

owned by the potential PIRC owner or by the PIRC provider and the PIRC provider will

provide the capital expenditure on buildings, equipment and the PIRC owner needs to

obtain funds for petroleum products." Makasi (2003:Interview) points out that it is rather

easier to buy an existing PIRC whereas to start a new one from scratch requires a lot of

money. Barnard (2003:Interview) argued "... very difficult as petroleum providers

compete with the individuals and huge investment seeing that petrol is bought on cash

basis." Basson (2003:Interview) voiced "... to start a PIRC from scratch is difficult,

because of the prohibitive costs involved round about R20 million."

Friederich (2003:Interview) an executive of a PIRC provider answered "... the

investment required for a PIRC, including the cost of land, will vary from a low of R4

million to a high of R100 million." He stated further that a development would require

numerous state approvals, in respect to zoning, business rights and the environment.

In general if the development looks like it will be a profitable one, investors will find a

PIRC provider to support and brand it. Another executive of a PIRC provider, Radebe,

(2003:Interview) added, "... it is not easy to start a new PIRC, as risks are too high and

processes are considerable. Approximately R8 million is required to develop and

operate a normal PIRC. However, numerous local and provincial approvals are

required. In addition numerous legal agreements and processes must be in place."

Therefore, the investment required starting a new or existing PIRC depend on the

location.

An environmental variable on which businesses depend is provision for labour. The

provision of labour by trade unions and other pressure groups, which are regarded, are

:suppliers' of labour, according to Smit & Cronje (1999:71) with which businesses have



complex relations. The South African workforce is much different than ten or five years

ago. The lifestyle and life circumstances of workers are at the same time changing and

the proportion of women in the workforce is increasing. The demands for educated and

skilled workers are rising, while unskilled workers are diminishing. The challenge in

South Africa is to manage the increasing of cultural diversity.

Trade unions, government and other groups can also be regarded as 'suppliers' of

labour with which businesses have complex relations. Congress of South African

Trade Unions (COSATU) has argued that the proposal to introduce market forces in the

pricing of petrol is "arbitrary and dangerous". This is because it would lead to job

losses as well as the emergence of monopolies, which according to COSATU would

keep potential competitors out of the industry and cause an increase in the petrol price.

COSATU would like to protect the jobs that are provided by service stations (Gritzman

1999:7).

Government has indicated that it wants to reform the industry and encourage black

empowerment. These two aims are not compatible. Reforming the industry would

allow only the most efficient and cost effective market participants to survive and could

mitigate against black empowerment. If the Ratplan was disassembled and the market

forces were allowed to equilibrate, fledging black entrepreneurs could be forced out of

the market place. The maintenance of the Ratplan in order to pass monopoly power

onto black empowerment groups would continue to incur costs for the consumer and

for the economy as a whole. The high levels of taxation on petrol, which government is

not likely to reduce, provide for a substantial and easily collectable source of revenue.

The interaction between PIRCs and its network of suppliers is one of the important

examples of the influence of environmental variables on the business.

4.7 SWOT ANALYSIS: MARKET ENVIRONMENT

"To survive and succeed in a hot market, a business must be willing to change

everything about itself, except its basic beliefs."

Watson 1977:10



"The real question isn't how well you're doing today against your own history, but how

you're doing against your competitors" stated Kress (Thompson & Strickland

2001:114). Jones et al. (2000:241) describe a SWOT analysis as "... a planning

exercise in which managers identify organisational strengths, weaknesses,

environmental opportunities and threats." Sizing up a business resource's strengths

and weaknesses and its external opportunities and threats is commonly known as

SWOT analysis. A SWOT analysis for a business such as a PIRC, provides good

overview of whether the business position is fundamentally healthy or unhealthy.

According to Thompson & Strickland (2001:117), a SWOT analysis is grounded in the

basic principle that the strategy making efforts must be aimed at producing a good fit

between a business resource capability and its external situation.

Problems and opportunities are complementary. When problems occur, the

management of a PIRC must find ways or opportunities to solve it. In the market

environment, opportunities in the PIRC and particularly marketing management, are

legion. The ideal is, through the identification of opportunities, that the business should

enjoy a differential advantage over competitors in the short and long-term. Such

advantage is also gained if existing threats in the market environment can be changed

into opportunities (Kroon 1990:80). Therefore, a strategy for a PIRC is seen as the

purposeful and goal-orientated decisions of the management of PIRCs, to adapt to the

current and expected changes in the market environment timeously, economically and

efficiently.

4.7.1 Identifying PIRC market strengths

"A strength is something a company is good at doing or a characteristic that gives it

enhanced competitiveness."


Porter (1980:18) assumes "... competition will retaliate to move a firm initiates, its

strategic agenda is selecting the best battleground for fighting it out with its competitors.

This battleground is the market segment or dimensions of strategy in which competitors



are ill-prepared, least enthusiastic, or most uncomfortable about competing." A PIRC

owner needs to identify its current strengths and ensure on keeping the loyal customers

and improving customer service. Thompson & Strickland (2001:117-118) propose that

strengths can take several forms namely:

a skill or important expertise: technological know-how, expertise in providing

consistently good customer service, or unique advertising and promotional talents.

physical 'assets: state of the art plants and equipment, attractive location, sizeable

amounts of cash and marketable securities.

human assets: to have an experienced and capable workforce, talented employees

in key areas, motivated and energetic employees, cutting-edge knowledge and

intellectual capital, astute managerial know-how or the collective learning embedded

in the business and built up over time (Zack 1999:125).

organisational assets: to obtain a proven quality control system, proprietary

technology, a base of loyal customers, a strong balance sheet and credit rating,

systems for conducting business on the Internet.

valuable intangible assets: such as brand name image, the company reputation,

buyer goodwill or a motivated and energised workforce.

competitive capabilities: bringing new products to the market in a given

development time, a strong dealer network, strong partnerships with key suppliers,

a high degree of organisational agility in responding to shifting market conditions

and emerging opportunities, and a cadre of highly trained customer service

representatives.

an achievement or attribute that puts the company in a position of market

advantage: low overall costs, to have a market share leadership, and wide product

selection, strong name recognition and exceptional customer service.



alliances or co-operative ventures: fruitful collaborative partnerships with suppliers

and marketing allies that enhance the companies' own competitiveness

A business strength thus has diverse origins. They relate to fairly specific skills and

expertise or they flow from different resources teaming together to create a competitive

capability. Table 4-9 presents a checklist of things to be alert of in identifying PIRC

market strengths.

Table 4-9: SWOT Analysis — What to look for in sizing up a PIRC's strengths

POTENTIAL RESOURCE STRENGTHS

A powerful strategy supported by competitively valuable skills

and expertise

A strong financial condition to help grow the PIRC

A PIRC with a strong brand name and image

An attractive customer base and widely recognised market

leader

Ability to take advantage of leaming and experience curve

Knowledge of proprietary technology

Superior intellectual capital relative to key rivals

Strong advertising and promotions campaigns

Convenience products innovation skills

Sophisticated skills in technologies

A reputation for good customer service

Better quality product relative to rivals


The following strengths will influence the location, profitability and market position of a

PIRC:



Keep customers loyal

"It's for customers who value the service."

Du Toit 2002:6

A PIRC needs to be the customers' number one, then the customers are more likely to

switch from competitors, especially when customers are brand conscious. Branding is

the most distinctive skill of professional marketers in their ability to create, maintain,

protect and enhance brand of their product and services. Kotler & Armstrong (2001:30)

define brand as "... a name, term, sign, symbol or design or a combination of these,

that identifies the maker or seller of a product and service." Customers view a brand as

an important part of a product, and branding can add value to a product.

Customer service

"It was a major step forward to put that down in writing and commit to it. We were

already serving their needs, but our service was not packaged fully."

Du Toit 2002:6

The success of the PIRC customer service depends on the quality of the people, their

skills, productivity and ability to be flexible in a changing world. The PIRC owner needs

to be meticulous about the people it recruits, committed to training and to performance

standards. Breen (1999:16) stated "We've learned that the team with the best

implementation wins. Outthinking the competition will take you only so far. You've got

to out implement the competition as welt" Du Plessis (2001:31) added that for a

business to prosper, it can no longer dictate and command, but it should rather

communicate. Therefore a PIRC owner needs no longer to enforce, but should

empower; no longer take control but should facilitate and no longer pass judgement but

rather offer practical and appropriate solutions.

4.7.2 Identifying PIRC weaknesses

a weakness is something a company lacks or does poorly or a condition that puts it

at a disadvantage."




Internal weaknesses can relate to deficiencies in competitively important skills or

expertise or intellectual capital, or a lack of competitively important physical,

organisational assets, or missing or weak competitive capabilities in key areas. A

weakness may or may not make a company competitively vulnerable, depending on the

extent of the weakness matters in the marketplace and whether it can be overcome by

the extent of the weakness and strengths in the company's possession (Thompson &

Strickland 2001:120).

Table 4-10 presents a checklist of things to be alert for in identifying PIRC market

weaknesses.

Table 4-10: SWOT Analysis — What to look for in sizing up a PIRC's weaknesses

POTENTIAL RESOURCE WEAKNESSES

No clear strategic direction

Strategies not in place

Lack of management depth

Obsolete facilities

Too much debt, therefore a weak balance sheet

Plagued with internal operating problems

Weak brand image and reputation

Short on financial resources to fund promising strategic initiatives

Behind on technological know-how

Not attracting new customers as rapidly as rivals


The following weaknesses will influence the location, profitability and market position of

a PIRC:



a) Customer service

"... customer service in South Africa is of poor standard"

Moagi 2002b:24

Surveys show that up to 90 percent of dissatisfied customers do not complain but never

return (Moagi 2002b:24). A PIRC owner-who focuses on improving customer service

will have the edge over competitors and reduce losses substantially. A PIRC owner

needs to address the importance of wellness to the employees so as to be in a good

state of delivering good service to customers and thus transforming the weakness of

customer service to a strength for PIRGs. Mody (2000:1) has expressed "The

relentless passion for doing the right things for customers should become part of the

fabric of the business. It is mission critical that managers implement innovative

strategies centred on creating customer value." A PIRC owner needs to put the

customer in the centre of everything the PIRC does.

4.7.3 Identifying PIRGs market opportunities

"Well be able to grow aggressively through service excellence."

Butcher 2000:28

"This is the time to seize the opportunity— if you hesitate, you are going to lose out "

Burger 2001:51

Market opportunity is a big factor in shaping a company's strategy. An owner of a PIRC

first needs to identify the PIRC opportunity and appraise the growth and profit potential

before deciding on a strategy. Depending on the prevailing circumstances, PIRC

opportunities can be plentiful or scarce and can range from wildly attractive to

marginally interesting. Table 4-11 presents a checklist of things to be alert for in

identifying a PIRC's market opportunities.



Table 4-11: SWOT Analysis — What to look for in sizing up a PIRC's opportunities

POTENTIAL RESOURCE OPPORTUNITIES

Expanding into new geographic locations

Expanding the PIRC product line

Utilising existing PIRC skills to enter new product lines

To pursue new sales growth opportunities

Openings to take market share away from rivals

Ability to grow rapidly

Acquisition of rival PIRGs or PIRGs with attractive technological

expertise

Openings to exploit emerging new technologies

Market openings to extend the PIRC brand name or reputation to

new geographic location


According to Thompson & Strickland (2001:127) "The market opportunities most

relevant to a company are those that offer important avenues for profitable growth,

those where a company has the most potential for competitive advantage, and those

that match up well with the company's financial and organisational resource

capabilities." The following opportunities will influence the location, profitability and

market position of a PIRC.

a) Creating customer opportunities for a PIRC

Mody (2000:4) has identified a five-stage approach for creating customer value

opportunities and improving retention and growth for the business:

evaluate and categorise customers;

analyse customers' experience of change;

learn customers' expectations and perceived performance;

use customer knowledge;



v) engage and lead all employees.

The potential customer will affect the right location of a PIRC and PIRC owners and

providers need to consider the following five-stage approach to create opportunities for

the PIRC:

to attract the right customers: with constant pressure to improve margins and

contain costs, PIRCs need to ensure that scarce resources are applied to attracting

and growing the right customers. Mody (2000:5) states that all customers are not

equal in terms of their profitability to a supplier, nor in their reasons for selecting a

business for a product and service Therefore, a PIRC owner must find ways to

determine the lifetime values of their current and potential customer base and then

make choices about which one they want to serve.

analyse customers' expectations: a PIRC provides convenience products and

services to customers. PIRCs that only focus on improving the products and

services or introducing a variety of pricing options, find that competitors have caught

up or passed them, in a short time. Instead, a PIRC owner can uncover

opportunities for differentiating business in every contact or experience customers

have. The experience chain, explains Mody (2000:5), starts when customers

become aware of the need and ends when they dispose of the products and

services.

learn what customers expect: in addition to knowing the product attributes that

customers value, a PIRC owner needs to understand their customers' and non-

customers' expectations outside the product-box. A PIRC owner needs a system

for measuring and tracking how their performance is rated relative to their

competitors. An analysis of this information will permit a PIRC owner to focus

resource on those areas that will have the biggest impact on customer-perceived

performance.

use customer knowledge: the key to superior performance is to have a deep

understanding and knowledge of what the customer considers to be valuable and


L MARX-FRONEMAN


why. A PIRC owner should use this knowledge to identify and improve those

processes and capabilities that will deliver customer-defined value. Mody (2000:5)

remarks "Being the key interface with the customer, the sales staff plays a crucial

role and must be skilled at being a business consultant with an eye towards the

long-term benefits for the business."

• engage and lead employees: the best management systems fail because of a lack

of true commitment, demonstrated leadership and a misalignment of organisational

practices required to engage the workforce. Therefore, strong leadership is

necessary to instil a clear sense of mission based on customer value throughout the

business. By engaging the workforce and by instilling this sense of purpose, and

appropriately aligning employee practices, it will enhance employee loyalty. This

will lead to improve customer retention and profits for a PIRC.

By learning how to use the management tools in this five-stage approach, a PIRC

owner will be taking a market-based approach to measuring and improving customer-

defined value. The same tools will help managers navigate the turbulent waters of the

millennium in which customers want the right thing, right now, at the right place, the

right way, every time. If a PIRC provides good customer service, the business will

follow. The PIRC will then become a preferred provider and be able to obtain a

competitive edge over rivals.

4.7.4 Identifying threats for future profitability of a PIRC

Certain factors in a company's external environment pose threats to its profitability and

competitive well being. Threats occur from the emergence of cheaper or better

technologies, rivals introducing new or improved products, the entry of lower cost

competitors in the market, new regulations that are more burdensome to a company

than its competitors, vulnerability to a rise in interest rates or changes in foreign

petroleum prices. External threats may pose no more than a moderate degree of

adversity or they may be so imposing as to make a company situation tenuous. Table

4-12 presents a list of potential threats to a PIRC's future profitability and market

position.



Table 4-12: SWOT Analysis — What to look for in sizing up a PIRC's threats

POTENTIAL EXTERNAL THREATS

Entry of new competitor

Loss of sales to new entrant

Increasing intensity of competition among petroleum industry

Technological changes or product innovations

Slowdowns in market growth

Adverse shifts in foreign fuel prices

Costly new regulatory requirements

A shift in buyer needs and tastes

Vulnerability to petroleum industry driving forces


According to Thompson & Strickland (2001:127), "Opportunities and threats not only

affect the attractiveness of a company's situation but, more important, they point to the

need for strategic action." The following threats will influence the location, profitability

and market position of a PIRC.

a) Lack of qualified people

"The main constraint on economic performance in South Africa is not the lack of jobs,

but the lack of suitably qualified people, a problem destined to be aggravated by Aids."

Owen 2002:7

PIRC owners will employee people, but many are not sufficient skilled managers. The

problem lies with those people who are untrained and uneducated for whom the

modern world has little use and who are getting steadily poorer. PIRC owners need to

help the unqualified, because they need modern workers who are trained and educated

to fill jobs that already exist.



Petrol station retail price margin

Too low profit margins and the lack of relief by government will also affect the location

of a new PIRC. Government prescribes the petrol price and the retail margin is a

controlled element and is calculated on the basis of an investigation into the driveway-

related activities of service stations (Cokayne 2002:7).

Tollroads on national routes

Government (Transport 2001:Intemet) has indicated that "... some of the factors that

are considered, are viability and the particular role the mad plays, be it an economic or

social function. If a road plays largely an economic function tolling is sometimes

considered as means to obtain funds to develop and maintain our roads." Some other

factors which government will consider is the scale at which a particular road is used,

because it may not make economic sense where the traffic volumes do not justify such

a move. When determining the location, PIRC owners need to clarify the possible

implementation of tollgates, as the tollroads will affect the profitability and market

position of the PIRC.

Stagnation of the PIRC

Du Plessis (2001:31) states "... stagnation is the death knell for any business. It is

something we are critically aware off. It is our intention to stay ahead of developments

in whatever we do having due regard for the parameters of practical reality and quality

standards." The petroleum industry is a very competitive industry and the investment

required to start a PIRC is an enormous amount.

Provincial fuel taxes on motorists

The possibility of provincial government imposing provincial fuel tax on motorists will

have a negative affect on motorists and thus pose a threat to PIRGs. Planting

(2003:19) points out "... this will not go down well with motorists. It will require some

political footwork." Although the decision is not final to impose provincial fuel tax on

motorists in the Western Cape to improve roads, it may be adhere to very soon. The

only other provincial government (for now) with specific intentions for provincial taxes,

is KwaZulu Natal who has mentioned a tourism levy. Additional provincial fuel taxes on



motorists will definitely have a negative effect on PIRCs as motorists will then either

use alternative routes or make use of other travel options.

f) Too many break-even service stations

a... many service stations are being closed because the controlled margins are

insufficient for their survival."

Lloyd 2003:11

For PIRCs to survive and maintain high profits, they need to attract customers, by

ensuring they keep them and minimising the threat of controlled margins implemented

by government.

4.7.5 The value of SWOT analysis

"Simply listing a company's strengths, weaknesses, opportunities, and threats is not

enough, the payoff of SWOT analysis comes from the evaluations and conclusions that

flow from the four lists."


The really valuable part of the SWOT analysis is determining what scenario the four

lists tell about the PIRC situation and thinking about what actions are needed.

According to Duncan et al. (1998:6-16), understanding the scenario involves evaluating

the strengths, weaknesses, opportunities and threats and drawing conclusions about

the following:

how the business strategy can be matched to both its resource capabilities and its

market opportunities;

how urgent it is for the business to correct which particular resource weaknesses

and guard against which particular external threats.

The SWOT analysis is only a basis for a PIRC strategy. It provokes thinking and

answers several questions about what future strengths and capabilities of the PIRC will

be and how they need to respond to emerging industry and competitive conditions to

produce successful bottom-line results.



4.8 CLOSURE

In today's fast-changing markets, many competitors are racing for leadership in their

industries and racing to build strong positions in the industries of the future. It is

necessary for PIRGs to be innovative in building a business capable of outcompeting

rivals on the basis of superior resource strengths and competitive capabilities. Addison

(2000:24) states that "Innovation is important because, as the experts keep telling us,

change is the only constant in the modem economy, and therefore new solutions must

be found all the time, creating new opportunities for businesses."

The market environment causes interaction between businesses and their suppliers,

consumers and competitors with alternative offerings. The interaction between these

groups may result in opportunities or threats to PIRCs. An effective SWOT analysis is

a key component of the formulating and implementation of a strategy for the location of

a PIRC. In the market environment where the PIRC is seeking significant growth, it is

important to fast-forward and assess SWOTs. PIRGs must be sensitive to trends in the

market environment to enable them to make the most of opportunities and to avoid

possible threats timeously.

This chapter covered the market environment in which PIRCs operate. The external

environment, experiences rapid change and this has a very important impact on the

existence of a PIRC. In the petroleum industry, PIRC providers and PIRCs should

constantly monitor the external environment and attempt to make use of opportunities

which exist, as well as to identify threats well in advance.

A competitive PIRC should also be carefully monitored, since knowledge of competitive

strategies could aid the PIRC in designing strategies, which will provide a competitive

advantage. A PIRC is dependent on the environment for the procurement of inputs and

the delivery of outputs. To be able to formulate and achieve proper goals, a constant

adaptation to environmental changes is essential.



PIRC owners need to research the market environment continually and make use of

the opportunities and overcome the threats and dangers, to be successful. The market

environment or task environment, with the market and competition as important

components, must be studied in depth by PIRC owners with the aim of identifying

opportunities and threats which will favour determining the right location.



CHAPTER 5: STRATEGIC- CONSIDERATIONS: MICRO ENVIRONMENT

CONTENTS

SYNOPSIS

PAGE

5-196


5.2 VISION AND MISSION OF THE MICRO ENVIRONMENT 5-198

5.2.1 The importance of a vision 5-199

5.2.2 The importance of a mission 5-201

5.2.3 The impact of the vision and mission on PIRCs 5-205

5.3 MICRO ENVIRONMENT AND ITS MANAGEMENT 5-209

5.3.1 Management and its functions 5-210

5.3.2 Management structure of a PIRC 5-215

5.3.3 Functional areas of management 5-217

5.3.4 The impact of management on PIRCs 5-218

5.4 MICRO ENVIRONMENT AND ITS RESOURCES 5-219

5.4.1 Human resource function 5-219

5.4.2 Financial resource function 5-224

5.4.3 Marketing resource function 5-225

5.5 MICRO ENVIRONMENT BUSINESS CULTURE 5-228

5.6 DISTINCTIVE COMPETENCIES OF THE MICRO ENVIRONMENT 5-229

5.6.1 Nature of control 5-230

5.6.2 The importance of motivation 5-232

5.6.3 The Porter-Lawler extension 5-242

5.6.4 Marketing strategy 5-243

5.6.5 Strengths and weaknesses 5-248

5.7 CLOSURE 5-249

Chapter 5: Strategic considerations: micro environment 5-195


SYNOPSIS

The purpose of this chapter is to acquire an understanding of the influences which the

micro environmental determinant has on the formulating and implementation of a

strategy for the location of PIRCs. The micro environment comprises the intemal

environment of a business itself. The micro environment may be viewed as an

environment with various variables: the vision and mission of the business, its

management, its resources, its culture and distinctive competencies.

The micro environmental determinants can influence the PIRC owner's decision on the

strategic considerations for the location of PIRCs. The variables in the micro

environment will influence the market environment through the strategy that it employs

to protect, maintain or increase its market share.

The purpose of the micro environment and its variables is to indicate possible

interfaces between the business itself and its environment. A business micro

environment varies from one business to another. This chapter explains the meaning

and importance of the micro environment in which a PIRG operates. The emphasis is

on the micro variables and their impact on the location of a PIRC.



5.1 INTRODUCTION

"The purpose of a business is to create a customer"

Drucker 1968:85

The purpose for a business is to provide something for which an independent outsider,

who can choose not to buy, is willing to exchange his or her purchasing power (Drucker

1968:85). The term micro environment denotes those elements over which the

business has control or which the business can use in order to gain information that will

help the business's marketing operations better (Lancaster 2002:Internet).

Le Roux et at (1999:41) define the micro environment as "the sum of all the factors and

variables which occur internally in the business. It is influenced directly or indirectly by

the decisions of business management. These factors and variables have a

fundamental influence on the establishment, growth and continued existence of the

business." "The micro environment consists of the business itself over which

management has complete control" (Cronje et at 2000:62; Strydom et at 2000:39).

This environment includes variables such as the objectives of the business, the various

functions of management, management structures and the resources and culture of the

business, which are under the direct control of management.

Management decisions will influence the market environment through strategy that it

employs to protect, maintain or increase its share in the market. According to Cronje et

at (2000:62), the micro environments of many businesses all over the world have been

subjected to changes relating to re-engineering, restructuring, discarding product lines

and trimming workforces. The business world would no longer accommodate the

reality of a changing macro environment without these major changes.

The marketing function of a business is in close contact with the market, and marketing

keeps an eye on consumers and their preferences as well as on the activities of the

competitors. Therefore the business can develop strategies that will influence the

market environment. The objective of a PIRC owner is to make profits through



satisfying customers. This is accomplished through the manipulation of the variables

over which a PIRC owner has control in such a way as to optimise this objective.

PIRC owners are in business because they are profit-driven, take the initiative in

utilising opportunities for their own well being and advantage, while at the same time

providing need-satisfiers to customers. There are various players in the business world

and are all linked in the economy and in society. On the one hand, the business is

attached to its customers and on the other hand, the business is also attached to a

network of links supplying its resources. Nieman & Bennett (2002:10) maintain,

"Businesses do not exist in a vacuum, but are instead shaped by and in turn shape, the

context within which they operate."

The business uses inputs from the environment and delivers output for which there is a

need in the environment. Therefore the management task cannot be performed without

taking the external factors into serious consideration. The business is part of the

environment and is known as the decision-making or micro-management environment,

states Kroon (1990:62). The PIRC owners naturally make and implement decisions

connected with the strengths and weaknesses of the internal environment. The

elements of the micro management environment are fully within the control of

management.

5.2 VISION AND MISSION OF THE MICRO ENVIRONMENT

"Michaelangelo once said that the greatest danger for most of us is not that our aim is

too high and we miss it, but that it is too low and we reach it"

Peters 2000:6

The words vision and mission are used alternately to refer to the same concept. The

place and meaning thereof within the strategic management process are different,

states Du Bruyn (2001:18). The concepts are not mutually exclusive but do not have

the same meanings. The vision refers to a future condition, a condition that is better

than the present, while the mission normally refers to the assignment in the present.



5.2.1 The importance of a vision

"... vision is the brain that governs the whole body, not just individual limbs. It decides

on the future state to which you want to move."

Loewen 1999:180

David (1998:79) states that "a corporate vision can focus, direct, motivate, unify and

even excite a business into superior performance. The job of a strategist is to identify

and project a clear vision." Some businesses develop vision statements that are

different from their mission statements. Hellriegel et at (1999:220) define a vision as

.. expresses an organisation's fundamental aspirations and purpose, usually by

appealing to its members' hearts and minds." Over time, traditional statements of

mission may change, but the business vision may endure for generations.

According to Blanchard & Waghorn (1997:80) having a vision does not guarantee a

profitable journey toward the future, but without a vision, the journey cannot even begin.

This raises the question: "How does one develop a vision?" Hamel & Prahalad

(1993:76) provided interesting thoughts on this. They stated that "... for a variety of

reasons we prefer the word foresight to vision. Vision connotes a dream or an

apparition but there is more to industry foresight than a single blinding flash of insight.

Industry foresight is based on deep insight into the trends in technology, demographics,

regulation and lifestyles that can be harnessed to rewrite industry rules and create new

competitive space. While understanding the potential complication of such trends

requires creativity and imagination, any 'vision' that is not based on solid factual

foundation is likely to be fantastical." Knowledge and imagination do not drive industry

revolutions, but people do. Thus, industry revolution is all about wisdom and courage.

The wisdom to ask the right questions, and the courage to answer them, regardless of

where those answers may lead to.

According to Blanchard & Waghorn (1997:50) in developing an improved vision,

members of the business must consider each of these elements in the light of the

question: "What would our ideal state be in respect to this element if our business were



maximising its potential?" The elements would involve pondering the following

questions:

Why does this business exist? (purpose)

What are we trying to accomplish? (core goals)

What do we stand for? (core values)

What is our basic approach to achieving our purpose? (strategy)

How should we be organised? (structure)

What will be our operating procedures? (systems and business processes)

What kind of staff and competencies (people and skills) will be needed, and how do

we want them to behave? (culture)

Answering the above questions is not an easy task for PIRC owners. In fact it could

seem overwhelming, but PIRC owners should actively participate in answering these

questions. Whatever vision is developed it should reflect the aspirations of everyone in

the PIRC as well as the needs of the market in the petroleum industry.

Thompson & Strickland (2001:32) state that there are three discernible tasks in forming

a strategic vision and making it a useful direction-setting tool:

Coming up with a mission statement that defines what business the company is

presently in and conveys the essence of 'who we are, what we do, and where we

are now.'

Using the mission statement as a basis for deciding on a long-term course, making

choices about 'where we are going' and charting a strategic path for the company to

pursue.

Communicating the strategic vision in clear, exciting terms that arouse organisation-

wide commitment.

A business vision can play several roles for PIRC owners and PIRC providers. Firstly,

it can guide strategy suggesting strategic paths for the business; secondly, it can help

perpetuate the core of the business and ensure that its core competencies are

presented; and thirdly and most importantly, it can inspire those in the business by



providing a purpose that is worthwhile and enabling and that gets beyond maximising

shareholder wealth.

5.2.2 The importance of a mission

"... mission is the skeleton of the business, the overall framework that provides its

scope and capabilities."

Loewen 1999:180

"... business is not defined by its name, statutes, or articles of incorporation. It is

defined by the business mission. Only a clear definition of the mission and purpose of

the organisation makes possible clear and realistic business objectives."

David 1998:79

A mission statement is defined by David (1998:9) as "... enduring statements of

purpose that distinguish one business from other similar firms". A mission statement

identifies the scope of business operations in product and market share (Pearce &

David 1987:109). The mission of a business addresses the basic question, namely

'What is our business? Therefore, describing the values and priorities of the business

broadly charts the future direction of the business.

Drucker (1973:61) explains that "... a business mission is the foundation for priorities,

strategies, plans and work assignments. It is the starting point for the design of

managerial jobs and above all, for the design of managerial structures. Nothing may

seem simpler or more obvious than to know what a company's business is. Actually,

'What is our business?' is almost always a difficult question and the right answer is

usually anything but obvious."

a) Definitions of the mission

The father of modern management, Peter Drucker, who is known as the pre-eminent

management thinker, said that, asking the question, What is our business?' is

synonymous with asking the question, What is our mission?' Hellriegel et al.

(1999:220) state that the statement of mission may answer the following three basic



questions: "What business are we in? Who are we? and What are we about?" It may

describe the business in terms of the customer needs it aims to satisfy, the goods or

services it supplies, or the markets that it is currently pursuing or intends to pursue in

the future.

Cronje et al. (2000:64) and Hellriegel et al. (1999:220) define the mission of a business

as the reason of existence. With no unerring objectives to strive for, there would be

any need for the business. Miller & Dess (1993:9) state that "... a vision becomes more

tangible when it is expressed in the form of a mission statement" Such a statement

can verbalise the beliefs and the directions toward which a visionary manager wants to

lead the business.

b) The mission statement

The mission statement is a basic description of the fundamental nature, rationale and

directions of a business (Dunne & Lusch 1999:37). An article in the New York Times

(1995:17) states, "Not every business has a mission statement, in fact, only about 50%

of all businesses have written mission statements." Because so many businesses do

not know where they want to go and how to get there, they fail. The lack of a written

statement, however, is not a cause by itself for failure, if the business has a clearly

understood yet unwritten plan of action (Dunne & Lusch 1999:37).

The mission statement is therefore a declaration of a business' reason for being.

Sometimes it is called a creed statement, which is a statement of purpose, a statement

of philosophy, a statement of beliefs, a statement of business principles, or a statement

of defining the business, in terms of what it wants to be and whom it wants to serve

(David 1998:80).

According to Hellriegel et al. (1999:220), the mission statement has meaning only if it

serves as a unifying and driving force for guiding strategic decisions and achieving

long-term goals of the business. The mission statement should stimulate employees in

a business to think and act strategically, not once a year, but every day.



The mission statements are often displayed throughout the business premises and are

distributed with company information. A good mission statement describes a business

purpose, customers, products or services, markets, philosophy and basic technology

(David 1998:82). McGinnis (1981:41) states that the mission statement should include

the following:

Define what the business is and what the business aspires for.

Be limited enough to exclude some ventures and broad enough to allow for creative

growth.

Distinguish a given business from others.

Serve as a framework for evaluating both current and prospective activities.

Stated in terms sufficiently clear to be widely understood throughout the business.

A study comparing mission statements of businesses who are performing well and

businesses who are performing poorly, concluded that high performers have more

comprehensive mission statements than low performers (Pearce & David 1987:110).

King & Cleland (1979:124) recommended that businesses should carefully develop a

mission statement for the following reasons:

To ensure unanimity of purpose within the business.

To provide a basis, or standard, for allocating business resources.

To establish a general tone or business climate.

To serve as a focal point for individuals to identify with the business purpose and

direction, and to deter those who cannot from participating further in the business

activities.

To facilitate the translation of objectives into a work structure involving the

assignment of tasks to responsible elements within the business.

To specify business purposes and the translation of these purposes into objectives

in such a way that cost, time, and performance parameters can be assessed and

controlled.

A good mission statement reflects the anticipations of customers, rather than

developing a product and then trying to find a market. The operating philosophy of

businesses should be to identify customers' needs and then provide a product or



service to fulfil those needs. A good mission statement identifies the utility of business

products to its customers.

Once the mission statement of a PIRC has been formulated, corresponding goals and

objectives are determined. Objectives are targets for performance, which reflect

measurable results and time tables for the accomplishment of such results. Objectives

should be established for each performance area in the PIRC, its market performance

objectives, social objectives and personal objectives.

c) The process of developing a mission statement

"It is important to involve as many managers as possible in the process of developing a

mission statement, because through involvement, people become committed to a

business."

David 1998:83

Calfee (1993:54) describes a mission statement that articulates the fundamental

purpose of the business and often contains several components, among them are the

following: business philosophy, business identity, principal products and services,

customer and markets, geographic focus, obligations to shareholders and commitment

to employees.

An approach to develop a mission statement, according to David (1998:83), is the

following:

To select several articles about the mission statement and ask all managers to read

these as background information.

Managers must prepare a mission statement for the business.

A facilitator or committee of managers must merge these statements into a single

document and distribute this draft mission statement to managers.

A request for modifications, additions and deletions is needed, along with a meeting

to revise the document.

All managers have input and support the final mission statement document.



During the process of developing a mission statement, some businesses use

discussion groups of managers to develop and modify the mission statement. Other

businesses hire an outside consultant or facilitator to manage the process or even to

develop the mission statement. Campbell & Yeung (1991:17) emphasise that u... the

process of developing a mission statement should create an emotional bond and sense

of mission between the business and its employees." These researchers stress that an

emotional bond comes when an individual personally identifies with the underlying

values and behaviour of a business, thus turning intellectual agreement and

commitment to strategy into a sense of mission.

5.2.3 The impact of the vision and mission of PIRGs

"The vision has to be articulated in such a way that it appeals to people on intellectual,

emotional and spiritual levels. People have to feel that their values are aligned to the

vision."

Davies 1999:27

a... a mission is the business' 'raison d' etre', or what it should work towards, in the light

of long-range opportunity."

Jain 2000:185

The modern approach to business is to determine the purpose of the business, the

values and stakeholders. It is not enough to focus on the bottom line and concern only

on shareholders' dominance. In the past, a business could get a licence to operate and

then start the business but today it has become far more complicated. Customers,

employees, investors and suppliers, all have to be considered, and have an affect on

the ultimate success of the PIRC stakeholders.

After the vision comes the ability to be able to see opportunities and turn them into

solutions. The easiest part is to dream, and each step after that is more difficult. The

final step, without which the dream and the solutions are meaningless, is turning the

dream into reality or as excellence of execution (Davies 1999:27). In terms of ultimate

results for a PIRC, this is the most important element.



The mission of a PIRC should define the main activities in the present and, above all, in

the future. It is the basic purpose for the existence of the PIRC, which differentiates it

from other businesses. The mission describes the nature of the business's activities

and PIRC owners therefore need to ask the following questions:

What is the nature of the business?

Who are the customers?

What are the customers' needs?

What is the nature of the internal resources and abilities of the business?

How can the business satisfy customers needs?

What environmental factors have to be taken into consideration?

All businesses have a reason for being. In the beginning, a new business is simply a

collection of ideas. Starting the business rests on a set of beliefs that the new business

can offer some product or service to satisfy customers needs in a geographic area.

When the set of beliefs about a business at its inception is put into writing, the resulting

document mirrors the same basic ideas that underlie the mission statement. Owners of

businesses need to revise the founding set of beliefs as the business grows.

Most successful businesses develop both a mission and vision statement. Whereas

the mission statement answers the question 'What is our business?' the vision

statement answers the question What do we want to become?' (David 1998:83). Many

businesses do not make a distinction between vision and mission. The difference

between a vision and mission, according to Loewen (1999:181), is that the vision is a

business grand goal or future purpose, whereas the mission is how to achieve this goal.

Campbell & Yeung (1991:17) differentiate between the terms vision and mission,

saying that a vision is "... a possible and desirable future state of a business" and a

mission is "... is more associated with behaviour and with the present."



The essential components of a PIRC vision

"Vision is seeing victory before it exists."

Pretorius 2001:12

The most important task for a PIRC owner is to take the strategy of a PIRC and ocnvert

it into a simple vision.

The essential components of a PIRC mission

"... mission statements are also vital to successful businesses."

Covey 1994:139

The mission statement is often the most visible and public part of the strategic

management process, and should include the following essential components and

corresponding questions that a mission statement should answer (David 1998:89):

Customers: Who are the business customers?

Products or services: What are the major products or services of the business?

Markets: Geographically, where does the business compete?

Technology: Is the business technologically current?

Concern for survival, growth, and profitability: Is the business committed to growth

and financial soundness?

Philosophy: What are the basic beliefs, values, aspirations and ethical priorities of

the business?

Self-concept: What is the business's distinctive competence or major competitive

advantage?

Concern for public image: Is the business responsive to social, community and

environmental concerns?

Concern for employees: Are employees a valuable asset for the business?

SAPIA's mission is to "... do all it can to assist the industry to deliver petroleum

products to the South African economy at world competitive prices. It is deeply aware

of the need to make South Africa a competitive nation and of the role that liquid fuels

availability and cost will play in achieving this target" (Mbendi 2003:Internet).



According to Black & Porter (2000:198) the mission statement, is an articulation of the

fundamental purpose of the business, often containing several components such as the

business philosophy, business identity, principal products or services, customers and

markets, geographic focus, obligations to shareholders, and commitment to employees.

Table 5-1 indicates the nine essential components of a mission statement for a PIRC.

Table 5-1: The nine essential components of a mission statement for a PIRC

MARKETS To be engage efficiently, responsibly and profitably in the petroleum market. Seek a high standard of performance and the aim is to maintain a long-term position in the competitive environment.

PRODUCTS OR SERVICES

Developing and providing products and services which offer value in terms of price, quality, safety and environmental impact, which are supported by the requisite technological, environmental and commercial expertise.

CUSTOMERS To win and maintain customers by providing fast, efficient friendly service.

TECHNOLOGY To make use of newly improved technology to achieve continuous performance improvement.

CONCERN FOR SURVIVAL, GROWTH AND PROFITABILITY

Profitability is essential to stay in business. It is essential to the allocation of the necessary resources and to support the continuing investment required developing and producing future energy supplies to meet consumer needs.

SELF-CONCEPT Support free business. Seeking to compete fairly and ethically and within the framework of applicable competition laws, and therefore prevent others from competing freely.

CONCERN FOR PUBLIC IMAGE

To conduct business as a responsible corporate member of society, to observe the laws of the countries in which they operate, to express support for fundamental human rights in line with the legitimate role of business and to give proper regard to health, safety and the environment consistent with their commitment to contribute to sustainable development.

CONCERN FOR EMPLOYEES

To respect the human rights of employees, to provide employees with good and safe conditions of work, and good and competitive terms and conditions of service, to promote the development and best use of human talent and equal opportunity employment, and to encourage the involvement of employees in the planning and direction of their work, and in the application of these principles within their business.




Although mission statements vary from PIRC to PIRC, good ones usually include three

elements:

Firstly, the kinds of values the PIRC intends to offer to serve the needs and wants of

the customers;

Secondly, how the PIRC owners expects to relate to the ever changing

environment;

Thirdly, how the PIRC owners uses or intends to use its resources.

5.3 THE MICRO ENVIRONMENT AND ITS MANAGEMENT

"For better or worse, our society is strongly influenced by managers and their

businesses."

Griffin 1996:4

Frederick Taylor (1903:21) defined management in the early 1900s as "Knowing

exactly what you want people to do, and then seeing that they do it in the best and

cheapest way." Griffin (1996:5) defines management as "... a set of activities (including

planning and decision making, organising, leading and controlling) directed at business

resources (human, financial, physical and information) with the aim achieving the

business goals in an efficient and effective manner."

The knowledge of both theory and history is useful to the practising manager of a PIRC.

The question arises: Why theory? According to Griffin (1996:32) "... theory is simply a

conceptual framework for organising knowledge and providing a blueprint for action."

Although some theories seem hypothetical and irrelevant, other appear very simple and

practical. Drucker (1994:95) said "Management theories, used to build organisations

and guide them toward their goals, are grounded reality."

According to Griffin (1996:35), "... management's thought has been shaped over a

period of centuries by three major sets of forces, namely social, economic and political

forces." These forces continue to affect management theory today. In the early days of

business, owners generally managed their own companies. As these businesses grew,

however, professional managers were called in to run them and organised labour.


L MARX-FRONEMAN


Social forces are the norms and values that characterise a culture (Griffin 1996:35).

Changes in social forces have played a major role in shaping management theories

in areas such as motivation, leadership and human resource management (Griffin

1996:35).

The economic forces are associated with economic systems and general economic

conditions and trends and has also shaped management theory (Griffin 1996:35).

General economic trends and the nature of the competition also greatly affect

businesses. Increased global competition in recent years has also played a role.

Donaldson (1990:369) explains that within contemporary management theory,

economic forces have affected thinking in a variety of areas, including environment

analysis, strategic planning and organisation design.

The political forces are the governing institutions and general governmental policies

and attitudes toward business. They influence management theory in both general

and specific ways. The general government policies toward the regulation of

business play an important role in how businesses are managed (Griffin 1996:36).

Both general and specific political forces affect management theory in areas like

environmental analysis, planning, organisation design, employee rights and control.

5.3.1 Management and its functions

The functions of a business consists of the management functions, such as planning

organising, leading and controlling (David 1998:146):

0 Planning

Change is the only thing certain about the future of any business, and planning is the

essential bridge between the present and the future that increases the likelihood of

achieving desired results. David (1998:46) states "... planning is the cornerstone of

effective strategy formulation and are even considered the foundation of management,

but it is commonly the task that managers neglect the most" Planning is essential for



successful strategy implementation and strategy evaluation, largely because

organising, leasing, staffing and controlling activities are dependent on good planning.

The planning process must include the involvement of managers and employees

throughout the business. The important point is that all managers do planning and

should involve subordinates in the process to facilitate employee understanding and

commitment.

Planning can have a positive impact on the business and also on individual

performances. Planning allows a business to identify and take advantage of any

external opportunities and minimise the impact of external threats. Planning includes

forecasting future events and trends, establishing objectives and choosing strategies to

pursue.

A PIRC can develop synergy through planning. Synergy exists when everyone pulls

together as a team that knows what it wants to achieve (David 1998:147). When

PIRCs establish and communicate clear objectives, employees and managers can

work together toward desired results. Synergy can result in powerful competitive

advantages for PIRCs. Table 5-2 indicates three levels of planning for a PIRC.

Table 5-2: Three levels of planning for a PIRC

TOP MANAGEMENT • •

Top Management Owner/CEO General Managers

MIDDLE MANAGEMENT . •

Middle Management Division Managers Department Managers

LOWER MANAGEMENT . •

Bottom Management Supervisors Forecourt Managers




Planning allows a PIRC to adapt to changing markets and thus shape its own destiny.

According to David (1998:148) "Strategic management can be viewed as a formal

planning process that allows a business to pursue proactive rather than reactive

strategies." Successful businesses strive to control their own futures rather than merely

react to external forces and events as they occur. Today, in a very competitive

petroleum environment, swift adaptation is needed more than ever before because of

changes in markets, economies, and increasing numbers of competitors world-wide.

ii) Organising

"The purpose of organising is to achieve co-ordinated effort by defining task and

authority relationships."

David 1998:148

Organising means who does what and who reports to whom. A well-organised

business, generally has motivated managers and employees who are committed to

seeing the business succeed. Resources are allocated more effectively and used more

efficiently in a well-organised business than in a disorganised business.

According to David (1998:148) the organising function of management can be viewed

as consisting of three sequential activities: breaking tasks down into jobs (work

specialisation), combining jobs to form departments (departmentalisation), and

delegating authority. Breaking tasks down into jobs requires development of job

descriptions and job specifications. These tools elucidate for both managers and

employees what particular jobs entail. In Adam Smith's (1937:3&4) Wealth of Nations,

he cited the advantages of work specialisation stating that every worker knows exactly

what his or her tasks entail. If not, then they would all function separately and

independently and would not get the job done. Combining jobs to form departments

results in organisational structure and a chain of command.

An important organising activity is delegating authority (David 1998:148). Employees

are more educated and more capable of participating in organisational decision-making



today than ever before. Employees expect to be delegated authority, accountability

and responsibility and to be held accountable for these management triplets.

in) Leading

"... entails giving orders to the human resources of the business and motivating them to

direct their actions in conformity with the goals and plans."

Cronje et aL 2000:102

PIRC owners need to motivate and keep things going by influencing the staff through

good communication between management and staff and among staff. This will have a

decisive effect on the culture prevailing in a business.

Daft (1993:512) defines motivating as "The process of influencing people to accomplish

specific objectives." Motivation explains why some people work hard and others do

not. Objectives, policies and strategies have an ineffectual chance of succeeding if

employees and managers are not motivated to implement strategies once they are

formulated. According to David (1998:148), the motivating function of management

includes at least four major components: leadership, group dynamics, communication

and organisational change.

The business strategists are good leaders when the managers and employees of a

business strive to achieve high levels of productivity. Good leaders establish rapport

with subordinates, empathise with their needs and concerns, set good examples, and

are trustworthy and fair. Leadership includes developing a vision of the business future

and inspiring employees to work hard to achieve that vision. Kirkpatrick and Locke

(1991:48) reported that certain traits also characterise effective leaders: knowledge of

the business, cognitive ability, self-confidence, honesty, integrity and drive. Research

suggests that democratic behaviour on the part of leader results in more positive

attitudes toward change and higher productivity than does autocratic behaviour (David

1998:149). "Leadership is not a magnetic personality. That can just as well be

demagoguery. It is not 'making friends and influencing people.' That is flattery.

Leadership is the lifting of a person's vision to higher sights, the raising of a person's



performance to a higher standard, the building of a person's personality beyond its

normal limitations" (Drucker 1973:463).

Group dynamics play a major role in employee morale and satisfaction. The norms of

coalitions which are formed in a business, can range from being very positive to very

negative towards management. Therefore it is important to identify the composition

and nature of informal groups in a business to facilitate strategy formulation,

implementation and evaluation. The leaders are especially important to the informal

groups in formulating and implementing strategy changes.

A major component in the business communication system determines whether

strategies can be successfully implemented. Any business needs a good two-way

communication system, which is vital for gaining support for departmental and

divisional objectives and policies. A top-down communication approach can encourage

bottom-up communication. When subordinates are encouraged to discuss their

concerns, reveal their problems, provide recommendations, and give suggestions, the

strategic management process becomes a tot easier. It provides alternative

perspectives in a world of complexity.

According to David (1998:149) the primary reason for instituting strategic management

is to build and support an effective communication network throughout the business.

Dumaine (1989:51) suggests that 'The manager of tomorrow must be able to get his

people to commit themselves to the business, whether they are machine operators or

junior vice-presidents. In the 1990s, throwing together a few quality circles won't

suffice. The key issue will be empowerment, a term whose strength suggests the need

to get beyond merely sharing a little information and a bit of decision-making."

iv) Controlling

The controlling function of management includes all those activities undertaken to

ensure that actual operations conform to plan operations (David 1998:157).. In a

business, all managers have controlling responsibilities such as conducting

performance evaluations and taking necessary action to minimise inefficiencies. David



(1998:151) states that the controlling consists of four basic steps: firstly, establishing

performance standards; secondly, measuring individual and business performance;

thirdly, to compare actual performance to planned performance standards and fourthly,

taking corrective actions.

Measuring individual performance is often conducted ineffectively or not at all in

businesses. Some reasons for this shortcoming are that evaluation can create

confrontations that most management's prefer to avoid, and can take more time than

most managers are willing to give and can require skills that many managers do not

have. There is no single approach to measure an individual performance without any

limitations, therefore a business should examine various methods to select a

performance appraisal approach that best suits the business needs (David 1998:151).

5.3.2 Management structure of a PIRC

Blanchard & Waghorn (1997:34) identify three 'managing by value' steps, namely:

identifying core values: Managing by value begins by identifying a core set of

operating values and what the business stands for, holds dear. Values are the

heart and soul of a business, and are the fundamental notions of ideal behaviour.

They are the set of beliefs upon which decisions are made and actions are taken.

Many PIRCs claim that they have a set of core values, but what every PIRC would

agree with, is having integrity, making a profit and responding to customers' needs.

communication core values: This value involves making sure that the values of

PIRGs are evident to all stakeholders, which include employees, customers,

suppliers and the community.

aligning values and practices: Without some method of identifying gaps between

values and behaviour, a set of core values is nothing more than a wish list, where

80 percent of the time allotted for implementing the managing by values process

should be given to this alignment stage. PIRCs should clarify their values, which is

a new way to view problems.

Source: Blanchard & Waghorn (1997:35)



Management processes are applicable in a wide variety of settings, such as PIRC

seeking operations, large, small and start-up businesses. Figure 5-3 indicates the

several levels of management that can be identified in a PIRC. The management

pyramid includes top, middle and bottom management levels.

Figure 5-3: Different levels of management in a PIRC

OWNERS

TOP MANAGEMENT

MANAGER < MIDDLE MANAGEMENT

BOTTOM. MANAGEMENT EMPLOYEES


The top management of a PIRC comprises the upper level managers who have the

most power and who take overall responsibility for the business, such as CEO or the

owner. The top management of a PIRC sets the strategic goals, which focus on broad

issues, and applies it to the PIRC and its aim is to enhance the PIRC performance.

The top management of a PIRC will also monitor the environment within which the

PIRC operates. Bartol & Martin (1991:268) suggest that the goals for the top

management include: market position, innovation, human resources, financial



resources, physical resources, productivity, social responsibility and financial

performances. The top management of a PIRC also makes long-term plans,

establishes major policies and represents the PIRC to the outside world.

The middle management of the PIRC reports to top management and will develop

plans for implementing the strategic goals set by the top management and co-ordinates

the work of employees on bottom management. To accomplish this, middle managers

set tactical objectives, which focus on departmental issues and define the results

necessary to achieve the PIRC's strategic goals. The middle management of a PIRC

should at all time also monitor environmental influences that may affect its sphere of

conditions.

The bottom management of a PIRC comprises the managers that oversee the work of

operating employees and they put into action the plans developed at higher levels. The

bottom management sets operational objectives, which focus on short-term issues and

defines the results necessary to achieve both the tactical objectives and strategic goals.

5.3.3 Functional areas of management

"The management of a business, whether uncomplicated or sophisticated, involves

various functional areas of management"

Lessing & Jacobs 2002:3

The extent to which a particular functional area of business is important in a business

depends on various factors, such as the type of product or service, the location of the

business and the size of the business (Lessing & Jacobs 2002:3). The following

functional areas are typically identified in a business (Lessing & Jacobs 2002:3),

namely:

Purchasing and materials management;

Production and operations management;

Marketing management;

Financial management.



Some other functional areas are- classified as generic management functions, in a

business (Lessing and Jacobs 2002:3), namely:

General management;

Human resources management;

Corporate communication management;

E-management.

All these functions are parts of the same business and work together in the business to

achieve the goals and objectives of the business. One function is not necessarily more

important or less important than another function. All these functions need to be in

harmony with one another. Each has its own role in the achievement of the overall

objective.

5.3.4 The impact of management on PIRGs

"The key difference between businesses is how well their people work — attracting,

training and keeping good people is vital"

Phillips 2001:34

Businesses do not achieve their objectives automatically. In addition to the people,

physical resources and special know-how in a business, there is a further element that

is necessary to direct all these resources and activities effectively toward goals. "...

someone has to get certain activities going and keep them going, to enable the

business to realise its goals and objectives, that indispensable element is

management" (Cronje et al. 2000:98).

One of the most frequent causes of failure in a business is poor management. The

management is therefore indispensable to a PIRC, for the following of reasons:

Management is necessary to direct a PIRC towards its objectives.

Management is necessary to set and keep the operations of the PIRC on a

balanced course.

Management is necessary to keep the PIRC in equilibrium with its environment.

Management is necessary to reach the goals of the PIRGs.



5.4 THE MICRO ENVIRONMENT AND ITS RESOURCES

"Everyone trains — violinists, sprinters, pilots, soldiers, surgeons, cops, astronauts, so

why not business people? The only conclusion one can reach is that we are not

serious."

Peters 2001:6

The most important resources for a PIRC are the availability of capital and the

manpower, or human resources to master the daily tasks. The availability of adequate

resources is therefore a prerequisite for successfully marketing the products and

services of a PIRC and there is little point in striving after idealistic objectives, if the

resources of the PIRC are limited.

5.4.1 Human resource function

"... the set of organisational activities directed at attracting, developing, and maintaining

an effective workforce."

Griffin 1996:382

"... the recognition that human resources are a valuable means for improving

productivity, and the awareness today of the costs associated with poor human

resource management"

Wright & McMahan 1992:280

Mescon et at (1998:290) state "The specialised function, formerly referred to as

personnel management, is now termed human resources management to reflect the

importance of a well chosen and well management work force in achieving the

business goals." According to Cronje et at (2000:438), the human resources refers to

"... the task or responsibility that is a part of every managers' job, regardless of the

functional area involved in or the hierarchical level occupied." Human resource

management takes place within a complex and ever-changing environmental context.

Terpstra & Rozell (1993:27) maintain that human resources are critical for effective

organisational functioning.



The human resource management is a specialised function according to Cronje et at

(2000:438) just as the financial management and purchasing management are

specialised management areas. The human resource (RR) function takes its rightful

place with other specialised functions. Other titles to indicate the head of the HR

function, are manpower manager or director of personnel (De Cenzo & Robbins

1996:170).

The task of the HR manager is "... to help other managers in the business to fully utilise

the employees allocated to them" (Cronje et aL 2000:439). The tasks will include:

figure out how to attract qualified employees;

how to train less educated, poorly skilled employees;

how to keep experienced employees when they have fewer opportunities for

advancement;

how to layoff employees equitably when downsizing is necessary.

The employment process is very important to every business. It should not only ensure

that sufficient human resources are available to perform all the tasks, but also that the

right and most suitable staff are hired to perform the tasks efficiently. Attracting human

resources is not simple, and it involves the following important activities that must all be

performed well for the process as a whole to be executed efficiently: planning,

recruiting, selection, placement and induction (Cronje et al. 2000:440). The primary

task of a HR manager is attracting human resources. This is concluded successfully

when a suitable employee has been appointed.

Griffin (1996:393) states that "Regardless of how effective a selection system is,

however, most employees need additional training if they are to grow and develop in

their jobs. Evaluating their performance and providing feedback are also necessary."

The knowledge becomes incredibly important for PIRC owners and their employees in

a competitive petroleum industry, and ensures a continuous flow of human resources to



the business. Figure 5-4 indicates the different human resource management functions

for PIRGs.

Figure 5-4: The main activities and subactivities of human resource

management

HR MANAGER

ATTRACTING

HUMAN

RESOURCES

Human resource planning Recruiting Selection Placement Induction

RETAINING

HUMAN

RESOURCES

Compensation

Health and

safety

Labour relations

DEVELOPING

HUMAN

RESOURCES

Training and

development

Performance

management

Source: Adapted from Cronje et at 2000:440

a) Planning

"... intended actions in the business which aim is to ensure that the tight number and

quality of employees are available at the right time to help realise the current and future

objectives of the business."

Rudansky-Kloppers 2002:39



When planning an analysis of the PIRC's objectives, the following aspects need to be

considered, namely:

Job analysis;

Staff requirements;

Policy and procedures manual;

Compensation policy;

Financial budget for personnel management;

Time frame of personnel management.

Recruitment

"... includes all activities involved in securing individuals who will apply for the job."

Stanton & Spiro 1999:135

Mescon et al. (1998:294) define recruitment as "... the process of attracting suitable

candidates for a business' jobs." Recruitment means searching as widely and as

thoroughly as possible for the right people who could be suitable for vacancies and

encouraging them to apply for these vacancies.

Selection

"... is the process of choosing individuals who have the relevant experience and

qualifications to fill existing or projected job openings."

Sherman et al. 1998:172

The recruiting process yields a number of relevant applicants whose experience and

qualifications must be measured against the requirements of the job. The objective of

selection is to appoint employees for the PIRG, who should best be capable of meeting

the desired performance standards.

Sherman et aL (1998:241) define "the philosophy behind the business rules and

provides a framework for job-related tasks." Once a new employee starts employment

at a PIRC, he or she should participate in a formal induction programme. Induction is



the formal process of familiarising new employees with the PIRC and their jobs. An

induction programme is designed to influence employee attitudes about the work they

will be doing and their role in the business. The ultimate success of a PIRC depends

on the employees, which include the petrol pump attendants, cleaners, waiters, and

managers. Effective control and the training of these employees are therefore of the

utmost importance

Employees may receive compensation for predetermined rewards for achievement.

The PIRC also has to develop a staff retention programme to motivate the staff at the

PIRC to remain in their positions. A PIRC owner needs to develop a performance

appraisal system to objectively evaluate employees according to the set criteria.

Performance appraisal promotes fairness because their standards are usually job

related.

d) Placement and induction

Once the job offer has been accepted the new employee must report for duty as soon

as possible. A PIRC should attempt to reduce the turnover rate of employees. It

should therefore involve aspects such as sound human resource management

principles, a professional work environment, staff development by means of training

programmes, staff counselling and staff motivation. Every new employee needs

training. PIRC owners need to offer a well-defined orientation program to make sure

that all new employees understand the PIRC goals, policies and procedures. PIRC

owners should also offer training because employee competence has a direct effect on

the PIRC productivity and profits.

Motivating the employees of a PIRC is perhaps one of the most important functions for

a PIRC. According to Lamb et at (2002:172), once a need becomes satisfied, and as

long as it remains satisfied, people's behavioural priority shifts to the next highest need

level. If individuals fail to achieve gratification or if fulfilment is withdrawn, they will

experience tension and anxiety. These psychological forces result in motivational

behaviours designed to reduce the stress and restore internal equilibrium.



The flux of employees out of the PIRC refers to the termination of their employment.

This termination can take place as a result of retirement, death, voluntary resignation or

dismissal. Human resource management is concerned with attracting, developing and

maintaining the human resources that a business needs. Its environmental context

consists of its strategic importance and the legal and social environments that affect

human resource management.

Human resource planning starts with a job analysis and then focuses on forecasting the

future need of the business for employees and forecasting the availability of employees

both within and outside the business. Recruitment and selection are the processes by

which job applicants are attracted, assessed and hired. Training and development

enable employees to perform their present jobs effectively and to prepare for future

jobs.

A PIRC owner must develop unique ways of managing human resources that mesh

with the PIRC short-term business strategy. In the long run, a well-planned, flexible

human resources strategy will help assure the business's success in global markets

(Solomon 1995:71). A PIRC has the potential to become one of the greatest, profitable

businesses in the petroleum industry.

5.4.2 Financial resource function

"... includes the acquisition, utilisation and control of the money of the business needs

to finance its activities and to buy materials and equipment."


PIRC owners need to consider three main factors of financial resources and

performances, namely shareholder values analysis, finance performance related to

sales and profitability. The shareholder value analysis has become a standard

procedure for any businesses. It involves analysing the business in respect of the

value it creates for shareholders (Du Plessis et al. 2001:142).



The internal self-analysis of a PIRC begins with the analyses of financial performance

related to sales and profitability. PIRC owners consider sales volume and market share

as key indicators of performance. Sales increase generally indicates growth in the

customer base and an opportunity to retain customers for repeat visits and repeat

purchasing. Sales increases also provide opportunities for cost reduction through the

exploitation of economies of scale.

Profit is the strongest indicator of the financial performance of a business. Profit

provides the base for the growth of the business, in addition to providing rewards to

several of the stakeholders. According to Du Plessis et at (2001:142) this is the third

group of measures for the internal analysis of the finances of a business.

In a PIRC, the links with customers are extremely important and major aspects of these

links are the people who operate the store and interact with customers. A significant

part of financial performance depends on the human and marketing resources.

5.4.3 Marketing resource function

"... when you think of marketing, you more than likely think of marketing to your

customers: how can you persuade more people to buy what you sell?"

Mitchell 2002:99

Marketing is one function within a business that arguably is the most critical function,

because it interprets customers' needs and requirements into products and services

and repeats business without which a business cannot continue. A modern view of

marketing puts customers in the centre and marketing as the function surrounding the

customer. Lancaster (2002:Internet) remarks "The idea is that all functions of business

should be geared towards the satisfaction of customers' requirements and this has led

to the new notion of customer cam."

There is another market that is just as important, namely the market of the PIRG's

employees, (the very people who can make the brand come alive for customers).

Mitchell (2002:99) states that the internal marketing is very important because it is the



best way to help employees make a powerful emotional connection to the products and

services the business sells. "Without that connection, employees are likely to

undermine the expectations set by the advertising" (Mitchell 2002:99). Employees

need to understand what is promised to the public so that they do not end up working at

cross-purposes. If employees believe in the brand and are motivated to work harder

their loyalty to the business will increase. The employees of a business are unified and

inspired by a common sense of purpose and identity.

A PIRC owner needs to concentrate on the internal marketing. A PIRC owner needs to

keep people informed about the PIRC strategy and direction and should convince

employees of the brand's power. Mitchell (2002:100) identifies the principles of

consumer advertising to internal communications. Leaders can guide employees to a

better understanding of and even a passion for, the brand vision. The principles of

internal marketing are as follows:

• Principle 1: Choose the moment

"Most people have limited tolerance for change initiatives and branding and visioning

are not exceptions."

Mitchell 2002:100

At certain turning points, there are times when a business is experiencing some

fundamental challenges or changes and employees are seeking direction and are

relatively receptive to these initiatives. Turning points are thus ideal opportunities for

an internal branding campaign, where PIRC owners can direct employees' energy in a

positive direction by clearly and vividly articulating what makes the PIRC special.

A PIRC provider, British Petroleum, seized such an opportunity when it merged with

Amoco and the Arco. It rebranded itself as BP, redesigned its logo and launched a

campaign simultaneously to staff and the public declaring that it was going 'beyond

petroleum.' The PIRC provider repositioned its brand and put aside its identity as a

petroleum company to become an open collaborative new economic adventure.



Principle 2: Link internal and external marketing

Employees need to hear the same messages that PIRC owners send to the market

place. Mitchell (2002:100) states "... at most businesses however, internal and

external communications are often mismatched and can be very confusing and it

threatens employees' perceptions of the businesses integrity." PIRC owners need to

enable employees to deliver on customer expectations. This is important but it is not

the only reason a business needs to match internal and external messages. Mitchell

(2002:101) explains "By weaving the brand messages into employees' everyday

experiences, a manager can ensure that one brand behaviour becomes instinctive." By

drawing attention to the gap between the promise and the reality prompted destructive

press coverage. This in turn demoralises staff who are legitimately proud of the service

advances they make.

Principle 3: Bring the brand alive for employees

The goal of an internal branding campaign is very similar to that of an external

campaign: to create an emotional connection to the PIRC that transcends any one

particular experience. In the case of employees, the PIRC owner would also want the

connection to inform the way they approach their jobs. The PIRC owner wants them to

have the brand vision in their minds and to consider whether or not they are supporting

the brand in every decision they make. A PIRC owner should plan and execute a

professional branding campaign in collaboration with the PIRC provider to introduce

and explain the messages and then reinforce them by weaving the brand into the fabric

of the PIRC.

The messages should be directed at employee touch-points, the day-to-day

interactions that influence the way people experience the work place. A professional

branding campaign is just what it sounds like. It should take the form of a consumer

branding campaign, with a set of stages that starts with research and continues through

the planning and executing of a communications strategy designed to convince

employees of the merits and credibility of the brand. But if employees do not care

about their PIRC, they will in the end contribute to its demise. It is up to the PIRC

owner to give them a reason to care.



Botha (2002:21) emphasises that "Every change we face in marketing today makes the

establishment and maintenance of trust more necessary and more valuable because

for consumers the mounting complexities of choice will make the need for trust more

urgent. It is a promising future for brands to live up to and deliver on these

expectations."

PIRC owners need to apply these principles, to enable employees to "live" out or walk

the talk the vision in their day-to-day activities. When employees "live" out that vision,

customers are much more likely to experience the business in a way that is consistent

with what has been promised.

5.5 THE MICRO ENVIRONMENT BUSINESS CULTURE

"Sauna with the Finns and eat sushi with the Japanese, is this all there is to mastering

globalisation? It is not that simple, but getting along with and knowing something about

the habits and culture of the target market is essential."

Fontyn 2002:5

"The set of values that helps its members understand what the business stands for,

how it does things, and what it considers important."

Griffin 1996:91

Griffin (1996:91) defines culture as "... an amorphous concept that defies objective

measurement or observation, because it is the foundation of the business' internal

environment (micro environment), it plays a major role in shaping managerial

behaviour." Culture determines the 'feel' of the business. PIRGs that can develop and

maintain a strong culture will be more effective than competitors that have trouble

developing and maintaining a strong culture. PIRGs need to know how the perspective

customer's culture works, in order to deal with such a customer. Different cultures

attach different meaning to time. PIRC owners need to become more aware of the

trends.



Organisational culture is defined by Schein (1985:9) as "... a pattern of behaviour

developed by an organisation as it learns to cope with its problem of external

adaptation and internal integration, that has worked well enough to be considered valid

and to be taught to new members as the correct way to perceive, think and feel." This

definition by Schein emphasises the importance of matching external with internal

factors in making strategic decisions. Miller & Dess (1993:440) define organisational

culture as "... a system of shared values (about what is important) and beliefs (about

how things work) that shape a company's behavioural norms (the way we do things

around here)."

Organisational culture captures the subtle, elusive, and largely unconscious forces that

shape a workplace. The resistant to change culture can represent a major strength or

weakness for the business. According to David (1998:143), it can be an underlying

reason for strengths or weaknesses in any of the major business functions. Culture is

an aspect of organisations that can no longer be taken for granted in performing a

strategy that must work in the business.

The PIRC owner and manager must understand the current culture and then decide if it

should be maintained or changed, states Schneider et aL (1994:17). PIRC managers

and owners can therefore take appropriate actions if they understand the business's

current culture. Culture is an especially important environment concern for business.

PIRC managers and owners must understand that culture is an important determinant

of how well their business will perform.

5.6 DISTINCTIVE COMPETENCIES OF THE MICRO ENVIRONMENT

„... a business that continues to employ a previously successful strategy eventually and

inevitably falls victim to a competitor."

David 1998:139

The distinctive competencies of the micro environment are "... the strengths that cannot

be easily matched or imitated by competitors" (David 1998:141). Building competitive

advantages involves taking advantage of distinctive competencies. PIRGs need to



design their strategies to improve their weaknesses, turning them into strengths and

maybe even into distinctive competencies.

Human beings experience different wants and needs. According to Lessing & Jacobs

(2002:5) a want is “... a vague feeling of deficiency or that something is absent, also

described as a state of felt deprivation" and a need, on the other hand, is felt much

more intensely and is "... a strong internal desire to gain or achieve something, and it

creates an uncomfortable tension within a person until the desire is satisfied." The

need can vary from a mere sense of 'nice to have', to a definite 'must have' feeling.

The business must satisfy the needs and wants of the customers. The unsatisfied

needs experienced by customers are business opportunities to business people and

the more needs that can be instilled, the better the business climate (Lessing & Jacobs

2002:5).

PIRCs need to understand the customers' needs, therefore is important to understand

the business. The higher the development level of people, the more diverse their

needs (Lessing & Jacobs 2002:5). According to Lessing & Jacobs (2002:5) "... people

generally tend to satisfy the lower-order needs first and thereafter the higher-order

needs and the moment a specific need is satisfied it no longer influences the person's

behaviour" The lowest unfulfilled need forms the strongest driver of behaviour. This

approach is acceptable as general theory of motivation but can indeed not explain all

human behaviours and customer's need satisfaction. PIRCs are businesses, which are

profit driven, and therefore need to take the initiative in utilising opportunities for their

own well being and advantage, while at the same time providing in the customers need.

PIRCs provide convenience products to customer's, and the generation today is

growing up in an environment that is driven by convenience. Products those meet

customers' desire for convenience has to be identified by PIRCs to provide in the need

of the customers.

5.6.1 Nature of control

"... the regulation of organisational activities so that some targeted element of

performance remains within acceptable limits."



Tsui & Ashford 1994:93

Without regulation, businesses have no indication of how well they perform in relation

to their goals (Griffin 1996:602). Control keeps the business moving in the proper

direction. At any point in time, it compares where the business is in terms of

performance to where it is supposed to be. According to Griffin (1996:602), control

provides a business with ways to adapt to environmental change, to limit the

accumulation of error, to cope with organisational complexity and to minimise cost.

In a complex and turbulent business environment, all businesses must contend with

adapting to environmental change (Stewart 1993:66). If managers could establish

goals and achieve them instantaneously, control would not be needed. A properly

designed control system can help managers anticipate, monitor and respond to a

changing environment (Taylor 1994:64). In contrast, an improperly designed system

can result in a business performance that falls far below acceptable levels.

When small mistakes and errors often occur, it will not seriously damage the business'

financial health. But over time, these small errors may accumulate and eventually

become very serious (Griffin 1996:603). When a business purchases only one raw

material, produces one product, has a simple business design, and enjoys constant

demand for its product, its managers can maintain control with a very basic and simple

system. But if a business produces many products from myriad raw materials, and has

a large market area, a complicated business design, and many competitors, it needs a

sophisticated system to maintain adequate control (Griffin 1996:604). When practised

effectively, control can also help reduce costs and boost output.

The PIRC control system should be flexible, accurate, timely and as objective as

possible. Employees may resist organisational controls if they feel over controlled, if

they think that control is inappropriately focused, if they are being rewarded for

inefficiency or if they desire to avoid accountability. PIRC managers and owners can

overcome this resistance by improving the effectiveness of controls and by allowing

employee participation and developing verification procedures.



5.6.2 The importance of motivation

"Motivation is the set of forces that causes people to behave in certain ways."

Griffin 1996:474

Motivation may be used to influence the behaviour and performance of subordinates

and is intimately linked with leadership (Cronje et at 2000:154). Steers & Porter

(1991:74) defines motivation as "... the set of forces that cause people to behave in

certain ways."

Managers work with and through people to attain the objectives of a business. But

people are complex and often irrational in their behaviour and their motives are not

always easy to gauge. Therefore the better the understanding of motives leading to

behaviour, the better managers are able to influence employees' behaviour in the best

interests of the business itself.

The productivity and profitability is a function of the behaviour of employees of the

business and it follows that successful influencing of that behaviour is the key to higher

productivity. Cronje et al. (2000:154) explain further that "... a motive in humans is an

inner drive, stimulus or incentive to satisfy a need of some kind. It is the determinant of

behaviour that makes people aware of their needs and actuates them to respond to

such needs." A motive is therefore a symptom of a need, and sets in motion the need-

satisfying process in a direction toward a preconceived goal. Figure 5-5 shows the

basic motivation process.


Purpose or goals

Internal needs, motives or

drives

provides Satisfaction

Reinforcement (determines

future needs)

brings

cause •

Behaviour or action

fulfils


Figure 5-5: A fundamental motivation model

Source: Adapted from Cronje et at 2000:155

The basic motivation process comprises internal motives or drives that stimulate people

toward a specific form of action or behaviour to achieve the ends they think will satisfy

their inner needs. When attaining these goals, people will consciously or unconsciously

judge whether the effort has been worthwhile if the level of satisfaction was obtained

from it (Cronje et at 2000:155). The decision will reinforce or modify the behaviour of

people. When they have needs again, they will either act in the same manner or in

some other manner. The motivation of subordinates implies the knowledge that

managers ought to have of their inner needs, to satisfy these needs and therefore to

influence their behaviour in the direction best capable to the accomplishment of the

business goals.



The needs, desires, expectations, goals and ambitions differ from person to person and

the needs and goals alter in the course of time. Whatever the reason, work remains

one of the most important human activities and the focal point of human life. People

work not merely to earn enough money but also in the development of human self-

realisation and identity.

Work satisfies a number of needs of employees and for this reason the management of

a PIRC can use motivation as a valuable instrument to improve the performance of

employees. To motivate their employees, PIRCs need to be able to answer two

fundamental questions: firstly, "What are my employees needs?" and secondly, "How

can the PIRC satisfy these within the context of the business?" Maslow's theory of

motivation is probably the most familiar and widely accepted theory on motivation.

Maslow (1943:370-396) hierarchy of needs is "... a theory of motivation that suggests

that people must satisfy five groups of needs in order physiological, security,

belongingness, esteem, and self-actualisation."

The physiological needs include things like food, sex, and air that represent basic

issues of survival and biological function. In a PIRC, adequate wages and the work

environment itself, which provides restrooms, adequate lighting, comfortable

temperatures and ventilation generally satisfy these needs.

The next comprises security needs for a secure physical and emotional environment.

This includes the desire for housing and clothing and the need to be free from worry

about money and job security. These needs can be satisfied in the workplace by job

continuity, a grievance system and an adequate insurance and retirement benefits

package.

Belongingness needs relate to the social processes. It includes the need for love and

affection and the need to be accepted by one's peers. These needs are satisfied for

most people by family and community relationships outside of work and friendships on

the job. The management of a PIRC can help satisfy these needs by allowing social

interaction and by making employees feel like part of a team or work group.


L MARX-FRONEMAN Some strategic considerations on the location of road conveniences June 2003'

Esteem needs are actually two different sets of needs, according to Maslow

(1943:380). These are the need for a positive self-image and self-respect and the need

for recognition and respect from others. The management of a PIRC can help to

address these needs by providing a variety of extrinsic symbols of accomplishment

such as job titles, nice offices, and similar rewards as appropriate.

At the top of the hierarchy are the self-actualisation needs. These include the realising

of one's potential for continued growth and individual development. The self-

actualisation needs are perhaps the most difficult for a PIRC to address. These needs

must be met entirely from within the individual. The management of a PIRC can help

by promoting a culture wherein self-actualisation is possible, by giving employees a

chance to participate in making decisions about their work and the opportunity to learn

new things about their jobs and the business.

Maslow's hierarchy suggests that human needs can be classified into the five

categories and can be arranged in a hierarchy of importance. A manager should

understand that an employee may not be satisfied with only a salary and benefits,

he/she may also need challenging job opportunities to experience self-growth and

satisfaction (Griffin 1996:477).

The five need categories of Maslow constitute a hierarchy. An individual is motivated

first and foremost to satisfy physiological needs. As long as they remain unsatisfied,

the individual is motivated only to fulfil them. When the satisfaction of the physiological

needs is achieved, they cease to act primary on the motivational factors and the

individual moves 'up' the hierarchy and then becomes concerned with the security

needs. The process continues until the individual reaches the self-actualisation level.

The concept of need hierarchy by Maslow has a certain intuitive logic and has been

accepted by management. But Griffin (1996:479) argues that 'Research has found that

the five levels of need are not always present and that the order of the levels is not

always the same as postulated by Maslow." Then again, people from different cultures

are likely to have different need categories and hierarchies. Thus, motivation is



important because of its significance as a determinant of performance and because of

its intangible character (Sullivan 1988:104).

Several behavioural theories of motivation are particularly relevant for managers. Each

theory also provides managers with useful perspectives for understanding motivational

challenges and problems and ways to deal with them. Table 5-6 indicates the different

motivational theories.

Table 5-6: Motivational theories

CONTENT THEORIES PROCESS THEORIES FOCUS Personal needs that

workers attempt to satisfy; Features in the work environment that satisfies a worker's needs.

• How different variables can combine to influence the amount of effort put forth by employees.

THEORIES • Maslow's need hierarchy; • Equity theory; • Hertzberg's two factor

theory; • Expectancy theory.

• McClelland's acquired needs theory.

Source: Adapted from Black & Porter 2000:369

Content theories are motivational theories that focus on what needs a person is trying

to satisfy and what features of the work environment seem to satisfy those needs.

Maslow's need hierarchy is a theory that explains why people fulfil basic needs, such

as physiological and safety needs, before making efforts to satisfy other needs, such as

social and belongingness, esteem and self-actualisation (Black & Porter 2000:368).

a) Maslow's need hierarchy theory

"... the most prominent need hierarchy theory was developed a half century ago by the

psychologist, Abraham Maslow."

Black & Porter 2000:369



Maslow's theory has a certain appeal to managers, probably because it is easy to

remember and contain five types of needs that are arranged in a hierarchy of strength

and influence. Figure 5-7 illustrates the five types of Maslow's hierarchy of needs.

Figure 5-7: Maslow's hierarchy of needs

achievement

status

friendship

stability

food

Source: Adapted from Black & Porter (2000:370) and Griffin (1996:477)

Maslow's hierarchy suggests that human needs can be classified into five categories

and that these categories can be arranged in a hierarchy of importance. A PIRC

manger should understand that an employee may not be satisfied with only a salary

and benefits, he or she may also need challenging job opportunities to experience self-

growth and satisfaction. Le Roux et at (1999:133) and Black & Porter (2000:372)

explain Maslow's hierarchy of needs as follows:

Physiological needs: these needs include everything that the human body requires

for survival, such as water, air, food and shelter. If these needs are not reasonably

satisfied, a human can not develop any further needs.

Security needs: these needs to feel safe and secure and not to be threatened by

circumstances in the surrounding environment that might jeopardise continued

existence. A human's resistance to change is often the result of such a need,

because humans often feel that their security is threatened by changing situations.

Chapter 5: Strategic considerations: micro environment

•

PHYSIOLOGICAL

ESS SOCIAL & BELONGIN

SAFETY

SELF-ACTUALISATION

ESTEEM

challenges

job title

friends at work

pension plan

base salary

A

5-237

L MARX-FRONEMAN


Social (belongingness): Needs to be loved, to interact and relate to other people,

and to be accepted by them. Once the social needs have been satisfied, humans

will strive to satisfy their needs on the next level.

Esteem (ego needs): The need for a sense of one's own worth and competence and

for recognition of that worth from other people. Once this need has been satisfied,

humans experience a sense of self-confidence. They feel that they are useful and

valued.

Self-actualisation: The needs to be personally fulfilled, to feel a sense of

accomplishment and especially to develop one's own unique capabilities and talents

to the highest possible level. At this level humans have already satisfied their ego

needs, but they need to do better to satisfy themselves.

Source: Le Roux et at (1999:133); Black & Porter (2000:369)

b) Acquired needs theory

"... motivation theory that focuses on learned needs that become enduring

predispositions for affiliation, power and achievement."


The acquired needs theory was developed by McClelland, and considered three of

these needs to be especially important, namely affiliation, power and achievement. In

McClelland's theory a person who has a high need for achievement is someone who

habitually strives for success or attainment of goals in task situations. The research

data collected by McClelland indicates that high need achievement individuals prefer to:

Work on tasks of moderate difficulty;

Take moderate risks;

Take personal responsibility for their actions;

Receive specific and concrete feedback on their performance.



In other words, high need achievers want challenges, but realistic challenges not

impossible ones. Especially important from a PIRCs management perspective,

McClelland's theory suggests that 'appropriate' training can increase the need for

achievement, that is, by showing people how to recognise and respond to relevant

achievement cues.

c) Two-factor theory

... motivation theory that focuses on the presumed different effects of intrinsic job

factors (motivators) and extrinsic situational factors (hygiene factors)."


In the early 1960s, Herzberg proposed a motivation theory that came to be called the

'two factor theory'. The two-factor theory focused on the distinction between factors

that can increase job satisfaction versus those that can prevent dissatisfaction but

cannot increase satisfaction (Hertzberg 1968:54). The former comprises the nature of

the work itself, responsibility, personal growth and the sense of achievement and

recognition directly received by performing the work (Black & Porter 2000:373). The

other set of extrinsic factors is associated with conditions surrounding the job. Included

in this set are supervision, relations with co-workers, working conditions and company

policies and practices related to benefits and compensation. The theory predicts that

the intrinsic factors work only in the direction of increasing satisfaction and the extrinsic

factors work only in the direction of decreasing dissatisfaction.

The two-factor theory proved an immediate hit with practising managers because it

contains a relatively simple message, namely alf you want to motivate employees, focus

on improving how the job is structured - what they do — so that they obtain positive job

satisfaction." Simply taking care of the hygiene factors can prevent dissatisfaction but

will have no effect on positive motivation (Black & Porter 2000:374).



Process theories

a... of work motivation deal with the way different variables combine to influence the

amount of effort people put forth."


In other words, while context theories address the issue of which variables affect

motivation, process theories focus on the issue of how variables affect it. The two most

prominent process theories are equity and expectance theories.

Equity theories are the motivation theory that focuses on individual comparisons of their

circumstances with those of others and how such comparisons may motivate certain

kinds of behaviour. Whereas expectancy theories are motivation theory that focuses

on the thought processes people use when they face particular choices among

alternatives particularly alternative courses of action (Black & Porter 2000:377).

Motivation and goals

"Modem approaches to motivation emphasise the concept of goals and the importance

of goal setting."


The notion of goal, a desired end state, highlights the importance of intention, what

people attempt to do in a given situation. Goal setting theory assumes that conscious

goals and intentions direct human action (Black & Porter 2000:382). Therefore, if PIRC

owners or managers can influence goals and intentions, they can directly affect

performance. The level at which goals are set is a potentially powerful determinant of

motivation and obtaining a person's commitment to particular goals is crucial.

Pinder (1984:114) states that "... it appears that incentives such as money or positive

feedback on performance, only have an affect on effort if they are connected to the

setting and acceptance of specific and challenging goals."



For PIRCs the topic 'motivation' represents a major scientific challenge to gain insight

and knowledge especially knowledge that can be transformed into better performing

business. For PIRC owners and managers, a good understanding of motivation

provides potentially great leverage in positively influencing the work behaviour and

performance of employees who work with and for them.

In this chapter, the emphasis is on thinking through motivation in the PIRC, in terms of

the three variables, individual, job and work context, which together determines the

levels of motivation that provide an essential framework for understanding motivational

issues and problems. Knowing what the individual brings to the work situation, what

the individual does in the situation and what happens to the individual provides basic

clues for making accurate motivational diagnoses. It is a necessity for PIRC owners

and managers of today's multicultural and often multinational work force not to have a

self-centred and ethnic centred view of how to motivate other people. "We am all

prisoners, to some extent, of the narrow focus of our own particular cultural, ethnic and

socio-economic backgrounds, but this will get us into mom trouble in managing

motivation than anything else. It is crucial, therefore, in attempting to become effective

motivators, not to assume that everyone else is like us and will react the same way that

we would" (Black & Porter 2000:370).

The goal for the PIRC owner or manager is to maximise the occurrence of the first

incident and minimise the occurrence of the last one. This goal becomes all the more

important when understanding how important motivation is in the workplace, states

Kidwell & Bennett (1993:429).

Motivation is important because of its significance as a determinant of performance and

because of its intangible character (Sullivan 1988:104). Motivation is the set of forces

that cause people to behave in certain ways, and motivation is an important

consideration for PIRC owners and managers because it, along with ability and

environmental factors, determines individual performance. Thinking about motivation

has evolved from the traditional view through the human relation's approach to the

human resource view.



.-.

5.6.3 The Porter-Lawler Extension

The Porter-Lawler extension of expectancy theory suggests that if performance results

in equitable rewards, people will be more satisfied. Thus, performance can lead to

satisfaction. Managers must therefore be sure that any system of motivation includes

rewards that are fair, or equitable, for all (Lawler & Porter 1967:23). Figure 5-8

summarises Porter and Lawler's logic on high performance which may lead to high

satisfaction.

Figure 5-8: The Porter-Lawler extension of expectancy theory

Intrinsic rewards (outcomes)

v

►

Performance Perceived equity

A

Extrinsic rewards t■

(outcomes)

Satisfaction

-----.

y

Source: Adapted from Lawler & Porter 1967:23



Performance results in rewards for an individual. Some of these are extrinsic (such as

pay and promotions); others are intrinsic (such as self-esteem and accomplishment).

The individual evaluates the equity, or fairness, of the rewards relative to the effort

expended and the level of performance attained. If the rewards are perceived to be

equitable, the individual is thus satisfied (Griffin 1996:486).

5.6.4 Marketing perspective

Marketing concentrates in particular on making customers aware of needs that even

the customers were not aware of. When creating an awareness of needs, marketing

efforts create potential customers who want to satisfy these newly discovered needs.

When businesses repeat exposure to the marketing messages of nice to have or must

have needs, customers will eventually buy the product or service to satisfy the

particular craving and the business activities are therefore driven by the satisfaction of

human needs (Lessing & Jacobs 2002:5).

David (1998:151) defines marketing as "The process of defining, anticipating, creating

and fulfilling customers' needs and wants for products and services." PIRCs need to

concentrate on the following functions of marketing:

• Market position

"... starting up a new business is to get into a position where you are recognisable in

the market place."

Mackay 2001:Internet

The market position is one of the most important factors that a PIRC owner should look

at in the internal environment when considering the right location. Miller & Dess

(1993:105) state "... very few businesses succeed without the market position." A

PIRC owner needs to include not only the strengths and weaknesses of the PIRCs

current market position but also the same assessment out into the future. Therefore,

another important factor is customer satisfaction, which is the base on which market

position is built. A PIRC owner should ask if the product and service appeal to the

target market and are the customers satisfied with the products and services. Miller &



Dess (1993:105) point out that there are other factors that contribute to customer

satisfaction, such as brand recognition, customer responsiveness, product and service

line appeal and product and service quality.

Customer analysis

The customer analysis is the examination and evaluation of consumer needs, desires

and wants, which involves administering customer surveys, analysing consumer

information, evaluating market positioning strategies, developing customer profiles and

determining optimal market segmentation strategies (David 1998:151). The information

gained by doing a customer analysis can be essential in developing an effective

mission statement for the business. The customer profiles can reveal the demographic

characteristics of a PIRC customers. A successful PIRC needs to monitor the present

and potential customers' buying patterns continually.

Buying supplies

The buying supplies are needed to produce and sell a product or service. David

(1998:151) explains that “... buying consists of evaluating alternative suppliers or

vendors, selecting the best suppliers, arranging acceptable terms with suppliers, and

procuring the supplies." The buying process for a PIRC can be complicated when

factors such as price controls by government, recession, foreign trade restrictions or

strikes occur.

Selling products and services

"Every business prides itself on giving customers what they ask for, healthier fast-food

products, nicotine-free cigarettes. After all — giving people what they want will

guarantee success or so you would think."

Ulwick 2002:91

Selling products and services rests upon the ability of a business to generally realise

successful strategy implementation. Selling includes many marketing activities such as

advertising, sales promotions, publicity, personal selling, sales force management,

customer relations, and dealer relations (David 1998:152).



Product and service planning

The product and service planning includes activities such as test marketing, product

and brand positioning, devising warranties, packaging, determining product options,

product features, product style, and product quality, deleting old products, and

providing customer service (David 1998:152).

Pricing

Five major stakeholders affect pricing decisions: consumers, governments, suppliers,

distributors and competitors (David 1998:152). PIRCs should view price from both a

short-run and long-run perspective, because competitors can copy price changes with

relative ease. Often a dominant PIRC will aggressively match all price cuts by

competitors.

Distribution

Distribution includes warehousing, distribution channels, distribution coverage, retail

site locations, sales territories, inventory levels and location, transportation carriers,

wholesaling and retailing (David 1998:153). Successful businesses identify and

evaluate alternative ways to reach their ultimate market. Possible approaches vary

from direct selling to using just one or many wholesalers. Strengths and weaknesses

of each channel alternative should be determined according to economic, control and

adaptive criteria. Business should consider the costs and benefits of various

wholesaling and retail options. They also need to consider the need to motivate and

control channel members and the need to adapt to changes in the future. Once a

marketing channel is chosen, a business usually must adhere to it for an extended

period of time.

Marketing research

Marketing research is the systematic gathering, recording and analysing of data about

problems relating to the marketing of goods and services. Marketing research can

uncover critical strengths and weaknesses and marketing researchers employ

numerous scales, instruments, procedures, concepts and techniques to gather



information (David 1998:153). Businesses that possess excellent marketing research

skills have a definite strength in pursuing generic strategies. Waterman (1987:108)

states that the president of PepsiCo said, 'Looking at the competition is the company's

best form of market research. The majority of our strategic successes are ideas that

we borrow from the marketplace, usually from a small regional or local competitor. In

each case, we spot a promising new idea, improve on it, and then out-executive our

competitor."

Opportunity analysis

Opportunity analysis involves assessing the costs, benefits and risks associated with

marketing decisions. David (1998:154) states that there are three steps that are

required to perform a cost/benefit analysis. firstly, to compute the total costs associated

with a decision; secondly, estimate the total benefits from the decision and thirdly, to

compare the total costs with the total benefits. When the benefits exceed the total

costs, an opportunity becomes more attractive. Sometimes the variables included in a

cost/benefit analysis cannot be quantified or even measured, but usually reasonable

estimates can be made to allow the analysis to be performed.

Social responsibility

"Social responsibility is a fundamentally subversive doctrine."

Esterhuyse 2002:10

The one and only social responsibility of a business is to increase its profits. Henry

Ford II echoed that "... if a business concentrates on social goals at the sacrifice of

short-term profits, it may find itself destroyed in its neglect of its long-term future. On

the other hand if it emphasises profit to the exclusion of social goals, it may find itself

abandoned and destroyed by the people it has ignored" (Esterhuyse 2002:10).

Social responsibility can include the offering of products and services that are safe and

reasonably priced (David 1998:154). A clear social policy can represent a major

strength for the business, whereas a poor social policy can be a weakness to the

business. Some strategists view social responsibility as a focus that detracts from or is



counter to their profit-minded pursuits (David 1998:154). Although there may be some

clearly distinct economic versus social concerns, there is a rather broad area in which

economic and social concerns are consistent with one another. When a business

engages in social activities, it must do so in a manner that receives economic

advantages.

In South Africa the three areas to identify for social responsibility are: poverty, job

creation and people development. The fact is that a continuation of unchecked

irresponsibility regarding ethical and social values will eventually damage the market for

everyone (Esterhuyse 2002:10). The social responsibility by PIRCs is not a favour

extended to society, but it is a PIRC imperative and a moral obligation. Giving makes

sense and social commitment on the part of the PIRC owner and provider is expected

and reinforces their image as long as it is sustained. In other word, social responsibility

and good corporate citizenship are in the interest of the PIRC.

• Branding

"Brands can now be evaluated as assets that have an economic life, which will over

that life produce a predictable income stream."

Sinclair 1999:97

Mescon et al. (1998:398) define brands as a... a name, term, sign, symbol, design or

combination used to identify the products of a business and differentiate them from

competing products." Brands are assets as they generate streams of cash for the

PIRC owner who owns the PIRC. If a brand has consumers with strong and favourable

brand knowledge, it is a strong brand that will probably produce acceptable cash

streams into the future. If consumers have brand knowledge that is neither strong does

not hold nor is favourable to the brand, the cash flows will be uncertain and

unpredictable. The ability of a brand to generate a stream of earnings into the future is

mediated by marketing considerations. This is the way users think about the brand,

how users react to new trends and what their usage intentions are regarding the brand.



Branding consists of branding on the inside of the business and branding on the

outside and brand leadership, states Peters (2000:6). The brand business of the future

has to be lean, linked, electronic and malleable. The brand must communicate the

business purpose and promise not only outwards to customers, but also inwards to

employees and potential employees, backwards and forwards to supply chain partners,

sideways to alliance partners and upwards to investors (Botha 2002:20).

The new strategy means that rather than trying to establish a different positing of each

tier of the brand, the PIRC owner should concentrate on the entire marketing effort

creating an overall positioning for the brand of the PIRC.

5.6.5 Strengths and weaknesses

"Weak and scattered thoughts are weak and scattered forces,

strong and concentrated thoughts are strong and concentrated forces."

Kehoe 1999:8

"If you provide good customer service, the business will follow you, do not pursue

profits, pursue service."

Butcher 2000:28

Businesses strive to pursue strategies that capitalise on internal strengths and improve

on internal weaknesses. PIRC strengths and weaknesses are determined relative to

their competitors.

The micro environment strengths and weaknesses, also known as internal strengths

and weaknesses, are business controllable activities that are performed especially well

or poorly. Identifying and evaluating business strengths and weaknesses in the

functional areas of a business is an essential strategic management activity (David

1998:10).

According to David (1998:10), relative deficiency or superiority is important information

and strengths and weaknesses can be determined by elements of being, rather than



performance. PIRC strength may involve an historic reputation for quality. Strengths

and weakness may also be determined by the business objectives (David 1998:10).

David explains that internal factors can be determined in a number of ways that can

include computing ratios, measuring performance and comparing to past periods and

industry averages.

A PIRC owner needs to understand the importance of strengths and weaknesses of the

PIRC to formulate an effective strategy for the right location. No strategy is effective

unless managers know how to deploy a business's strengths and work around its

weaknesses (Miller & Dess 1993:105).

A PIRC owner may also need a strategy for removing weaknesses that limit long range

success. A PIRC owner needs to strengthen its market position, analyse the micro

environment and indicate what strategy will work best for the location of a PIRC.

5.7 CLOSURE

The basic principle of a PIRC is an emphasis on people, customer service excellence,

business integrity, trust and honesty. This should remain intact, if the PIRC owner

wants to make a success of the operation.

Every business has a unique purpose and reason for being. This uniqueness should

be reflected in the mission statement. The nature of a business mission can represent

either a competitive advantage or disadvantage for the business. A good mission

statement reveals a business, the customers, products or services, markets,

technology concern for survival, philosophy, self-concept, concern for public image and

concern for employees. PIRCs must re-examine their mission statements annually and

an effective mission statement, will stand the test of time.

The micro environment is the heart of a PIRC. It also indicates the extent to which a

PIRC can use opportunities or combat threats in the external environment. Although

the PIRC can influence the internal environment through decision-making, it does not



posses all the internal resources needed to handle opportunities and threats from the

external environment. The PIRC cannot function, grow or survive in a vacuum.

In order for a PIRC to survive, it is essential that the micro environmental variables are

monitored, developed and constantly improved. The variables for a PIRC include its

vision and mission, management structure, marketing strategy, financial and human

resources and corporate culture.

A vision and mission should be developed which will suit the abilities of a specific PIRC.

The management system is also important for a PIRC and a management structure has

to be developed which will serve as a strength and enable the staff to work together in

order to achieve the set goals and objectives. Without adequate resources the PIRC

will be unable to exist. The expertise and abilities of the PIRC employees are also

resources, which the PIRC cannot do without.

Human resource management should be effective for the PIRC to produce efficient

employees, and have an influence on the success of the PIRC. The culture of the

PIRC was also discussed in this chapter, since the atmosphere in which the PIRC

employees operate will have an influence on how well they perform in their jobs.

PIRCs should not be satisfied with the status quo in the micro environment even when

it appears satisfactory. PIRC owners must anticipate the environment in which they

operate in the near-term future and prepare for it.



CHAPTER 6 PRACTICAL GUIDELINES FOR THE PIRC OWNER

PAGE

SYNOPSIS 6-252


6.2 WHAT PIRCs NEED TO CONSIDER 6-254

6.3 OBTAINING A SUSTAINABLE COMPETITIVE ADVANTAGE 6-257

6.3.1 Strategic thrusts 6-261

6.3.2 Strategic vision versus strategic opportunism 6-264

6.3.3 A dynamic vision for a PIRC 6-265

6.4 TACTICS TO REALIGN A PIRCs STRATEGY 6-266

6.4.1 Macro environmental influences 6-267

6.4.2 Market environmental influences 6-269

6.4.3 Micro environmental influences 6-270

6.4.4 Components to consider in the strategic process for PIRCs 6-274

6.5 KEY DECISIONS FOR A PIRC 6-275

6.5.1 Management involvement on location decisions: PIRC 6-276

6.5.2 The specific excellence a PIRC needs 6-277

6.5.3 The priorities of a PIRC 6-278

6.6 CLOSURE 6-279

Chapter 6: Practical guidelines for the PIRC owner 6-251


SYNOPSIS

In the previous chapters the basic knowledge of the petroleum industry and the key role

players were highlighted. This chapter emphasises the importance that a locational

analysis and a competitive advantage have on the location of PIRCs. From the insights

gained in the preceding objectives for the implementation from a strategic management

viewpoint, this knowledge should be incorporated when considering the right location

for PIRCs.

This chapter provides PIRG owners and providers with meaningful strategic

information, which can be helpful in the decision-making process, whereby a PIRG will

gain a competitive advantage. In order to be competitive and to survive, a business

such as a PIRG can gain a competitive edge over its rivals in the market by adopting

the generic strategies: overall low-cost leadership, differentiation and business focus.

This chapter provides strategy development, which involves analysing the strategic

context, precipitating strategic decisions and developing strategic considerations for the

management of the right location for a PIRG. If a PIRG is situated on the right location

and adopts a sustainable competitive advantage strategy, it can be a very profitable

business. Final conclusions are made with regard to all objectives for this study.



6.1 INTRODUCTION

"A winning strategy needs to be distinctive."

Robert 1997:1

The competitive environment has been transformed fundamentally during the last two

decades which has led to major challenges for businesses in South Africa. Two distinct

periods or waves of change can be distinguished during this time. According to

Ferreira (2000:10), the first wave occurred roughly between 1980 to 1994 and the

second from 1994 onwards. The latter, however, did not replace the first, but it built

and is building on it and in the process has brought further challenges. These waves

have had a profound impact, not only on the nature of competition, but also on the

nature of the business itself. While industry analysis has for long been a centrepiece of

business strategy, it has become increasingly difficult to conduct these analyses for the

simple reason that industry boundaries have become blurred or fuzzy, thus making it

difficult to define exactly where an industry begins and ends.

Gates (1999:xi) remarks that "... business is going to change more in the next ten years

than it has in the last fifty." To have no competition is the best position to be in. That

position can only be achieved by not playing the game the way your competitors play

the game, but rather by formulating and deploying a distinctive strategy that changes

the rules in the participant's favour. Many theories have emerged as to how a business

goes about growing at a competitor's expense. To duplicate the competitor's strategy

and then to attempt to outmarket, outsell, and outservice these competitors comprise

the imitation strategy (Robert 1997:1).

The focus of this study was to determine the right location for a PIRC in the competitive

petroleum industry. The impetus for the study arose from scanning the literature and

revealing that of the current PIRCs entering the market, many are struggling to survive,

as competition grows stronger. As PIRCs try to survive in an ever changing,

competitive environment, it is important to establish a competitive advantage that will

ensure long-term survival for the PIRC. PIRC owners need to be aware of the

variables in the macro, market and micro environments which can affect the location of

Chapter 6: Practical guidelines for the PIRG owner 6-253


a PIRC. In order to adapt to a changing environment and successfully market their

services, timeous and continuous research is necessary. PIRC owners need to ask

themselves, "how to change effectively to become a world-class company." Solomon

(1999:6) remarks that successful change management can thus be seen as one of the

most important management survival skills of the 21 st century.

6.2 WHAT PIRCs NEED TO CONSIDER

"Managing companies is like standing with your management team in the valley, and

you're surrounded by many beautiful and challenging mountain peaks. Your strategic

objective here is to decide which mountain are we going to cliMb."

VViedenhaupt (in Robert 1997:31)

The concept strategic management has essentially evolved in response to a changing

environment. The discontinuous and rapid environmental changes have in effect

invalidated many of the fundamental assumptions underlying the traditional strategic

management process (Weeks & Lessing 1993:3). As the future becomes more

unpredictable, more complex and subject to discontinuous changes, the traditional

conceptualisations of the strategic management process become less relevant and the

more contemporary concept of emergent strategy becomes more appropriate (Weeks

2002:13).

Strategic thinking is the process used by a leader to formulate, articulate, communicate

and implement a clear, concise and explicit strategy and vision for his or her business

(Robert 1997:231). In many businesses the strategies of the business are not clear

and usually reside in the head of the chief executive exclusively, were people not

involved in the strategy process. The problem, however, is that most CEOs practise by

osmosis and are not conscious of the various steps. A PIRC owner should remember

that it is usually impossible to transfer to anyone else a skill that one cannot describe.

Within highly competitive markets no one expects to formulate detailed long-term plans

and follow them mindlessly as there needs to be a flexible approach in implementing a

strategy, implies Weeks (2002:13).



The strategic change involves the implementation of a new strategy for the PIRC.

Although PIRCs provide a wide variety of convenience products and services to

customers at a convenient location needs to obtain a competitive advantage over rivals.

a) The power of strategy

"Strategy is one's approach to achieving a sense of mission."

Blanchard & Waghorn 1997:35

"... strategy is not getting to the ideal position in the first place, but it is the ability to

become uniquely different"

Porter 2000:4

Strategy is sometimes defined as the way a company plans to create unique value. To

create unique value, each PIRC must follow its own strategy. There are as many

different strategies as there are businesses. An innovative strategy used by one

company may be limited in its application to another business since the culture, the

structure and the leadership style will have a profound impact on a company strategy

(Loewen 1999:214). The American strategist, Ackoff (1997:27) confirms that innovation

and change are more likely to be initiated somewhere below the top and all it takes is

someone who has the courage — the characteristic that is lacking in most businesses to

make the change.

"... change is not made without inconvenience, even from worse to better."

Jick 1993:xiv

Strategy has almost inevitably been conceived in terms of action plans to move the

business from its present state to some future envisioned state (Weeks & Lessing

1993:148). A PIRC needs a strategy to provide direction and focused effort and

promote co-ordinated activity in managing the organisational transformation. A PIRC

without a strategy would be like a ship without a rudder. Weeks & Lessing (1993:151)

state that 11 ... the primary thrust for future business development over a specific

strategic time frame, the organisation's future priorities in terms of markets, products or



services and technology, the critical success factors for future survival, and provides a

future vision for the organisation."

In today's competitive environment, the need for winning strategies increases. Neff &

Citrin (2000:14) comment that the most significant challenge for business will be

facing over the next few years is the acceleration of intensity. I don't think that any

business that I know of is secure." Therefore, a PIRC owner needs to have a

competitive advantage over rivals and be a leader in creating winning strategy based

on the PIRC's competitive ventures and fundamental customer needs in the

environment.

b) Value disciplines on strategy

Treacy & Wiersema (1993:50) identify three value disciplines on- strategy, on which a

business may focus, and suggest that world-class businesses generally are great at

one of these disciplines and pretty good at the other two, namely:

organisational efficiency: a PIRC pursuing this strategy works hard to achieve the

lowest costs of production and distribution, so that it can price lower than its

competitors.

product innovation: a PIRC pursuing this strategy focuses on providing the best

product. It is continually leading the market with new breakthrough products.

customer intimacy: customer-driven PIRCs strive to make 'raving fans' of their

customers. In their interactions with their customers they want to create service

stories that will have these customers bragging about the service they received.

A business strategy of a PIRC determines how best to compete in the petroleum

industry and the owner therefore needs to choose a primary strategy without neglecting

the other two strategies. The emphasis in the product division would be on product

innovation, followed by organisational efficiency, with customer intimacy being the last

concern. "The test of a good strategy is if your competitors don't want to emulate what

you do, in other words you should be so uniquely different that you are the only one

who has the courage to do it" (Porter 2000:4).



A dynamic PIRC owner needs to be understanding and prepared to give the employees

the opportunity to achieve the unachievable. The power of strategy process is that it

will reach people and stir their fundamental drive to be more than average.

6.3 OBTAINING A SUSTAINABLE COMPETITIVE ADVANTAGE

"Vision is the art of seeing things invisible."

Swift (in Aaker 2001:133)

"... if you don't have a competitive advantage, don't compete."

Welch (in Aaker 2001:154)

Porter (2000:4) states "... competition is at the core of the success or failure of firms ...

and competitive advantage is at the heart of a firm's performance in competitive

markets." Competitive advantage is therefore clearly a crucial aspect of PIRCs. The

key to a successful strategy for a PIRC owner is to develop the concept of a

sustainable competitive advantage. A strategy can involve a variety of functional area

strategies, such as positioning strategies, pricing strategies, distribution strategies and

global strategies for PIRCs to consider (Aaker 2001:134). Figure 6-1 illustrates "how to

compete," is not the only key to success.

There are at least three other factors that are requisite for the creation of a sustainable

competitive advantage and thus of a strategy for PIRC owners to follow, which will be

successful over time. The three factors are the following:

• basis of competition: The strategy needs to be based on a set of assets and

competencies. Without the support of assets or competencies, it is unlikely that a

sustainable competitive advantage will be enduring. Aaker (2001:134) states that

there is no point in pursuing a quality strategy without the design and manufacturing

competencies needed to deliver quality products, and a business premium-service

positioning strategy will not succeed unless the right people and culture are in place.

For a PIRC owner, the activities of the business, such as positioning the brand as

one of high quality, can easily be imitated. What is less easy to imitate is the actual


SUSTAINABLE COMPETITIVE ADVANTAGE


delivery of high quality and standards and the acquisition of specialised assets and

competencies.

Figure 6-1: The sustainable competitive advantage

THE WAY TO COMPETE

Product strategy Positioning strategy Manufacturing strategy Distribution strategy

BASIS OF COMPETITION

Assets and competencies

WHERE TO COMPETE

Product-market selection

WHOM TO COMPETE AGAINST

Competitor selection

Source: Adapted Adapted from Aaker 2001:134

where to compete: The second important determinant is the choice of the target

product market. A well-defined strategy supported by assets and competencies can

fail because it does not work in the marketplace. A PIRC owners strategy should

thus be based on its underlying assets and competencies and involve something

valued by the market.



whom to compete against: The third requirement for a sustainable competitive

advantage involves the identity of competitors. Sometimes an asset or competency

will form a sustainable competitive advantage only given the right set of competitors.

Thus, it is vital for PIRC owners to assess whether a competitor is weak, adequate,

or strong with respect to assets and competencies. The goal for a PIRC owner is to

engage in a strategy that will match up with competitors' lack of strength in relevant

assets and competencies. For an asset or competency to be the basis of a

sustainable competitive advantage, it should help create either a cost advantage

over competitors or a point of difference from competitors, states Aaker (2001:135).

For a PIRC owner to obtain a competitive advantage, it is very important task to ensure

that the strategy is constantly monitored and clearly communicated to all employees.

The management guru, Porter (2000:4) lists the following four models of competitive

advantage:

active portfolio management: the corporate value added through supplying capital

and imposing planning, budgeting and management discipline on business units.

This model entails the acquisition of attractive companies with good management,

organised into autonomous units with compensation based on unit results. It

requires an infusion of capital and professionalism and the allocation of resources

based on growth and competitive position. The competitive advantage of portfolio

management depends on the national context with corporate groups being

prevalent in developing countries.

restructuring: the corporate value added through restructuring under performing

companies or restructuring industries, both of which require no significant fit among

business units. This model requires the identification potential for restructuring in

companies and in industries. There need not be any relationship with existing

businesses, but it needs active intervention in order to transform discrete business

units or to integrate a string of acquisitions. The restructuring should result in a

more attractive industry structure or an enhanced competitive position in the



business. The competitive advantage of this model is primarily focused on a single

occasion rather than a continuous process.

share proprietary skills: corporate value added through transferring unique

knowledge and skills across businesses. This model identifies unique proprietary

expertise within the value chains of the company's businesses as operational

effectiveness skills and strategy specific skills. It involves the screening for

attractive or potentially attractive industries where these skills can be leveraged as

well as the transfer of skills and know-how to change the approach to competing in

the new industry.

share activities: corporate value added through sharing significant activities or

activity systems across business. The final model identifies unique activities or

systems of activities that represent significant competitive advantages in existing

businesses as well as the screening of attractive and potentially attractive new

products or entire industries where these activities can be shared. The competitive

benefits of sharing should outweigh the costs involved. The corporate strategy

requires top-down leadership because it cannot solely rest on bottom-up initiatives.

Within the strategy of sharing, the company's organisational context must

encourage cross business unit collaboration. The reality though is that corporate

competitive advantage is often different and stronger within groups of businesses

than across groups.

However, growth pressures and ego as a result of sharing frequently drive businesses

to over diversify bringing problems of its own. Porter (2000:5) suggests that the

endurance of competitive advantage may result in the following:

one time improvements due to corporate interventions do not justify long term

diversification.

the competitive significance of proprietary skill sharing may decline over time as

skills are assimilated.

shifts in industry structure may override corporate competitive advantage.



• the number of businesses may grow too complicated even for talented

management.

The horizontal component to strategy development, organisation structure, systems

and corporate norms of behaviour is necessary if strong business unit integration and

collaboration are actually to occur. Merely grouping units together is not sufficient. The

strategy of a PIRC often needs to shift as the ability to add competitive advantages

evolves.

PIRC owners and managers should clearly distinguish between operational

effectiveness and strategy and define a PIRC's unique position and communicate it to

all concerned. The strategy should be explained to all employees by translating it into

their particular areas of responsibility. In this process, PIRC employees should be

guided into making trade-offs that arise in their individual activities and in their daily

decisions.

In addition, the PIRC owner should decide which industry changes and which customer

needs should be responded to and how to tailor them to the strategy and should avoid

organisational distractions. For PIRC owners to succeed in this very important task,

they must ensure that the strategy is constantly disciplined and clearly communicated.

6.3.1 Strategic thrusts

"... strategy thrust is an umbrella concept that classifies business approaches toward

obtaining a sustainable competitive advantage into groups with a common theme."

Aaker 2001:138

Porter (1985:6) has suggested that strategies need to provide either a differentiation or

low-cost advantage, which are two of the most important strategic thrusts. Porters

ideas on success based on sustainable competitive advantages are much quoted. He

had argued that businesses require a unique position in order to have a competitive

advantage based on either a differentiation strategy or a low cost strategy. Only via

one or the other can a business achieve competitive advantage.



Differentiation means that there is an element of uniqueness about a strategy that

provides value to the customer, whereby PIRCs should differentiate their offerings by

enhancing performance, quality, reliability, prestige and convenience. A low-cost

strategy can be based on a cost advantage that PIRCs can use to invest in the product,

support lower prices, or provide high profits.

Strategies can have other thrusts in addition to differentiation and low-cost, as

illustrated in figure 6-2. The focus strategies focus on a market segment and the pre-

emptive strategies employ first-mover advantages to inhibit or prevent competitors from

duplicating or countering. Synergistic strategies rely on the synergy between a PIRC

and other PIRCs. There are several other strategic thrusts that can be considered,

such as being innovative, thinking globally, having an entrepreneurial style and

exploiting information technology.

Treacy & Wiersema (1993:83) suggested that there are three paths that can lead to

market leadership: firstly, operational excellence, which leads to customer convenience

and cost efficiencies; secondly, customer intimacy; and thirdly, product leadership,

which strives to produce a continuous stream of state-of-the-art products and services.

An increase in competition makes it imperative for a PIRC to gain and sustain a

competitive advantage. The ideal way for a PIRC owner to differentiate its market

offering and to sustain a competitive advantage, includes emphasis on customer

service, excellent quality, people involvement, development of relationships and the

benefits of synergy.


Preemption


Figure 6-2: Strategic thrusts

Source: Adapted from Aaker 2001:139

The synergy between PIRCs can provide a sustainable competitive advantage because

it is based on the characteristics of the PIRC that are probably unique. A competitor

might have to duplicate the business in order to capture the assets or competencies

involved. A core element for the PIRC owner is to have a strategic vision to achieve

synergy across many businesses. Tichy (1993:114) calls it an integrated diversity.

Sager (1994:139) explains that "... a cornerstone of a strategy is to create synergy by

pushing core technologies across more product lines."

Synergy means that the whole is more than the sum of its parts. In terms of products,

positive synergy means that offering a set of products will generate a higher return over

time than would be possible if each of the products were offered separately. Similarly,

in terms of markets, operating a set of markets within a business will be superior to



operating them autonomously. According to Aaker (2001:140) as a result of synergy,

the strategy will have the following results:

increased customer value and thus increased sales;

lower operating costs;

reduced investment.

Generally, the synergy will be caused by achievement in some commonality in the

following operations, such as:

customers and sometimes customer applications;

a sales force or channel of distribution;

a brand name and its image;

facilities used for manufacturing or offices;

staff and operating systems;

marketing and marketing research.

Synergy is not difficult to understand conceptually; but it is slippery in practice, in part

because it can be difficult to predict whether synergy will actually emerge.

A differentiation strategy is one in which a product offering is different from that of one

or more competitors in a way that is valued by the customers. The value added should

affect customer choice and ultimate satisfaction. Most successful strategies that are

not based entirely on a low-cost advantage will be differentiated in some way.

6.3.2 Strategic vision versus strategic opportunism

"The implicit belief is that the best way to have the right strategy in place tomorrow is to

have it right today.'

Aaker 2001:142

Strategic vision takes a long-term perspective and the focus is on the future in both

strategy development and the supporting analysis, whereas strategic opportunism

emphasises strategies that make sense today (Aaker 2001:142). For a PIRC to

manage a strategic vision successfully, the PIRC should have four characteristics,

namely:



a clear future strategy: with a core driving idea and a specification of the competitive

arena, functional area strategies and competitive advantage that will support the

business.

buy-in throughout the business: there should be a belief in the correctness of the

strategy, an acceptance that the vision is achievable and worthwhile and a real

commitment to making that vision happen.

assets, competencies and resources to implement the strategy should be in place

or a plan to obtain them should be under way.

patience: there should be a willingness to stick to the strategy in the face of

competitive threats or enticing opportunities that would divert resources from the

vision.

A strategic vision provides a sense of purpose for the PIRC and provides the rationale

for investment that may require years to achieve a payoff.

6.3.3 A dynamic vision for a PIRC

"The future cannot be known and it will be different from what exists now and from what

we now expect."

Drucker 1968:162

Drucker's (1968:162) assertions are not particularly new or particularly striking, but they

have far-reaching implications. Any attempt to base today's actions and commitments

on predictions of future events is futile. The best is to hope to anticipate future events,

which have already irrevocably happened. But precisely because the future is going to

be different and cannot be predicted, it is possible to make the unexpected and

unpredicted come to pass. To try to make the future happen is risky but it is a rational

activity. It is less risky than coasting along on the comfortable assumption that nothing



is going to change and less risky than following a prediction as to what must happen or

what is most probable.

An attractive strategy is to have a dynamic vision that can change in anticipation of

emerging paradigm shifts. To change a vision will certainly require a will to change an

ability to anticipate paradigm shifts and create the new vision via an insightful and

forward looking strategic analysis and an ability to change the business and particularly

the culture.

6.4 TACTICS TO REALIGN A PIRCs STRATEGY

"... companies must keep finding new strategies for staying ahead."

Levy & Weitz 1998:3

"... make right decisions at the right time."

Wright 2000:25

PIRC owners frequently use the term strategy, whereas PIRC managers and providers

talk about the promotion strategy, brand strategy, merchandise strategy and location

strategy. Whichever term is used, it is a critical factor to consider for the location of a

PIRC in order for the owner to gain and maintain a sustainable competitive advantage.

Weeks & Lessing (1993:62) state that without a clear understanding of the forces

shaping the future, strategy formulation will be an exercise in futility. An environmental

analysis, within a strategic management context, has the explicit purpose of leading

executive thinking beyond the present into the future. The future should be interpreted

with the view of illuminating the present, rather than using the present to forecast the

future. Because strategy is fundamentally concerned with moving businesses forward,

there will inevitably be change for some people inside the business.

The strategic change involves the implementation of new strategies that involve

substantive changes beyond the normal routines of the business. Strategic change is

accompanied by a degree of risk and uncertainty (Ansoff 1987:4). Although risk

Chapter 6: Practical guidelines for the PIRG owner 6-266


assessment can be undertaken in an impersonal way at the corporate level, uncertainty

cannot be assessed in the same way at the personal level of a business. Tichy

(1983:18) identifies four main causes of strategic change, namely:

environment: Shifts in the economy, competitive pressures and legislative changes

can all lead to demands for major strategic change.

business relationships: New alliances, acquisitions, partnerships, and other

significant developments may require substantial changes in the business structure

in order to take advantage of new synergies, value chain linkages or core

competencies.

technology: Shifts here can have a substantial impact on the content of the work

and even the survival of companies.

people: New entrants to businesses may have different educational or cultural

backgrounds or expectations that require change. This is especially important when

the leadership of the business changes.

The significance of changes such as these should not be looked at in isolation, but

should be viewed instead against the background of changes in the political and

economic balances of power and major changes in the physical environment. There

are critical environmental factors in the petroleum industry that will have an effect on

competition and the needs and wants of the customers. The PIRC owner never has full

control over any environmental factor, but can respond in ways designed to take

advantage of an opportunity and damper the effects of a threat. The PIRC owner

should identify the environmental variables, which can influence the location of a PIRC.

6.4.1 Macro environmental influences

The macro environmental context of business world-wide has undergone a radical

transformational process (Weeks & Lessing 1993:11). "South Africa has been

experiencing an economic crisis common to the African continent' (Ngambi 2000:28).

This crisis reveals a depressing situation of poverty, escalating degrees of inflation,



high levels of unemployment, social and industrial unrest, mass retrenchments,

declining productivity, and poor quality of life. Africa in general is characterised by an

ever-changing environment, which creates uncertainties that make it difficult for most

businesses to adapt to new demands and opportunities in order to survive. In a state of

diversity and rapid change such as characterising Africa, employee preferences are

likely to vary and change rapidly. One of these changes is the increasing number of

women and black people in the work force, which poses new challenges for

businesses.

PIRC owners need to identify the macro environmental variables, which influence the

location of a PIRC and to focus on the following areas of responsibility in the macro

environment, namely:

unemployment: past trends and prevailing speculation indicate that unacceptably

high levels of unemployment could persist for many years into the future and South

Africa is no exception. As pointed out by Ngambi (2000:28) "... unemployment is

one of the greatest problems currently facing South Africa and if it is not overcome

soon, it is heading for disaster" South Africa's productivity is so low that it will have

to become an absolute priority if businesses such as PIRGs are to compete in

international markets. South Africa does indeed have a very complex employment

situation and economic growth does not presently contribute significantly to the

creation of sufficient employment opportunities. New businesses, such as PIRCs

can help to expand and improve employment opportunities in order for the broader

population to participate in growth and benefit from it.

society: to conduct business as responsible members of the society; to serve the

laws of the country in which the PIRC operates; to express support for fundamental

human rights in line with the legitimate role of business and to give proper regard to

health, safety and the environment consistently to contribute to sustainable

development;



economy: For a PIRC it is essential to stay in business. It is a measure of both

efficiency and of value, which customers place on products and services offered by

PIRCs. It is essential to the allocation of the necessary resources. Without profits

and a strong financial foundation, it will not be possible to fulfil the requirements.

PIRCs work in a wide variety of changing social, political and economic

environments, but in general they believe that the interests of the community can be

served most efficiently by a market economy.

technology: Thobejane (2002:24) states “... using science and technology to

improve lives." PIRCs need to adapt to new technology used such as petrol pumps,

equipment, machinery, tools, materials and energy used, technological processes

and office technology. Lascelles (2000:18) asserts that technology is creating huge

opportunities to set up markets. The Internet has provided people with 24 hour a

day, instantaneous and interactive access to products and services from all over the

world. It is not so much the amount of information that has increased, since the

information has always been there, rather it is our ability to access and manipulate

this information. Lascelles (2000:18) asserts that "...technology is creating huge

opportunities to set up markets." PIRC providers, owners and managers need to

adopt an attitude to keep abreast of the latest technological trends and to anticipate

them. Lessing & Maritz (2001:11) imply that the ability is to compete in international

markets, but the implementation thereof in the South African work force is complex.

The market environmental variables should be identified, which can influence the

location of a PIRC.

6.4.2 Market environmental influences

Since convenience of location is important for a PIRC choice, a PIRC's proximity to

competitors is a critical factor in identifying competition.

The general responsibility and focus areas of PIRC owners in the market environment

are the following:



customers: to win and maintain customers by developing and providing products

and services which offer value in terms of price, quality, safety and environmental

impact and which are supported by the requisite technological, environmental and

commercial expertise. PIRCs need to attract the right customer, analyse the

customers' experience and learn what customers expect. This information permits

a PIRC owner to focus resources on those areas that will have the biggest impact

on customer perceived performance. The sales staff plays a key role at a PIRC,

and must be skilled at being a business consultant with an eye towards the long-

term benefits for the PIRC.

to those with whom they do business: to seek mutually beneficial relationships with

suppliers and to promote the application of these principles.

competitors: the emergence of new competitors in the petroleum industry has

challenged the established industry leaders on the basis of totally new business

models. Therefore PIRCs need the ability of new information technologies to

observe, track and record all customer actions. This makes it possible for these

new competitors in the petroleum industry to personalise or mass customise their

services.

The macro and market environments are subject to constant changes, thus presenting

opportunities that can be exploited or threats that can be converted into opportunities

by PIRC owners. The PIRC's survival depends to a large degree on the ability of

management to anticipate changes in the environment and to prepare in advance for

them.

6.4.3 Micro environmental influences

Strategy always focuses on the future, whereas the business is rooted in the present."

Weeks & Lessing 1993:67

A business internal (micro) context needs to be tailored and pro-actively shaped in

order to ensure that it supports the implementation of a change in strategy. Therefore,



the strategy acts as a determinant of the business micro-environmental context.

Weeks & Lessing (1993:67) identify such an approach as an assessment of the

business values, beliefs, structures, management process and human resources

needed to support the implementation of its strategy.

The PIRC's visions, missions, strategic objectives and business plans are powerless

unless embraced by those employees that will collectively achieve them. The PIRC

owners and managers thus have a dual role in managing change. Weeks & Lessing

(1993:173) identify two roles in managing change, namely one of facilitation formulation

and one of obtaining employee commitment or buy in into the change process. PIRC

owners and managers need to share power with their subordinates without feeling

threatened, and they need to inspire confidence in employees to overcome their fear of

change. "Transformational leaders foster change, while traditional management

sustain the present" (Weeks & Lessing 1993:173).

The PIRC owners and managers need to facilitate the translation of strategy into

concrete action plans that may be implemented. What is required for PIRC owners and

managers is to adapt to a new breed of manager, one who loses the title of boss and

acquires the label of a leader. u... a boss tells people what to do, a leader facilitates

change" (Weeks & Lessing 1993:173) and a... this is a service industry and PIRC

certainly needs good inter-personal skills both in terms of his customers and his staff"

(Hele 2002:15).

The general responsibility and focus areas of PIRC owners in the micro environment

are the following:

shareholders: to protect the shareholders' investment and provide an acceptable

return.

employees: to respect the human rights of their employees, to provide their

employees with good and safe conditions of work and good and competitive terms

and conditions of service, to promote the development and best use of human talent

and equal opportunity employment, and to encourage the involvement of employees



in the planning and direction of their work within the PIRC. The success of the

PIRG depends on the full commitment of all employees.

productivity: another challenge facing PIRC owners is the low productivity.

Productivity, to a great extent, does determine how effectively PIRCs compete

against one another. Ivancevich & Matteson (in Ngambi 2000:29) define

productivity as the relationship between the real inputs and the real outputs or the

measure of how well resources are combined and utilised to produce a result

desired by management. Except for some isolated instances of increased

productivity, predominantly confined to the private sector, it is important for PIRC

owners to increase the productivity of employees to be competitive. Some of the

factors that are guaranteed to inhibit productivity improvements for PIRC owners

are: poor quality of work, absenteeism, injuries, breakages, lack of motivation and

high labour turnover. From this list, it is clear that human resources, as the one that

utilises other resources is the most critical in increasing productivity.

communication: the first responsibility after the vision process is communication and

the presentation of the vision to the PIRC providers and customers. Initial

communication is most often accomplished by distributing printed copies of the

vision, holding meetings to talk about the vision, showing videos of the vision-maker

introducing the vision, and discussing the vision at training events.

education: the concept of 'leadership by vision' may be new to the people hearing

the vision, and education about the visionary leadership process can be helpful to

gaining commitment from employees and customers. When people experience

something new, they try to fit it into their past experience as a way of understanding

it and figuring out how to deal with it. If their existing experience is full of

management by objective, directives from management, short term goals and

stewardship reports, they will tend to see the vision as just another set of objectives.

This can easily lead to the vision being trivialised, discounted and dismissed.



ambiguity: it is useful for PIRC owners to remember that a vision statement is a

leading-edge document. If it were not on the leading edge, it will not be a vision and

because it is on the leading edge, it can not be totally and satisfactorily explained at

the beginning. In a business where ambiguity is not tolerated, this may be a

problem. There are many questions which PIRC owners have about how a vision

will be translated into action that ought to be answered with "I do not know." More

over, "I do not know" ought to be followed by "Let us find out."

resources: A PIRC's internal resources will include inputs such as capital

equipment, the skills and abilities of individual employees, patents, finance and

talented managers of a business. Teece et al. (1997:509) define resources as

being broad in scope and covers a spectrum of individual, social and organisational

phenomena. Resources alone will not typically yield a competitive advantage for

PIRC owners, but a competitive advantage can be created through the unique

bundling of several resources. Physical assets alone cannot usually provide a

business with sustainable competitive advantage (Chi 1994:270).

core competencies: as the source of competitive advantage to a PIRC, core

competencies distinguish a PIRC competitively and reflect its personality. Core

competencies emerge through an organisational process of accumulating and

learning how to deploy different resources and capabilities over time. Chi

(1994:271) argues that not all business' resources and capabilities are strategic

assets as assets have competitive value and the potential to serve as a source of

competitive advantage.

Thus, the challenge for PIRC owners is to consider the above responsibilities and focus

areas that support the implementation of a change in strategy for the location of a PIRC

affected by the micro environment.

The following elements will assist PIRC owners and managers to be successful,

namely: the preparation of the product, cost control, administration system, creation of

new products, store design, signage, marketing, the way customers are served,



suppliers and deliveries, back-up deliveries in case a supplier fails to deliver, the

tracking of trends in consumer behaviour, the strength and development of the brand.

All of the above include the business activities of a PIRC, and the PIRC owner should

be free, with new ideas to concentrate on running the PIRC. In the petroleum industry,

competition is intense and only the truly successful survive, therefore the entire

operation becomes more and more complex.

Porter (in Ferreira 2000:12) has quoted a... I've come to realise that the challenge of

developing a strategy is greatly affected by organisational issues." This is an insight

that Porter describes as a "significant extension" of his views of strategy. Different

environments require different strategic responses and today, more than ever before,

there needs to be a deep understanding of the relationship between the turbulence of

the external (macro & market) environment and the choice of strategy.

6.4.4 Components to consider in the strategic process for PIRGs

"Today's competitive environment increases the need for winning strategies."

Neff & Citrin 2000:14

" ... companies that succeed in tomorrow's uncertain world will have leaders who can

grasp the challenge of shaping the future and building a flexible, diverse but still

coherent and purposeful organisation, and can do so without the traditional levers of

command and control or even the ability to set precise goals and plans."

Furphy 2002:88

Bossidy (in Neff & Citrin 2000:14) remarks a... the most significant challenge

businesses will be facing over the next few years is the acceleration of intensity.

Because of that you need to be in a business where you have a competitive advantage

or you are going to get killed. I don't think that any business that I know of is secure."

In the petroleum industry, a leader must be the source of creating a winning strategy

based on the company's competitive ventures and fundamental customer needs. PIRC

owners need to carefully listen to the customer and keep a continuous eye on the

competition.



Reiss (2000:12) identifies the following components of a winning strategy for the PIRC

and its customers, namely:

Customers are able to access information and contact the PIRC at any time and at

their convenience;

Letting customers own their experience by helping themselves to and requesting

information from them;

Engaging with the customer through personalised and productive interactions,

making the customer feel as if he or she is the only customer;

Employees, partners and customers all have access to the same information.

PIRC owners should analyse the customer needs for the development of a competitive

advantage through customer knowledge. Throughout the process for obtaining a

competitive advantage, PIRC owners should prioritise sub-projects according to their

related costs, benefits and strategic value. For each of these sub-projects, it is then

essential to understand and document the detailed business requirements, which form

the basis for product and service evaluation and development or customisation. As

there are so many products available, it is important for PIRC owners to understand

which products' niche area falls within the scope of the requirements of the customers,

and evaluate a shortlist of these products. The evaluation of products should be as

scientific as possible, thereby reducing the risk of a bad decision and allowing the

assessment of the customisation required in order for the product to meet business

requirements.

6.5 KEY DECISIONS FOR A PIRC

"... decisions are made and actions are taken at every step in the analysis of a

business and of its economic dimensions. Insights are bled-off and converted into tasks

and work assignments. At every step of the analysis there should be measurable

results."

Drucker 1968:183



Drucker (1968:183) states that for full effectiveness all the work needs to be integrated

into a unified programme for performance. To make the present PIRC effective may

require one specific course of action, and to make the future of the PIRC different may

require different action. Yet what is done to make the present business effective

inevitably commits resources, inevitably moulds the future. What is done to anticipate

the future ultimately affects the present PIRC in all its policies, expectations, products

and knowledge efforts.

The considerations on the location of a PIRC should include all major actions in every

one of the macro variables have therefore to be consistent with one another. Conflicts

between the conclusions of the various analyses have to be reconciled. Drucker

(1968:183) states that the hard reality of the present must not be obscured by the lure

of tomorrow's promises, nor must the difficult and discouraging work for tomorrow be

smothered by the urgencies of the present.

Weeks (2000:16) remarks that "... as we enter the new century, preparing our

institutions to deal with the challenges of the future is more important than ever before

as the decisions we make today will be shaping the questions of tomorrow."

The key decisions for a PIRC owner in all of its dimensions are the ideas of the

business, the specific excellence it needs and its priorities, which all incumber the

strategic considerations of the location. Kanter (2002:4) stated that "... change is a

threat when it is done to me and it is an opportunity when it is done by me." PIRC

owners need also to look around them and sense that if certain things are not right, to

do something about them. PIRC owners need to be taken out of their normal

environment so that they too can see other possibilities and then be encouraged to talk

about it in the PIRC.

6.5.1 Management involvement on location decisions: PIRG

"Things which matter most, must never be at the mercy of things which matter least."

Covey 1994:146


L MARX-FRONEMAN Some strategic considerations on the location of mad conveniences June 2003

Every management has an idea of its business, a picture of itself and of its specific

capacities. Every management sees a specific contribution for which it expects to get

paid. The idea of the business always defines a satisfaction to be supplied to the

market or knowledge to be made effective in economic performance. The idea of the

business thereby also defines the location in which a business has to obtain and to hold

a leadership position. The management of a PIRC that cannot define itself in a valid

idea will become amorphous and is likely to try so many things as to be unmanageable.

The idea of the PIRC sums up the answers to the questions that have been asked in

this thesis such as: What is our business? What should it be? And what will it have to

be? It established objectives, it sets goals and direction and it determines what results

are meaningful and what measurements truly appropriate for the management of a

PIRC.

The management of a PIRC is different from leadership. Leadership is primarily a high-

powered right brain activity and more of an art. It is based on a philosophy.

Management is the breaking down, the analysis, the sequencing, the specific

application, the time-bound left brain aspect of effective self-government. Covey

(1994:147) emphasises that management of a business should therefore "Manage from

the left, lead from the right." Therefore, the management of a PIRC should actively be

involved in considerations of the location because they will help to realise the dream of

the PIRC owner.

6.5.2 The specific excellence a PIRC needs

"Success means never letting the competition define you. Instead you have to define

yourself based on a point of view you care deeply about."

Peters 2000:4

Closely related to the idea of the business is the determination of the excellence that

characterises it. Knowledge excellence is a capacity of people to do something in such

a manner as to give leadership to the business. Identifying the excellence of a

business therefore determines what its truly important efforts are and should be. The

valid definition of excellence must be operational and lead to action conclusions. The



excellence definitions cannot be changed very often and are embodied in and

expressed through people, their values and their behaviour. Any change in the idea of

the PIRC or in its structure, in the petroleum industry or in the major knowledge areas,

may require change in a PIRC owners' definition of its specific excellence needs.

Wheeler (2002:39) expresses a... the basic principles of business, the emphasis on

people, client service excellence, business integrity, trust and honesty remain intact if

you wish to make a success of your operation."

The specific excellence and the ever changing environment of the PIRC has a direct

impact on the considerations of the location. The PIRC owner should be sensitive to

remain specific excellence and be willing to adapt accordingly.

6.5.3 The priorities of a PIRC

a... no matter how simple and how well ordered a business, there is always a great deal

more to be done than there are resources available to do it"

Drucker 1968:188

The opportunities for businesses are always more plentiful than the means to realise

them and there have to be priority decisions. The priority decisions convert good

intentions into effective commitments and insight into action, and speak of the level of a

management's vision and seriousness. The principles of maximising opportunities and

resources govern the priority decisions. The key decisions on the idea of a PIRC, are

its excellence and its priorities that can be made systematically or haphazardly. They

can be made in awareness of their impact or as an afterthought to some urgent

triviality.

There is no formulating to yield the right answers for these key decisions. But if given

haphazardly and without awareness of their importance, they will inevitably be the

wrong answers. To have even a chance of being right, the key decisions have to be

made systematically and it is the responsibility of the PIRC owner and cannot be

delegated to others as the priority which is of the utmost importance is the

considerations on the right location for the PIRC.



Stewart (2001:336) states "... it is to discover that it's possible to improve not a

business' performance today, but its responsiveness, its repertoire of skills and its

capacity to deal with the future." Robinson (2001:193) remarks aln today's ever-

changing world great ideas have a limited shelf life. What works today may not work

tomorrow." A key challenge for PIRC owners is to know when to embrace and when to

discard approaches and to maintain this willingness to change no matter how long the

PIRC owners have been in change, no matter where the advice to change comes from,

and no matter how fond a PIRC owner may be of the good old days, when a particular

idea built a PIRC and its reputation.

6.6 CLOSURE

For most PIRC owners the process of keeping the management ego under better

control will require some form of daily inner-fitness regimen: journal keeping,

contemplation and so on. Once they have such a program under way, they are ready

to look at work through a different set of eyeglasses. In fact, in order to be truly world-

class, everyone in a PIRC must develop a different perspective on work altogether.

They must acknowledge that the PIRC's primary purpose is not only to make money,

but also to provide fast, friendly service to customers. Businesses continue to struggle

with the seeming contradiction of providing service and making money. When service

is emphasised and appropriate attention is also paid to costs and profit margins, people

in the business can transform their attitudes toward their tasks.

Everyone must take responsibility for understanding the concerns that they and other

people have about change, and they must also be willing to ask for what they need and

be there for others in their time of need.

The door to the future will begin to open for PIRC owners, providers and managers, but

instead of cost cutting and re-engineering, the possibilities to revitalise and to grow the

PIRC for the twenty-first century must be embraced.



Today, productivity, quality, customer service and speed have become competitive

imperatives, and PIRCs have to be good at all of these, not to compete, but to survive.

From a strategic point of view, it is therefore no longer sufficient to consider how to

achieve a competitive advantage, but also to what extent such an advantage can be

sustained. Linked to this shift in the competitive environment has been the realisation

that new sustainable competitive advantages often emanate from subtle and invisible

sources such as organisational learning, knowledge accumulation and culture - sources

that are difficult to get a handle on from a managerial point of view.

The essence of strategy, which is the ability to spot opportunities, to make difficult

choices, to have the courage to move first and to commit large amounts of resources to

essentially irreversible decisions seems to have been forgotten. The impact of the

wave of change in the competitive petroleum industry on a PIRC's strategy has been

profound. It has become clear that strategy should be regarded as a dynamic rather

than a static concept. A preoccupation with an achieved competitive advantage (static

test of time) can only breed complacency and ultimately disaster, as the saying goes,

'nothing fails like success.'

A dynamic theory of strategy requires two critical links: firstly, a link between what you

did yesterday and what you can do well today; and secondly, a link between what you

do today and what you can do well tomorrow. In other words, the current resources

and capabilities of a PIRC, built up over the course of its history, enable the PIRC to

compete today. However, to remain competitive tomorrow requires investment in the

development of new capabilities. Linked to this, has been the realisation that

competitive advantage for a PIRC is therefore temporary, because whatever a PIRC

can do better than a competitor today, is likely to be copied tomorrow. However, the

location of a PIRC will be the most important competitive edge of all.

A PIRC can be a wealth creation machine, if on the right location, but the short-term

creation of wealth must not be at the expense of the business. How the PIRC owner

conducts the business and how the PIRC owner spends its money, are ultimately in the



interest of all stakeholders: namely the PIRC owners and providers, customers, staff

members and shareholders.

To conclude, Du Plessis (2001:31) states "Whatever your business, wherever in the

world you may be, you should have one goal in mind - to work together with your

alliances, partners and associates to implement the best business principles, practices

and strategy for the common good of everyone."



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