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August 22, 2013

Chevron Corporation Strategy

Chevron Strategy
The strategic plan of Chevron Corporation includes its corporate direction necessary to differentiate the company from its counterpart. Admittedly, the company has had faced difficulties in the process of shaping and defining a well-grounded corporate strategy. Recently, U.S. energy kingpin Chevron uncovered its business strategy. Specifically, the company chalked out plans to restructure its struggling downstream (refinery, marketing, and transportation) operation that has confronted huge losses due to weak demand for fuel. Nevertheless, a change was made in the corporate strategy of the firm.
The company resolves to focus more on its gas business and operations in Asia. The company confirmed its 2010 capital expenditure budget of $21.6 billion, 2.7% lower than a year ago. In a bid to enhance effectiveness and make things easier within the organization, Chevron is seeks to cut refinery capital expenditures by 23% this year.
San Ramon, California-based Chevron is engaged in oil and gas exploration and production, refining and marketing of petroleum products, manufacturing of chemicals and other energy-related businesses.

Chevron’s Corporate Level Strategy and Performance
Chevron's corporate level strategy since the 1980s is similar to that of the S & P 500, thanks to soaring oil prices in recent years. This relatively weak performance has nevertheless maintained under attractive valuations, despite the recent significant increase in the share price. The price / earnings ratio was much higher during the '90s. Chevron is trading at a price so interesting and provides good coverage to fluctuations of the greenback. It is ideal for an investor who seeks an attractive return immediately, as an annuitant, while benefiting from growth in distributions which easily covers against the risks of inflation.
Chevron is being generous with its shareholders because it gives them a return of 3.7%. Despite the significant increase in the share price concurrent with the surge in oil prices, recovery in terms of dividends remains attractive. Despite this generosity, the company manages to maintain a very low payout ratio at 30.38%, which leaves it one hell of a margin to increase its dividend again in the future, even in cases of difficult passage. It should be noted however, that this ratio is so low due to a relatively low dividend growth over the medium term (7.65%) coupled with sharp increase in earnings per share last year. Despite these slow growth distributions, Chevron has still increased its dividend for twenty consecutive years, which is appreciable.
Business Level Strategy
The arrival of mass production in the twentieth century provided the basis for the beginning of the break between producer and consumer. Gradually, as the distribution channels to develop, the consumer was less and less heard, the business level strategy towards a functional approach to mass treatment under the North American school. The business paradigm that places the customer at the center of concerns the company also changes the brand policy, which remains the major asset s of the business deal with turbulence in the environment. If the brand equity ensures the continuity of the brand, because it generates additional cash flows, easy conquest, retaining and winning back consumers, increases efficiency, promotions, positively influence customer satisfaction and provides the value to the company and its shareholders (Aaker 1991). The brand equity is mainly on the awareness of the brand and its character. But in the brand value associated with the perceived quality, consumers do not bear an overall, but up on the basis of multi-dimensional abstract (Brucks, Zeithaml, and Naylor 2000). Second, Consumer animate, humanize and personalize "their" brands.
To build and maintain their brand equity, companies must therefore include all elements that distinguish their brands from those of the competition. However, the construction of brand equity should be done here too taking into account the real issues of our time. Companies need to place an intense and active relationship of loyalty between the consumer and the brand allows consumers themselves unsettled by the changing environment economic, to find reference points. In recent years many organizational efforts have been made under the banner of Customer Relationship Management (CRM), and Customer Oriented Management, to be closer to the end customer. Indeed, most companies can no longer be content to make the traditional mass communication with a Summary segmentation, but they must respond to their personal customers. In doing so they create an advantage competitive, which allows them to better retain customers become volatile. Relationship marketing is therefore a new paradigm that the business success can be improved by increasing the profitability of relationships with customers and extends their duration. The implementation of relationship marketing by companies is greatly facilitated by the ICT development and the emergence of the new informational paradigm (Bauer et al. 1999). Indeed, for the first time, consumers have the same converters and conveyors of information that companies (Johnston, 2003).
However, in the academic literature on relationship marketing is often reduced to techniques of mass customization and use of computers and databases data for direct marketing and segmentation further refined and developed. From this perspective, consumers lose some of their freedom because they "agree" to be clearly identified in their desires and purchases. But research shows that this loss of freedom is offset by greater satisfaction due to better take into account their needs and by many other psychological benefits such as familiarity and personal recognition. Relationship marketing would be beneficial to both the parties.

Operational Strategy
Chevron Corporation’s primary market is United States, with its estimated 330 million-plus population. The United States, the third most populous country globally, accounts for about 4.6% of the world’s population. Within the next few years, the U.S. population —currently estimated population — is expected to reach more than twice its 1950 level of 152 million. More than just being double in size, the population has become qualitatively different from what it was in 1950. As noted by the Population Reference Bureau, “The U.S. is getting bigger, older, and more diverse. The diversity is reflecting the major influence that immigration has had on both the size and the age structure of the U.S. population (Baker, 2005).
            The appetite for oil and petrol products remains strong in the United States. U.S. is the largest consumer of the crude oil. In 2008, 19497.95 barrels of petroleum were consumed per day surpassing and almost triple China consumption of 7,831.00 (EIA, 2010). In the world’s largest gas market, North America, Chevron sells huge volumes of end-user and wholesale gas, and are one of the largest marketers of natural gas liquids.
            Furthermore, there is really no brand loyalty, despite the attempts of the oil companies to establish brand loyalty through advertising. In fact, price tends to be the determining factor of a decision to purpose (along with location – if a gas station is conveniently located, it’s more likely to be frequented by customers).The idea of brand loyalty in the United States changes, however, when an oil company crisis occurs. This happened when the oil tanker Exxon Valdiz ran aground on Prince Island Sound in Alaska in 1989 – for months and years afterward, many people in the United States avoided Exxon products like the plague. Though Chevron doesn’t have the concentration in the United States that ExxonMobil has because there are also regional players too, such as Total, Philips 66, Texaco, 7-Eleven and QT.
            On the other hand China has the population of 1.3 billion, and it’s the largest country in the world in terms of population (China, 2010).The demographics of China are identified by a large population with a relatively small youth division, which is partially a result of the People's Republic of China's one-child policy. The population policies implemented in China since 1979 have helped to prevent several million births. Therefore, when it comes to birth rates, it ranks 151st in the world (China, 2010). China is the second largest consumption of crude oil measured at7,831.00 barrels per day in 2008 (EIA, 2010). Still, the Chinese economy continues to move toward a market-oriented one, complete with a continually growing private sector (China, 2010). As purchasing parity continues to increase (and more cars continue to be sold), China continues to become an attractive destination for companies such as Chevron.
            Furthermore, China, unlike the United States, doesn’t have as many mandates in terms of the type of fuel burned, though the government has dedicated itself to focusing less on coal and oil for energy production and more on alternative fuels (China, 2010). Also unlike the United States, China is not as touchy about things like oil explosions – namely because the state-owned media likely wouldn’t do stories on something like that. The demand for oil continues to grow, however, meaning Chevron could find a good market in China. Though competition is also intense in China, demand continues to outpace supply.

                                                      Recommendations for Chevron
Corporate governance has become a buzzword in present day organizational culture and setup. All the organizations of developed or developing countries Accentuate more on corporate governance than anything else because it is believed that market failure and economic recession has occurred due to the loose governance at corporate level. However, on the other hand, in developed European countries people and organizations also raise the question whether corporate governance supports or hinders organizational growth.  Many of the researchers have argued that it is the competition between capital market organization which ultimately affect the relationship between financial institutions and other organizations (Mayer, 1988; Petersen &  Rajan, 1995). These differences between organizations and attempts to de-regularize the markets may also influence the corporate governance of the organizations. Corporate governance must be considered in the broader context of global economy where the implementations of regulations by the government and the competition of the capital markets interact with each other to form a systematic approach (Aoki, 1994). This systematic approach is also influenced by different regulations in different countries, capital markets structure, the formation of the labor and product markets etc.
In the recent past, many companies like Enron, Adelphia and Parmalat have collapsed and become the center of attention of governments, regulatory bodies and law enforcement agencies because they did not give much attention to the corporate governance as well as the ethical consideration of accounting practices and thus fell apart due to different financial and marketing scandals.  Governments all over the world tried their utmost to control the situation by imposing strict regulations which may compel the companies to adhere to the government regulations. In United States, President George W. Bush, after the collapse of Enron, introduced Sarbanes-Oxley Act of 2002, which ensures the adherence of regulations and rules of corporate governance. Apart from that, other regulators like NASDAQ, The New York Stock Exchange (NYSE), and The Institute of Internal Auditors (IIA) have introduced several other regulations whose purpose is to ensure the proper adherence of the rules of corporate governance so that the organizations may achieve the financial transparency. In the era of integration of European capital markets, the legislation which had been launched in the decade of 2000 aimed to strengthen the capital markets as well as prepare the organizations to compete with other financial centers of the world (Alessandra, 2003). The reforms of corporate governance in United States, Europe, Australia, New Zealand etc. were introduced to give the proper guidelines to the organizations to have proper corporate governance and financial transparency which may prevent the future bankruptcy and collapse of organizations.

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