Michael Porter Model as a famous model for evaluating competitive advantages of industries is based on factors like home factors, domestic demand, supporting and related industries, strategy and competitive structure. Two other factors are government and chance events which affects competitiveness as external factors.
Having in mind Michael Reporter’s model, Shana has conducted this interview with head of Research and Technology Department of Petroleum Ministry Mohammad Reza Moqqadam.
Shana: As the first question, please tell us why, in your opinion, technological catch-up is more effective in Iran’s oil industry than other industries?
Nowadays finding a way to enter the international markets is very important and many companies and large industries continuously evaluate other markets' situations and take measures matching with the needs of those markets. Iran’s oil industry is not an exception.
In Iran, the government has concentrated its efforts on developing oil and gas industry as the mother industry in the country in order to take advantage from its potentials to enter world markets, because oil industry is driving force of economic development in the country.
Shana: Recently Petroleum Ministry’s Research and Technology Department prepared a report outlining the theoretical fundamentals for technological catch-up. The report points to domestic factors as the most important factors in competitive advantage. Could you please explain about these factors?
When we say home factors we mean a combination of factors playing an important role in producing commodity or services including raw materials, quality and accessibility, skilled and trained manpower, productivity, creativity, innovation, infrastructures, technological issues, access to capital, management capabilities and other factors playing a role in having competitive advantage in the markets.
Enjoying competitive advantage in international markets is the most important prerequisite for achieving technological catch-up in world markets and Iran’s oil industry enjoy these potentials for competition.
I should mention here that holding equivalent of 364.68 billion oil barrels recoverable hydrocarbon resources which constitute 9.47 percent of total hydrocarbon reserves of the world is a clear competitive advantage for Iran’s oil industry.
Iran sits atop the largest natural gas reserves in the world and ranks third in view of the largest oil reserves. High level of exploration, development and production of oil and gas as well as long term history of dealing with oil and gas issues are among the advantages of Iran’s oil industry.
Furthermore, the country enjoys professional and skilled human resources in all sections of oil industry. Having more than 100 years of experience in oil industry and 40 years in gas industry, having 35 thousand kilometers of gas pipeline for transfer of the fuel to different cities across the country as well as exports, enjoying the capacity for transfer of 620 million cubic meters of gas per day and 10 thousand kilometers of crude oil transfer pipelines are the other clear advantages of Iran’s oil industry when compared with other industries in the country.
Shana: Iran’s location from geopolitical view is also important and unique.
Exactly. In addition to factors I mentioned them above; Iran’s geopolitical location is another advantage for Iran’s oil industry. Having access to 1800 kilometers of shore, being located in the south of Central Asian countries and Caucuses region, being located in north shores of the Persian Gul and west of India Subcontinent and at the same time, high rate of profitability and low level of risk for investments all have created a unique status for Iran’s oil industry.
Shana: Michel Porter is of the opinion that existence of a large and growing home market encourages investments in upgrading technology and higher productivity. How do you weigh home market demand for oil industry’s products?
That’s right. Domestic demand defines the nature of demand for a product in home market and the size of growing demand has a great impact on competitiveness of industries.
But, the quantity is not the only important factor. The quality of the products and services is also important for being competitive in any specific business. It is clear that oil products including gasoline, gasoil, kerosene, fuel oil and other oil products enjoy a large market in the country. Big market for natural gas and petrochemical products is another sign of strong demand for these products and indicates competitive advantage the oil industry enjoys at home market.
Shana: Let’s talk about the third effective factor in competitive advantage which is supporting and related industries. At first, please tell us what do you mean when you talk about related industries and how do you evaluate their connectivity with Iran’s oil industry?
Related and supporting industries include those industries providing raw materials, or equipment and tools. Furthermore, suppliers and vendors, distribution networks, research institutions, banks and securities, transportation system and universities are related industries.
Being linked with these centers and cooperation with them are helpful in upgrading the products and services and finally improving competitiveness.
Iran’s oil industry has widespread cooperation with the manufacturers and suppliers of equipment, machinery, petrochemical products and raw materials in three levels including in upstream, downstream and middle stream.
On the other hand, oil industry is closely linked with contractors, consultants, technical and engineering sectors as well as those are involved in oil, gas and petrochemical products businesses. Good relations with universities and research institutes are another important issue. Here I would like to refer to an agreement recently was signed between NIOC and universities with the goal of conducting studies on 54 oil and gas reservoirs.
Shana: Could you please explain the extent oil industry relies on strategy as roadmap for presence and competition in international markets. Many believe that a proper strategy has been the missing ring of oil industry in its activities and competition in international scene.
-Generally, organizations are able to achieve competitive advantage through offering less expensive goods and services, concentration on a specific product or a combination those strategies. Each of the strategies creates a specific competitive advantage. But in oil industry with its large projects, I think, we should move towards a contractor- centered strategy.
In other words, while oil industry deals with large projects, it should pay attention to the special role of qualified contractors. Lack of innovation or technological shortages should be removed and the groundwork be prepared for competition of these companies in oil industry.
Shana: How can governments help to boost competitiveness between industries? Generally, the government plays a big role in our country where the government often intervenes in different issues.
-the government intervention could have positive and negative consequences for being competitiveness through monetary, fiscal and commercial interventions. Taxes, protectionism, administrative issues, export and import rules, foreign exchange rate, liquidity, interest rate, inflation, the administration’s expenditures and decisions it makes regarding micro and macro economies are the other factor affecting competition.
Political and trade relations with other countries and other official and unofficial agreements with other countries, boosting or halting commercial and political relations with others all can impact competitiveness of industries are directly related to the performance of the governments.
There is no doubt that in Iran the government could influence and facilitate the oil industry structure and performance through identifying current problems Iran’s oil industry faces. The government can also influence oil industry through introducing mechanisms for realizing Economy of Resistance targets.
Shana: How do you weigh the impact of unpredictable events on competitiveness of oil industry?
Unexpected situations, war, economic sanctions, oil shocks, economic and political crises, profound technological innovations are examples of chance events. Certainly, these events could have either positive or negative impacts on competitiveness in oil industry but what is more important is the way of tackling these events and their management.
Could you please mention an example about proper management of incidents in oil industry?
Efforts are underway for reforming oil contacts is an example.
Interview by: Hanieh Movahed
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