Abstract
The analysis explores the case of British Gas – the largest gas supplier in the UK which serves
more than 20 million households. The paper presents a market analysis by focusing on the level
of competition and market performance. The operating environment is also addressed with a
PESTEL and Porter’s Five Forces analyses. Moreover, the study explores the specific internal
characteristics with a SWOT analysis. Based on the outcomes from the several analytical tools,
the study explores the strategic solutions for British Gas.
Table of Contents
Abstract.............................................................................................................................................1
1 Introduction...................................................................................................................................1
1.1 British Gas..............................................................................................................................1
1.2 Market overview.....................................................................................................................2
2 The operating environment............................................................................................................2
2.1 PESTLE analysis....................................................................................................................3
2.2 Porter’s Five Forces................................................................................................................5
2.3 Operating environment: overview..........................................................................................7
3 British Gas strategic options..........................................................................................................7
1 Introduction
1.1 British Gas
The selected company for the purposes of this study is British Gas- the largest gas supplier in the
UK which services more than 20 million households in the country. Such number corresponds to
42% market share which clearly demonstrates the company’s dominant position (BBC, 2014).
1
, British gas is a property of the UK-based company Centrica which also owns several other
energy companies across the UK and North America (UK Power, 2012).
Prior to 1950s the UK was supplied with gas by more than 1,000 small independent companies
located in each council of the country. The production process relied on extracting synthetic gas
from coal. The gas market was extremely competitive up to 1948 when the Gas Act came into
force. The new legislation monopolised the gas production process in the UK by merging the
previously existing small companies into several large Gas Boards commonly known as British
Gas. The company became its existence as a state-owned monopoly.
The process of market liberalisation during 1980s also affected the UK gas market. British Gas
became a privately-owned company which was listed at the stock exchange. In 1997 additional
reforms were initiated in order to increase competition by allowing new market entrants to
penetrate the UK gas market. Furthermore, the UK gas system was connected with continental
Europe which also increased supply and the level of competition (Webber, 2011).
1.2 Market overview
Today’s UK gas market is largely controlled by six large energy companies known as “The Big
Six” which have a combined market share of around 98%. The observed concentrated market
structure supports the case for oligopoly where few large firms control the great majority of the
market. As a result of this structure, companies are also able to exercise market power and set
prices much higher than the costs of production (UK Power, 2012).
Despite the partial success of the market liberalisation efforts, the level of competition remains
subdued due to the existing entry barriers. Some of the major obstacles for entering the UK gas
market are high set-up costs, significant R&D requirements, government licensing regimes and
regulatory conditions (Bishop et al., 2013).
2 The operating environment
In order to assess the operating environment of British Gas, two frameworks are applied: the
PESTEL and Porter’s Five Forces models. The PESTLE analysis focuses on examining the
external environment, whereas the Porter’s Five Forces model aims at assessing the degree of
2
The analysis explores the case of British Gas – the largest gas supplier in the UK which serves
more than 20 million households. The paper presents a market analysis by focusing on the level
of competition and market performance. The operating environment is also addressed with a
PESTEL and Porter’s Five Forces analyses. Moreover, the study explores the specific internal
characteristics with a SWOT analysis. Based on the outcomes from the several analytical tools,
the study explores the strategic solutions for British Gas.
Table of Contents
Abstract.............................................................................................................................................1
1 Introduction...................................................................................................................................1
1.1 British Gas..............................................................................................................................1
1.2 Market overview.....................................................................................................................2
2 The operating environment............................................................................................................2
2.1 PESTLE analysis....................................................................................................................3
2.2 Porter’s Five Forces................................................................................................................5
2.3 Operating environment: overview..........................................................................................7
3 British Gas strategic options..........................................................................................................7
1 Introduction
1.1 British Gas
The selected company for the purposes of this study is British Gas- the largest gas supplier in the
UK which services more than 20 million households in the country. Such number corresponds to
42% market share which clearly demonstrates the company’s dominant position (BBC, 2014).
1
, British gas is a property of the UK-based company Centrica which also owns several other
energy companies across the UK and North America (UK Power, 2012).
Prior to 1950s the UK was supplied with gas by more than 1,000 small independent companies
located in each council of the country. The production process relied on extracting synthetic gas
from coal. The gas market was extremely competitive up to 1948 when the Gas Act came into
force. The new legislation monopolised the gas production process in the UK by merging the
previously existing small companies into several large Gas Boards commonly known as British
Gas. The company became its existence as a state-owned monopoly.
The process of market liberalisation during 1980s also affected the UK gas market. British Gas
became a privately-owned company which was listed at the stock exchange. In 1997 additional
reforms were initiated in order to increase competition by allowing new market entrants to
penetrate the UK gas market. Furthermore, the UK gas system was connected with continental
Europe which also increased supply and the level of competition (Webber, 2011).
1.2 Market overview
Today’s UK gas market is largely controlled by six large energy companies known as “The Big
Six” which have a combined market share of around 98%. The observed concentrated market
structure supports the case for oligopoly where few large firms control the great majority of the
market. As a result of this structure, companies are also able to exercise market power and set
prices much higher than the costs of production (UK Power, 2012).
Despite the partial success of the market liberalisation efforts, the level of competition remains
subdued due to the existing entry barriers. Some of the major obstacles for entering the UK gas
market are high set-up costs, significant R&D requirements, government licensing regimes and
regulatory conditions (Bishop et al., 2013).
2 The operating environment
In order to assess the operating environment of British Gas, two frameworks are applied: the
PESTEL and Porter’s Five Forces models. The PESTLE analysis focuses on examining the
external environment, whereas the Porter’s Five Forces model aims at assessing the degree of
2
