| Summary: | The aim of this thesis is to explore the diversification
of a major oil company into the. petrochemical business and
then through thorough analysis to recommend the appropriate
corporate strategies to be followed by the petrochemical subsidiary
of such a company in the 1980's and the 1990's.
The petrochemical industry has undergone great changes
during the last decade. In the early 1970's it entered a new
era of maturity, however due to the misplannings of the late
1960's extending to the early 1970's the industry was suddenly
faced with significant overcapacity which has persisted to the
present date and is expected to last well into the 1980's. The
1974 oil crisis caused a further decline in the growth of demand,
hence exacerbating the situation.
During the seventies the industry has had to operate under
increasing material prices, unlike the past, which when coupled
with the problem of overcapacity and the resulting deterioration
of prices, has caused considerable decline in the financial
ability of the companies to finance their capital expenditure
programmes through internal cash generation (which was the case
in the industry's 'golden era'). This situation is threatening
the long term viability and survival of the petrochemical
businesses.
A System Dynamics model for a hypothetical petrochemical
subsidiary of a major oil company has been constructed which
embodies all the policies inherent in such a system. The
dynamic behaviour of the model closely resembles that expected
from the real system such as the declining financial ability,
which is mostly due to the inflationary conditions.
Through thorough analysis, the impact of varying inflation
level on the performance of the system was explored, and
the need for adopting suitable accounting policies which would
take account of the replacement costs of assets, during periods
of high inflation, was proposed.
The adoption of a number of policies led to a certain
degree of improvement in the financial performance of the system,
and these are recommended concerning the corporate strategy of
the company for the next two decades.
Finally it was discovered that due to the low level of
growth of demand (compared to the past), the large economic sizes
of the petrochemical plants and the market share consensus, the
companies will have to go into joint ventures in the future.
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