Tosco's Growth Strategy and Inherent Risks
: Critically evaluate Tosco’s growth strategy and the inherent risks it represents. Growth by acquisition •Used opportunity of volatile crude oil prices and pure competition of all industry regarding oil to purchase assets at discount to replacement cost. Each, was technologically sophisticated that provided benefits at both input process level and outgoing product slate level. oMake sure operations were efficient by providing managers with autonomy through flexibility of choosing products to be produced •Acquired seven refineries, 5000 retail outlet, controlled 25 wholesale terminals, 1300 pipelines, lubricant blending, packaging and marketing business •Sell companies when not doing well, Avon, and purchase facilities then leasing them out oDisadvantage Rapid expansion leads to incurring heavy debt load Organization, management of quality and quantity control can spiral out of control •Eg: Safety and work place, brand image oAdvantage Acquisition will dramatically reduce the per unit cost, this will also spread the risk and fixed cost helping company reach economies of scale Rapidly acquiring other business will also reduce competitors and increase barriers to entry for potential entrants Horizontal and vertical integration •Tosco and sun oil controlled approx. 55% of East coast refinery capacity •Tosco first struggled as independent business but constant patience for reasonable price purchase lead to expansion and growth of the firm through horizontal and vertical integrations. This lowered unit costs and diminished costs (middle man) causing the corporation to reach EOS at a quicker rate while diversifying the risk. However, the risk of this company that is presented is it mass control over various companies causing them to have too much power. This power can lead to a dramatic decrease in competition, raise in price etc.