Threats
Economic slowdown in the US and the European Union
The company has a significant presence across the US and the European market. According to International Monetary Fund’s (IMF) World Economic Outlook, April 2008, the US and the European Union economy could face slowdown in 2008. The US GDP growth rate is likely to decline from 2.2% in 2007 to around 0.5% in 2008; and the GDP growth in the European Union market is forecasted to decline from 3.1% in 2007 to 1.8% in 2008. A weak economic outlook for these regions could depress industrial development and impact the demand for the company’s products.
Risks associated with conducting business outside the US
The company operates in more than 200 countries under the names Exxon Mobil, Exxon, Esso, and Mobil. Non-US, Exxon Mobil’s largest geographical market, accounted for 69% of the total revenues in the fiscal year 2007. In these foreign locations, the company might experience fluctuations in exchange rates, complex regulatory requirements, and restrictions on its ability to repatriate investments and earnings from its foreign operations. The company might also face changes in the political or economic conditions in the foreign countries it operates in. Such instabilities could negatively impact the revenue growth of the company.
Environmental regulations
Exxon Mobil’s businesses are subject to numerous laws and regulations relating to the protection of the environment. With rising awareness of the damage to the environment caused by industry, especially regarding global warming, regulatory standards have been continuously tightened in recent years. One of the most important developments in this area has been the introduction of the Kyoto Protocol for the reduction of greenhouse gases.The protocol calls on industrialized countries to reduce their greenhouse gas emissions level by 5.2% on an average annual basis during the 2008-2012 period, compared with 1990 emissions levels.
Further, in 2005, the US environmental protection agency (EPA) issued a ’clean air interstate rule’ (CAIR), to reduce the emission levels. According to the rule, the states have to reduce the allowable sulfur dioxide (SO2) emissions by 70% and reduce Nitrous Oxide (NOX) emissions by 60%, by 2015 compared with the 2003 levels.The company is governed by these regulations which could impose new liabilities on the company. This could result in a material decline in Exxon Mobil’s profitability in the short term.