HI6006 Instances of the Bad Partnership: Case of British Petroleum and Rosneft Assessment Answer
ANALYSIS OF BUSINESS STRATEGIES OF BRITISH PETROLEUM
The study has focused on the instances of the bad partnership, which has been developed in the oil and natural gas industries of Russia. From the case, it has been seen that the example of the bad partnership can affect not only the contemporary business decisions of the company, but also the previous and expected partnerships of the companies can also be affected. The case of British Petroleum and Rosneft has been taken into consideration here.
It has been seen that for the past few decades globalisation is the major trend in the international market. It is helping the big multinational companies to expand their market in the foreign soil in an efficient way. However, during expansion into the foreign market it is essential to develop different levels of the business strategies to develop the market according to the focused requirement of the market. It is seen that the business level strategies in the organisation are directly related to almost 25 % of the revenue generation of the organisation (Meyer, and Peng, 2016). It is very much essential to analyse the strategies taken by the company in the foreign region to indentify the issues of the organisation in the market.
This study mainly focuses on the analysis of the British petroleum’s business level strategies in the foreign markets in an efficient way. One of the major important components that will be discussed in the study is the strength weakness opportunities and threats of British Petroleum in Russia by the Help of the SWOT analysis. Moreover, the cross impact analysis known as the TOWS matrix will be done in an efficient way. Furthermore, the Porter’s generic strategies related to the business level strategies of British petroleum will be explained in detail. Application and evaluation of strategic models will be done and recommendation will be provided in the study.
Background of the case
The case refers to the bad partnership example of the two petroleum companies in Russia, British Petroleum and Alpha Access Renova. It is found that due to the partnership development of the two companies, British Petroleum and Rosneft, a number of court injunctions have been formed against British Petroleum (Spekman, et al. 2012). BP already had partnership in the Russian market with AAR. Due to these injunctions, the alliance between the other company Rosneft and BP has failed. Not only that, but also the poor alliance management skill of British Petroleum is also responsible behind this failure (Spekman, et al. 2012). The case shows that generation of conflicts is common within an alliance, however, the degree of the conflict matters the most for the development of the alliance. A high degree of conflict is responsible for the failure of an alliance and in case of the British Petroleum and Rosneft, this high degree has been found.
The study has focused on the strategic faults present in the case and business level analysis of the strategies used in the partnership of the British Petroleum and Rosneft. SWOT, TOWS has been done for the internal analysis and the analysis of the generic forces by Porters has been conducted here.
Major strategic faults of organisation
The strategic faults that are present in the case directs at the point that due to this development of the partnership of British Petroleum and Rosneft, the TNK-BP shareholder agreement of British Petroleum and AAR has been violated. Moreover, AAR also stated that if BP wants to continue with the partnership with Rosneft, the agreement must include them as well. Another strategic fault, which can be found from the case, is that the voluntary share exchange program of BP and TNK for their minority stakeholders has ensured the liquidation of the companies. As a result, not only the companies have liquidated, but also their liabilities and assets have been consolidated within the holding company. Thus, it has a black spot on the reputation of the two companies as well.
Another strategic fault that can be generated from the case is that, the Russian government has found a number of legal disputes from the partnership of BP and Rosneft, which engendered the speculation that both the companies can be taken over by Gazprom, which is the largest state controlled gas company of Russia. Along with all these problems, BP has refused to go by the proposal of negotiation by AAR regarding the partnership inclusion with Rosneft. It also affected the future of the project adversely.
Through this particular analysis, it will be easy to understand how the organisation is situated in the market and in the negotiations with the stakeholders related to the alliances.
- Diversification – The organisation has made sure that it has entered into markets other than oil and gas and this ultimately gave options to the organisation as far as capturing different markets and increasing revenue is concerned.
- Leadership in Market – The organisation that has been mentioned in this case can be regarded as the market leader in the oil and gas industry of United Kingdom. The organisation in this case is also one of the main stakeholders of Economy in UK (Chow, 2016).
- Global Operations – The network of the organisation is very strong and thus it can be said that BP is very aware of the stakeholder interties in different continents.
- Lack of Penetration – The organisation is very successful in the energy sector, however, when it comes to the non energy sector; the firm is lacking the power of penetration. This can result in the organisation losing the opportunity to take a strong grip on markets that are not yet explored.
- Controversies – The organisation in the past has been very prone to get involved in situations that have damaged its reputation. There have been many instances where the organisation was mentioned in cases where oil was spilt and this has brought into contention the thought process which indicates British Petroleum has no concerns over saving the environment. This has damaged the goodwill in a significant manner (Marks, 2015).
- Alternative Energy – This can be regarded as the most significant opportunity for the organisation as the global trends are shifting towards situations where the use of fossil fuel is being reduced. Thus, tidal energy and wind energy can be explored by British Petroleum in order to make sure that the firm is on its way to exploring new sources of energy.
- Partnerships with local brands – The organisation can look forward to make sure that small entities in the markets of Asia are reached so that it can increase its revenue. Through this, the organisation can also grab a hold of the relatively unexplored Indian and Chinese Markets.
- Competition – The globalisation plans of the organisation can be hampered by the fact that penetration of the energy market is not very easy and the organisation will have to make significant contributions of capital to compete with existing companies in different regions.
- Lack of partners – The organisation can face situations where the different organisations across the market are not willing to come under any ownership due to the fact that demand for commodities are rising and in order to increase their revenue as well as profitability, the organisations would like to make sure that they are independent.
- Trends of CSR – The organisation is involved in the power industry and thus it has been related with situations that has damaged its reputation in the market. This is the reason why the organisation is very incapable in terms of executing its Corporate Social Responsibilities. This can be the reason why the firm will not be able to convince partners to invest in actions.
This analysis will be helpful in understanding how the organisation’s Strengths, Weaknesses, Opportunities and Threats are related with each other.
Opportunities from Strengths
The organisation is the leader in the ,market as far as oil and gas is concerned and thus it can be said the negotiation power of the firm will be essential in successful dealings with partners in Russia.
Opportunities from Weaknesses
The organisation can invest capital in making sure that the controversial situations do not haunt the organisation further again and this will makes sure that the firm is able to make a good impression on the market as they will be spending significantly on CSR.
Threats from Strengths
Global operations can mean the organisation being prone to economic turmoil in different countries and continents (Craig, 2016). This can also bring into contention a potential case where legal cases in different regions may harm the organisational goodwill.
Threats from Weaknesses
The lack of penetration in unexplored markets can make sure that the firm is not able to compete with its long term competitors such as Shell and Chevron. This can also make the existing partners leaving the firm.
Analysis of Porter’s generic forces
Porter’s generic strategies are very important as it helps in formulation of strategies according to the competitor analysis in an efficient way. There are four different forces explained by Michael Porter that includes cost leadership, differentiation strategy, Cost focus and differentiation focus (Ouma, and Oloko, 2017). The generic forces should helps in critical analysis of the different strategies used by British petroleum in the Russian oil market. It is essential to analyse the business level strategies of British Petroleum that helps them to focus on their lacuna and restructure business process according to the current demands of the Russian market.
Cost Leadership: It has seen that one of the most effective strategy taken by the organisation are the Cost leadership that helps in establishing competitive edge over the rival organisation in an efficient way. According to the case background, it has been seen that maintaining cost efficiency in Russian market is one of the main target of British Petroleum. British petroleum made ventures with AAR , Rosneft by securing at least 9.5% % profit in the Russian market (Bertozzi, Ali, and Gul, 2017). This smart collaboration was carried out to effectively develop the value in the oil market of Russia and become one of the leaders in effective pricing of the oil in the country. Moreover, one the major important point that is included is the alliance with specialist companies in Oil sectors are made by British Petroleum so that expertise of that particular company should be used to reduce the overall production cost of the oil. In competition this pricing policy should be give a major start to BP.
Differentiation: The differentiation is one of the major components that is related to the product or the services of the company. However, it has been seen that the British Petroleum has not focused on the product differentiation but the services of BP in Russia are given in low cost because of their strategic market development by performing alliance according to the demand of the market (Bell, Dyck, and Neubert, 2017). The funding on the exploration of the oil fields were done by British petroleum so that when excavation of lucrative field is done BP can have extensive share
Cost focus: Cost focus is one of the most important strategies taken by the organisation as it performed the supplier and contractor alliance in an efficient way to nullify the cost of supply in the products to maintain oilfields. One of the major important factor is the use of the collaboration concepts with suppliers that nullifies the maintenance cost and help in cost focus (Omsa, Abdullah, and Jamali, 2017)
Differentiation focus: One of the major important factors is the use of the differentiation focus. However, the Birtish Pertroleum is not following the differentiation focus related to product. The differentiation is done in collaboration and taking shares in the lucrative oil field by the forming merger with specialist companies (Linton, and Kask, 2017).
Evaluation and application of the strategic model
From the earlier discussion, it has been seen that BP has utilised the cost leadership strategy to reduce the price of their products and services, which are basically all possible fields of an oil and gas industry, such as exploration, refining, marketing, distribution, petrochemical production and power generation. Meyer and Peng (2016) argued that according to Porter’s Generic Strategy, sustainably maintaining the cost leadership strategy requires a business organisation to incorporate latest technologies to reduce operational cost. Furthermore, they would also have to have excellent logistics and most importantly, access to a unique and sustainable base for reducing the cost and gaining more profit. This base can be any essential factor that all companies in the same market have to use, such as facilities, raw materials, energy, labour or others.
From the case study, it can be seen that in case of BP, they have applied the Porter’s Generic Forces in their business operations. Moreover, among the four Generic Strategies, BP has utilised the cost leadership strategy in their business operations in order to gain more profit. For instance, BP have expertise in deep-water oil exploration and extraction, which gives them the capability to reduce their production cost of oil from coastal areas, which allows them to reduce their product price and maintain cost-leadership strategy. Furthermore, BP has always aimed to utilise their raw materials as their unique low-cost base. Bergquist (2017) argued that all of the strategic alliances and mergers of BP with the Russian Petroleum companies have allowed BP access to oilfields in Russia and Gulf countries, and BP has always jealously protected all oilfields and gasfields under their control. For instance, when TNK bought the Chernogomeft oilfield in an auction, BP vehemently opposed it and even threw legal accusations towards TNK for tampering the auction process (Spekman and Linetsky, 2012). All of this was an attempt to gain control over the Chernogomeft oilfield, which allowed BP to lower their production cost and product price.
Moreover, BP has also entered strategic alliances with specialist oil and gas companies such as TNK or Rosneft, who have cutting-edge technologies to help BP enhance their product infrastructure and thus, have a reduced product price. Moreover, Hamilton and Webster (2018) argued that having strategic alliances with a Russian company have allowed BP to have more efficient logistics infrastructure within Russia, helping BP to maintain low product price as well. These factors have helped BP to maintain a low product price and gain more profit while maintaining sustainability.
In order to enhance their sustainability in the oil and gas industry, BP can be recommended to use various business strategies, which would enhance their profitability as well.
- BP have to focus more on their research and development on the petroleum and natural gas extraction technologies, since this will allow them access to more unexplored oil and gas fields.
- BP have to maintain strategic alliances with key companies whose technologies complements BP’s own, thus enhancing their production capacity and eventually increasing their profitability.
- BP have to put more effort in developing technologies related to renewable energies such as wind or solar energy, which would enhance BP’s sustainability in the energy industry.
The above study has to evaluate the various aspects of the expansion and business strategies of British Petroleum in Russia. A detailed evaluation of the case study has shown that BP has utilised the cost leadership strategy to reduce their product price and maintain a high market share while increasing their profit and sustainability in the oil and gas industry in Russia.