Exxon Mobil is a petrochemical company based in Texas, United States of America (Exxon Mobil, 2013). The company’s operations have been classified into three broad categories; upstream, downstream, and chemical sections. It was formed in 1999 following the merger of Exxon and Mobil oil companies (Exxon Mobil, 2013). The merger marked the beginning of a successful period. The success of the company can be attributed to a number of factors like increased asset base and improved efficiency.
The merger was a strategic move by both companies to increase both assets and capital. Both companies had operations in several countries across the globe. The merger enabled the company to acquire an expansive operation area at a low cost. Increased capital base enabled the company to expand its operations without incurring significant costs. In addition, each partner entered the deal with a huge asset base.
Operational efficiency is another factor that enabled the company to make significant profits. The primary focus of the company is to cut operational costs through introduction of efficient systems. The company uses technology to ease processes and to manage some operations. It also ensures that its supply chain is properly managed. It pulled out of the gas and fuel retail business to reduce its costs. Instead, it opted to form partnerships with independent retailers who would distribute its products.
It also employs innovative marketing to increase its sales. The company, in conjunction with the retailers segmented the market. For instance, it has premium products meant for high end customers. It is also involved in oil exploration in some countries. This is a strategy to expand its area of operation.
Demerits of Free Trade
Free trade has had great impact on governments, businesses, and people. There are several positive effects of globalization. However, it also has a number of negative effects. Negative effects of free global trade have received little attention yet they have the potential to permanently alter peoples’ lives. The negative effects associated with globalization include loss of jobs and income, loss of national sovereignty, environmental degradation, exploitation of the poor, and disregard of labour laws and policies.
Companies are constantly looking for ways to reduce their production costs. This has resulted in outsourcing of noncore operations to overseas companies (Hill & McKaig, 2012). The jobs are often outsourced to developing countries where labour is cheap. Outsourcing transfers jobs from one country to another.
However, its effects are felt more in the country of origin. Loss of a job may alter the life of an individual. It reduces the individual’s purchasing power. Therefore, in the long run, outsourcing negatively affects the economy of a country.
Influx of cheap foreign goods has a negative impact on the economy of a country. Globalization has encouraged the free movement of goods and people across borders. Local industries may lose markets to the foreign products. This has a negative effect on the economy. A decline in the amount of manufactured goods reduces government revenue.
Free trade shifts economic power from governments and local agencies to international agencies like World Bank and IMF (Hill & McKaig, 2012). This may be attributed to the fact that economic power is linked to political power. People and companies are increasingly looking up to the international organizations. Most policies that end up forming the economic policies of many countries originate from these organizations. Loss of sovereignty is similar to losing identity and independence.
Globalization or free trade has encouraged environmental degradation and violation of labour laws (Hill & McKaig, 2012). Companies often move their operations to developing countries where labor laws and environmental laws are not strictly enforced.
This may lead to abuse of the environment and workers by unscrupulous companies. Environmental degradation will eventually have a negative impact on all people. Relocation may also lead to exploitation of the poor. Residents of developing countries may be exploited by unscrupulous companies.
hese practices are not tolerated in developed countries thus leading to relocation of dishonest companies to developing countries. These dishonest companies have argued that adherence to fair labour practices and environmental protection laws is expensive. Therefore, they opt to move to where they can easily reduce their costs by overlooking these regulations. This argument is not entirely true because environmental protection is priceless.
Doing business in other countries
Aramco is a Saudi Arabian petrochemical company. Its operations include oil and gas exploration, refining, shipping, marketing and distribution (Saudi Aramco, 2013). It operates in a number of countries. To do business in other countries some factors should be considered so as to increase the chances of success. These factors include benefits, costs and risks of doing business in a particular country.
The benefits of doing business in a country are measured in terms of monetary gains. The financial benefit of doing business in a particular country is influenced by market size, current purchasing power, future purchasing power, and first-mover advantage (Hill & McKaig, 2012).
In order to enjoy these benefits, a thorough assessment of the market should be done. The analysis should include the size of the market, purchasing power, and first-mover advantage. It is important for a company to expand its operations to areas that have a market with a growth. More importantly, the purchasing power of the people should be reasonable or at least show signs of growth.
The cost of doing business in a country should be thoroughly analyzed. A business can incur various types of costs. The costs incurred by a business may be political, economic or legal. Political costs refer to costs incurred in form of bribes (Hill & McKaig, 2012). It may be easy to do business in developed countries because they have good infrastructure. Litigation can increase the cost of doing business.
Risks are factors that are likely to adversely affect the business. Risks of doing business in a country are influenced by politics, the economy, and the legal system. Political risk is defined as the possibility that political forces will negatively affect profits and goals of the business.
Economic risk refers to the possibility that economic mismanagement will derange the goals of the business (Hill & McKaig, 2012). Foreign exchange risk is another risk that is related to economic risk. Legal risk refers to the possibility that a partner will unfairly use the law to gain an advantage. To lower the risks, entry into new markets should be well planned. Political, economic and legal risks should be monitored closely. Foreign exchange risk can be avoided in some cases through payment of goods in kind.
Countries should be selected with the above factors in mind. The benefits should outweigh costs and risks. For example, a country that offers first-mover advantage may be selected and those that have late-mover disadvantage overlooked. Similarly, entry into countries with significant economic and political risks may be delayed.
References
Exxon Mobil. (2013). Web.
Hill, C. & McKaig, T. (2012). Global Business Today (3rd ed.). Philadelphia: Mcgraw-Hill. Saudi Aramco. (2013). Retrieved from <https://www.saudiaramco.com/en/>.