Background
Renaissance Services Company is located in Oman and focuses on offering oil and gas industry services. The Financial Services Company Report of 2007 ranked this firm among the world’s Top 10 in offering international oil and gas industry services. A 2008 internal survey report showed that this company had more than 10,000 workers that operated in its branches located in 39 countries across the globe.
Its corporate social responsibility is designed to ensure the local communities enjoy the profits generated by this company by investing it in promoting local talent in arts and sports and offering employment opportunities to them. Omani charities have benefitted from this company in terms of financial assistance. In addition, the CEO ensures local talents in arts and sports are supported through organizing annual events that give people opportunities to show their skills.
Lastly, it supports affirmative action for women by offering financial assistance and sponsoring them for studies in local and foreign institutions. Samir Fancy is the founder and CEO of this company and has an impeccable academic and professional background in finance and accounting, and this is believed to be the driving force that pushes him to ensure it continues to expand its territories.
This business started as a family investment and expanded through acquisition and mergers to attain its current status. It changed its service delivery approaches by focusing on offering oil and gas services to companies. This was a turning point it its history and saw this company generated unimaginable profits between 2007 and 2009 when other similar investments were adversely affected by the inflation that occurred during this period.
Organization’s Strategy and Theoretical Perspectives
The Case of Renaissance Services SAOG is not a new one, and there are many more companies that have adopted similar strategies in ensuring they expand their operations beyond their national borders. However, some aspects make this case unique and thus raise the need to evaluate the strategies it employed in ensuring it jumps over the barriers created by various factors that affect business operations. The evaluation of the strategies used by this company will be discussed based on the theoretical perspective employed in the case study.
Perceived Psychic Distance
Investing in international trade is not as easy, and its attractiveness sounds because managers and key stakeholders have to make major decisions that may affect the structure and policies of their companies. Nations have different cultures and traditions, and this means that a company should choose a destination country that has more similarities than differences to ensure there are minimal cultural issues that may affect its performance.
Therefore, it must examine the differences or similarities that will determine their market entry strategies. These aspects are very important in ensuring a company gets no or minimal resistance from the local administration and people. Psychic distances are issues that make organizations be similar or different, and this determines their levels of interactions. Most people believe that the similarities must be more than the differences to create high chances of ensuring that companies do not fail to maximize their potentials and use the huge available demands in foreign markets. Business analysts like Johanson and Wiedersheim-Paul believed that managers are very reluctant to invest in countries that have glaring differences in culture, education, and business practices compared to their homes.
Therefore, they will not risk investing in these nations because of perceived resistance from local communities that will give other companies an upper hand in competing for the available market. Psychic distance determines the approaches a company uses to enter a new market, the type and amount of resources to use, and how to manage other similar expansions in the future.
The case of Renaissance Services Company appears very different from what this theory proposes, and t is surprising that despite all the expected challenges that this investment anticipated, very few of them were felt. The distribution of this companies activities and its dispersion across the globe disputes the arguments presented in the Psychic Distance Theory of international business expansion.
This company focused on servicing ships, especially through its afloat repair services, and this means that Topaz Marines Services had to operate in international waters. This means that it had to venture in offering its services to ships that operated in all ports, including the Middle East, North Africa, South-East Asia, and America. It was inconceivable that this Arab based country would make entries and have significant impacts in non-Arab nations, but its manager focused beyond the political and cultural differences that existed at that time and ensured his objectives were achieved.
He realized that it would be very difficult to enter a new market without creating attention from local communities and politicians that were apprehensive about foreign countries. Therefore, he used mergers and acquisitions that camouflaged this company’s identity and enabled it to enter new markets without resistance. This practice enabled it to enter Scotland in 2002 by acquiring BUE Marine in 2002. The success of this acquisition enabled it to expand its operations by acquiring and entering other countries like the United Kingdom (2002), Norway (2006), and Qatar (2008).
However, these acquisitions were not smoothly executed because of the challenges the manager faced at that time. First, most of the companies he acquired did not directly participate in similar activities with this Renaissance Services Company, yet he successfully managed to use them to expand his investments. Therefore, psychic distance is just a mental construct that hinders managers from thinking beyond the simple cultural, political, and business practice differences between nations. Renaissance Services Company managed to enter new markets that had different cultural, political, and business practices, and this means that this theory is not an effective approach to understanding how companies can invest in international trade.
Another approach embraced by this CEO in ensuring that psychic difference did not affect the entry and performance of his company was maintaining the brand name of the acquired investments. He realized that people were very sensitive in the brand names of their favorite producers and service providers. Therefore, a change of name would create suspicion, and this would make them have an interest in understanding the reasons for rebranding.
However, he kept the profile of his company very low, and it took too long before some curious stakeholders realized that there were changes in their suppliers and service providers. The need to learn and adjust to the practices of local investments enabled this company to use brand names like Topaz that have no ethnic identities, and thus it was impossible for people to identify the owners or origin of Renaissance Services Company. This was an effective way of limiting the chances that psychic distance would create a gap between this company and its clients.
Lastly, the business to consumer sector is adversely affected by psychic distance, and some critics argue that the CEO of this company might have had that in mind before he decides to specialize in offering oil and gas fleet and repair services. It is likely that he had predicted the future behavior of international business practices, and when he decided to venture into new markets in foreign countries, he had already prepared his entry strategies.
Therefore, he decided to focus on the business to the business sector, where clients wanted to get quality services regardless of the origin of the providers. Renaissance Services Company realized that businesses placed emphasis on the quality of services they get from suppliers, and thus the issue of psychic distance was insignificant in determining its success in new markets located in foreign countries.
On the other hand, global consumer marketing is very sensitive, and ethnic profiling plays a major role in determining the success of multinational organizations. Consumers pay a lot of unnecessary attention to tastes, lifestyles, and company histories before they make choices of what to buy. In addition, the consumer needs and competitive conditions of the business to the customer sector cannot easily blend because of the many minor differences that exist and which clients pay a lot of attention to them.
Path Towards Internationalization Using Mergers and Acquisition
Most business analysts believe that companies cannot successfully venture into international investments if they do not undergo the stages for this process. They claim that companies must undergo a gradual expansion process that is marked by learning and experiencing various business challenges, opportunities, and threats before they start thinking of going global. However, this perception is questionable because the modern world is characterized by rapidly changing markets and technological interventions that create similar conditions for all companies to expand their operations.
Therefore, internationalization stage models are not logical because they ignore other salient aspects that determine the success of entry of business in new international markets. For instance, they argue that mergers and acquisitions are new practices that were introduced in the business world long before companies realized the need for international investments. Therefore, these practices were not considered in the internationalization theories presented by various scholars. The attention of the Internationalization Theory claims that businesses must expand through sequences that are marked by learning and experience.
However, Renaissance Services Company used cross-border acquisitions and mergers to expand, and this disapproves of the theorists that believe companies cannot invest in international trade without passing through the sequential stages of international expansion.
Therefore, the internationalization path model is weak and ineffective in explaining other alternatives like mergers and acquisitions that companies can use to venture into international markets. This means that there is the need for the expansion of this model and categorization of market entrance strategies to ensure it remains relevant in explaining various issues about internationalization of investments. The case study shows that Renaissance Services Company offers a broad range of technical services that are all successful despite the location of its branches. This means that the nature of service or product does not in any way affect the performance of a company.
In addition, Renaissance Services Company allows its foreign branches to be managed by locals and this is an effective strategy that ensures it has a positive reputation that is important in promoting its public image. However, most of its technical expertise are foreigners and this means that this company has some traditional-business based practices that have not been diluted, despite its proclamation that its internationalization involves giving local communities opportunities to manage its branches in their locations. Therefore, the use of mergers and acquisitions strategy ensures companies reduce the perceptions of psychic distance because it allows locals to offer their skills to the company.
Country-Of-Origin (COO) Effects
Renaissance Services Company was formed on the basis of offering a broad range of services to businesses and individuals. There was a lot of inefficiencies and poor performance even though it continued to generate profits that kept the company alive. However, lack of specialization was an impediment to the success of this company and that is why it decided to sharpen its line of production.
The prevailing business wisdom in the Gulf gave prestige to companies and individuals that were jacks of all trades because performance was based on the number of investments and individual had and not their profit generation abilities. It made a serious mistake by diversifying its production along lines of unrelated service industries. This approach could never have allowed this company to succeed in internationalization of its investments. However, its mission, vision and objective became clear when it decided to focus on offering support services to global oil and gas industries.
The CEO of this company minimized the negative COO effects by ensuring that the leadership of the newly acquired company was delegated to the local community. It is likely that very few people were willing to transact with Gulf-based companies because of their political and cultural beliefs. In addition, most companies acquired by this company did not have names that indicated their places of origin and this made locals to think that they are part of them. Therefore, Oman enjoys a neutral country of origin effect because it is not easy to know the identity of his company. In addition, internationalization in the business t0 business sector does not place a lot of emphasis on the origins of their partners or trades and this contributed to the success of this company.
Culture and Business Performance
Most gulf-based businesses place a lot of emphasis on the Arab culture and this affects their expansion plans. Investors in this region believe that extreme diversification of investments allows businesses to expand very fast and spreads risks. In addition, family members and friends within the Arab circles are very influential in determining the strategic choices of investments and thus they advise others to diversify their business practices and this becomes a common pattern in this country.
Most people like copying what others do and the pattern of extreme diversification of investments replicates itself in generations and ensures there is no differentiation of business activities. However, the few that manage to break away from this practice enjoy monopoly and have higher chances of succeeding in internationalizing their investments. Renaissance Services Company decided to divert from the business norms of its country of origin and this risky undertaking placed it in the realms of the best international performing companies in the oil and gas industry.