Company profile Royal Dutch Shell
Royal-Dutch Shell is the global giant of petroleum exploration and refining and marketing petroleum products and by-products internationally where STTC1 of UK and RDPC2 of Netherlands possess forty percent and rest sixty percent owned by other three subsidiaries of Shell Petroleum UK, USA and Netherlands and started its journey by registering in Hague in 1890 and London in 1897. The group is the biggest player in petroleum sector and conducts its international marketing with successful footprint of operation all over the world while it accounted around 13.3 % of FTSE- 100 and the highest contributor of British economy as well as global economy and climate with its presence in more than 130 countries with 108,000 employees worldwide.
Major Factors Impacting the Creation of International Marketing Strategy
Factors Impacting the Strategy of Choice of Host Countries
A number of factors influence the creation of international marketing strategy of Royal Dutch Shell. According to Royal Dutch Shell (2010), Shell operates in over 90 nations, with conflicting assortment of political, legal, and fiscal constancy – this exposes the company to an extensive variety of political developments resulting changes to its corporate laws and regulations; moreover, uprising in politics, laws, and regulations greatly influence its operations and earnings. This means that the strategic decision-making of the company relating to the choice of host country is subjected to the political atmosphere of those respective countries (UBS, 2004).
On the other hand, the global operations of the Royal Dutch Shell, in many cases, expose it to social instability, terrorism, and acts of war or piracy that considerably influence the production; simultaneously social and civil unrest, both within the countries in which it operates and internationally, affects the day to day operations and income (Royal Dutch Shell, 2010). This induces the strategy makers of the company to come up with a range of strategic approaches in order to formulate numerous guiding principles that is important for the company to study before it undertakes to choose any host country (Royal Dutch Shell, 2009).
Some aspects that influence the selection of host nation includes the unfriendly business policies of the host governments, such as obligatory divestment of assets, expropriation of possessions, annulment of agreement rights, supplementary bonus taxes and further retroactive tax assertions, import and export barriers, international exchange controls, and changing set of laws regarding ecological safeguard as well as labour related legislations. In the upstream activities of the company, these barriers can prove to be additionally encroaching on land-tenure, re-writing of leases, prerogative to manufactured hydrocarbons, production rates, royalties and pricing; parts of Shell’s downstream business are subject to price controls in some nations – when such risks materialise they can affect the employees, reputation, operational performance and financial position of Shell.
In case Shell fails to conform to guidelines or legislations, it may result in regulatory investigations, lawsuits and ultimately sanctions; conversely, other credible attributes that could manipulate the business comprise conflicts in host countries, including war, acts of political or economic-terrorism and acts of piracy on the deep-seas, together with civil-unrest and local-security concerns that threaten safe-operation of the company. The annual report of the company argued that if under certain circumstances, such threats become visible; they could upshot in grievances and commotions to corporate performance that could boast a material unfavourable consequence on Shell’s functioning feats and economic stipulation, in addition to its good will (Royal Dutch Shell, 2009).
Factors Impacting the Strategy of Selection of Modes of Market Entry and International Activities
The selection of modes of market entry of Shell’s international activities has observed to be influenced by numerous factors, which for example, include intimidations from altering state of affairs in competitiveness of the global industry, threats to exporting, licensing, joint venture, direct investment, and financially unfeasible and biased decisions from overseas states. Royal Dutch Shell (2010) stated that Shell’s investment in joint ventures and allied companies might trim down its degree of control and its aptitude to recognize and administer potential hazards; many of the company’s major projects and operations has conducted in joint ventures or allied companies.
Under a number of circumstances, Shell, one of the world’s giant oil producers, seems to have a smaller amount of authority over the control of the activities, conducts, and expenditure of day to day functions in which a joint venture or allied company possess an interest (Royal Dutch Shell, 2010). Verleger (2001) argued that in addition, Shell’s collaborator companies or affiliates of a joint venture or associated business (predominantly neighbouring associates in industrialist nations) may perhaps not be capable of congregating their fiscal or erstwhile responsibilities to the proposed endeavours, consequently intimidating the practicability of a particular scheme.
Moreover, Shell has direct investments in Iran and Syria, nations against which the US government imposed sanctions; Shell could be subject to sanctions or other penalties in connection with these activities because US-laws and regulations identify certain countries like Iran and Syria as state sponsors of terrorism and consequently imposed economic-sanctions (banning some activities and transactions) against these nations. Breaking these bans can elicit penalties including criminal and civil fines and imprisonment; for Iran, US law sets a limit of $20 m in any 12-month period on certain investments deliberately made including denial of certain export licences; however, although Shell have not exceed the limit on investments in Iran in 2009, it have exceeded it in the past.
Environmental Characteristics of Royal Dutch Shell
Risks Associated With Political, Economic, And Cultural Factors In International Markets
Political unrests of a nation have a great deal of influence over the operation of all the multinational businesses. Being a giant oil producer of the world, and having operations in numerous of countries, it is quite natural for Shell to face political instabilities at its operating nations, which in turn lowers the annual revenue of the company (Royal Dutch Shell, 2009). Most recently, due to the Middle East political unrest, it has anticipated that the annual profit margin of Shell might face a dwindling condition.
The Middle East nations, most of the times tend to be the major oil producers of the world, and disruptions in Shell’s operations in those nations can prove to be adversely affecting revenues. The political crises in Tunisia, Egypt, and Libya as well as some other nations like Bahrain, Oman, and Yemen is having a huge unfavourable impact over its operations. Owing to the political violations in Libya, which is one of the largest oil producers, Shell, along with some other multinational oil producers, was forced to suspend their operation from the country.
A large number of risk factors are argued to have influence over the international market of Shell as the economic conditions are exposed to fluctuating prices of crude oil, natural gas, oil-products and chemicals; prices of oil, gas, oil products and chemicals are affected by supply and demand and increasing prices have a huge affect on Shell’s earnings and financial-conditions. Rising prices in many cases lessens the revenue for Shell’s products because lower demand for the products of the company might result in lower profitability, particularly in its downstream business (Royal Dutch Shell, 2009). On the other hand, long-lasting periods of low oil and gas charges could also result in projects being delayed or cancelled, as well as in the impairment of certain assets; in a high oil and gas price atmosphere, the company can experience prickly augmentations in costs and under some production sharing contracts its entitlement to reserves is reduced.
Due to the presence of a multicultural labour force from a range of countries, the distinctive corporate cultures of Shell are subject to risks from increased communication barriers or gaps; differences in nationalities, ethnic backgrounds, religious believes, and age creates a challenge to integrate its understanding throughout diverse restraints in groups with experiential differences and cultural diversity. According to Weijermars and Volko (2008), such cultural diversity in workforce tends to have adverse affects over the everyday functioning of the business; the principal barriers or risks that hinder efficient interpersonal communication in Shell are experiential technical gaps (interaction between junior and senior professionals) and inter-disciplinal technical gaps.
Degree of Competition Faced By Shell and Major Rivalries
Shell’s capability to attain its strategic objectives depends on its response to competitive forces; the company faces noteworthy competition in each of its business operations – while it try to differentiate its products, many of them are competing in commodity type markets. Verleger (2001) argued that if Shell does not manage its expenses adequately, its cost efficiency might deteriorate and unit costs might increase, which in turn might erode its competitive position; the company gradually needs to compete more with state-run oil and gas organisations, predominantly in seeking access to oil and gas resources.
The state-owned oil companies like the British Petroleum control immensely over greater quantities of oil and gas resources than the major publicly held oil companies; this is because the state-owned businesses boast better entrance to important resources and may be enthused by political or other factors in their business-decisions which may spoil Shell’s competitive position or admittance to enviable projects.
According to the annual report of the company, it is important to note that the global oil industry is greatly saturated by the presence of a number of Oil Corporation, like ExxonMobil, British Petroleum, Total, Chevron Corporation, and ConocoPhillips (Royal Dutch Shell, 2009). Competition in the petroleum industry has generally assessed using the conventional tools of antitrust analysis; the presumption is that markets will remain aggressive, charges will stay comparatively steady, and the application of market-power would be blocked-up if projected amalgamations has approved and only when the merged companies will not achieve extreme control; divestitures are sometimes required to meet these circumstances.
International Marketing Strategy of Shell
According to the annual report 2009 of Shell, it has business operation in more than 90 countries all over the world and its main international marketing strategy is to strengthen its position in the oil and gas sectors to offer a competitive shareholder return while assisting to meet global energy demand in a dependable way (Shell, 2009, p.22). It has mainly categorized its business in two major parts considering profitability, capital employed, and return; for instance, Upstream businesses seek to explore oil and gas segments, and Downstream businesses seek to refine oil into fuels and lubricants or produce petrochemicals.
As this company has to face strong competition to access resources, it considers advance technological support, project-delivery capacity, and operational excellence as its competitive advantages over competitors. However, the foremost strategy of this company is to invest in the improvement of key expansion projects, particularly in Upstream, therefore it invested more than 80% of its total capital employed in these projects and in 2008, capital investment for the development of property, plant and equipment was $31.70 billion. It is important to mention that joint ventures with international and national oil companies is one of the major foreign market entry strategy for Shell and maximum Upstream projects had developed by following this strategy, for example, this company signed a contract with ADNOC3 in order to extend the GASCO joint venture for further 20 years.
In addition, 50:50 joint venture between Shell and ExxonMobil to jointly control in the oil fields of Netherlands is another example of its entry strategy, however, it is committed to form a $12 billion joint venture with Cosan in Brazil due to develop production, supply chain, distribution channel, and retailing of ethanol-based transport fuels (Shell, 2009). However, there are many evidence showing that Shell mostly consider joint venture strategy to control the business operation, but it not only contracts with other national or multinational companies but also contracts with local government for convenience of both sides, which is also a subject of controversy and evidence of interest of oil companies.
For example, it has agreement with Oman government by 34% interest in Petroleum Development Oman, and it has signed an agreement with the Iraqi Ministry of Oil to create a joint venture between Shell and the South Gas Company (SGC) while SGC would hold 51% of shares, Shell controls 44% shares and Mitsubishi Corporation holds 5% of total shares. On the other hand, Royal Dutch Shell has numerous subsidiaries to control oil and gas sectors of international markets, for example, it has total 1,144 subsidiaries to control its oil fields all over the world among them it has 312 subsidiaries in EU zone, 278 subsidiaries in Asia, 284 subsidiaries in Africa, and only 30 subsidiaries in Australia.
At the same time, it has total 6,109 subsidiaries to manage the operation in global gas fields among them it has 1,938 subsidiaries in Europe, 1404 subsidiaries in Asia and 1454 subsidiaries in North America,. However, Shell has already implemented its future development plan due to save the company from the living with a dwindling supply of oil; as a result, it would like to maintain different marketing strategies for different parts of the world.
The degree of standardization
Royal Dutch Shell is committed to control the company by maintaining under strong standards of corporate governance (CG) system in order to manage the company perfectly and Shell is mainly follow Dutch regulation, the UK standards like the Companies Act 2006, and Section 1 of the 2008 Combined Code, and the US laws. As it has operation all over the world, it should practice standardization in terms of human resource management, remuneration system, implementation of strategy, corporate social responsibility, and carry on business ethically and so on. However, both the UK and US law emphasized more on the independent non-executive directors, function of accounts, importance of audit committee, code of ethics to reduce corporate fraud, and board of directors who would be accountable to their shareholders.
However, one of the major drawbacks of Shell is that it concentrates on the domestic law regarding the environmental and industrial issues but ignoring to uphold international standards in third countries, for instance, it installed the oil tanker named Brent Spar in the North Sea that has not included a proper plan and faced the problems to dispose the tanker.
Localisation of Marketing of Royal Dutch Shell
The most proficient global marking of Royal Dutch Shell keeps localisation at the top of priority to comply with the trend of globalisation and it emphasis for the localisation of both local professional and local resources of the host country including cultural localization. For instance, its operation in China was started in 1897 by shipping Kerosene, which was stopped in post world war era for not to localization, but in 2007 Chinese Medias admired it for localisation. Royal Dutch Shell evidenced pragmatic localisation by mobilising Chinese local resources like raw materials, human resources; financial service sector, reducing political constraints of investment and shared its profit with the Chinese government, communities, and climate (Krishnan, 2008).
Reference List
Bichsel, M. (2010) Royal Shell Plc North America Investor Visit. Web.
Krishnan, R. (2008) ‘GLOCAL’ Mission, Resources & Locus in Organizational Strategy. Web.
Royal Dutch Shell (2009) Annual Report 2009 of Royal Dutch Shell. Web.
Royal Dutch Shell (2010) Royal Dutch Shell Plc Strategy Update 2010. Web.
Royal Dutch Shell (2010) Royal Dutch Shell Plc Strategy Update: Media Presentation. Web.
Royal Dutch Shell (2010) Royal Dutch Shell plc updates on strategy to improve performance and grow. Web.
UBS (2004) UBS Investment Research: Global Oil & Gas. Web.
Verleger, P. (2001) Competition in the Petroleum Industry: The Situation in 2001. Web.
Weijermars, R. & Volko, D. (2008) Closing Communication Gaps Can Improve the Success of Oil & Gas Ventures. Web.
Footnotes
- Shell Transport and Trading Company Plc.
- Royal Dutch Petroleum Company.
- Abu Dhabi National Oil Company.