Introduction
The running of any company has to be done with full appreciation of its environment and how it impacts on its operations. The best way in understanding our business environment is differentiating the factors that happen to be in our direct control and those that the company in its individual capacity has no control over and thus it’s mandated to respond to them only. In doing so, the factors of business environment have been broadly categorized into two.
- Internal environment
- External environment
How these factors affect a given company depends on many factors such as the geographic location, size of company, management of the company, industry of the company among many others. In this paper, we indulge in extensively and critically analyzing the business environment of the Shell Transport and Trading Company. It is therefore my objective that by the end of this paper, we shall be able to identify how the environment has contributed in shaping how the Shell Transport and Trading Company operates and the making of policies.
As one of the largest companies in the world, it would not serve the company justice delving into its functioning in its environment without having a look at its historical background. (Baron, 2004).
Company history
Shell Transport and Trading Company popularly known as “Shell” , is a household name in areas regarding petroleum worldwide. Unknown to many, the company in only part of the larger Shell Group. The Shell Group otherwise known as the Shell Royal Dutch has a complex corporate organization which consists of more than 2,000 companies worldwide ultimately controlled by two parent companies; The “Shell” Transport and Trading Company, a U.K.-registered company and Royal Dutch Petroleum Company, a Netherlands company. The former has 40% stake in the larger company with the former owning the rest, 60%. As a group, the company is generally involved in drilling and exploration of oil and natural gas plus the trading of the resultant products. Growth in the company has seen it diversify its operations to include chemical manufacturing, coal and metal mining and biotechnology.
The merger of the two companies took place in 1907 though they both opted to retain their independent identities.
Shell Transport and Trading Company was registered in 1897 by two brothers. The company had been in operation earlier though under a different name. Initially, the company was involved in trading in Russian oil only to the Middle East. With the discovery of larger oil fields in Netherlands, the company shifted base. Poor running of business necessitated a merger with the Royal Dutch headed by one Deterding in order to remain afloat in the highly competitive market. This was in 1906. The highly entrepreneurial Deterding remained as the overall leader of the group.
The group remains the most highly decentralized enterprise in the world’s oil industry. The almost complete autonomy vested in its nationally based, integrated operating companies gives strategic flexibility. In this paper we critically analyze the success of this company in the face of increasing business challenges and especially so given that the petroleum based industry is faced with the threat of environmental conservation.
External environment
These are factors that exist outside the business hence the name external factors or influences. These will affect the main internal functions of the business and possibly the objectives of the business and its strategies. Many factors that influence the running and the making of decisions that exist outside the business are many and thus cannot be exhaustibly discussed. In this paper thus we only restrict ourselves to the main factors that have the greatest impact on the running of our company at hand.
Some of these factors are unique to the Shell Transport and Trading Company while others happen to face the industry in general.
In addressing the impact and influence of external factors in any given company, business analysts advise us to conduct a PEST Analysis which looks into political, environmental, socio-cultural and technological factors. These are the factors that the company is predisposed to. In simpler terms the company has no direct control over such factors only that it has to adopt measures and strategies correspond or cushion it to them.
PEST Analysis Test
Political factors
Though the company has its main operations in Europe, much of the crude oil used in the production of gasoline and other oil byproducts is sourced from outside Europe and more so in Africa and the Middle East. At times the political environment in Africa has not been conducive for business due to recurrent civil wars. Unfortunately petroleum is the main fuel fanning the unending wars where the Group has laid down much of its investment.
The best example in this case would be Nigeria. Though the governments of such countries benefit significantly through rights and loyalties, they have not been keen in protecting their resources and the foreign investors some with a bias against foreign investments. In Nigeria for instance, Shell Group workers in particular continue to face hostilities from local rebels who target foreign workers in the oil fields
Economic factors
Economics and more so economics of scale is nothing new to the company. It runs back in the company’s history having been the one that necessitated a merger with Royal Dutch. This was in reaction to the ever increasing competition. For Shell, competition starts right from the time of acquiring oil and gas exploration fields from such companies such as Exxon Mobil, British Petroleum, and Esso among a galaxy of other players. Competition in this category may involve technology or price wars. This is determined by the company’s position in the market as the price setter or price follower. At Shell, the company has some level of both attributes in that it can be a price setter or price follower depending in which market the price battle is taking place. (Hartley, 2005)
Given the multinational nature of this company some government’s economic policy is a very thorny issue in the management of the company as they do not comply with the objectives of the company.
Social-cultural factors
The industry in which Shell Transport and Trading Company operates in calls for diversification of the market not necessarily the raw material market but also the product market. It therefore goes without saying that the company has to accommodate the diverse socio-cultural factors cutting across all the markets for relevance in the market. It is also in this area that the company has to meet stringent rules on environmental conservation as the world seems to realize the benefits of going green. Is there room for Shell to go green? There is very little that the company can do. Gasoline, petrochemicals and coal, the mainstay of shell are all considered to be enemies of the environment. In efforts to reduce the environmental impact the company is faced with higher costs of production
Governments are therefore coming up with very harsh rules and penalties for defaulters of such regulations put in place.
SWOT Analysis Test
To capture how the internal and external environment influences Shell, we conduct a SWOT analysis test. SWOT is an abbreviation for strengths, weaknesses, opportunities and threats.
The test captures both the internal and external environment. Strengths and weaknesses make up Shell’s internal environment while opportunities and threats make up the external environment factors.
Opportunities
AS per the saying of the Group’s CEO, van der Veer, in a recent interview with Observer Newspaper, he says that the company is on the right path in directing its innovative effort in harnessing more solar energy as the future for petroleum energy is not certain given that it is a non-renewable source of energy. Other opportunities that the company has explored are the exploration of oil in developing countries due to the hostilities in the Middle East that interrupt production.
Threats
The petroleum industry is faced with competition from alternate sources of energy which are considerably cheaper and more environmental friendly. Though the company has embraced the change by producing solar energy for commercial purposes, this is not reflected by the sales made in that sector. Much of the company continues to be engrossed in dealing with petroleum and its products. It therefore shows that if the trend that we are witnessing currently of shunning harmful petroleum fuels is to continue, then the companies in this industry are posed to face a fall in their sales level.
Another challenge to the petroleum fuel is the use of electric vehicles and the use of radioactive sources of power.
Terrorism is a threat to the world at large and more so to the petroleum based companies. This is so as most of the terrorist groupings are based in the oil exporting countries especially the Middle East. It therefore goes without saying that by basing its activities in such countries, Shell is disposed to the machinations of such terrorists who obtain much of their funding thorough illegal taxations and paying of loyalties.
Internal environment
Internal business environment in this context refers to the company itself. In looking at the internal business environment, we focus on the factors that the company has direct influence on them.
Strengths
The type of strength the company has may vary from marketing, brand, product positioning name to the organization of the company itself. For consistency we are going to look at the strengths in general.
Strengths are aspects that make the company stronger and unique from their competitors. The most notable strength in the running of Shell is how the management is organized. As an international company with many branches in the world operating as independent entities, the general outlook and vision of the company has to be maintained and forged despite the different environments.
Categorizing its wide spectrum of industries allows specialization and streamlining of operations. There are five categories in shell: Exploration and Production, Gas & Power, Oil Products, Chemicals, and Other. The Exploration and Production segment explore and produces crude oil and natural gas; and builds and operates the infrastructure needed to deliver hydrocarbons to market. The company’s Gas & Power segment liquefies and transports natural gas; develops gas markets and infrastructure; develops gas-fired power plants; engages in the marketing and trading of natural gas and electricity; and converts natural gas to liquids to provide clean fuels. (Worthington, 2006). Its Oil Products segment markets transportation fuels, lubricants and specialty products; refines, supplies, trades, and ships crude oil and petroleum products; and provides technical consultancy services. The company’s chemicals segment produces and sells petrochemicals, including polyolefin to industrial customers globally. The other industries category is a bit more diversified as it consists of Shell Hydrogen and a ray of environmental conservation initiatives and foundations. Such differentiation in operations helps in specialization as each category is headed by its own managing director who directly reports to the Group Chief Executive, at the moment Mr. J. van der Veer.
Operation through strong subsidiaries. One of the greatest threats to international companies is the lack of loyalty and patriotism to products citizens of the foreign country. Shell Company has successfully circumvented this problem by ensuring that the different subsidiaries in over a dozen countries operate with some considerable level of autonomy thereby creating a belief that the different subsidiaries are local companies in the host countries. As a result, product and company loyalty is maintained in countries where if the situation was contrary would have been lost. One of the best examples was the Shell Oil Company of the USA was believed to American by the locals. However this is not the case as the Americans only own 30% of the American Subsidiary with the rest owned by the parent company. Other principal subsidiaries are Shell UK; Shell Tankers (U.K.); Shell Chemicals (U.K.); Billiton UK; Shell Research (U.K.); Deutsche Shell (Germany); Shell Tankers (Netherlands); Shell Nederland Chemie (Netherlands); Shell Research (Netherlands); Shell South Africa; Shell and BP South African Refineries; Shell Kosan (Japan); Showa Shell Sekiyu (Japan); Satah Shell (Malaysia); Sarawak Shell (Malaysia); Shell Eastern Petroleum (Singapore); Shell Singapore; Shell Australia; Shell New Zealand; Shell Canada.
Shell Group with along history has a strong brand name realized through strong product consistence and innovation in the right direction. Its innovation engine saw the company be among the initiators of unleaded fuel which was a constant hit in the market.
Weaknesses
Factors with a negative effect on the company are considered as threats. There is no company that lacks threats. At Shell, some of the most identifiable threats are as follows;
Lack of specialization on part of the company due to the large portfolio of the companies makes it vulnerable to mismanagement and lack of appropriation. Running of many subsidiaries may put a strain on part of the company’s management. This put together with the high of number of staff amounting to over 137,000 means that harmonization of operations may face a threat in remaining relevant and competent.
Continuous involvement of the company in trading with perceived terrorist countries is one of the weaknesses the company would like to erase from their books but is not possible due to the nature of the business. It happens that many of those countries exporting oil are Arabic where terrorism is rampant. It therefore means that Shell together with her subsidiaries are experiencing terrorism activities more so their staff though this is at many times kept away from the sharp eye of the media to avoid creating a panic.
Shell has in the last three years been making headlines for all the bad reasons. This is hurting the company’s image. Accusations range fro compensation by workers to making wrong deceptive financial statements.
Conclusion
The present direction by technology points that everything is being done to avert the over-reliance on oil and its products as the main source of energy. How the affected companies are responding to this is encouraging. Shell was among the first companies to introduce unleaded fuels as a means of reducing the harmful products disposal into the environment after combustion in vehicles and other engines that us fossil fuel. I believe that amid the turbulent waters facing the industry, Shell shall remain a name to reckon with for along time if the strengths in diversification of its operations are to be maintained.
REFERENCES
Baron, P. (2004). Business and its environment 5th Ed. New York: Prentice Hall, pp 26-34.
Hartley, B. et al (2005). The Business Environment, New York; McGraw Hill, pp 34-67.
Worthington, I. (2006). Business Environment, London: Prentice Hall, pp 56-87.