Case Summary
The case study illustrates the circumstances in which Talisman Energy Inc., the Canadian gas corporation, has expanded. Namely, the organization had planned and succeeded in exploring the gas reserves of Kurdistan and investing in oil blocks in the region. The organization has operated under similar circumstances in Sudan years prior and has faced backlash. Namely, the corporation was accused of fueling civil wars, human rights violations, and internal conflicts through financial means. Nonetheless, the corporation plans to $200 million to the Kurdistan Regional government to be able to operate locally for gas exploration and extraction (Richard Ivey School of Business, 2009). The aim is to obtain profit while avoiding the Sudan scenario and adhering to such values as human rights and minimization of corruption.
Problem statement
The core problem is employing a strategy allowing for the political climate of Iraq to not interfere with the business process. Moreover, the corporation deals with the barrier of ensuring the finances paid to the regional government are not linked to warfare. Thus, the problem is deciding whether Iraq is a market in which the company can strive without going against human rights and similar corporate ethics.
Analysis 600
In order for the situation to be understood, it is important to provide a background. Iraq has been a favorable market for oil and gas companies after Saddam Hussein’s death and the installment of a US-backed government. The company became interested in one region in specific, namely, Kurdistan. Kurdistan has certain autonomy, which leads to the establishment of local authority institutions. In the early 2000s, Kurdistan signed more than 60 production contracts with various oil companies as the area is rich in natural resources (Salih & Abdulaziz, 2020). Nonetheless, the perspective of maximizing profit for the shareholders may be diminished due to the multiple challenges correlating with the situation.
On the one hand, Iraq was and remained a country with an unstable political system. According to researchers, operating in a democratic country correlates with economic success (Knutsen, 2021). It is certain that circumstances such as an unbiased judicial system, an adequate approach to human rights, and business legislation protecting market entities are elements that facilitate long-term success. Globalization and the aim to have international coverage have generated corporate aims to expand into territories in which market relations are not stable enough. An example is Talisman’s native country of operations, Canada, versus the country in which the corporation is expanding, Iraq. As a democratic country, Canada offers a safe background for organizations in regard to protection, growth, and development. Iraq, on the other hand, has experiences turmoil in relation to its political system, illustrating potential problems for businesses.
Another issue is the legal standing of the Kurdistan region. While the area has an authority system, there are no exact territorial limitations and full autonomy, which creates issues both from a political and financial standpoint. On the one hand, no clear territorial limits are installed, making it difficult for Talisman to operate within the borders of Kurdistan (Richard Ivey School of Business, 2009). From a financial standpoint, as Kurdistan remains an area within Iraq, it is uncertain how the funds will be distributed. Moreover, if the distribution takes place, it is unknown whether the economic implications of Talisman will not assist in military funding.
Last but not least, human rights violations and civil conflicts directly correlate with government funding. Namely, one of the reasons why certain organizations and the public find the decision to enter Iraq to be unacceptable is the fact that the money Talisman pays the state may be spent on unlawful activities (Richard Ivey School of Business, 2009). The organization is interested in directly assessing the sources to which the finances go. However, it is a barrier as such circumstances may not be adequately portrayed by the state authorities or ineffectively operated by Talisman itself.
Discussion of Alternatives
Two alternatives to building oil blocks in the Kurdistan area of Iraq include operating on different markets and signing a legal document in which the state allows the company to decide on the public area in which the funds will be allocated. Operating in countries in which the political system relies on democracy is a safer option for businesses (Knutsen, 2021). Moreover, the variant implies a less risky market operation. Democratic countries facilitate regulations that protect employers and employees as well as smooth operations. This, in turn, minimizes potential corruption that often accompanies corporations expanding into countries in which the political systems are authoritarian or unstable. Thus, considering other regions rich in natural resources yet with a more rigid approach to such aspects as human rights can be an excellent alternative. As a result, Talisman can safely practice the current values installed within the organizational culture, such as civil protection. On the other hand, the decision can become a major economic burden on the organization.
As mentioned prior, the second alternative is to establish boundaries concerning the funds. Currently, the company is to pay $200 million to the Kurdistan Regional Government to access natural resources (Richard Ivey School of Business, 2009). The sum of money is allocated to the local authority institution, yet it is unknown whether a percentage of the sum will eventually be proclaimed by the state government. Thus, an act can be signed that Talisman funds are being adequately managed. For example, the finances are to only be attributed to public education, the medical sector, or social services. The decision, however, can lead to regional and state authorities denying Talisman the possibility to explore options locally.
Recommendation
The recommendation is to continue to operate in the Iraq market yet prepare an act regarding the funding and the channels through which the budget will be allocated. The national culture may become a conflict of interest when it comes to such decisions. However, funding public services such as education, medicine, infrastructure, and public transportation is an effective way for the corporation to have an excellent reputation while creating profit. Moreover, the economic environment creates circumstances in which the oil industry is one of the primary sectors, facilitating a positive relationship between the government and potential investors. Talisman can establish a significant market share and earn financial success as the demand for oil in 2008 was approximately 87 million barrels daily, and each barrel was $130 (Richard Ivey School of Business, 2009). The costs of exploration processes and oil block building would not outweigh the benefits of sourcing natural gas from an area rich in said resource. Thus, operating in this market yet having a set agenda in regards to the finances allocated to the government is both profitable and ethical.
References
Knutsen, C. H. (2021). A business case for democracy: Regime type, growth, and growth volatility. Democratization, 28(8), 1505–1524.
Richard Ivey School of Business. (2009). Talisman Energy Inc.: The decision to enter Iraq. Ivey Management Services.
Salih, R. S., & Abdulaziz, P. D. (2020). Reforms feasibility in Kurdistan Region Petroleum Contracts, triggered by the new regional blocks divisions. International Journal of Business and Social Science, 11(5).