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Strategic Analysis BP In Russia

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Question:

Discuss about the Strategic Analysis BP in Russia.

 

Answer:

Introduction

The case study “BP in Russia” goes into a large world of energy organizations and forms joint ventures. This case study includes the discussion about the partnership of BP with different organizations, like; Rosneft and Alpha Access. When BP is operating its business in Russia, then there are some strategic aspects that need to be considered. This report will state the strategic analysis by looking at the functions and operations of BP in Russia. It will also reflect failure of joint venture with different organizations and BP-TNK and evaluate the factors, which are the major reasons behind this failure. The report will also look at the BP-Rosneft partnership to determine if the earlier issues have been improved in this new partnership. The report is prepared based on the case study named as “BP in Russia”. It includes and compares the strategic analysis of the organization by conducting various analyses. Furthermore, this report includes the industry and company analysis by evaluating its resources and capabilities. It includes corporate strategy and leadership of BP in Russia. At the end, it will discuss the future position of the organization in Russia.

Company description

British Petroleum (BP) is one of the largest petroleum products manufacturing organizations in the world. It is headquartered in London. The organization operates its business from six continents and offers the products in more than 80 countries. BP is one of the major organizations in oil and gas sector that offers customers with the fuel for transportation and energy. Previously, the organization has confronted the environmental issues in its business operations. BP has recovered all the negative influences through an emphasis and continuous efforts to sustainable developments. The organization is operating its business in several parts of world, where it is facing some challenges related to cultural differences, climate conditions, difficult territories etc. The company is trying to develop a systematic approach in its business operations to minimize the impact of environmental issues (BP Global, 2017). The company is expanding its business in Russia though partnership with different organizations, such as; Rosneft, TNK, Alpha Access etc.

 

Industry Analysis

For analyzing an industry, Porter’s five forces is one of the best tools to find out the competition and trends in that industry. Following is the porter’s five forces analysis of BP in Russia.

Porter’s five forces Analysis

Threat of new entrants

In this country, threat from new entrants was decreased through first-mover benefit by the partnership of TNK-BP. However, the partnership between Lukoil and ConocoPhillips JV provided globalization to this joint venture; it is different from TNK-BP. Merger and acquisition can take the organization to serve the current market of the country (Belton, 2012).

Bargaining Power of Buyers

In Russia, bargaining power of buyers is restricted due to inflexible demand in oil industry. In this nation, switching costs are not higher. In oil and gas market, customers buy a large amount of products and services. Suppliers of products are copious because oil and gas products are identical and undifferentiated.

Threat of Substitutes

For BP, the threat of substitute was low for a short time. TNK-BP is controlling and governing a large proportion of reserves and down-direction business operations. However, this situation can alter in the long term (Bian, Li and Guo, 2016). The substitutes are not freely available in the Russian industry, because the crude oil cannot be substituted by any other product. It is not only the fuel but it works as raw material also for petrochemical sectors.

Bargaining Power of suppliers

Bargaining power of suppliers was a key risk for the joint venture. The requirement to recruit a knowledgeable and skillful team and utilization of natural resources is important to the business. Though, it is negotiated by the abilities of workforce to leave as they walked out in the year 2008. In addition, the access to pipework network can be eliminated and it poses threat to the business operations of BP (Bildirici & Bakirtas, 2014).

Industry Rivalry

Industry rivalry is considered as a strongest force in most of the industries. In Russia, ensuing privatization of many state owned organizations developed an oligopoly of approximate 12 integrated organizations. Competition is moderate in the industry, as there are some players, such as; Tatneft, Lukoil, Gazprom etc. This is because of less development in technology and created little challenge to TNK-BP. There are some organizations, where low costs are posing a significant threat (Galkna, 2015).

 

Competitive analysis

However, BP did not have many competitors, but the major competitors were like; Lukoil, Tatneft and Surgutneftegas.

Lukoil is ranked as the second biggest oil and gas producer in the country. With Russia, it operates its business in other nations in Africa, Europe and Middle East. The organization is focusing on improving the facilities and refineries. Its operations include 6 refineries in Russia and five others in Europe New Zealand (The Moscow Times, 2012).

Surgutneftegas comes after Gazprom in producing the crude oil. This company operates its operations in domestic market. The company also runs a gas processing plant and refinery and operates power business also.

Tatneft produced more than 193 million barrels of oil in the year 2014. The organizations produce the products in Russia only. Now, global projects are under development.  These are the major players, which posed threats to BP in Russia (Ho, 2014).

Macro-environmental Factors

Macro-environmental analysis includes different factors, like political, economic, social, technological and legal, which have impact on the growth of the company in the country.

Political factors

The political system of Russia is very complex and difficult. This system is considered by the weak institutions and political choice. In this country, the extent of favor with Kremlin may have considerable impact on growth and success of organizational business (Landrum et al, 2014). In case of TNK-BP, this joint venture was used to resolve this issue. Though, as Russian authority governs a large extent of market recognition of JV by regulating body is needed. Russia was ranked 149th internationally for the prevention of corruption with the political pressure considerably affecting the rule of law.

Economic Factors

Russia linked with WTO in the year 2012 that safeguards the independence of global trade. This nation was defined to offer the right backdrop for the investment because of the development in the economy. The organization has managed higher level of development of around 7 percent during 2000s till financial crisis. The oil prices during the joint venture increased quickly from $20 per barrel to $ 130 barrel by the 2008. This threat of future price uncertainty is a major risk to BP in Russia.

Social Factors

In Russia, Mostly Males operate the oil and gas organizations and it is rarely seen that females are involved on top management positions and board of organizations. This nation also prevents the females from doing physically labor intensive work. These types of controls can be proven outdated for Western companies (The Moscow Times, 2012). This can affect the strategies of BP in the country.

Technological Factors

By considering the improvements in oil and gas sector, Russia had made the advancement in technologies, which can lead to increased level of oil. Usage of better technologies improved the operational efficiency and it enabled the production from oil wells that were considered to be useless. This development in technology will help BP in maximize the return via maximization of reserves in oil and gas fields (Bildirici & Bakirtas, 2014).

 

Legal Factors

The parliament in Russia has passed a law, which restricted FDI (Foreign Direct Investment) to prevent the most of the shareholdings on particular oil fields. BP has faced the license issues in 2006. In that situation, the license was provided to Gazprom Company. Tax policy in Russia is economically ineffective with oil and gas manufacturers, who need more investment in technology unreasonably paying taxes with higher rates (Barney, 2014). In this country, BP has to consider the tax implications at the time of implementation of operational strategy, so it will not be penalized as a foreign investor.

Company Analysis

Resources

Physical Resources

In this country, BP had approach to several production facilities and natural resources with 9.1 billion barrels of oil. Access to these resources developed a solid competitive advantage for BP in future. TNK-BP possesses manufacturing licenses for three major fields, which are producing 75 million tons of crude oil in the year 2011. In addition, the business operations began to exploit the gas reserves in the year 2005, which made it able to diversified utilization of resources. It was identified as a key goal in the strategic refresh in the year 2011 and emphasized that the business was dealing with the changing atmosphere (Hill, Jones & Schilling, 2014).

Human Resources

Human resources of an organization include the knowledge and skills of its employees. BP had employed more than 50000 people in its operations. In Russia, BP stationed approximately 300 staff, showing an obvious distinction between joint venture and BP group. TNK-BP group made investment in development of employees with a training and development program for a five year duration. The utilization of training is a major strategic technique that is generally used to gain the competitive advantage of human resources of organization (Morschett et al, 2015). However, BP has been alleged of biasness towards the western staff for the top positions. Russian leaders were restricted to the positions, which specially needed local knowledge.

Capabilities

Financial capabilities

The financial performance of BP was become stronger through partnership, with only a slight disturbance that is caused by international financial crisis. The organization was named as cash cow and generated better investment return of all major organizations in this country. Furthermore, the company had a capability to generate the cash flow per barrel that is 38% more than average of sector. Approximately 90 percent of the organizations in oil and gas sector in Russia forecasted capital needs to have growth in competitive environment. The joint venture did not need such financial restrictions enabling BP to grow and strengthen competitive advantage.  

Ethics

In this country, BP aimed to develop a socially accountable business and invested $180 million in domestic communities in the year 2006 (Ho, 2014). The company believes that ethical business functions can enhance the efficiency of business and gain the advantage over its competitors. In Russia, The Gulf of Mexico spill stained the BP to tune of approximately $ 1 billion and it generated questions on company’s technological capabilities.

Corporate and business level strategy

The corporate and business strategies are similar at BP. The business level strategy of BP was dependent on the strategy of the organization, which is chosen on the basis of strategic positioning to attain competitive advantage. In the partnerships, the company focused on some key areas, like; maximization of human assets and consideration of gas assets. One of the major factors of their business strategy is to gain the competitive advantage, which comes from different resources. The joint venture will have access to the sophisticated people, natural resources and advanced technology. The strategy of the company focused to exploit their major capabilities and competencies of advanced technologies to get success in Russia (Ho, 2014).

 

Leadership

In expanding the business in Russia, there are some indicators of strategic leadership for BP. After the partnership of TNK-BP, there was a systematic leadership structure within the organization. It hired the people from Russia on top leadership positions (Motomura, 2014). On the top positions, the managers and leaders are appointed from both the organizations. They leaded the organization successfully. Thus, there are some good indicators of strategic leadership.

Leadership Structure of TNK-BP

Conclusion - Future of BP

Thus, it can be concluded that BP is having some advantages and disadvantages of creating partnerships with different organizations. In the future, the organization may face the political risks and internal cultural differences. There may be some management issues that can create difficulties in operating the business in Russia. In this country, BP should make sure that cultural clashes do not happen between two organizations. The partnerships in Russia will enable the company in reaching to the resources in country and Rosneft will have advantage form the core competencies of BP. If BP wants to continue its operations in the Russian oil and gas industry, than it should implement some effective strategies. It should maximize the utilization of technical experts to recover the oil reserves. Moreover, it should manage the political risk in Russia.

 

References

Barney, J.B., 2014. Gaining and sustaining competitive advantage. Pearson Higher Ed.
 
Belton, C, 2012, Moscow to bring charges against TNK-BP. Financial Times.

Bildirici, M.E. and Bakirtas, T., 2014. The relationship among oil, natural gas and coal consumption and economic growth in BRICTS (Brazil, Russian, India, China, Turkey and South Africa) countries. Energy, 65, pp.134-144.

Bian, J., Li, K.W. and Guo, X., 2016. A strategic analysis of incorporating CSR into managerial incentive design. Transportation Research Part E: Logistics and Transportation Review, 86, pp.83-93.

BP Global, 2017, British Petroleum, retrieved from https://www.bp.com/.

Fleisher, C. S., & Bensoussan, B. E, 2015, Business and competitive analysis: effective application of new and classic methods. FT Press.

Galkna, A, 2015, Analysis-BP’s Russia Problem, Retrieved from https://energydesk.greenpeace.org/2015/06/16/analysis-bps-russia-problem/.

Hill, C. W., Jones, G. R., & Schilling, M. A, 2014, Strategic management: theory: an integrated approach. Cengage Learning.

Ho, J. K. K, 2014, Formulation of a systemic PEST analysis for strategic analysis. European academic research, 2(5), 6478-6492.

Landrum, N. E., Gardner, C., & Boje, D. M, 2014, An integral foundation for international strategic management. Humanistic Perspectives on International Business and Management, 120-133.

Morschett, D., Schramm-Klein, H., & Zentes, J, 2015, Strategic international management. Springer.

Motomura, M., 2014. Japan’s need for Russian oil and gas: A shift in energy flows to the Far East. Energy Policy, 74, pp.68-79.

Zott, C., & Amit, R, 2013, The business model: A theoretically anchored robust construct for strategic analysis. Strategic Organization, 11(4), 403-411.

The Moscow Times, 2012, TNK-BP Picks BP Competitor, retrieved from https://themoscowtimes.com/articles/tnk-bp-picks-bp-competitor-14182

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