Royal Dutch Shell: Multinational Organization - Case Study Example

Multinational Organization Report Name Name of Institution Multinational Organization Report Introduction International management defines the practice of managing organizations that function across national borders. Professionals in this sector should be conversant with economic, cultural, and political environments as well as the business practices in the various countries of operation. This report will analyze Royal Dutch Shell, a multinational firm that operates in the global gas and oil industry. The report will offer a brief profile of the organization as well as the products that the firm deals in. This will be followed by an evaluation of the firm’s entry strategies in different countries and the firm’s strengths and weaknesses that are related to global operations. The report will conclude with a comparison of promotional strategies that Shell has adopted in different countries and a set of recommendations for the firm’s international operations. Brief Profile of the Organization Shell is a global organization that is composed of companies working in the petrochemical and energy sector, and it operates in over 70 countries with a total of 94,000 employees. The firm has a long history that begins with a small shop that sold antiques. The business expanded into the international market and sold British textiles, tools and machinery in the late 1800s. The managers of the business recognized the immense potential in oil, and they commissioned a fleet of ships to transport oil. The firm achieved success and later merged with Royal Dutch to form the present Royal Dutch Shell in 1907 (Our History 2015). By the 1920s, the combined company became the leader in the oil industry, but it faced significant challenges during the depression and the Second World War. The increased demand for oil after the cessation of the war allowed the firm to grow, and it was fully internationalized in the 1960s where local people would oversee operations in their respective countries (Our History 2015). The company has remained successful to the present owing to the adoption of policies such as diversification, raising its environmental standards, acquisitions, embracing technology, and expansion into emerging markets. Products and Services Royal Dutch Shell offers a wide variety of products and services. The firm is involved in the exploration, extraction, production, and refining of petroleum products. These activities take place across the world owing to the spread of oil resources and consumers. Shell is also involved in the service industry through chains of service stations and the offering of card services to consumers. The firm also conducts a substantial amount of trade with other businesses. Examples include the sale of products like bitumen and chemicals for the world’s leading companies. The firm has also expanded into the liquefied petroleum gas sector, an area that holds considerable promise for the future of clean energy (Products and Services 2015). Market Entry Strategies Royal Dutch Shell has faced the need to expand into new markets on a consistent basis. The need to enter new markets has been driven by political, social, and economic factors. In all these cases, the company has had six different options for entering new markets. These include turnkey projects, exporting, franchising, licensing, joint ventures, and wholly owned subsidiaries. In the case of Royal Dutch Shell, evidence points towards the common usage of three of these modes of entry. Developing wholly owned subsidiaries is an entry strategy that has been adopted by Shell to power its internationalization. These subsidiaries can be developed by setting up new operations or acquiring fully established firms (Aswathappa 2010, p. 29). Shell Australia is an example of a fully owned subsidiary that has operations that span the breadth of the parent company’s products. It is evident that the subsidiary is located in a strategic location as it can serve the Asian, Australian, and New Zealand Markets. This is an example of a subsidiary that was developed from the ground up. Shell’s recent announcement that it would acquire the British multinational BG Group illustrates that the company can also enter new markets by acquiring established firms. According to Drillinginfo (2015), Shell is expected to benefit from getting huge oil reserves in Brazil and getting access to a lucrative liquefied natural gas market that is expected to emerge in China. The acquisition also gives Shell a significant stake in the China National Offshore Oil Corporation, a business that expects to be the first to create LNG from coal (Drillinginfo 2015). Shell also uses Licensing to serve some markets. In this case, Shell receives a royalty fee and allows the licensee to use its brand image and sell its products for a set duration. Licensing is a strategy that Shell has used to serve the African Market. Vivo Energy is an organization that has been granted the right to offer Royal Dutch Shell products and services to 16 countries on the African continent (Vivo Energy 2015). As stated, international managers have to consider cultural, political, and economic factors when seeking to enter new markets. There are instances where a firm can increase chances of success through partnering with other firms that already have experience in the new market. Such an arrangement is described as a joint venture where a foreign and local firm have joint ownership of a business. Shell has employed joint ventures in its entry into a number of markets. One example is the Shell Petroleum Development Company of Nigeria, which is a joint venture between Shell and the Nigerian National Petroleum Company (NNPC Group 2015). Royal Dutch Shell is also involved in a joint venture with the Brazilian firm Cosan, the foremost producer of ethanol in the country (Shell and Cosan 2011). In both cases, the joint ventures allow Shell to have access to products that it requires to maintain its position in the global oil and gas industry. Strengths and Weaknesses Related to Global Business Activities One of Shell’s foremost strengths comes from its long history. The business has been in existence for over a century, and it has developed a significant presence across the globe. This has ensured that its brand name is associated with some of the best petroleum and chemical products. The firm has also experienced significant financial growth over its history that gives it the power to survive periods like the 2008 financial crisis. An additional benefit of the financial position can be seen in the current market where oil prices are at low levels. While other firms in the oil sector are struggling with reduced revenue, Shell is strengthening its position by acquiring BG Group (Drillinginfo 2015). This is a strategic decision as the acquisition allows the firm to diversify and withstand future scenarios where the price of oil gets to low levels. Another strength that is related to global business is the firm’s use of technology. The business has always been an innovator, but it has leveraged the technological advancements of the past decade to position itself as a company that can respond to changes with ease. For instance, the firm led the way in the use of scenarios, a planning tool that evaluates future scenarios to guide decision-making should those scenarios occur. When it comes to weaknesses, the organization’s focus on the oil and gas industry means that it will continue to spend considerable amounts on exploration. Oil and gas are resources that can be depleted, and emerging countries like China, India, and Brazil will increase the pace at which these resources are exhausted. These factors indicate that Shell is stuck in an industry that will eventually spend massive resources with minimal returns. Another weakness arises from the countries in which Shell operates. Many of these countries are politically volatile with examples being the Middle Eastern countries and Nigeria in Africa. These political unrests can compromise supply chains and add unnecessary costs. An additional weakness is the increased emphasis on environmental protection where the firm has to meet stringent rules that vary from country to country. Moreover, consumers are changing their habits in a bid to reduce costs and protect the environment, meaning that Shell has to be innovative to survive. Comparative International Promotional Strategies A company that seeks to promote its product in the international market should seek to know as much as possible about the consumers. In the case of Shell, it markets its products in most countries in the globe. As such, the firm has to understand the different cultures in different regions of the world in order to craft promotional strategies that can be successful. An evaluation of the firm’s international promotional strategies shows that it comprehends different cultures. It can be argued that this understanding comes from the firm’s decision in the 1960s to ensure that locals take up the most senior positions in different countries (Our History 2015). For instance, Shell has had a long running partnership with Ferrari. This sponsorship has given Shell an edge in the UK market owing to the large number of motorsport fans. This understanding of the UK culture has seen Shell offer promotions where consumers win Ferrari models and limited edition Lego playsets. The Canadian segment uses sales promotion as the primary promotional tool where customers get redeemable Air Miles that can be converted to fuel or other products. When it comes to the developing world, the firm has adopted informative advertising through traditional media like radio and television. The use of different strategies in different countries illustrates that Shell evaluates local cultures when developing promotional strategies. Recommendations/Conclusion In conclusion, this report has shown that Royal Dutch Shell is a leading multinational firm in the oil and gas industry. The firm has a rich history, and it has achieved tremendous success despite facing numerous challenges. The firm has a diversified portfolio that spans traditional oil and gas products, chemicals, and even card businesses. The firm’s internationalization has relied on three key modes of entry which are wholly owned subsidiaries, joint ventures and licensing. An evaluation of strengths and weaknesses has shown that strengths outweigh weaknesses. Additionally, the firm utilizes different promotional strategies as a result of the accumulation of knowledge about local cultures. It is recommended that Shell should progressively reduce reliance on oil as the world is increasingly looking towards cleaner sources of energy. The firm should also make further acquisitions in the emerging nations as they are expected to hold a bigger share of the world’s total economic output. Finally, the impacts of the Gulf of Mexico spill on BP shows that firms operating in the oil and gas sectors have to ensure that they take sufficient measures to protect the environment. References About Vivo Energy 2014. Vivo Energy. Available from http://www.vivoenergy.com/en-gb/about.aspx Aswathappa K 2010. International Business, 4TH Edition. Tata McGraw-Hill Drillinginfo 2015. The Shell Game: Is China's Smog Problem the Hidden Ball? Forbes. Available from http://www.forbes.com/sites/drillinginfo/2015/04/20/the-shell-game-is-chinas-smog-problem-the-hidden-ball/ NNPC Group 2015. Joint Venture Operations. Available from http://www.nnpcgroup.com/nnpcbusiness/upstreamventures.aspx Our History 2015. Shell. Available from http://www.shell.com/global/aboutshell/who-we-are/our-history/the-beginnings.html Products & Services 2015. Shell. Available from http://www.shell.com/global/products-services.html Shell and Cosan: fuelling a lower-carbon future with biofuels 2011, Shell. Available from http://www.shell.com/global/aboutshell/media/news-and-media-releases/2011/shell-cosan-raizen-biofuels-02062011.html Read More