Doing Business Globally and Internationally - Essay Example

Doing Business Globally and Internationally Introduction Globalization trends have had significant impacts on the business environment. As communication and technological advances ease international operations, corporate agencies operating at this level are increasingly improving the quality of production in order to assume and maintain a competitive edge in the business environment. In particular, they are placing due emphasis on providing high quality products that are in line with the established international standards. British Petroleum is a world renowned petroleum company that has operations across the globe. Its exploration of the Russian business environment has however been compounded by a host of controversies. Seemingly, its merger with the Russian TNK has faced distinct challenges. It is against this background that this paper reviews the implications of the TNK-BP deal from varied perspectives. Part A Question 1: In order for an organization to perform optimally in an international environment, Thomas and Inkson (2009) posit that it needs to actively engage the locals in its operations. From this point of view, this can be used to explain why BP chose to enter into partnership with TNK. Partnering with a local company would enable it pursue its operations in a sustainable manner. This is because local parners understand the local environment better and can enable the company to explore emergent market niches in a timely manner. To a great extent, this was a demonstration of corporate social responsibility by the BP Company. Seemingly, TNK is comprised of local partners who are financially endowed. At this point, it can be argued that these are representative of both the majority and minority factions of the corporate community. In his research, Peng (2003) cites that a more inclusive approach to partnership by international firms yields better outcomes. By including partners from diverse backgrounds, BP sought to minimize market resistance and explore any opportunities optimally. In return, the locals would have a chance to share in the economic benefits of the company. Another reason that influenced BP’s decision to partner with TNA pertains to the financial stability of its members. From a theoretical point of view, Peterson (2004) argues that in the current business environment, a financially stable partner is comparatively more desirable than his or her counterpart. In this regard, some of the partners in TNK are reportedly billionaires with global investments. A typical example in this regard is the Russian tycoon Vekselberg. Arguably, it was sure about economic success and future sustenance. Thus the economic stability of these partners greatly influenced the decision of BP. The equal interests in the Verkhnechonsk, Rospan and Kovykta fields that BP had with TNK could also have informed BP’s decision to partner with TNK. Both partners contributed holdings in Russia Petroleum and SIDANCO. From these initiatives, it can be argued that they had similar economic interests. This demonstrates their interests to explore similar market niches. In this regard, BP thought it wise to invest with a partner that that had similar economic interests like him. In their review, Phatk, Bhagat and Kashlak (2008) indicate that in such an arrangement, it would be easier to make business deals and implement them accordingly. Upon merging, this would save the company significant resources that it would use to source for manpower. The fact that the two companies initially ventured in similar businesses implies that they had sufficient manpower from which they would source their human resource upon merging. Question 2: As aforementioned, the business environment from an international point of view is very competitive. Thus once and corporate agency has identified a market niche in a foreign country, it needs to take all practical measures to safeguard this. Although BP wanted to include local firms in its operations, as one of the strategies of enhancing sustainable operation, it did not critically review the negative business implications of this joint venture. From a competitive point of view, this partnership is not economically viable because of various reasons. To begin with, the partnerships TNK an upper hand in decision making. At this point, it is worth appreciating that a joint venture partnership requires both parties to participate equally in critical decision making. In this respect, the political conditions in light of decision making favour TNK. TNK would thus exploit this environment to their advantage. In particular, it is likely to use this advantage to exploit the decision making process. Since TNK partners are at ‘home’ and therefore favoured by the economic and political conditions, they are likely to become conditional and manipulate BP into making decisions that are not economically sound or which do not benefit them in any way. Another glaring risk that BP is likely to face pertains to loosing the business to its partner all together. In this regard, background national reports indicate that Russia is currently focusing on nationalizing the international industries within its borders (Adler & Gundersen, 2007). This is in a bid to gain economic independence and focus on national development more. It is for this reason that its government is actively seeking for shares in most private international organization. If the government of Russia gets aggressive, it can opt to provide a harsh environment for foreign investors. At this point, BP will be on the losing end because it will be compelled to leave the market. The final risk that faces BP Company pertains to losing the chance to exploit the petroleum and gas industries. According to Lasserre (2007), this is likely to occur in instances where its partner gets overly aggressive and perceives it as a competitor. Ideally, TNK understands the industry better and is likely to cite emergent opportunities in a timely manner. Current reports ascertain that there are hostilities between the partners. This has led to BP threatening to quit the alliance and sell its shares. Arguably, this is partly attributable the unstable political environment and hostility from its partner. Researches indicate that Russia has a potential gas industry especially considering that some of the fields have not been fully exploited (Luthans & Doh, 2011). In this regard, it is certain that its partner is using this strategy to prevent it from benefiting from the apparent business opportunities. The most viable option for BP would have been to enter into a partial alliance with TNK. Cavusgil, Knight and Riesenberger (2012) perceive a partial alliance to be akin to a relationship of convenience. This type of relationship does not have any effect on the corporate strategies of the partner entities. This would have allowed BP to enter in an alliance for a specified period of time and then quit when conditions become unfavourable. It would have entered the relationship to specifically share the market with TNK, overcome any legal constraints, and take up any investment opportunities as opposed to sharing it with other critical factors such as its business strategy. By now, it would have understood the motives of TNK and devised viable means to addressing the challenges that it is facing with ease. Question 3 The differing national and business culture of the two parties also has a direct impact on their operations. In his research, Parker (2005) asserts that an international entity is likely to encounter various cultural challenges in the foreign market. These are critical and can compromise its ability to perform well in the respective market. For this reason, it is vitally important for the business ventures to understand the cultural issues of a host country and devise viable ways to address these accordingly. From a theoretical point of view, the principles of masculinity versus feminism best describe the TNK-BP deal. Moffet, Stonehill and Eitenman (2006) ascertain that relative theoretical principles greatly influence business costs. Cultures that are highly masculine are closely associated with immoral business practices. Organizations and states that adopt these tend to be aggressive and do not bother so much about the implications of their activities to their partners. Feminine cultures on the other hand are characterized by conservatism and secrecy especially when dealing with financial and accounting matters. Countries and corporate agencies that assume this culture tend to place great emphasis on the importance of traditional approaches to business relationships. Notably, the organizational and national culture of TNK differs considerably from that of BP. TNK advocates for a more centralized form of corporate management. Seemingly, it expects the chief executive officer to issue orders which it believes should be followed to the later. In his review, Peterson (2004) indicates that Russians generally give very little room for consultation. This according to them is an indication of leadership weakness. A leader who consults with his or her juniors according to the Russians is indecisive. They prefer a centralized decision making system and consider debating to be time wasting. With respect to communication, Russians prefer face to face explanations as opposed to model written formats that are typical of the current business environment. Being a liberal international company, BP on the other hand places great emphasis on a more participative approach to organizational decision making (Browaey & Price, 2008). In this respect, it believes that both parties in the business alliance have an equal share and should contribute equally to management. In the current relationship, it is assertive with respect to ensuring that the top management is reflective of the views from both parties. Just like its counterpart, BP appreciates the importance of face to face communication in relaying important information. Reportedly, the TNK-BP company has ensured that its employees communicate important information to the management through video conferencing (Kinicki & Williams, 2010). This enables it employees to articulate important organizational issues in a timely and effective manner. In his research regarding the importance of this relationship, Sanyal Rajb (2007) found out that that TNK-BP supports a transparent and open staff relations culture. Through open dialogue with its members, the organization is able to inform its staff about the periodic organizational changes that occur. Since the organization has frequently been faced by various challenges, it uses this platform to assure its staff that it is still dedicated to meeting its goals and objectives. The fact that inherent cultural differences have had both potential and actual impacts on this partnership cannot be disputed. Firstly, these differences have put a strain on the management of the organization. Current reports indicate that TNK claims that BP has assumed a dominant position in the management. According to BP however, top management positions have been shared equally. Arguably, differences in leadership perceptions stem from varied masculine and feminine viewpoints that are assumed by the two partners. TNK, that advocates for a masculine approach to leadership does not support the more interactive arrangement that is currently adopted. In future, differing cultural perceptions are likely to contribute to loss of job opportunities by BP employees. Already, this company complains that its staff is not being given visas to extent their work period in the organization. This has forced them to quit their jobs and seek for opportunities elsewhere. Meyer and Peng (2005) argue that to a great extent, this is attributed to the aggression that is exhibited by TNK. Seemingly, it is taking all measures within its means to safeguard its wellbeing and assume an assertive position in top organizational leadership. Good communication has however had a positive impact on the management of the organization. It has played a leading role in enabling the company to address the emergent challenges with ease. Through open dialogue, the company has been able to communicate to its staff about its status. This can be used to explain why it has not experienced incidences of staff turnover regardless of having faced both internal and external challenges in the recent past. Put differently, it has used the open dialogue platform to assure its members that company operations are stable and the inherent problems do not have an impact on its operations. Question 4: It cannot be disputed that the exchange rate system has had direct impacts on the performance of TNK-BP during its exploration as well as actual deal phases. This has greatly influenced the strategic decisions that the company has made over time. TNK-BP uses the US dollar as its reporting currency. This implies that for reporting reasons, the amounts that are accumulated in other currencies are converted in US dollars. Historically, the company has not used any exchange swaps or similar instruments to effectively manage individual exchange rate exposure. This implies that the financial results of this company are reflective of the exchange losses and gains that that are related to fluctuations in exchange rates of the rouble. Thus in instances where the rouble depreciates against the dollar, TNK-BP benefits and in cases when the value of the rouble appreciates, it loses. Statistical accounts indicate that just like other currencies, the value of the rouble is dynamic in the forex market. During the exploration period, the performance of the rouble in the forex market was stable. As such, TNK did not experience challenges especially with regards to profit making. Put differently, the loss margins related to the fluctuations in the value of this local currency did not raise any concerns. The stability of the rouble influenced BP Company to make the decision of entering into lasting business partnership with TNK. From its point of view, TNK-BP believed that the stability of the currency would enable it to perform optimally in the market environment. Upon entering the deal, the rouble has continued to experience minimal fluctuations with respect to exchange value. In instances where the rouble appreciates and therefore losses value against the dollar, TNK-BP ensures that all the costs are rouble dominated. These include the operating costs, selling costs, transportation costs, and administrative costs amongst others. This strategy enables the company to not only survive but to also thrive when faced with such challenges (Madura, 2011). Also worth appreciating is the use of the rouble in sale of gas, gas condensate, gas products and sale of domestic products. Likewise, this approach cushions the organization against the market shocks that are characteristic of the financial market. Seemingly, most costs of this company are rouble dominated while a significant percentage of revenues are dollar dominated. Another effect that this approach has on the strategic performance of this company pertains to enhancement of its ability to explore the gas industry in Russia with ease. Compared to the revenue, operating costs of TNK-BP company are relatively lower. This is advantageous in instances where the rouble gains value against the dollar. It ensures that the costs of the company remain low and are sustainable (Madura, 2011). Although it may experience minimal financial returns when the rouble depreciates because of its adoption of this currency at the local level, it is worth appreciating that the revenues probably remain high throughout. Part B Question 5: As business relations in the global environment become increasingly intricate, here is dire need for organizations to assume practices that would enable them to address emergent and existing challenges with ease. Doing business in the current environment requires attention to detail. According to Pettigrew, Woodman and Cameron (2001), global companies are increasingly being expected to exercise a high degree of flexibility in decision making and general operation. This enables them to adapt well to the seemingly dynamic patterns at the international, regional and local levels. From a personal point of view, the three main challenges that are apparent when doing international business include political risk, cultural problems and inability to make strategic choices. Political risks greatly influence the performance of the international firm. Essentially, these stem from either government action or inaction. The resultant government behaviour makes it difficult for the international company to adopt more viable business practices. In their research, Thomas and Inkson (2009) posit that in the recent past, threat of nationalization is one of the greatest political risks that international firms face. The firms suffer significant economic costs when respective governments pursue exchange rate controls. Civil strife is another apparent source of political risk. Characteristic dramatic events such as assassinations, sequestrations and wars have a direct impact on the performance of the international firm (Mead, 2004). The cultural risk that is associated with the international business environment is perhaps the most challenging. Under normal circumstances, the national and organizational culture differs considerably from the international business culture. For uncertainty avoiding countries for instance, it becomes increasingly difficult to adapt to the rules of an uncertainty embracing country. From the point of view of the later, uncertainty avoidance is arguably unethical. Such culture clashes may make it difficult for a company to effectively adopt the national standards of its host nation. Religious cultural practices also affect the effectiveness of an international company in different ways. At this point, Deresky (2008) appreciates that religious ideologies differ across the globe and influence the ways through which individuals and organizations conduct their business. The Islamic religion for example advocates for the right of owning property and private enterprise. This has various implications on the international firm. Specifically, it implies reduced political risks. Usually, it is widely agreed that once an organization decides to go global, it needs to develop distinct strategies in order to effectively deal with the challenges that are apparent in the international market. At certain points, Cavusgil, Ghauri and Akcal (2002) indicate that it may be forced to review the quality of its products in order to ensure that these are consistent with the international standards. To yield desirable outcomes, this process should be gradual and aim at unifying the consumer cost. However, in most instances, this responsiveness is done at the expense of possible quality and costs. Essentially, there are various strategic choices that the international company needs to embrace in order to perform well in the international environment. Besides the global standardisation strategy, the company might be compelled to assume a transnational strategy in addition to choosing the most viable approaches of accessing the global markets. In most cases, Peng, Wang and Jiang (2008) ascertain that effective choice of the available strategic options require the companies to use significant resources as well as make timely decisions. The preceding challenges are apparent and have direct implications on the overall performance of the international firm. As indicated earlier, knowledge of the international business environment is instrumental in enhancing informed thought. Most importantly, knowledge of the abovementioned challenges enables one to make informed choices when venturing into international business. For instances, knowledge of the political history of a foreign country would enable one to avoid investing in the same. Knowledge of the cultural challenges of a specific country guides an investor into making culturally sound business decisions. To a great extent, this also contributes to improved adaptability to the international business environment. With regard to challenges pertaining to choice of strategic options, one can overcome these by acquainting oneself with the overall business environment in the host country. Additionally, knowledge of the international trends would enable one to adopt practices that would enable him or her to benefit from emerging opportunities. Notably, this requires timeliness in making well thought out and informed business decisions. Conclusion In sum, effective exploitation of the international market requires firms to be committed to make timely and strategic decisions accordingly. This enables them to benefit optimally from the opportunities that the international market provides. In addition, strategic planning and thinking enables international companies to make informed decisions when faced with any challenges. As it has come out from the review, TNK-BP Company is faced with a host of challenges that characterize its international environment. 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