The International Strategies of Petrobas - Essay Example

With globalization and competition in the corporate world, companies are finding it prudent to go international as a diversification strategy, exploring of new markets, resources so as to increase its competitive advantage over other firms (Wall, Minocha and Rees 2010, p.14). Oil industry is particularly finding it biennial operating in other countries, in addition to their countries of origin. Petrobras is arguably one of the oldest oil companies with a global presence. The company is said to have adopted a number of strategies in a bid to go international. The purpose of this paper is to examine the internationalization strategies employed by Patrobras. Company Background Petrobras is a Brazilian National Oil Company incorporated in 1953 with its headquarters located in Rio Brazil. Petrobras is the largest oil company by market capitalization in the entire South America region and is the largest in Latin America by revenue. The company’s production capacity stands at over 2 million barrels of oil per day. Apart from being among the leading oil producers in the South American region, it is also a major distributer of oil and gas products (Goldstein 2010, p.102). Petrobras shares are listed on both the New York and Brazil Stock Exchange. For instance, the company issued shares worth $4.3 billion through an IPO on 9 August 2000 in both stock exchanges. During the IPO issue, it is reported that over 400,000 Brazilians, institutions and foreigners bought the shares. However, the Brazilian government owns about 33.2% of the company’s shares, with a voting stake of about 55.7% (Goldstein 2010, p.102). Goldstein (2010, p.102) notes that Petrobras gas and oil production has experienced immense growth in the last few decades both locally and internationally. The growth of the company has been attributed to the efforts made by the company to face the challenges of heavy oil and gas production, deep-water environment and high temperature reservoirs. Goldstein (2010, p.102) reveals that the company’s success in the region emanated from the fact that it has introduced the use of the latest technology in its exploration and production of oil and gas giving it competitive advantage over other oil companies from the region and other parts of the world (Araya 2006, p.29). For instance, the company has expertise in engineering and geosciences, in deepwater exploration. In its endeavor to serve the people of Brazil and the international market, the company has been able to set a number of records such as the world’s deepest exploration well of about 2,853 m it dug in Roncador field. This record has stood so for a very long time now. Petrobras’ SWOT Analysis Alonso (2009) notes that, as Petrobras grew, it was much aware of its strengths and opportunities that it needed to capitalize on. Just like any other business, Petrobras had to minimize its weaknesses and threats that may affect its performances. This can be analyzed using SWOT analysis. Petrobras’ SWOT analysis is a tool used for evaluating the company’s strengths, weaknesses, opportunities, and strengths pertaining to its operation. Strengths Petrobras is said to have had a strong market position in South American region for more than four decades thereby controlling large market share in the region. In addition, Petrobras has created monopoly of gas and oil in the region, which has increased its financial performance over the years (Alonso 2009, p.17). Weaknesses The company has had to face litigation a number of times for creating a monopoly of oil and gas in the region. In addition, the company depends a lot on Brazil as its main market (Alonso 2009, p.17). Opportunities Globalization has been the main opportunity for Petrobras. Therefore, Petrobras has been making efforts to internationalize its operations in other countries. The move was first seen through its acquisition of a downstream in Chile. In addition, the company still has a stable home market to exploit due to its dominance in the region (Alonso 2009, p.18). Threats Petrobras has been considered a threat to the environment as the company has been cited as a poor steward with regard to environmental management and conservation. The issue of environmental conservation has become a major concern in the world today, which has led to the introduction of several regulations that affects the operation of Petrobras. This has seen the company suffer from political instability. Petrobras is also facing stiff competition from the emerging Middle East oil production companies thereby threatening the operation of Petrobras in such regions (Alonso 2009, p.18). Petrobra’s Internationalization strategies Internationalization is one of the key development strategies for any company operating in a competitive environment (Wild, Wild and Han 2009, P.18). Petrobras has had a long history of internationalization, which dates back to 1972 with the establishment of Braspeto. Ever since, Petrobras has managed to establish a base in several countries all over the world. In order to establish a base in the international market, the company has used a raft of strategy. The first step taken by Petrobras in its internationalization path was to concentrating on the domestic market (Su and Poisson 2000). It is reported that it company had no corporate image at all and had no global experience. At the same time, the company’s management was not sure of how its technology and products could be received in the global market. Therefore, Petrobras used its domestic market to learn more about the oil industry as well as improve its technology to attract the international market. It is then that the company began venturing in the international market almost 26 years after its formation by investing in Iraq, Angola, Gulf of Mexico, and Colombia’s Caribbean Sea in 1979 according to Aykut and Goldstein (2009). However, in order to remain relevant and receive global recognition, the company concentrated on improving technologically as well as expertise. As such, the company invested heavily on training, in engineering and geosciences especially on deepwater exploration. The company also introduced the latest technology in its exploration and production of oil and gas to ensure that quality is adhered to all the time. In addition, the company invested heavily on research and development by establishing a Centro de Pasquisac e Desenvolvimento Leopoldo A. Miguez de Mello, CENPES) a research center based in Rio (Goldstein 2010, p.105) Through the application of world-class technologies in exploration and drilling, Petrobras managed to prove itself to the world by breaking a number of exploration records. This was evident when it broke the previous exploration record by drilling a 2,853 m in Roncador field. This record helped Petrobras build a reputation both locally and internationally which made it easy for it to penetrate the international market with ease (Su and Poisson 2000). After building its reputation as a world-class company, Petrobras began seeking for production licensing in countries with oil and gas deposits across the continent. Therefore, Petrobras went ahead and acquired over 100 production licenses in 27 countries spread all over the continent. Among the countries that Petrobras entered into thorough licensing, include Venezuela, Angola, Argentina, Nigeria, Angola, Libya, Tanzania, and Nigeria among others. Through licensing, the company has been able to spread it branches in these countries thereby improving its performance. In addition, licensing has also enabled the company to receive a number of contracts, which could not have been possible in case it had not been licensed for operation in these countries (Mansoori, Rahoma and Denis José 2001, p.74-76). The company has also been able to reach the global market through transfer of technology and raw material necessary for exploration. The company is reported to have adopted this strategy as a means of entering developing countries such as Nigeria, Iraq, and Angola among other countries. After conducting research on the potential of these countries having oil and gas deposits, the company made a formal agreement for the transfer of its technological expertise and raw materials needed for exploration to set base in these countries. In the process, the company has managed to receive more recognition from other countries that seek for its services in oils and gas exploration (Goldstein 2007). Goldstein (2010, p.105) notes that Petrobras is well known for deep-water exploration since 1972 and has used this expertise and reputation to explore the international market with similar conditions. For instance, the company has used this strategy to invest in foreign countries such as Argentina and Venezuela where Petrobras employed this strategy to secure a contract to engage in deep see exploration of oil and gas. Investment in any country is highly dependent on the political situation of a country to invest in. In this regard, many countries prefer venturing in a country that is politically stable and democratic. This is because countries with political instability put investments at risk of being sabotaged by either the government or enemies of that particular country in case of war. Nevertheless, Petrobras used Brazil’s developing and peaceful country as a strategy to take Iraqi oil in 1972, thereby breaking the barrier that had being called for by BP after the globalization of IPC. In fact, Petrobras became the first foreign company to explore the Iraqi Oil (Dantas and Bell 2009, p.829-834). Petrobras also used the political ties with certain countries as a way taking up the oil exploration projects. For instance, Goldstein (2010, p.106) notes that Petrobras took advantage of the fact that Brazil was the first nation to acknowledge Angola after its independence to secure oil exploration works in Angola. The fact that Brazil recognized the Independence of Angola created good political ties between the two countries, which Petrobras took advantage of in securing oil exploration projects, in the country. Petrobras also reported having acquired certain oil exploration companies in certain countries as a strategy for spreading its operation in foreign countries. For instance, Petrobras found it prudent to acquire Perez Compnc, an Argentina company in 2002. The company also used acquisition strategy in other countries such as Nigeria and the Middle East. Cowley (2001) also noted that the company is still planning to make more acquisitions in the international market as a strategy for increasing its production capacity. For instance, Cowley (2001) reports Petrobras was aiming at increasing its international expansion strategy to reach 300,000 barrels per day by 2005. He reveals that the company’s international production stood at about 70,000 barrels per day, which the company felt was still far below its target. Presently, apart from acquiring Perez Compnc, Petrobras has also acquired another U.S-based company and is continuing acquire another in a bid to increase both its presence in the region as well as its production capacity. Brazil’s political stability and economic growth have also been used to the advantage of the company in spreading its presence in different countries in the world. Goldstein (2010, p.105) argues that Petrobras used its cooperation with other countries as a strategy to negotiate their investment in many countries in the world. For instance, Goldstein (2010, p.105) notes that the close cooperation between Brazil and Venezuela, Nigeria, Iraq and other countries gave Petrobras an advantage over other companies with interest in venturing in these countries. Goldstein (2010, p.105) notes that Petrobras also concentrated on investing in neglected countries as a way of avoiding competition from other firms such as BP. It is after setting base in the neglected that the company entered in other countries in the region. The company used this strategy in the Middle East particularly in countries perceived politically volatile. For instance, before entering countries in the Middle East, the company first took up the Iraqi Oil exploration to show its potential. This was followed by venturing in other neighboring countries such as Iran and Saudi Arabia among other countries in the Middle East according to Goldstein (2010, p.105). Petrobras also recognized the value of contracts as a means of spreading it brunches in the international market. For instance, Jorge Luiz Zelada, the international director of the company reveals that most of its exploration projects in countries such as Argentina, Colombia, Venezuela, Bolivia, Uruguay, and Peru are contractual. He reports that Petrobras is so far engaging in 75 exploration projects, in these countries of which 39 are contracts. Zelada argues that contracts were found to be an appropriate strategy for internationalization especially on projects whose operations were not expected to take long (Carvalho and Goldstein 2009, p.16). Petrobras also plans to use strategic alliances with other oil and gas exploration companies that have already set base in countries it is interested in. The company project that this strategy will enable it penetrates easily markets international markets where other competitors have already set base. In this regard, Petrobras is already in the process of seeking for strategic alliance with some oil companies in the Middle East so as to be able to expand its production capacity to the 300,000 barrels a day, a target set by the company in 2001 (Goldstein 1999, p.673-675). Petrobras also used export strategy to reach certain countries where it has established a base. For instance, the company is reported to have adopted the export strategy to enter the Tanzanian market, Bolivia, and Venezuela. Cowley (2001) notes that Petrobras began as a major oil and gas exporter in these countries before getting permission to explore the oil and gas in these countries. The company is also still exports its oil and gas to some of the countries with it has a huge interest in exploring oil. The company is also considering operating as a subsidiary in other countries in order to expand its operations. Jorge Luiz Zelada, the company’s internationalization director reveals that plans are underway to establish subsidiaries in some countries where it intends to operate in. For instance, the company is planning to use subsidiaries to be able to operate in countries where its major competitors like BP have established a strong base as a way of offering competition (Jones 2005, p.92-98). Future strategic direction, for Petrobras to sustain its competitive advantage With globalization and technological advancements, many companies are finding it hard to keeping up with the competition (Cavusgil, Knight, and Riesenberger 2011, p.4). This is because most companies are almost at par with one another. Therefore, in order for a company to be competitive, it is imperative that the company adopts a workable and unique strategy from those of its competitors. This is particularly important for oil companies, which depends much on technology according to Daniels, Radebaugh and Sullivan (2012, p.16-19). Therefore, in order for Petrobras to be able to sustain it competitive advantage over other firms like BP, it would be imperative that it focuses much of its attention of technology. It is no doubt that the modern world has become highly technology savvy and no company can afford not to keep up with the latest technology. As a result, Petrobras must endeavor to do a lot of research and development in specialties of geosciences and engineering in order to discover what technology needs to be adopted to improve the efficiency and exploration (Guillén and Esteban 2009, p.26). With the latest technology, Petrobras would certainly be able to out-compete its major rivals such as BP in exploration of oil. This would turn will improve its corporate image, which would in turn make it easy to be considered for bigger oil exploration projects in the global market. However, as the company concentrates on introducing the latest technology in its exploration and production processes, the company needs to expand its operation as much as possible so as to increase its presence in as many countries as possible. This would enable it expand its corporate image in other countries that are not aware of its existence (Wild and Wild 2011, p.56-58). Expanding operating in the global market will give it a good opportunity to have a competitive advantage over other firms in the industry. What is certain is that oil deposits are scarce all over the world with a majority of oil producing countries having hostile political environment that scares many investors. As such, it would be imperative for Petrobras to take advantage of this scenario and invest in most of these countries such as Iran and Kuwait among others. By venturing in these countries, which are being avoided by other oil exploration companies, certainly Petrobras would be able to sustain it competitive advantage over other firms in the same industry. Grayson (1981, p.55) notes that many countries are shifting away from over dependent on fossil fuel to renewable energy especially due to its impact on the environment. Fossil fuel is cited as posing a threat to the environment because of its greenhouse gaseous effects that are the leading cause of global warming. In this regard, the company needs to diversify its product especially by venturing in the exploration of renewable energy that its main competitors have not taken an interest in. Diversifying into the green energy sector will certainly give it more competitive advantage over other firms. Petrobras should also focus on improving its corporate image by engaging in corporate social responsibility, in countries where it operates since this will make it more acceptable in foreign countries than other competitors that do not give priority the importance of corporate social responsibility. Conclusion With globalization and competition in the world, today, companies cannot only depend on the domestic market as the only area of operation rather considers operating globally. Nevertheless, different companies tend to use different strategies for internationalization, which also depend on the type of industry or the products the company is dealing with. Petrobras, a Brazilian national oil company, is one of the oldest oil companies that found it plausible to expand their operation beyond borders as a way of increasing its oil production capacity and profits. Its internationalization process began way back in 1972 and has so far extended its operation to more than forty countries in the world today. Internationalization has indeed been of benefit to the company since it has help increase the number of barrels of oil the company produces on a daily basis. However, the company employed a number of strategies in its endeavor to internationalize its operation. Some of the strategies employed include transfer of technology, strategic alliance, contracting, investments and buying other companies in the country it intends to operate in. Nevertheless, as competition becomes stiffer in the oil industry, it is imperative for Petrobras to concentrate more on technological advancements and exploring countries that have been ignored by its competitors so as to sustain its competitive advantage over other firms like BP. References Alonso, P.S.R (2009), Petrobras: Strategic & Business Plan 2009-2013: Opportunities for foreign suppliers. Houston. 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(2011), International Business + Myiblab With Pearson Etext. London: Prentice Hall. Read More