BP Russian Partnership with Rosneft - Case Study Example

English BP Russian Case Analysis BP Russia is one of the companies that have ventured in the oil industry since 1997. Russia being one of the largest producers of oil in the world, there is great business potential for many investors. Following the government’s efforts to eliminate monopolistic competition, private investors have found it worth to invest in this market to take advantage of the growing demand of energy not only in Russia but also across the world. BP has formed a number of business alliance in a strategy aimed at increasing its investment potential and increase production. While partnerships are vital for the success of an organization, they may become sources of business failure if their construction is not efficient. BP Russia is one of the companies that have engaged in partnerships that have undermined its potential to grow and take advantage of the market. An analysis of BP Russia will reveal the various aspects of partnerships that determine its failure or success and the way organizations can benefit from such business partnerships. BP proposed an alliance with Rosneft as part of the organization commitment to take advantage of mergers to increase organization productivity. The proposed partnership between BP and Rosneft would have numerous benefits if successful. The main aim of the strategic alliance was to use a collaborative approach on the development of oil reserves of the Kara Sea in the Russian Arctic (University of Virginia 6). The first benefit of the alliance is that the two would have a greater financial worth, which would help to explore the Kara Sea in a more profitable manner. Since the exploration of oil and development of oil reserves is a costly operation, it is difficult for any organization to go it alone without a partnership. On this note, the alliance would allow BP to take advantage of the oil reserves, develop them and hence increase productivity, which means higher profits for both organizations. Secondly, BP had a long-term plan in the terms of the partnership. The terms of the strategic alliance was that BP secure 9.5% of Rosneft bringing its total share of Rosneft at 10.8%. This share swap condition would have a long-term benefit for BP Russia. Increasing its share value in Rosneft would be an increase in its share value. On this note, it is possible to term the strategic alliance as a worthwhile development strategy for BP Russia. On the other hand, managers must be aware that there are always implications for success or failure of a partnership. The success of the BP-Rosneft alliance would have a positive impact for both companies. Their strategy to develop the Kansa Oil wells would provide them with an opportunity to increase their profits in the end. Secondly, this gives them the opportunity to explore other oil reserves in future through a collaborative approach. However, the failure of the alliance would have negative consequences for both the companies. Without the alliance, it would be quite impossible for the organizations to invest in the Kansa oil fields. Finance limitations would hinder this development strategy, hindering the potential of BP to grow (8). Given the high amount of capital required for the development project, it would be a risky plan to invest alone in the project. In one way, the failure of this alliance would hinder the growth of the two companies. They would not be able to take advantage of the rising demand of energy in the world. On this note, it is crucial for managers to weigh the impact of both failure and success of partnerships before entering into an alliance with another company. When establishing partnerships, it is crucial for the managers to have knowledge on the necessary requirements for successful partnerships. One of the most necessary factors for success of a partnership is the evaluation of all matters surrounding the alliance. An alliance is usually subject to both internal and external factors that may limit its success. Internal factors include those that bind both the organizations intending to join in the alliance. On the other hand, external factors include issues that affect the other stakeholders outside the alliance. To start, the alliance must be fair to both internal and external stakeholders; satisfying all stakeholders ensures that they are no complains or court cases that may undermine the alliance. For instance, it was crucial for the management of BP and Rosneft to consider the plight of AAR as one of the stakeholders on BP (7). This would ensure that the bond satisfies all stakeholders. Secondly, the conditions of an alliance should be clear and explicitly stated to ensure that conflict does not arise at the end of the project. The ability of BP and Rosneft to negotiate on the terms of the alliance is an expression of the commitment to establish a viable alliance. Forming a strong alliance that is clear and one that satisfies all stakeholders will ensure the success of the partnership. On the other hand, there are factors that may lead to the failure of a strategic alliance. One of the factors that underpin the failure of many business partnerships is the ignorance of major stakeholders that have say in the alliance. When some stakeholders are dissatisfied, they are likely to raise conflicts that may frustrate the planned projects. The reason why BP partnership with Rosneft is at risk of failing is that they did not consider AAR who is a potential stakeholder in the project. Since AAR and BP Russia are in partnership, any strategic alliance that BP pursues is likely to affect their union. As such, it is crucial to involve AAR in the planning stage. As a result, AAR pursued the matter in court and the court effect injunction to stop the progress of the alliance. Consequently, the development plan of the two organizations remained stagnated. Another reason why a strategic alliance would fail is due to existence of complex partnerships within the union. BP Russia seems to have a complex partnership with AAR, the TNK-BP alliance, whose terms limits BP involvement with other partners (8). The conditions of the TNK-BP alliance was that BP could only get into a strategic alliance through this alliance. On this note, it is possible to term the TNK-BP alliance as a wrong partnership and a wrong management decision on the part of BP. BP Russia can review its strategic alliance with Rosneft to revive it. To do this the organization would require rethinking the construction of this strategic alliance. From a critical lens, the failure of the alliance emanated from BP’s dishonor of the agreement it has laid down with AAR. In 2009, BP had entered an alliance with AAR that required that the organization should only enter into another alliance under the umbrella of TNK-BP alliance (3). On this note, the organization can only revive this agreement by satisfying this agreement to ensure that the court raises the injunction and the development project can proceed. To satisfy AAR, BP should get into negotiations with the organization to ensure that both stakeholders benefit from the organization. The problem would be the fact that Rosneft has no intention to enter into a partnership with TNK-BP because of its incompetence. From a different approach, it would be crucial for BP to split up with AAR to allow it to go alone in the proposed alliance. This would be an involving process and would require that the organization set up a table with AAR to negotiate new terms of the bond. While this may cost BP quite a fortune, it may be a worthwhile decision to take advantage of the alliance with Rosneft, which is likely to have long-term benefits. In conclusion, the success of partnerships is surrounded by many factors that influence its implementation. While partnerships help organization to avoid the go-alone strategy that is often limited to cost barriers, they may inhibit the growth of an organization. Complex partnerships affect the organizations ability to associate with other potential partners. BP Russia is an organization that has taken advantage of the merger strategies to explore investment projects that have profitable benefits to the organization. Its partnership with Rosneft was important to develop Kansa oil fields, which would help them generate more profits by taking advantage of the growing demand of fuel in the world. However, this strategic plan is in the risk of failure due to the complex relationship that BP Russia had established with AAR in 2009. BP and AAR formed the TNK-BP alliance whose agreement inhibited BP from pursuing any other alliance out of this merger. When BP intended to enter into a strategic alliance with BP, AAR sued it against this action and the court passed an injunction to stop the process. To revive this alliance, BP needs either to revise its terms with AAR or dissociate this merger. From a critical point of view, the failure of BP Russia emanates from a wrong partnership with AAR. Wrong partnerships limit the organization’s independence and prevent it from exploiting its business potential. Works Cited University of Virginia. BP in Russia: Bad Partners or Bad Partnerships. Virginia: Darden Business Publishing. 2012. Read More