International Expansion and Strategic Management - Essay Example

International Expansion and Strategic Management Table of Contents Table of Contents 2 Introduction 3 Company Overview 3 Companies Strategy and Competitive Advantage 4 Strategic International Expansion 5 Process of Expansion 7 Motivation towards internationalisation 9 Leadership Matters 9 Reference List 11 Bibliography 13 Introduction Multinational organisations that operate over diverse geographies and that aggressively seek international expansion have to formulate their international business strategies in a careful way in order to gain competitive advantage over rivals. Formulating international business strategies and managing the structural change of a multinational corporation become challenging tasks for the organisation (Balogun, 2006). The age of globalisation has brought along both challenges and opportunities for companies working on a global scale. It has become particularly very challenging to maintain their competitive advantage in the 21st century. In this regard, effective strategic leadership has become an extremely important factor for companies for attaining competitive advantage (Pettigrew, 2012). A lot of factors can initiate the process of internationalisation of firms during the period of globalisation. These factors can either be traditional factors that include objectives like, resource and market seeking or emerging objectives like, attaining economies of scale and competitive positioning (Sminia and De Rond, 2012). This essay discusses the case of British Petroleum, a London-based oil and natural gas company and evaluates various aspects of strategic management of the company so as to identify the competitive advantage and elaborate on leadership of the company. The purpose of this paper is to shed light on the organisation’s current competitive advantages based on resource and capabilities view and dynamic possibilities. The international expansion of the company and its strategies in doing so has also been described. Leadership issues of the organisation during the period of international expansion have also been discussed in the final section. Company Overview British Petroleum is one of the largest oil and natural gas companies of the world. The company has its headquarters in London and was incorporated on 1909. The BP group of companies works under BP Plc. The basic business model of British Petroleum comprises two main parts (BP plc, 2011). The first part is exploring and locating the natural gas and oils; and the second part is extraction of hydrocarbons making them commercially available. The company has a wide business model, which encompasses extraction, production and retail services of petrochemical products around the world. The petrochemical products produced by the company are used in production of a wide range of products, which are used in everyday life (BP plc, 2013). The exploration and production departments of the business are concerned with renewal of natural resource base and the refining and manufacturing departments are concerned with marketing and transporting related activities. Currently, BP operates over six different continents and has a large number of brands operating under it like, Ampm, Arco, Castrol, Aral, and BP and Wild Bean Café. Apart from the petroleum business that is core business of the company, it has also ventured in alternative energy by investing in bio-fuels and solar energy (Corporate Watch, 2014). The company has followed international expansion on a wide scale to gain from the process of globalisation. Companies Strategy and Competitive Advantage The resource based view of a firm focuses on resources and capabilities that are available to the firm, which provides with competitive advantage. The resource based view of a firm is an efficiency-driven framework, which recognises heterogeneity of the resources at a firm level. Resource based view cannot be considered as an alternative to the industry level analytical tools like, Porter’s five forces, but is important in analysing macroeconomic environment of the company (Tan and Fu, 2008). This model can be employed to understand ways in which BP has used its resources to secure a competitive advantage. There are basically two types of resources that can be considered to explain this; the threshold resources and the unique resources. The former refers to all those resources, which are similar to that of the competitors; and the latter refers to only those resources which are exclusive to the firm. Similarly, capabilities of the firm can also be divided into two types; threshold competence and core competence (Holm and Sharma, 2006). According to the dynamic capabilities view of management theory, firms have to shape, reshape and reconfigure assets, which are quintessential for firms in order to respond to changes in the technological environment (Teece, 2007). This approach is useful in identifying importance of shaping the entrepreneurial behaviour for strategically managing foothold of the firm in the international market. It is also helpful in understanding the way in which a firm develops competitive advantage and those methods used for maintaining it over time (Eisenhardt and Martin, 2000). Strategic International Expansion International expansion or globalisation is increasingly becoming an irresistible phenomenon in most companies. Nearly all companies believe that international expansion will bring more revenue by expanding the market size tremendously. Some of the prime features of globalisation are (Zahra, Ireland and Hitt, 2000): Liberalisation- Expansion paves the way for a free flow of goods and services between countries. So, import and export of resources are highly facilitated. Free trade also ensures less interference by the government; hence, excessive control by different governmental authorities gets reduced drastically (Etgar and Rachman-Moore, 2008). Globalisation of economic activities- Through international expansion, economies of different nations come into contact with each other, which facilitates capital and resource sharing. There is coordination between different markets of the world (Maharajh and Heitmeyer, 2005). Multidimensional process- International expansion invariably leads to economic, political and cultural liberalisation. Economically, there is free flow of different types of goods and services. This increases volume of trade and market sise. Politically, there are more rights to be enjoyed as well as freedom towards conducting trade. Culturally, values and social aspects between different nations are exchanged (Delios and Henisz, 2003). Prevents saturation of trade- Through international expansion, companies are able to prevent market saturation at one place. So, it is possible for firms to escape high competition existing at one place and move on to areas with lower competitions. Similarly, this also paves the way for extending the market from where resources are generated (Schneider, 2009). Outsourcing- International expansion has brought along the aspect of outsourcing, whereby companies can outsource production to nations, where the same work can be done at a cheaper cost. Global competition- One of the negative aspects of international expansion is that a firm is exposed to the global market competitors. Thus, it is important that a firm has sufficient strategic policies so as to overcome such a scenario. Some of the strategic aspects that BP has incorporated in its corporate culture, that has helped to expand on a global scale, are described as follows (Contractor, Kundu and Hsu, 2003): Employees- BP relies heavily upon its employee strength. Irrespective of the country wherein BP operates, it has been made sure that the company has the right number of employees who are assigned with right number of jobs for performing well and on time. So, quality of workforce is extremely essential for the company. BP conducts timely training and development activities for enhancing employee skills and capabilities. The company firmly believes in the motto that success lies in efficient performance of its team of workforce. The company carefully selects its employees and ensures that the job roles match potential skills and abilities of the employees. Through international expansion, it has been possible for the firm to procure valuable and talented employees from across the globe (Zahra, 2003). Technology- Technology is one of the key aspects that help a company to succeed in its operations. A company that operates on an international level needs to come up with suitable technology for effectively managing its production, supply chain and distribution. Through globalisation, it is possible for a firm to gain exposure to different technological advancements of different nations and incorporate those in its production system. However, while expanding internationally; one of the main hurdles for the company was to effectively channelise production and distribution systems. A suitable supply chain strategy that was integrated with world class technology has helped BP to emerge as one of the pioneers the in oil and gas industry across the world (Luo, 2001). Health standards- BP secures the fact that all its products are safe and do not impact the environment or people in any negative manner. The company’s products meet the global environmental standards. This is a major reason for high preference of the company’s products by consumers at large (Gerpott and Jakopin, 2007). Better relations with countries- The company has been successful at building strong and long-term relations with nations to where it has expanded. This has strategically helped the company to gain immense support and growth politically. Progressiveness- BP is always looking for new and better ways of conducting business. When a firm operates on a global scale, it is important to stay ahead by thinking strategically about the future. The company aims to develop better ways to reduce wastage and optimally use its resources. As global climate change is gradually becoming a concern, it has become quite crucial for companies across the world to develop products that have least negative impact upon the environment. Innovativeness- BP aims at devising breakthrough solutions for its customers. The advancement of the automobile sector has exerted added pressure upon the oil and gas sector to come up with better and more advanced variety of fuel complimenting their needs. Therefore, the company relies heavily on its team of highly skilled employees. Environment- All firms operating in the oil and gas sector have to oblige by certain commitments towards the environment. There are international standards that have been imposed in this regard. BP makes sure that it production process involve low carbon emissions. The company also puts in extra care so as to ensure that all its fuel reserves are stored with high safety, preventing spills and leaks. Performance standard- A company that emphasises high performance is sure to do well in the long run. Setting high performance would imply following adequate standards for customer satisfaction and growth. This would involve analysing customer needs correctly so that they are delivered with the right products, thereby meeting their expectations. Successful performance also comes from fulfilling customer demands on time. This paves way for efficient supply chain management and operational efficiency. It is highly important for a company that is successful at integrating different technological aspects in order to effectively meet market demand. BP consistently analyses emerging needs of the automobile sector and accordingly develops its fuels so as to support better performance of vehicle and long life of engines. Process of Expansion BP’s strategy in global expansion has exhibited two important phenomena. Firstly, the company tries to hedge political risks in the oil producing nations by means of political and partnerships and deals. This not only helps to acquire long-term contracts, but also enables the firm to obtain different types of trade benefits. It also entails lucrative international investment opportunities. Secondly, the company has been of late seen to be concentrating heavily upon emerging countries of Asia such as India and China. It is expected that in the coming decade, fuel consumption in many of the developing nations of Asia and Europe are going to multiply three folds. The prime reason for this is rapid industrial development in these nations. As a result, several firms are looking forward to setting up their business in these developing countries. Even so, a major challenge in entering the developing markets is to reduce costs as consumers in these markets are not willing to purchase products at a high price. This paves way for developing cheaper methods of production, which strategically fits the needs of such markets. By reaching out to developing nations, BP expects to improve its sales immensely in the coming years (Luo and Tung, 2007). BP has also recently shifted its focus towards development of renewable sources of energy such as, that of solar energy panels. The company, at present, is the largest manufacturer of solar panels in the world. In this respect, the company manufactures two types of solar panels. One is meant for domestic use and another for industrial purposes. The company invests heavily in wind and bio-fuel energy projects. The primary aim of the firm through such type of investments is to attract more customers for sustainable energy, which is cheaper and is a growing segment in the field of energy production. Many firms in the oil and gas industry are looking forward towards developing renewable sources of energy as they are considered to be the potential sources of energy for the future. While analysing BP’s international strategy, we can consider the following aspects: Economic Aspects Increase in oil prices have proved to be highly beneficial for the company, which has resulted in higher revenues and has also significantly helped BP in expanding its oil exploration processes. The revival of the European Union from its financial meltdown of the recent past has considerably helped the company to gain more investments. Furthermore, the European Union’s plans to expand further towards eastern nations will be effectively supportive of BP’s plan of international expansion. Consistent high unemployment in Europe has proved to be a serious disadvantage for BP. This has resulted in slow growth of the European economy. Additionally, high rate of inflation and declining productivity due to the financial crisis have created barriers for growth of most European companies. Nevertheless, BP is expected to strategically overcome these issues soon by integrating its production systems and expanding in growing nations of the east (Lu and Beamish, 2004). Global Aspects The consistent growing demand for automobiles in North America has positively impacted many oil and gas firms, including BP. Furthermore, de-regularisation and re-structuring of trade happening in Japan is expected to increase the market for oil and gas, which would further lead to greater consumption and generation of higher revenues. Relaxation of trade policies in China and several other nations of Asia are expected to further boost trade for the company. The major global threat for BP is the oil rich nations of Africa and the Middle East. Companies from these nations have tapped a substantially large segment of the market globally. Moreover, firms from the Middle East, such as Qatar Petroleum, have immense financial strength and capability for the purpose of innovation and expansion (Colla, 2003). Motivation towards internationalisation BP has been consistently trying to expand by differentiating its products from the competitors. This differentiation is achieved by way of quality, innovation and customer response. This has motivated the firm to enhance its market size. Competitors of BP do not have such differential products. This provides the company with a competitive advantage. The expansion of the company by creating alternative sources of energy has further expanded the scope for competitive advantage and has motivated it to operate on a global scale. Even so, in order to differentiate products, the company has been required to invest heavily upon innovation. Continuous development and search for new products becomes an imperative for the company so as to successfully maintain its market position. Another chief motivation behind international expansion of BP is rapid liberalisation of trade in the European and Asian countries. This act of liberalisation has augmented the company’s market size and has helped it to gain advantages from international exposure towards resources and technologies (Gunhan and Arditi, 2005). Leadership Matters Leadership acts as a guiding factor for success of an international firm. Leadership plays an important role in every aspect of business such as, forming its marketing strategy, financial strategy, resource strategy and so on and so forth. Leaders who are essentially managers at different levels are met with diverse challenges while working for a firm that operates on a global scale. Some of the issues faced by managers at BP for the purpose of strategically extending the company’s business have been described as follows (K. D. Brouthers and L. E. Brouthers, 2000): Global trend- A firm operating on a global scale is faced with increased amount of competition. So, a firm operating on an international platform requires being highly innovative so that it can deliver more than its competitors. For this, leader must motivate employees to be highly innovative and constantly come up with new ideas and practices so as to improve performance. Market research- As business requires expanding to new nations, potential market research needs to be done based on the aspects of available resources, customer preferences, market trend and so on and so forth. This can be a challenging aspect for leaders as every time the business expands, new research has to be conducted for studying the market (Delios, Gaur and Makino, 2008). Political and social climate- Every nation has its distinctive political and social aspects that require to be analysed effectively before important decisions regarding expansion are taken. Thus, when the business expands, it becomes necessary to comprehend whether climate of the nation is positively suited for obtaining different types of resources and functions. Legal matters- The rules and regulations regarding company operations vary significantly from nation to nation. As a result of that, leaders must be flexible at adapting themselves to different organisational rules. Differential human resource- A global organisation involves teams from different countries who are driven by dissimilar styles of motivation. The organisation must understand these aspects and accordingly develop strategies for its diverse workforce. When employees are satisfied, effectuality in performance increases helping the firm to grow strategically. Integrating operations- One of the biggest challenges of international business growth is to formulate a suitable supply chain mechanism, which fundamentally meets all requirements of the firm’s different strategic locations. 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