Success of Royal Dutch Shell Where Many Others Have Failed - Research Paper Example

Royal Dutch Shell The theories that were developed by Langlois, Jones and Chandler can be applied to most of the multinational corporations and this is mainly through the evolution of their structures and strategies over the years. One such corporation is Royal Dutch Shell which has over the years developed a vertical structure which it has used to manage the centralization of its diverse global operations. This company was formed in the early twentieth century through a merger between the Royal Dutch Petroleum Company that was based in the Netherlands and the "Shell" Transport and Trading Company based in the United Kingdom (Gerretson 1953, p.346). Before the merger, these companies had been rivals and the process of bringing them together ensured that both of these companies were able to put aside their rivalry and cooperate in an international level; becoming among the most dominant oil and gas companies in the world. Since its formation, Royal Dutch Shell has continuously grown and evolved according to the different circumstances that it has encountered; essentially ensuring its success where many others have failed. According to Jones (2005, p.164), in the twentieth century, “firms sought to access knowledge to develop technology that are distinct from but contemporary to those created by their parent companies.” At the period of its formation, the two parts of Royal Dutch Shell were not merged, but were kept separate as a result of nationalist sentiments in both the Netherlands and the United Kingdom. The result is that these two parts of the company continued to be run as separate entities with one based in The Hague and the other in London. The portion based in The Hague took on the responsibility of production and manufacture while the one in London took over the transportation and storage of the products. Thus, in order to cater for nationalist sentiments in both countries, Royal Dutch Shell chose not to go ahead with the merger because to do so might have hampered its operations. This strategy can be related to Alfred Chandler’s structure follows strategy theory which states that the structure of a company is often determined by its strategy and this is based on the formation of independent units that operate under the umbrella of a parent company (Chandler 1990, p.61; Gopalan and Stahl 1998, p.32). Thus, through its headquarters, Royal Dutch Shell was able to continue coordinating the activities of its Dutch and British units without compromising their independent nature. Royal Dutch Shell chose to begin its expansion strategy as a result of the favorable economic situation that was prevalent after the First World War. This environment had been created through an increase in the demand for petroleum products which ensured that most of the ventures made by companies within this industry were able to have significant returns from their investments. Royal Dutch Shell had in the first place been formed as a result of a need to better be able to compete with Standard Oil; the largest oil company in the world at the beginning of the twentieth century (Falola and Genova 2005, p.30). Thus, this company began its expansion in order to ensure that it was able to increase its presence at the international level. One of its first major efforts of expansion was done in 1919 when it made an acquisition of Mexican Eagle Petroleum Company which later became Shell-Mex whose brands were sold mainly in the United Kingdom. This company also formed Shell Chemicals with the aim of cornering the petrochemical market and this would in time develop into one of the largest companies within this sector (Aftalion 2001, p.142). Through the swift expansion, by the end of the 1920s, Royal Dutch Shell was the leading oil company in the world controlling a market share of some 11% of the global supply of crude. At the beginning of the 1930s, the world was reeling from the effects of the Great Depression, which had made the economic situation quite uncertain. A strategic move that Royal Dutch Shell took to ensure that it survived these tough economic times was a move it took, in collaboration with British Petroleum (BP), to merge the marketing operations of Shell-Mex and BP in the UK. This strategy can be considered to have taken place as a result of a change in the corporate culture of Shell with the aim of achieving specific objectives, mainly in marketing its products in a major market during a period of crisis (Milanovic 2012, p.2). Moreover, this strategy proved to be quite productive because it allowed for the development of a brand partnership that would last for about forty four years; leading to mutual support in brand development during difficult times. It marked another evolutionary aspect that had developed within this company as it attempted to adapt to a new environment through active marketing collaboration with a company that under normal circumstances was its rival (Sarala and Vaara 2010, p.1365). Thus, through this strategy, Royal Dutch Shell aimed at attaining long term objectives which would not only have ensured its continued dominance over a significant portion of the market, but also allowed it to enter newer markets that helped its success. The ability of Royal Dutch Shell to evolve can be attributed to its overall strategy of ensuring that it remained a significant player in the market while at the same time maximizing the opportunities that could be found within it. Langlois’s vanishing hand theory suggests that multinational corporations often evolve as a result of population growth, increase in income, as well as a reduction to technological barriers (Langlois 1998, p.184). This growth allows them to ensure that they are able to adjust themselves into new situations in such a way that they can achieve their long term objectives (Milanovic 2003, p.676). The process of evolution within Royal Dutch Shell can be considered to have developed in such a way that it allowed for this corporation to adapt to different environments created by new markets so that it could go beyond its traditional sphere to a global scale. The changing global economy has made it imperative for multinationals to ensure that they evolve in order to remain relevant, and within this evolution has developed the concept of corporate social responsibility; measures taken by multinationals to help locals in the areas where they have operations (Bhagwati 2007, p.211). However, the evolution and growth process often carries with it many risks, which, if overcome, might bring about the realization of the long term goals of multinationals. Over the years, there were many risk factors that had to be considered before Royal Dutch Shell could expand into newer markets. One of these was that the company would not be able to execute the long term goals it had set for the year. Expanding international operations had the risk of subjecting the company to risks that might have had material adverse effects on the business (Langlois 1994, p.118). However, through efficient strategic alignment to ensure greater efficiency, Royal Dutch Shell was able to ensure that most of its operations were successful internationally. Moreover, due to the slowing of economic growth in the early part of the century, the company found that it could not be able to raise the necessary funding to execute its strategies in the coming years because of the low sales which it was likely to experience. The result was that the Dutch and British divisions of the company were finally merged to ensure that their resources were brought together in a bid to better survive the highly competitive business environment that had developed. Through the merger of its operations, Royal Dutch Shell was able to adjust its structure sufficiently to develop a pattern that brought about a reduction of the risk of its making losses in its sales (Kirkland, 2014). A major advantage that Royal Dutch Shell has over some of its smaller rivals is that it does not rely heavily on external sources in order to gain the finances needed to run a significant portion of its operations. A company that has ready finances to ensure that its operations are kept going tends to be more successful than one which relies almost entirely on external sources of finance in order to make fund its operations. In conclusion, the discussion above deals with how Royal Dutch Shell has continuously grown and evolved according to the different circumstances that it has encountered; essentially ensuring its success where many others have failed. It is stated that at the period of its formation, the two parts of Royal Dutch Shell were not merged, but their operations were kept separate as a result of nationalist sentiments in both the Netherlands and the United Kingdom. Furthermore, this company chose to begin its expansion strategy as a result of the favorable economic situation that was prevalent after the First World War. However, when tough economic times came about in the late 1920s, a strategic move that Royal Dutch Shell took to ensure that it survived this period was one, in collaboration with British Petroleum (BP), to merge the marketing operations of Shell-Mex and BP in the UK. In addition, the ability of Royal Dutch Shell to evolve has been attributed to its overall strategy of ensuring that it remained a significant player in the market while at the same time maximizing the opportunities that could be found within it. It is also essential to note that the expanding of its international operations had the risk of subjecting the company to risks that might have had material adverse effects on the business. Despite this, a major advantage that Royal Dutch Shell has over some of its smaller rivals is that it does not rely heavily on external sources in order to gain the finances needed to run a significant portion of its operations. References Aftalion, F., 2001. A History of the International Chemical Industry. Chemical Heritage Foundation. Bhagwati, J., 2007. “Why multinationals help to reduce poverty.” The World Economy, 30(2), pp. 211 – 228. Chandler, A.D., 1990. Scale and Scope: The Dynamics of Industrial Capitalism. Boston: Harvard University Press. Falola, T. & Genova, A., 2005. The Politics of the Global Oil Industry: An Introduction. Santa Barbara, California: Greenwood Publishing Group. Gerretson, F.C., 1953. History of the Royal Dutch. Brill Archive. p. 346. Gopalan, S. & Stahl, A., 1998. "Application of American management theories and practices to the Indian business environment: Understanding the impact of national culture", American Business Review,  16(2), pp. 30-41. Jones, G., 2005. Multinationals and Global Capitalism: from the nineteenth to the twenty first centuries. Oxford, Oxford University Press. Kirkland, R., 2014. Leading in the 21st century: An interview with Shells Ann Pickard. New York City, NY: McKinsey & Company. Langlois, R.N. 1994, “Risk and Uncertainty.” In Peter Boettke (ed.), The Elgar Companion to Austrian Economics. Brookfield, Vermont, Edward Elgar Publishing. Langlois, R.N. 1998, “Capabilities and the theory of the firm.” In N. J. Foss and B. J. Loasby (eds.), Economic Organisation, Capabilities and Co-ordination. London, Routledge. Milanovic, B. 2003, “The Two Faces of Globalization: Against Globalization as we know it.” World Development, 31(4), pp. 667-683. Milanovic, B. 2012, “Global Income Inequality by the Numbers.” Policy Research Working Paper 6259. Sarala, R.M. & Vaara, E., 2010. "Cultural differences, convergence, and crossvergence as explanations of knowledge transfer in international acquisitions", Journal of International Business Studies, 41(8), pp. 1365-1390. Read More