Globalization and Its Numerous Effects on the Oil Industry - Coursework Example

OIL INDUSTRY   According to (Ghosh and Prelas, 2009), the oil industry has proved to be a major driver of economies and developments. The industry generally brings together organizations that engage in the extraction, refining, exploration, marketing and transportation of products made from petroleum and more so oil. While oil is used in the production of countless products, major products in this category include gasoline, diesel, ethane and other fuel oils. Chemical products such as plastics, solvents, fertilizers, pesticides and pharmaceuticals are also derivatives of oil. In essence the oil industry plays an integral role in the maintenance and running of countless other industries. Oil being a non-renewable resource, is believed to be getting depleted from world reservoirs at an alarming rate. In fact, it is believed, according to the Hubbert peak theory, that after this peak oil production era – thanks to globalization, depletion will be on the offing (Ghosh and Prelas, 2009; Hubbertpeak, 2003). Together with other factors that affect the oil industry, globalization has had its very fair share of play in determining the course and orientation of the industry as a whole. The following sections of this paper will seek to analyze globalization and its numerous effects on the oil industry. GLOBALIZATION Thanks to globalization, today regional societies, economies, and cultures are more and more becoming integrated with international exchange and communication network taking centre stage (Malcolm, 2001). Through capital flows, foreign trade and investment, spread of technology and migration, national economies are undergoing integrative processes that eventually result in the formation of wider and growing international economies. In other words, globalization is often driven by a number of factors. In general, these include biological, political, technological and socio-cultural factors. In fact, previously unprecedented developments in transportation, computer technology and communication have given new impetus to growing regional interdependence. Generally according to (Malcolm, 2001), the effects of globalization include considerable reduction in transportation costs, less control over capital and markets, less trade restrictions and tariffs. Like in many other industries and sectors, globalization has had tremendous effects on the oil and petroleum industry. Its effects have been far reaching; affecting players both within and outside national and regional boundaries. As a direct result of globalization, today, several multinational oil companies engage in business and therefore offer their products to a world-wide market. In other words, markets for oil and petroleum products have increasingly become, in nature, global. EFFECTS OF GLOBALIZATION ON THE OIL INDUSTRY CHANGING MANAGEMENT STRATEGIES As technology has continued to increase and global oil reserves continually get depleted, great changes have been observed in the oil industry. The development of alternative technologies such as hybrid vehicles and battery powered vehicles although welcomed globally as a stride in the right direction will possibly pose a challenge to the demand of oil. Marketing strategies adopted and implemented by oil companies have therefore had to change with a view of targeting new markets that are culturally diverse. One notable effect of globalization thus is the employment of a work force that is culturally diverse, this aimed at serving people every particular region better and easing communication barriers. On the other hand, governments and multinational companies in an effort to meet growing demand for petroleum products (of course accompanied by the urge to mint more money) have embarked on serious oil exploration missions. African countries such as Sudan, Kenya and Uganda are viable examples in this case. Companies also are putting measures to increase productivity have continued to engage in upgrading and expansion of their facilities. India and China’s high demands have contributed to the ever increasing cost of fuel (Nersesian, 2006). As organizations struggle to supply the huge customer base, potential suppliers to the gas and oil industry distributed across the globe have opted to source certain services and products from countries whose cost of labour are significantly cheap like India and China. Many international gas and oil companies have in this respect developed and extended their supply chains to previously unprecedented levels (Nersesian, 2006). As a result of globalization, gas and oil companies have had to opt for the purchase of high volumes of more affordable services and products mostly from markets that are emerging as stated by Woolfson, Foster and Matthias (1996). While low-cost, high quality suppliers have benefitted from this move, oil companies have experienced an increase in risk from their supply chains. Forward minded managers of oil companies have therefore implemented effective systems to monitor the ethical standards, products and services of their suppliers. This move has however accentuated the need for better risk management processes for the supply chains. The companies have to institute measures to ensure that the quality of services and products offered by their suppliers meet their specific requirements in terms of ethical, legal and social standards. In view of this requirement, oil companies must continuously monitor the organizations that together make up their supply chains (Jerome, 2006). In order to assure high product standards, for example, some companies have established sophisticated processes and procedures that go a long way in pre-qualifying potential suppliers. This of course goes hand in hand with the maintenance of data regarding suppliers in a safe database – one that is secure and reliable. This means that companies have to invest considerably in information and security systems. Previously, players in the oil industry built, with their trusted suppliers, long-term relationships. Globalization has however seen the proliferation of several potential players in oil supply chain. Many untested suppliers therefore exist most of who may be outsourced or sub-contracted, extending further the supply chain. Collecting information and determining the suitability for contracting of cheap suppliers from other countries has remained in itself a complex challenge. In order for oil companies to achieve their strategic objective, they need to have well established and up-to-date supplier databases. One Company that has built such a database is Nigeria’s National Petroleum Corporation (European Gas and Oil, 2006). Globalization has also helped solve a number of challenges. International oil companies today more than ever are willing to enter into long-term contracts with suppliers. Through this means, the buyer hedges against ever increasing costs. This also helps in hedging against potential scarcity of services and products. The rise of Russia’s Gazprom, Brazil’s Petrobras Saudi Aramco, Venezuela’s PDVSA, CNPC of China, Petronas of Malaysia and NIOC of Iran (collectively known as the seven new sisters) has led to great changes in the gas and oil landscape (European Gas and Oil, 2006). The seven national oil companies (NOCs) which generally control about 40% of global reserves together with others with similar objectives are continually expanding their supply chains both within and outside their countries of origin. Scarcity of goods, services, skilled labour and oil as a result of issues related to globalization has grossly hindered growth of the oil industry. With NOC reserves rapidly declining and getting limited to the service of well established oil corporations, traditional oil firms have to consider venturing into oil exploration activities in oil fields that are considered hard to access such as Canada’s sand oils (European Gas and Oil, 2006). Exploration of oil in such places require sophisticated technology most of which may only be gotten from certain suppliers. Further, such activities may only be performed profitably when oil prices are high as their running costs are considerably higher than those of traditional fields. With an aim of encouraging globalization, governments have had to dismantle trade barriers and take other measures to open up national oil markets to international investors. Further, governments’ policies on the petroleum industry and its regulation have often impacted the operations of oil companies. The Indian government, for example, has changed the legality of the Oil and Natural Gas Commission to a fully fledged corporation. Yet again, the same government offered foreign companies such as Videocon Petroleum Ltd, Command Petroleum, Enron Oil and Gas Company, Ravva Oil Ltd., and Reliance Industries Ltd. contracts to discover and explore oil fields (European Gas and Oil, 2006). In addition, the country has offered favourable terms and conditions for petroleum related investments which have in effect spurred growth in the country’s oil industry. Since skills shortages have resulted from the scramble by companies to hire highly trained and experienced personnel, oil companies have had recruit lower level and fresh talent that must then move up through the ranks. The management of oil companies have in this respect had to fill this gap by encouraging experienced personnel and graduates from other industries to join the oil industry. This however admittedly may not solve the problem in the long run. With a view of solving the labour problem, the industry has also had to combine procurement resources by establishing a database of pre-qualified persons/suppliers that is shared. PEOPLE MANAGEMENT, ENVIRONMENTAL AND ETHICAL ISSUES Corporate social responsibility (CRS) has been an issue of great concern with the development of a globalized economy. The oil companies and other stakeholders in the industry having faced a number of environmental damages and disasters in the past few years have had to embed corporate social responsibility at the core of their public relations and strategic plans (Subhabrata, 2007). In Nigeria and other African countries for example, multinational oil companies have been accused of exploiting countries’ oil reserves at the expanse of the country and its citizens (Lai, n.d). This embedding has been done with an aim of maintaining or improving organizations’ reputations and their sustainability. Yet again, the measure has been taken in response to increasing pressure from customers, investors, stakeholders, media, trade unions, employers, and governments. The level of public relations and CSR will only with time increase. While appreciating its importance to humanity, the oil industry has contributed majorly to global pollution. During exploration, drilling, transportation and refining, oil has in some way or another led to water, air, and land pollution (Lai, n.d). Oil spills from tankers for example, have resulted in large scale pollution of sea and ocean waters in many cases. Combustion of oil and its products and by-products has always been accompanied by green house gases and other harmful products (Lai, n.d). With the European Union proposing to reduce by 20% greenhouse gases emission by 2020, the oil industry would definitely be impacted greatly (Weyant and Gaskins, 2009). The industry may soon have to record its carbon emission level including those of company supply chains wherever they are located across the globe. On a different level, carbon emission level has been used globally as a key competitive factor in the oil industry (Weyant and Gaskins, 2009). Players in the oil industry have continually to maintain their awareness of their reputation and touch with the global society if they have to operate under favourable conditions and succeed. It is in this regard that oil companies are always instituting measures for environmental stewardship, promotion of local industry and fair dealing. Employees contribute a lot to the success of every organization and industry (Renckly and Renckly, 2003). Oil companies have continuously made efforts to ensure that their staff are adequately compensated and motivated, while at the same time minimizing costs by employing personnel from low-cost countries. In order to remain technologically up-to-date in the global sense, many players in the oil industry have established training programs for their employees. This also ensures that the industry’s overall performance is improved against competitors. CONCLUSION Companies and industries that operate across geographical borders definitely face a myriad of complex challenges. While managers have to consider the core objectives of their companies, they also have to balance these effectively with ethical concerns and somehow meet the high expectations from all constituents. To meet such challenges, the company’s management must continuously redesign leadership programs and effectively prepare to manage the complex mix of factors that affect the organization. While seeking to maximize shareholder benefits, an oil company must work towards gaining a competitive advantage over the global market. This must be done in view of corporate culture while ensuring commitment to ethical globalizations for the organization to remain on the success path. In general, globalization has greatly impacted the way companies operate. Greater levels of transparency, authenticity, accountability and integrity have been achieved following close stakeholder scrutiny of various industries and companies. In respect of the above facts, companies in the oil industry have often engaged in research to establish the impacts and possible correlations that exist between different variables that that affect the industry. The organizations have also noted the importance of embracing new information and communication technologies which in a significant way help in improving organizational efficiency. REFERENCES European Oil and Gas (2006) The Future of the Supply Chain, available http://www.europeanoilandgas.co.uk/article-page.php?contentid=3851 [retrieved 28th October, 2009] Ghosh T. K. and Prelas M. A. (2009) Energy Resources and Systems: Fundamentals and Non-Renewable Resources, ‎Springer. http://books.google.com/books?id=fzHJo8ttinQC&pg=PT660&dq=Hubbert+peak+theory&ei=g9DqSpukKaCeygTso8zwCw&client=firefox-a#v=onepage&q=Hubbert%20peak%20theory&f=false Hubbertpeak (2003) The Hubbert Peak for World Oil, Available http://www.hubbertpeak.com/summary.htm [retrieved 28th October, 2009] Jerome D. D. (2006) The Changing World of Oil: An Analysis of Corporate Change and Adaptation (Illustrated ed.), Ashgate Publishing, Ltd. http://books.google.com/books?id=bMnyOlROmnQC&pg=PA85&dq=oil+companies+supply+chains&ei=FfXqSv_zCYmmNenEgNQL&client=firefox-a#v=onepage&q=oil%20companies%20supply%20chains&f=false Lai D. C. (n.d) The impacts of Oil Exploitation on Rural Communities, National Geographic. http://209.85.229.132/search?q=cache:2r31eUMEkA4J:www.bolodemang.de/wp-content/uploads/2006/07/Oil%2520Exploitation.pdf+niger+oil+explotation&cd=2&hl=en&ct=clnk&client=firefox-a Malcolm W. (2001) Globalization (2nd ed.) illustrated. Publisher Routledge. http://books.google.com/books?id=zlayXJxb8aoC&printsec=frontcover&dq=globalization&ei=XtTqSsmRAYSOygSKpojuDg#v=onepage&q=&f=false Nersesian R. L. (2006) Energy for the 21st Century: A Comprehensive Guide to Conventional and Alternative sources (Illustrated ed.), M.E. Sharpe http://books.google.com/books?id=LQSCHNH_TM4C&pg=PA372&dq=india+china+high+oil+demands&ei=Y-7qSt7EI4eENJji-OQL#v=onepage&q=&f=false Owens W. (2001) The Paradox of Poverty and Corporate Globalization International Conference on Globalisation, available http://www.waado.org/environment/OilCompanies/Globalization_OwensWiwa.html [retrieved 28th October, 2009] Subhabrata B. B. (2007) Corporate Social Responsibility: The Good, the Bad and the Ugly, Edward Elgar Publishing. http://books.google.com/books?id=nEupMc47JB8C&pg=PA53&dq=oil+companies+corporate+social+responsibility&ei=sgLrSqfxOI7CMsrFrdkD&client=firefox-a#v=onepage&q=oil%20companies%20corporate%20social%20responsibility&f=false Renckly R. B., Renckly R. G. (2003) Human Resources, Barron Publishers. http://books.google.com/books?id=BlJnqaIFFKsC&pg=PA19&lpg=PA19&dq=human+resource+important+asset+to+company&source=bl&ots=FmylV9rwEz&sig=PmnwHr5jZnu-c1TepTw-ix85c4Q&hl=en&ei=HOvqSouJMo-8jAf9hr2YDQ&sa=X&oi=book_result&ct=result&resnum=6&ved=0CB0Q6AEwBQ#v=onepage&q=human%20resource%20important%20asset%20to%20company&f=false Weyant P. and Gaskins D. (2009) Model comparison of the cost of reducing CO2 Emissions, Jstor org. http://www.jstor.org/pss/2117684 Woolfson C., Foster J., Matthias B. (1996) Paying for the Piper: Capital And Labour in Britains Offshore Oil Industry : Employment and work relations in context Women, Theatre and Performance (Illustrated ed.,), Routledge. http://books.google.com/books?id=auoY6HcXROAC&pg=PA527&dq=oil+companies+low+cost+labour&ei=SffqSuGgPJa6M_Ttpc8L&client=firefox-a#v=onepage&q=oil%20companies%20low%20cost%20labour&f=false Read More