Analysis of Shell Dutch Plc Operations - Case Study Example

Firm’s Operations Shell Dutch Plc or simply Shell has Dutch as well as Britain origins and was ranked as world’s largest organization by Fortune during 20091. It is considered as one of the most successful organizations which also happen to be completely vertically integrated with operations in three major areas of oil exploration, natural gas as well as oil marketing. It also indicates that the firm serves both the segments of the market i.e. oil exploration as well as selling to retail customers. Truly following a transnational strategy of operating into many international countries, the operational activities of the firm are well diversified and Shell has been able to tap most of the resources at its disposal. As will be discussed below, the upstream operational activities of the firm form the most significant portion of the total operations of the firm with downstream activities duly supporting the firm in maintaining its grip on the market. Shell has its operations in over 140 countries with business in five core areas of exploration of oilfields for production purposes, gas and power business as well as the refining and marketing of the oil. Shell has also operations in such other areas such as alternative energy however, its presence is mostly felt in oil and gas sector. This diversification into key critical business areas of the petrochemical industry therefore reflect upon the fact that Shell is one of the vertically integrated organization with a very well diversified portfolio of products and services. Shell therefore divides its operations into two major categories of upstream and downstream activities. The exact classification of the operation activities therefore are: Upstream Activities 1. Exploration and Production 2. Gas & Power Upstream activities are mostly involved in finding the oil and natural gas outside the America with focus on markets such as Nigeria as well as other oil rich nations. It is also critical to note that most of such activities are performed with the help of forming the joint ventures with local partners mostly the respective governments through their national oil companies or firms. Downstream Activities 1. Chemicals 2. Oil Products 3. Oil Sands The downstream activities of the firm involve oil products which are refined and shipped across the globe. Apart from this, the downstream activities of Shell also include manufacturing of oil lubricants as well as other oil related products which are often sold along with its main oil products. The downstream activities of the firm are also diversified across the globe with major manufacturing concentration into the African continent. It is also important to understand that Shell is serious considering re-examining its downstream activities into almost 21 African countries. What is also critical to note that the operations of Shell are often considered as the environment non-friendly? Various studies conducted by different NGOs and other bodies indicated that the exploration and extraction activities of Shell are most environmentally damaging in nature. Studies also indicate that Shell is most carbon sensitive company in the world with its upstream operational activities contributing most to its carbon sensitive nature. (Rowell) Change in Strategies The changes in the overall competitive environment of the industry have been one of the most dominating factors in the industry. With major oil supply of the under the direct control of few governments including Saudi Arabia and Iraq, Shell has to continuously focus on its core competencies in order compete in the international market. The major competitors of include BP, Exxon Mobil as well as Total however, Shell still holds the key and dominate the market in many segments. What is also however, critical to understand that owing to the changes in the competitive environment, Shell has undertaken a strategy of vertically integrating itself? Vertical integration allows a firm to cover both ends of the market and swings into one market are often covered through favorable movements in the other market. As such this strategy has been successful for the firm to insulate it against the external shocks. The overall strategy of the firm therefore is more focused on upstream activities while at the same time managing the profitable downstream activities of the firm. (Shell). This also means that the changes that took place in the upstream market dominated the strategic orientation of the firm. For example, Shell was heavily criticized for misreporting its reserves by diversifying into other segments of the business such as investing into a project in Qatar for converting natural gas into liquid gas. Further, oil prices are mostly dominated by the OPEC therefore despite having such strong presence in the market, Shell could not exercise the power over pricing issues. The resource constraints that have limited most of the potential of many players into the market have been overcome with the help of expansion into new and unconventional markets. Shell undertook a huge project in the Oil sands of Canada where Shell controls more than 60% stakes to explore the oil. Canada also possesses one of the largest resources of natural gas in the world and Shell has strong presence in the region due to its strategy to explore medium term resources to overcome its resource constraints. One of the emerging trends in the industry is the growing dominance of the developing countries in the oil market. Countries such as Venezuela and Nigeria are mostly dominating the market and can emerge as one of the strongest players in the industry after Saudi Arabia. With known hostility towards Shell, countries like Venezuela can put strong resource constraint on the firm in future. It was therefore because of such reasons that the firm has been extensively engaged in exploring the new and unconventional sites to ensure that it can manage medium term sustainability of its resources. (Crooks) Shell’s decision to invest into regions such as Alaska, Mexico, Canada as well as Australia is also a step towards investing into developed countries where the political risk is at minimum. (Healing) This is mostly due to unfavorable experiences of Shell into markets like Russia where its heavy investments failed due to political reasons. Works Cited 1. Crooks, Ed. "Shell’s strategy seems set to pay dividends." 16 March 2010. Financial Times. 18 April 2010 . 2. Healing, Dan. "Nexen, Shell announce significant oil discovery." March 2010. Ottawa Citizen. 17 April 2010 . 3. Rowell, Andy. "Shell’s Operations Present “Climate Risk” to Investors." 2009. Oil Change International. 18 April 2010 . 4. Shell. "Our Strategy." 2010. Shell.com. 16 April 2010 . Read More