The Success of British Petroleum in China - Case Study Example

Name Course Lecture Date Introduction Over the years, emerging markets are said to have attracted a lot of attention and this is mainly based on their immense growth. Some major characteristics of the emerging market is that they have a very large growing population, a rapidly integration information and communication system as a well as a strong GDP. An improvement in the purchasing power of individuals, higher incomes levels and the augmentation in living standards in the emerging markets has been a major contributing factor to a great number of foreign investors and it has also attracted a lot of MNCs. The opportunities that are available in the emerging markets are in a way creating an environment of business where there is skillful manpower as well as other kinds of logistic support. This essay therefore sets out to use an example of an MNC from an emerging market, present an analysis of; the firm-level and country-level factors that have contributed to its success. There will also be a discussion of the main lessons international business managers can learn about the interplay between firm and country-level factors in achieving success. BP BP plc which was also referred by its former name as British Petroleum is among the globe’s seven super major gas and oil companies (Bergin). BP is a multinational company with headquarters in London and based on its performance, it was rated by market capitalization as the sixth largest energy company as well as the sixth oil and gas company (IHS Energy 50) as well as being the fifth largest in terms of generated revenues. BP is a vertically integrated company and operates in almost all areas of the oil and gas industry such as in the production and exploration, marketing and distribution, refining, power generation and trading just to mention a few. The origin of the company dates back to the year 1908 and by them it was referred to as Anglo-Persian Oil Company which was a subsidiary of Burmah Oil Company and it was to exploit the oil discoveries that had been made in Iran. Over the years the company has changed names to what it is referred to as now (BBC News). BP has its operations in a number of countries such as in India, China, United States, United Kingdom, and Poland and also in China. The main location to be addressed in this case is BP in China. The reason why I have chosen BP in China is based on the fact that, China is currently the second largest economy in the globe and it is likely to overtake countries such as the United States over time. It is also categorized under the emerging markets. China has over time become a major and most attractive market due to its large population, its development potential and the increased disposable income of its population. It has been a popular destination for a great number of MNCs. BP was among the first foreign organizations to start their operations in China. It traded and licensed its technologies in the 1970s and in the 1980s, they moved into the exploration of gas and oil. Since the early 1990s, BP operations in China have expanded into new areas and it has also played an essential role in the economic development of the country (BP Official Website). The success of BP in China has been as a result of the interplay between firm-level factors and country-level factors. As of to date, the oil and gas production and exploration activities in China are still growing tremendously and they are mainly guided by reliability, safety as well as operational excellence. BP also operates in the Chinese aviation fuel markets. The number of BP employees stands at 79, 800 (BP official website). Through their main operating segments that are the downstream as well as upstream, BP can find, develop and at the same time produce essential sources of energy, they turn them into the products that are needed by their consumers. The operations and projects run by BP play an essential role in generating employment, tax revenues and investment in countries and communities in which they operate in all over the globe (BP Annual Report 47). Over the years BP has made a number of acquisitions which shows its success in various international markets. For example, based on the Oil and Gas Journal, BP Amoco as it was referred to as then, signed a deal with the FTC and acquired Arco. Another acquisition that depicts BP’s success in international market is that, when they expanded their operations in New Mexico as a result of the acquisition of the Devon Energy’s assets (World Oil), BP had also earlier merged with the American oil giant for a total amount of $48.2 billion (Ibraham 1). Based on Kirca et al., a number of factors such as the individual, group, industry, firm and country level factors potentially impact the multi-nationality of a firm (699). Firm-level factors A number of firm level factors have in a way contributed to the international success of BP in the Chinese market and they include factors such as multinational experience, firm size, and the resources of the firm and the ease of access to markets (Short et al. 160). BP has achieved its international success by offering the best quality products to the public in the areas that they operate in and also, by acting in the interests of the shareholders, partners and the society. In relation to these, BP creates the value of their shareholders by growing sustainable distributions and free cash for a long term basis (BP Annual Report 55). In relation to the age of the firm, BP had been able to developed a strategic culture that rests heavily on their employees since they view them as essential to the future growth of BP. BP is a large company which has operations in some of the major cities and they are aimed at the internalization of the company and also in ensuring that they increase their presence in the market by basing their operations in areas that they are currently not into. It is commonly argued that, it is easier for firms with a strong presence to internalize as compared to the small firms (Brouther & Brouthers 180). This idea is based on the fact that, the firms tend to have the knowledge to tackle any risks that they are likely to face in the new and emerging markets more easily and tactfully since they have the resources (Rugman & Oh 480). Therefore it would be crucial to note that, a major reason for success of BP in China and in other markets can be largely attributed to its size. The history of BP is full of a number of discoveries which dates back to the year 1908 when oil was found in a rugged place of Persia subsequent to a difficult and long search. After this, the company has made discoveries both large and small and this has fuelled their progress (BP Official Website). Since its initiation, BP developed over time and based their operations in a number of countries such as in China. The companies CEOs have a wide range of experience since they have worked in other geographical areas and also in other companies and all this works for the benefit of BP in that it enhances the company success in the international markets. Bigger and already established firms in the already developed countries are more likely to expand internationally as compared to their small firms from the emerging economies. This is based on the fact that, the bigger and already established firms have the capability in terms of personnel and financial resources (Hawawini, Subramanian and Verdin 16). The ease of access to markets is also viewed as determinant of success of an MNC in emerging markets. This idea is further supported by the likes of Dunning and Lundan who purports that, the allure of the new markets in the emerging economics such as China which has the ability to grow seems to be enticing to a great number of firms which wants to expand internationally (86-87). For BP to attain success, it had to diversify and offer its products to a great number of people all over the globe. Based on the fact that BP was among the first MNCs to base their operations in China, they had an advantage over their competitors who came to China much later. Through their early entrance in the market, they had a base of loyal customers and customers also had great confidence in them. Country-level factors In relation to the country level factors, the success of BP in the international markets and mostly in China can be greatly attributed to the political stability in China, market potential and good and effective government policies that enhance business. Though the overall global environment tend to affect the businesses, the success of a business in a country is mainly affects by some aspects in the country of operations, for instance, in this case the success of BP in China will mainly be affected by the conditions in the China (Alashban, et al 30). The political systems in a country also affect the success of a firm in a great way. Firms operating in countries with political instability are more likely to fail since the political instability distracts them from doing business in the most effective manner. For instance, the firms may lose and incur huge losses as a result of riots from the country’s citizens. The success of BP in China is mainly based on the fact that China was and is politically stable hence them are not disrupted from their core objective of conducting business in the country. The political system of China also enhances partnership between different firms (Kirca & Hult 649). In these regard, BP partnered with China national Petroleum Corporation with the aim of expanding their global partnership. This is an expansion of their ongoing partnership and the framework agreement relating to strategic cooperation dealing with potential shale gas exploration as well as production. This partnership was informed by the success of the Rumaila oil field project which has shown that there exists more opportunities for cooperating between the two companies ( Oil & Gas Journal). Policies and regulations related to taxation as acts as major determent of the success of failure of business as business may opt to operate in areas with low tax and regulations. At the same time, some governments also place high taxes on investors to discourage them from conducting business in their countries (Tanzi & Zee). In these regard, BP operates well in China since the policies that are in place are good and effective for them at the time. Prior to entering into the new and emerging markets it is logical for companies to conduct an analysis of the market to ascertain if they are likely to succeed or not. Based on this analysis, the Chinese cultural, economic and political, environment seemed profitable for BP since it indicated that firms were likely to succeed in the country (Ellis 1117). BP mainly gets into new and emerging markets through the use of a number of strategies such as through partnership in countries where direct investment is not welcomed, through joint ventures and also through exports if it seems to be more profitable in comparison to other entry methods. Another country level factors that ensured the success of BP in China is the market ability or potential. Despite making use of a number of strategies to market one’s products firms need to ensure that they have a huge customer base to market their products and services to. In this regard, the Chinese market seems to a large as compared to other emerging markets and thus making it a good place for MNCs to make their investments in. with its large population, China is likely to have as many drivers as the U.S. this means that the consumption rate of petroleum product in the country is also high, thus the success of energy and petroleum firms operating in the country (Yu). China has a total of about 154 million autos and this is mainly as a result of the Chinese accumulation of wealth over the decade and the rise in domestic car manufacturing. Lesson international business managers can learn about their interplay between firm and country-level factors in achieving success The above analysis shows that their interplay between firm and country-level factors in achieving success of the MNCs in the emerging markets. The analysis also shows that a firm cannot rely only on the firm level factors for them to succeed but as a matter of fact they need to take note of the country-level factors. Thus, international managers need to base their operations in countries that are politically and economically stable for them to gain the best from their investments (Caloghirou et al. 243). International Managers also need to learn and acknowledge the fact that the government of the host countries plays a role in their success in the business. Based in these, even though there may be firm level factors ion place, if the government implements laws and policies aimed that are unfavorably the business success will not be achieved since a great amount of the money generated may go into taxes and also in adhering to other policies that the government may have set (Elango 441). International managers also need to acknowledge the important role that is played by an analysis of a market before hand. Through such as analysis, they will identify any challenges that they face and opportunities that have not being exploited fully and takes this as their core aspect to major on when entering and operating in the market. Through these, managers need to ensure that they come up with a list of external aspects that are likely to affect the firm and thus always have a strategy in place to deal with these external threats to the business. Since it is evident that the success of BP in China is as a result of interplay between the firm-level factors and the country-level factors, international managers need to ensure that they assess and integrate in the most effective manner all these factors to ensure their success in international markets (Cleveland, Laroche & Papadopoulos 116). Conclusion In conclusion, it is evident that emerging markets are said to have attracted a lot of attention and this is mainly based on their immense growth. An improvement in the purchasing power of individuals, higher incomes levels and the augmentation in living standards in the emerging markets has been a major contributing factor to a great number of foreign investors and it has also attracted a lot of MNCs. When a firm decides to go international, should acknowledge the firm level factors and the country level factors that are at times major determinants of their success in international markets. International managers also need to learn and take note of the role played by the firm level factors and the country level factors in the internalizations process of their firms so as to enhance their success. Work Cited Alashban, et al. “International Brand- Name Standardization/Adaption: Antecedents and Consequences. “ Journal of International Marketing 10. 3(2002): 22-48. BBC News. “Business: The Company files from Anglo-Persian Oil to BP Amoco.” BBC News. 11 August 1998 .Web 6 April 2016. Bergin, Tom. “Oil major’s output growth hinges on strategy shift.” Reuters Edge. 1 August 2008 .Web 6 April 2016. http://www.reuters.com/article/us-oilmajors-production-idUSL169721220080801 BP Annual Report. “Strategic Report 2014” Web 6 April 2016. http://www.bp.com/content/dam/bp/pdf/investors/bp-strategic-report-2014.pdf BP Official website. “Our History.” BP Website. Web 6 April 2016. . BP Official Website. “BP at a Glance.” Web 6 April 2016. . BP Official Website. “Careers.” Web 6 April 2016. < http://www.bp.com/en/global/bp careers/professionals/locations/china.html>. Brouther, Keith and & Brouthers, Lance. “Explaining the national cultural paradox.” Journal of International Business Studies 32(2001):177–189. Caloghirou, Yannis, et al. “Industry-Versus Firm-specific Effects on Performance: Contrasting SMEs and Large-sized Firms.” European Management Journal, 22 .2 (2004): 231-243. Cleveland, Mark, Laroche, Michel and Papadopoulos, Nikos. “Cosmopolitanism, Consumer Ethnocentrism, and Materialism: An Eight-Country Study of Antecedents and Outcomes.” Journal of International Marketing: 17. 1(2009): 116-146. Dunning, John, and Lundan, Sarianna. Multinational enterprises and the global economy, UK, Edward Elgar, 2008. Print. Elango, Balasubramanian. “Geographic Scope of Operations by Multinational Companies: An Exploratory Study of Regional and Global Strategies.” European Management Journal 22. 4 (2004): 431- 441. Ellis, Paul. “Market orientation and performance: a meta-analysis and cross-national comparisons.” Journal of Management Studies, 43.5(2006): 1089–1117. Hawawini, Gabriel, Subramanian, Venkat and Verdin, Paul. “Is performance driven by industry-or firm-specific factors? A new look at the evidence.” Strategic Management Journal 24. 1(2003):1-16. Ibrahim, Youssef. “British Petroleum is buying Amoco in $48.2 Billion deal.” New York Times. 12 August 1998.Web 6 April 2016. http://www.nytimes.com/1998/08/12/business/british-petroleum-is-buying-amoco-in-48.2-billion-deal.html?pagewanted=all IHS Energy 50. “Firms with Investments in North American Liquids Plays Rewarded by Stock Market in 2013, Says 2014 IHS Energy 50 Ranking of World’s Top Energy Companies.” Web 6 April 2016. Kirca, Ahmet and Hult, Tomas. “Intra-organizational factors and market orientation: the role of national culture.” International Marketing Review 26. 6(2009): 633–650. Kirca, hamlet, Bearden, William & Roth, Kendall Implementation of market orientation in the subsidiaries of global companies: the role of institutional factors, Journal of the acad. Mark. Sci. 2011 39: 693-699. Oil & Gas Journal. “BP, Chinese Companies reach separate LNG, Shale gas pacts” Oil & Gas Journal, 21 October 2015, Web 6 April 2016. http://www.nytimes.com/1998/08/12/business/british-petroleum-is-buying-amoco-in-48.2-billion-deal.html?pagewanted=allhttp://www.ogj.com/articles/2015/10/bp-chinese-companies-reach-separate-lng-shale-gas-pacts.html Rugman, Allan and & Oh, CH. “Does the Regional Nature of Multinationals Affect the Multi-nationality and Performance Relationship?.” International Business Review, 19.5 (2010): 479-488. Short, Jeremy, et al. “Firm, strategic group, and industry influences on performance.” Strategic Management Journal 28 (2007): 147-167 Tanzi, Vito & Zee, Howell. “Tax Policy for Developing Countries” International Monetary Fund, March 2001. Web 6 April 2016. http://www.imf.org/external/pubs/ft/issues/issues27/ World Oil. “BP Expands in New Mexico with acquisition of Devon Energy’s Assets.” World Oil, 18 December 2015. Web 6 April 2016. . Yu, Rose. “China Soon to Have Almost as Many Drivers as U.S. Has People.” China Real Time. 28 November 2014.Web 6 April 2016. . Read More