The Emergence of China National Petroleum Corporation as a Global Company - Case Study Example

THE EMERGENCE OF CHINA NATIONAL PETROLEUM CORPORATION AS A GLOBAL COMPANY By Name Course Instructor Institution City/State Date The Emergence of China National Petroleum Corporation as a Global Company Introduction Any decision to enter new international markets has substantial consequences in performance, organisation, management, risk as well as resource terms and intrinsically, the decision is strategic. A decision for international strategic marketing according to Perks et al. (2013, p.132) is complex since managers must understand the attractive markets, choose suitable entry modes and take into account the adaptations of the products/services regardless of the conditions of the external environment and multiple market selections. Decisions for international strategic marketing are approached by managers through different cognitive styles that have an effect on the quality of decision and choice. Such cognitive styles according to Perks et al. (2013, p.132) range from utilisation of tacit and cognitive processes that are socially complex, wherein it becomes easier for managers to capitalise on opportunities of market entry. The aim of the essay is to provide an analysis of how the firm-level and country-level factors can contribute to the success and/or failure of multinational enterprises using China National Petroleum Corporation (CNPC) as the main case study. Another purpose of the essay is to outline the main lessons international business managers can learn concerning the interplay between firm and country-level factors in realising success. The present efforts by emerging countries such as China, Russia, Brazil, and India to become economically sustainable explain why MNEs such as CNPC have continuously been successful. As it will be evidenced in the essay, CNPC have ensured profitability across the value chains within their global ventures. Scores of MNEs from emerging economies are pursuing global strategies with the goal of achieving competitive advantage, but inability to understand global competition dynamics and the nature of global markets have resulted in failure. Discussion As mentioned by Twarowska and Kąkol (2013, p.1006), companies enter international markets for different reasons, but the main objective is for expansion or growth. Basically, for expansion and diversification of business, every company needs an international strategy. As observed by Luo (2004, p.57), MNEs that operate in emerging markets are likely to succeed because such markets are becoming stronger. Still, such markets are very unstable, unpredictable and less profitable. Therefore, understanding various challenges that face MNEs in international markets is important for managers seeking to become stable in such markets. The main challenge that MNEs from emerging markets face in these markets is globalisation since integrating global market forces in institutionalised practices and shared values as well as reducing the gap in global governance structures is very challenging. Other challenges include adapting the cultural practices, standards and differences and also political instability, which normally is related to emerging or developing economies where MNEs come from. Additionally, corporate social responsibility (CSR) is becoming a major problem for MNEs, especially those that operate in emerging countries. According to Gaspar et al. (2016, p.209), MNEs should balance their economic development role with that of social responsibilities towards the host country. Even though China National Petroleum Corporation (CNPC) domestically has low resources, it is presently ranked third because of its accelerated internationalisation as well as effective management of the integrated value chain. With the financial backing of Chines government, CNPC always ensure they supply adequate oil and gas to meet the ever-increasing demand. Basically, CNPC global competitive advantage is driven by its financial capabilities and innovation ability that can meet the nature of oil and gas exploration as well as production that is continuously changing. Still, their international strategy is experiencing language and cultural barriers just like other MNEs. Nevertheless, CNCP has ensured they succeed in their strategy, referred as ‘go global’ by means of preserved community support and participation in business operation that is anchored in strong CSR. Internationalisation as opined by Dawson (2007, p.374), is a crucial stage in a company’s on-going integration into a consumer driven market. Beside the strategic goal to increase company’s sales, internationalisation is also caused by the objective to cut costs. Most MNEs, especially the manufacturers look for cheap production with the goal of making prices low and increasing their sales while retailers have to continually reduce their costs so as to compete on price as well as improve their sales. Internationalisation according to Christiansen (2012, p.97) needs MNEs to be aware of the cultures of the local consumers, which could be different from the home cultures. Competitive, economic and geopolitical condition normally changes the expansion direction from markets of higher order to those of lower order. Internationalisation as mentioned by Dymitrowski (2014, p.58), is driven by three main factors; ownership advantages, environmental constraints, and specific advantage of the location. Basically, economic attractiveness is broadly identified as the main motivation for entering foreign market. Chan et al. (2011, p.1007) assert that market attractiveness is created by factors like economic development, public policy environment, cultural assumptions as well as social conditions. Given that the economic development level has an effect on market development, the host’s market characteristics in addition to the prospects of its growth are essential inducements to MNEs looking for profit and growth opportunities. For MNEs that change their offering to a certain culture, they will succeed in expanding to middle-income countries where growth is almost twice than that experienced in the advanced economies. Still, environmental uncertainty is a possible risk to the MNE’s profitability, and this country risk factor involves stability and transparency of the regulatory, financial, legal and political systems. According to Chan et al. (2011, p.1008), MNEs in the process of internationalisation make some major transfers, which include transfers of the business model as well as company’s business culture and its operational systems from the parent country. The performance of the firm is as well influenced by the resources and strategies that support the company in a certain operating environment. Firm resources are processes, knowledge, and assets that enable managers to design as well as put effective and efficient strategies into practice. Experiential knowledge is the most important resource for MNEs since it signifies accumulated hands-on experience or skills, which enable managers to operate efficiently and effectively. By utilising such practical skills to work in teams and solve problems, the firm is able to generate a systematic and rich body adapted exclusively to the company. Such organisational practices are included in the firm with the goal of generating unique firm competences that can be utilised to create valuable outcomes. CPNC understands the significance of experiential knowledge to the firm performance; therefore, the firm place emphasis on the expansion management and foreign market selection. The firm has codified its operational knowledge as well as the information of the host country market into processes such as decision support systems and routines to generate a knowledge base at the firm level. Akin to internationalisation, competitive advantage is sourced from capabilities and position. For the majority of companies in the oil and gas sector, the incumbency (first-entrant) advantage is considered to be a driver of their positional advantage, but for the late movers they source their competitive advantage from learning. Concerning capabilities, competitive advantage could be sourced from the ability of the firm to move to core competences that are inimitable and rare. Still, it is not easy to gain competitive advantage from resources that are unique in the petroleum industry. Bearing in mind that the leadership of the company comprises mainly of Chinese management with domestic experience and education, CNPC seems to be making good strides in their global operations. The success has been caused by numerous factors, which includes fast adaptation and learning pace to the carious geographic settings. This has as well been caused by visionary leadership from a well-instituted management team. China’s MNEs according to Fornes and Butt-Philip (2011, p.101) are painfully weak in regard to the global giants because of poor R&D, brands development, marketing ability as well as the restrictions from the authorities. CNPC faced a number of challenges in the international markets; for instance, product differentiation is very challenging and normally rare since the end product is always the same regardless of the geographic location. Still, a number of companies have tried to subtlety differentiate their products such as Shell, which has graded its oil product into Shell V-Power and Shell Extra, where the former is more costly since it guarantees improved performance in cars. Still, a key driver highlighting the industry’s most differentiation is operational and process oriented as well as achieved through advancement of technology. Without a doubt, technology is changing fast and is becoming more and more complex across different industries. Even though the general environment of the international markets have an effect on the overall internationalisation decisions, the managers decisions to expand the business to a certain country is mostly influenced by conditions of that country. A number of country-level factors were considered by CNPC while expanding to international markets; economic and political stability, institutions and culture as well as the ‘created assets’ in the country’s stock. In its international operations, CNPC has experienced a number of barriers; for instance, oil and gas industry is exceedingly competitive since companies are using various strategies to look for and develop reserves where they can sustain profitability and also get competitive edge. In international market, barriers are normally inevitable and create a vital part of strategies. The main key challenges that CNPC face is language and cultural barriers. For instance, CNPC leaders are from China and the Chinese culture is not compatible with many cultures across the globe with their leader-subordinate view dwelling on individual accountability. With regard to language, CNPC operate mainly in African countries, which mainly have Portuguese, French and English as their main language; therefore, they use these languages for businesses communication. As a result, this generates communication challenges for CNPC managers since they lack enough knowledge about these languages. Efforts by governments and OPEC to coordinate operations and policies of both national oil companies (NOCs) and International Oil Companies (IOCs) so as to maintain some power balance in the sector presented some challenges to CNPC. China is well known to have environmental regulations that are less rigorous as compared to the developed world. CNPC familiarity with domestic regulations that are more relaxed has made it to experience challenges in countries having strict rules and regulations. Moreover, CNPC is facing more challenges in utilising local partners and employees that could help with language and cultural adjustment, but majority of them have uncertain industrial know-how. CNPC has overcome most of its barriers through Corporate Social Responsibility (CSR) (Downs, 2008, p.31). Increasing internationalisation creates the need for ensuring business continuity by means of satisfying stakeholders through CSR. For scores of companies, CSR connotes accountability mainly to the external stakeholders, but for CNPC CSR covers the whole span of stakeholders by means of sustainable energy supply, employee development, responsible operations and public welfare (Wolfe & Evans, 2011, p.86). For instance, CNPC is engaging in security anti-terrorism efforts overseas, and this effort has turned out to be more laudable after Algeria’s Amenas gas hostage crisis that occurred in 2013. Considering that CNPC operates in counties such as Algeria, Iraq, Syria and Sudan, its CSR efforts offers its employees a sense of security. From the CNPC case, international managers should learn that international competitiveness depends on the relationship between a firm-specific advantages (unique capabilities) and country-specific advantages (its assets from home country). International managers can improve their firm’s scope and economies of scale by ensuring that activities in the home country are integrated to attain cost-effectiveness in marketing strategy application. Additionally, managers should understand that the cost involved in the transfer and use of firm’s strategy is more inclined to increase the economic distances, psychic, geographic and institutional function. As argued by Rugman et al. (2011, p.21), managers have to comprehend the liability and reality of being an international firm since for a company to become an international firm it must have strong firm-specific advantages. International competitiveness relies on the ability of the firm to build firm-specific advantages anchored on home and national region country-specific advantages. Furthermore, managers should understand that country risk assessment (financial, economic and political risks) is an important process in examining the decisions for foreign investment. Economic indicators for a country that the company should not invest include a currency crisis and also inflation while political risk involve business transactions interference by the host country’s government such as introduction of new non-tariff and tariff barriers, profit repatriation, restricting imports as well as confiscating assets or properties. Political risk also includes political violence and uncertainty as evidence recently during the Arab Spring and in other countries such as Vietnam and Thailand. Managers should understand the various ways to enter international markets; for instance, CNPC used acquisition as well as Strategic Action Purchasing to enter the foreign oil resources market. Its overseas oil and gas was enhanced by the purchase of Kazakhstan Oil Company and also the acquisition of PetroKazakhstan (PK) (Min & Bin, 2014, p.122). Internationalisation process as evidenced by CNPC’s overseas investments should be a gradual process that involves three stages: the start, stable growth and finally scale expansion. A number of studies such as Perks et al. (2013, p.134) have established that most international managers are inclined to new markets, which have similar business systems, languages, level of economic development as well as cultures. Such resemblances as well as close psychic distances can decrease the foreignness liabilities that are caused by unfamiliarity with new environments since the managers’ lack of experience and knowledge. For this reason, MNEs together with their managers are inclined to consider cultural distance or closeness to their home country as crucial while searching market(s) to enter. Culturally, group cohesiveness as well as homogeneous management teams are more crucial for strategies implementation and effective performance outcomes, give that group behaviour and norms lead to more cooperation and consensus that underpin the action of the managers, as compared to teams that are socially and culturally diverse. Conclusion In conclusion, the essay has provided evidence that proves MNEs from emerging economies are pursuing global strategies with the goal of achieving competitive advantage, but inability to understand global competition dynamics and the nature of global markets have resulted to failure. As mentioned in the essay, firm-Specific factors that affect define the success or failure of MNE in the international market include ability to access regional trading market, accessibility to resources and first-mover advantages. On the other hand, country-specific factors such as economic and political stability, government policies and culture also have an effect on the firm’s decision to go international. The ability of MNE as evidenced by CNPC to develop a global organisational capability in a competitive environment is a crucial factor that can help the firm to become accustomed to the dynamic environment changes. Globalisation as mentioned in the essay is making the traditional ways of conducting business inapt; therefore, for managers to succeed they must have a global mind-set. To sum up, the essay has provided evidence that marketing products internationally is difficult and complex due to a number of factors such as international strategic alliances, international marketing control and coordination, selection of global strategy, political stability, and accessibility of resources. References Chan, P., Finnegan, C. & Sternquist, B., 2011. Country and firm level factors in international retail expansion. European Journal of Marketing, vol. 45, no. 6, pp.1005-22. Christiansen, B., 2012. Cultural Variations and Business Performance: Contemporary Globalism: Contemporary Globalism. Hershey, PA: IGI Global. Dawson, J., 2007. Scoping and conceptualizing retailer internationalization. Journal of Economic Geography, vol. 7, no. 4, pp.373-97. Downs, E., 2008. China’s NOCs: lessons learned from adventures abroad. In Wright, C.J. & Gallun, R.A. Fundamentals of Oil & Gas Accounting. London: PennWell Books. pp.27-31. Dymitrowski, A., 2014. The Role of Innovations Created in the Internationalization Process for Company Performance. Wydawnictwo Naukowe PWN SA. Fornes, G. & Butt-Philip, A., 2011. Chinese MNEs and Latin America: a review. International Journal of Emerging Markets, vol. 6, no. 2, pp.98-117. Gaspar, J. et al., 2016. Introduction to Global Business: Understanding the International Environment & Global Business Functions. New York: Cengage Learning. Luo, Y., 2004. Coopetition in International Business. Copenhagen : Copenhagen Business School Press DK. Min, Z. & Bin, P., 2014. The Internationalization Evolution and Development of China National Petroleum. International Journal of Business and Social Science, vol. 5, no. 10, pp.119-24. Perks, K.J., Hogan, S.P. & Shukla, P., 2013. The effect of multi-level factors on MNEs’ market entry success in a small emerging market. Asia Pacific Journal of Marketing and Logistics, vol. 25, no. 1, pp.131-43. Rugman, A.M., Oh, C.H. & Lim, D.S.K., 2011. The Regional and Global Competitiveness of Multinational Firms. Discussion Paper. St. Catharines, ON: Brock University. Twarowska, K. & Kąkol, M., 2013. International Business Strategy: Reasons and Forms of Expansion Into Foreign Markets. In International Conference of Management, Knowledge and Learning. Zadar,Croatia, 2013. Wolfe, W.M. & Evans, A.S.L., 2011. China’s Energy Investments and the Corporate Social Responsibility Imperative. Journal of International Law and International Relations, vol. 6, no. 2, pp.83-108. Read More