Management of International Business: Shell in Germany - Term Paper Example

 Management of International Business: Shell in Germany Table of Contents 1. Executive Summary : page 3 2. Introduction : page 4 3. Corporate social responsibility of Shell : page 4 4. Characteristics of Oil industry : page 7 5. Evaluation of Germany for the expansion of Shell : page 8 6. Conclusion & Recommendations : page 10 7. References : page 12 8. Appendix : page 14 Executive Summary Prominent companies are looking for openings in foreign countries in order to expand their business and also to gain more profits at present. Most of the countries liberalized their norms and rules in order to attract the foreign direct investment as much as possible. The role of private capital cannot be neglected as far as the economic development of a country is concerned. Shell is the most influential or biggest oil company in the world. They are one among the bests as far as the commitments to social responsibility are concerned. Apart from one or two incidents, Shell behaved ethically and demonstrated their social commitments in most of the times. They promise less and deliver more. Germany is one among the most influential countries in the world as far as economic growth and size are concerned. After the unification of the Germanys, the unified Germany is more stable politically and economically. Germans are keener in giving more humanitarian look to their economy and hence they will never allow any companies to function in their soil against the will of the public. Shell can operate or expand in German soil if they are able to implement business strategies suitable to the German culture and tradition. This paper Analyses Corporate Social Responsibility Commitments Of Shell Company And Their Future Prospects And Growth Potentials In Germany. Introduction “Royal Dutch/Shell Group of Companies is one of the largest global groups of energy and petrochemicals companies with around 101,000 employees in more than 90 countries and territories” (About Shell, n. d). Shell is expanding rapidly to other countries as a result of the new favorable business climate aroused due to globalization. Shell enjoys monopoly in the global energy market because of their huge financial capabilities and resources. Some of their competitors like British Petroleum suffered major setbacks in the recent times which have increased the business potentials of Shell in different global regions. Germany is one of the prominent countries in the Europe. After the unification of West and East Germanys in 1989, unified Germany has attained a significant role in international arena. The Hitler era is over and the current Germans are keener in working for the growth of their nation rather than expanding their nation to different territories. In other words, Germany is a good place for investments at present because of the better political and economical climates. Organizations which are ready to obey their international obligations can select Germany as a safe place for investments at present. Germans value socially committed organizations very much and they consider the track records of organizations with respect to social responsibility, while purchasing something. Corporate social responsibility of Shell Kotler and Lee (2004) have pointed out that CSR is the “commitment to improve community well-being through discretionary business practices and contributions of the corporate resources” (Kotler &Lee, 2004, p.3). Most of the Shell companies are operating independently in each of the countries, by the people who know the needs of the community and the environment well. They have the authority and autonomy to make all normal business decisions (Nehring, 2002).One of the major success factors of Shell Company is their respect to the community in which they operate. While most of the competitors concentrate only on reaping the profits, Shell is keener in spending a portion of their profit for the wellbeing of the society or community in which it operates. They are giving more emphasize to the environmental protection and hence no major accidents were reported from any of the oil drilling or refining units of Shell. It should be remembered that BP, the major competitor of Shell is currently struggling to regain the lost public confidence after the Mexico oil spill incident. Shell is committed to: Pursue the goal of no harm to people; Protect the environment; Use material and energy efficiently to provide our products and services; Respect our neighbors and contribute to the societies in which we operate; Develop energy resources, products and services consistent with these aims; Publicly report on our performance; Play a leading role in promoting best practice in our industries; and Promote a culture in which all Shell employees share this commitment (HSSE and Social performance – commitment and policy, n. d). Social performance is accepted as the core of Shell’s business strategy for sustainable development. “The term social performance measures how well an institution has translated its social goals into practice. It is measured through the principles, the actions and the corrective measures implemented” (What is Social Performance, n. d, p.1). Most of the big companies declare their corporate social responsibility and these declarations often lie on paper alone. Shell never tried to give false promises to the people as far as social performances are concerned. They always deliver more than what they promise. They normally done things with least publicity compared to other big companies. “Shell company has reportedly paid approximately $36 billion in taxes and royalties from 2005-2008 to the Nigerian government which can be used to promote development, reduce poverty and support economic growth” (Social performance, n. d). It is a well known fact that Nigeria is a poor country which is struggling to find enough resources to eradicate poverty. 36 billion dollar is definitely a huge amount when we consider the overall economic strength of Nigeria. Most of the other companies will try to avoid huge royalty and tax amounts using their political influences whereas Shell never adopted such malpractices and they were more than happy in contributing such a big amount to Nigeria as part of their corporate social responsibility or social performance. Shell has developed a model of social performance with the main areas being philanthropy, social investment, strategic social investment and social impact management. While the former two are familiar as techniques the latter two are seen as the real value creators for the business. All can contribute to good social performance if there is a clear grasp of business and stakeholder requirements. This requires great attention to stakeholder dialogue and integration with the business. Managing social performance in its totality is critical to business success (Jones et al, 2004). Even though, Shell has comparatively better records of social commitments, it doesn’t mean that Shell never faced any criticisms against their corporate social responsibilities. Crawshaw (1995) has reported an incident in which Shell tried to sink the German Brent Spar oil platform at sea which raised many protests in Germany (Crawshaw, 1995). Green peace workers and the German Chancellor himself protested against the efforts of Shell and finally Shell forced abandon their efforts. Sinking of oil platform may cause severe damages to the environment. Shell was never expected or supposed to engage in such terrible activities because of their proclaimed commitments to the environment. But they did so and the investors and the public lost their faith in Shell. They started to visualize Shell as just another company which cheat the public in the name of corporate social responsibility. Shell forced to do lot of hard work to regain their lost image and the confidence of the public and the investors. “Shell is in the firing line over its activities in the Niger delta, where relations with the community have been tense since the deaths of poet activist Ken Saro-Wiwa and eight others who protested about oil activities in the region” (Macalister, 2004). The deaths of poet activist Ken Saro-Wiwa and eight others who protested about oil activities in Nigeria have put Shell under tight defense. Many people in Nigeria believe that the invisible hands which were responsible for the killing of these people was belong to Shell. People in Nigeria started to shot slogans against Shell even though they are paying a huge amount of money to the Nigerian government as part of royalty and taxes. Characteristics of Oil industry Oil is the important energy source available at present. In fact the global economic growth is linked with the availability of oil. Majority of the industrial equipments and automobiles in the world require oil for its operations. Any fluctuations in oil prices can create immense changes in world economy especially in the current era of globalization and liberalization. Variations in oil prices can affect Gross Domestic Product (GDP) growth, unemployment, inflation and also the oil producers as well. 1973 -1975 oil price hike has shocked the world economy. The growth rate fell to 2.1% in 1974 and to 1.45 in 1975. The worldwide trade growth rate also dropped heavily from 12% in 1973 to -5.4% in 1974 and -7.3 in 1975. Foreign Direct Investment (FDI) has dropped from 40% in 1973 to half of it in 1974 (Oil prices and global economy, n. d). (See appendix for more details). The above statistics clearly shows the relation between oil price and global economy. In fact oil is the blood of global economy. The world is moving with the help of the energy provided by the oil. Most of the activities in the industrial world, and the real life situations are heavily depend on the availability of oil. Higher oil prices affect the global economy through a variety of channels: “There will be a transfer of income from oil consumers to oil producers; There will be a rise in the cost of production of goods and services in the economy” (IMF Research Department, 2000) Oil price hike will positively affect the oil producing economies while it will negatively affect the oil consuming economies. Oil resources are exhausting day by day and the over dependency of global economy on oil resources may damage the global economy in near future itself. It is necessary for us to find out new sources as a substitute for oil. Evaluation of Germany for the expansion of Shell As per the statistics available in 2010, Germany has the largest population in the European Union with 81.8 inhabitants. Germany is one country which is targeted by the immigrants all over the world because of the size and growth of the German economy. The standard of living in Germany is comparatively on the higher side. Germany is currently ranked 4th in terms of nominal GDP and 5th in terms of purchasing power. Moreover, it is ranked second in the world as far as imports and exports are concerned. Apart from economic growth, Germany is also the hub of global scientific and technological developments (Germany Economy, n. d) Even though German economy has significant ranks in the world, the availability of raw materials in Germany is very poor. Only lignite and potash are the major natural resources available in Germany. Oil and natural gases for domestic use are imported from other countries. Service sector is contributing heavily to the German GDP growth and the revenue from agriculture and other natural resources are minimal. However, industrial sector in Germany is one among the largest in the world. Mercedes, BMW etc are some of the prestigious German car makers in the world. Unemployment rate in Germany is comparatively low in the European Union. German economy was somewhat stable even when the entire world witnessed severe financial crisis in the recent times. Apart from being a prominent member in European Union, (EU), Germany is also the member of some of the prominent regional cooperation groups such as Group of Seven,(G-7), Group of Eight, (G-8) and Group of Twenty (G-20). Political climate in Germany is more or less stable after the unification of the East and West Germanys. “The Germans proudly label their economy a "soziale Marktwirtschaft ," or "social market economy," to show that the system as it has developed after World War II has both a material and a social--or human—dimension”(German Economy, 2011). Germany has a bad reputation of causing two world wars. In both the world wars, Germans were at one end. Many politicians blamed the dominant nature of German culture for the making of two world wars. After the unification of the Germanys, Germany has implemented many strategies in order to remove their ugly face in the global political circles. They deliberately tried everything possible to give the German economy a humanitarian look. In short, current political climate in Germany is better suited to the ambitions of Shell. However, Shell should realize that anti-human or unethical business habits have no more future in German soil. Recently “Royal Dutch Shell embarked on another expansion drive, spending more than $14 billion acquiring gas stations in Germany” (Bruce, 2002). Acquisition is the business strategy adopted by Shell as part of their expansion programs in Germany. Considering the huge resources, and financial abilities, no other business strategy seems to be suitable for Shell. Increased market share, reduced competition, reduction in production costs, increased profitability etc are some of the advantages acquisition. “The combination of two firms will yield a more valuable entity than the value of the sum of the two firms if they were to stay independent: Value (A + B) > Value (A) + Value (B)” (Gaughan, 2001, p.5). In mathematics, 1+1 =2 whereas in business, 1+1 >2. In other words, when two companies function independently, they will compete each other and will destroy some of the opportunities as part of their competition. But when they function together, they will not compete each other and will help each other which will definitely increase their capabilities in the market. Conclusions & Recommendations Shell is one among the few companies in the world which shows sincerity while demonstrating their corporate social responsibility. They deliver more than what they promise. Even though there were some controversies with respect to some of the actions of Shell, in most of the cases, Shell showed ample commitments towards the community in which they operate. Shell never witnessed the progress of the community and the progress of the company as separate things. They have realized that the company can sustain their operations in a community if it works in line with the needs of the community. Shell has shown the corporate world that for sustainable development, the role of corporate social responsibility is immense. Germany is a fertile soil for the expansion ambitions of Shell because of the huge economic growth and stable political climate. Germany holds significant places not only in Europe, but in the world as well, as far as economic growth is concerned. However, Germans are keener in giving more social look to their economy and hence they will never allow any company to sustain their operations in German soil against the will of the people. In short, Shell should take immense care while implementing business strategies in Germany because of the increased awareness of the Germans with respect to the social commitments of the corporate companies. Germany is the land of automobiles. Some of the major and reputed automobile companies operating in the world are from Germany. The pedigree of these automobile companies can be exploited by Shell if they implement the right strategies. Collaboration for making use of the Shell fuel, with some of these prestigious automobile companies may increase the reputation of Shell further. References 1. About Shell,(n. d), [Online], Available at: http://www.shell.com/home/content/aboutshell/ [Accessed on 17 January 2011] 2. Bruce B. (2002), Royal Dutch Shell embarked on another expansion drive, spending more than $14 billion acquiring gas stations in Germany. [Online], Available at: http://www.highbeam.com/doc/1G1-86140590.html [Accessed on 17 January 2011] 3. Crawshaw, S.(1995). Germany united against Shell and the British.[Online], Available at: http://www.independent.co.uk/news/germany-united-against-shell-and-the-british-1586762.html [Accessed on 17 January 2011] 4. Economic Effects of High Oil Prices, (2006), .[Online], Available at: http://www.eia.doe.gov/oiaf/aeo/otheranalysis/aeo_2006analysispapers/efhop.html [Accessed on 17 January 2011] 5. German Economy, (2011), [Online], Available at: http://www.germanculture.com.ua/library/facts/bl_economy.htm [Accessed on 17 January 2011] 6. Germany Economy, (n. d). Economy Watch.[Online], Available at: http://www.economywatch.com/world_economy/germany/ [Accessed on 17 January 2011] 7. Gaughan P. A. Ph.D., (2001), MERGERS AND ACQUISITIONS: ANOVERVIEW, [Online], Available at: http://media.wiley.com/product_data/excerpt/79/04714143/0471414379.pdf [Accessed on 17 January 2011] 8. HSSE and Social performance – commitment and policy (n. d) .[Online], Available at: http://www.shell.com/home/content/environment_society/integrated_approach/our_commitments_and_standards/hse_com_policy/health_safety_env_com_standard_25042007.html [Accessed on 17 January 2011] 9. IMF Research Department, (2000), The Impact of Higher Oil Prices on the Global Economy .[Online], Available at: http://www.imf.org/external/pubs/ft/oil/2000/ [Accessed on 17 January 2011] 10. Jones M., Fossgard M T, and de Wit M. (2004), Social Performance: A Business Imperative for Success, .[Online], Available at: http://www.onepetro.org/mslib/servlet/onepetropreview?id=00086793&soc=SPE [Accessed on 17 January 2011] 11. Kotler P Philip Kotler (Author) › Visit Amazon's Philip Kotler Page 4. Find all the books, read about the author, and more. 5. See search results for this author 6. Are you an author? Learn about Author Central 7. & Lee N. (2004), Corporate Social Responsibility: Doing the Most Good for Your Company and Your Cause, Publisher: Wiley; 1 edition (December 13, 2004) 12. Macalister T. (2004), Social responsibility is just a PR tool for businesses, says report, guardian.co.uk, .[Online], Available at: http://www.guardian.co.uk/business/2004/jan/21/voluntarysector.society [Accessed on 17 January 2011] 13. Nehring L. (2002), Business Case for Social Performance: The Shell Approach [Online], Available at: http://www.mining.ca/www/media_lib/MAC_Documents/Speeches/English/lee.pdf [Accessed on 17 January 2011] 14. Oil prices and global economy,(n. d) .[Online], Available at: http://www.scribd.com/doc/4230029/Oil-Prices-Global-Economy[Accessed on 17 January 2011] 15. Social performance,(n. d) [Online], Available at: http://www.shell.com/home/content/environment_society/society/nigeria/social_performance/ [Accessed on 17 January 2011] 16. What is Social Performance, (n. d), [Online], Available at: http://www.cerise-microfinance.org/publication/pdf/prog_spi2/15-11h15-Argidius-Kverhagen-definition.pdf, [Accessed on 17 January 2011] Appendix (Economic Effects of High Oil Prices, 2006) Read More