Shells international business - Research Paper Example

Marketing launch for Shell’s international business Executive Summary Because of globalization and liberalization, the majority of the prominent companies in the world is trying to expand their business to overseas countries. Governments all over the world are trying to attract foreign direct investments as much as possible, as a measure to stimulate economic growth. As a result of that companies which are ready to invest in overseas countries are currently getting many opportunities and benefits. Shell is the biggest oil company in the world at present. The company uses the opportunities in international markets cleverly. The company is currently trying to expand its cross cultural or international business to as many countries as possible. Strong commitments to social responsibility and sustainable development helped Shell to enter any foreign soil without many troubles. Even though one or two incidents have caused some damages to the reputations, Shell has a good corporate image compared to other oil companies. This paper explains the marketing launch for Shell’s international business. Table of Contents Executive Summary 2 Introduction 4 Why Shell’s business is international? 5 Analysis of marketing strategies that Shell could use 5 Marketing decisions necessary for Shell for the implementation of an effective marketing mix 8 Political, economic, environmental and legal influences that affect Shell 10 Conclusions and recommendations 11 References 13 Introduction Even though, there are many energy sources, oil seems to be the most popular energy source in the world even now. It is often said that the economic growth of a country depends on its ability to produce or import oil resources at cheaper rate. This is because of the fact that the majority of the industrial equipment and automobiles in the world are using oil as the fuel. Global economic growth is linked to oil prices. Any fluctuations in oil prices may create immense economic changes as well as changes in Gross Domestic Product (GDP) growth, unemployment and inflation rates in the world. For example, the 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 the global economy, n. d). According to a study by IMF Research Department (2000), “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”. In short, oil seems to be the most essential commodity required for global economic growth. In the oil business, the Royal Dutch/Shell Group of Companies needs no introduction in the global market. They are one of the largest global groups of energy and petrochemicals companies with around 92000 employees in more than 70 countries and territories (About Shell, n. d). The recent developments in global politics and economics, such as globalization, liberalization and privatization, helped Shell to explore the opportunities in overseas markets effectively. Shell is enjoying almost a market monopoly in the global oil business. No other oil companies in the world have the same financial capabilities and resources, like shell. In fact, some of the major competitors of Shell have faced many problems in the recent past. For example, BP was forced to disperse a huge amount as compensation because of the Mexico oil spill. Such incidents helped Shell to cement its place further in the global oil market. Why Shell’s business is international? As mentioned earlier, global economic growth is linked to oil prices in the global market. In other words, oil companies have the ability to control global economic growth. It would be impossible for a big company like Shell to do business only in some countries or continents and stay competitive in the global market. Even though Shell is a European company, it would be suicidal for Shell to do business only in Europe. It is often said that global wealth is currently shifting from the less heavily populated American and European continents to the more heavily populated Asian continent. The phenomenal economic growth in Asian countries, especially in countries like India and China, is the basis of the above argument. In one of the recently published, it is mentioned that China and India are currently the second and third largest economies in the world, behind America. Under such circumstances, it is important for a company like Shell to expand its business further in overseas countries, especially in countries like India and China. It should be noted that BRICS countries (Brazil, Russia, India, China and South Africa) are the most rapidly developing economies in the world at present. The energy needs of these countries are growing rapidly because of heavy industrialization and increased automobile use. Under such circumstances, it would be logical for the Shell Company to expand its business further in the global market. Analysis of the marketing strategies of Shell According to Shell, “Intense competition exists for access to upstream resources and to new downstream markets. But Shell believes that their technology, project-delivery capability and operational excellence will remain key differentiators for their businesses (Shell: Our strategy, 2014). Immense faith in corporate social responsibility and strong commitments to sustainable development are the two major pillars of Shell’s business and marketing strategies. According to Kotler and Lee (2004, p.3) CSR is the “commitment to improve community well-being through discretionary business practices and contributions of the corporate resources”. Until a few decades before, companies were keen only on profit making. They have implemented business strategies in such a way to exploit the community resources as much as possible. At the same time, companies have given nothing to the communities in which they operate. Modern consumers are well aware of this exploitation. They deal with only those companies which are ready to give something back to the communities. Many companies have the habit of keeping CSR on papers. Only a few companies implement CSR in practice. Shell is one company which comes in that category. Shell knows very well that the corporate image plays an important role in increasing the competitive power of a company in the present globalized and heavily competitive market. In order to keep CSR in all business practices, Shell has done many things. Giving autonomy and independence to companies operating under Shell label is one such practice. 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). Commitment to sustainable development is another major business strategy implemented by Shell. It should be noted that oil extraction and purification may cause many environmental problems. While most of the competitors concentrate only on making profits, Shell is keen on spending a portion of its profit for the environmental protection activities. As per the vision and mission statements of Shell, the company 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 neighbors and contribute to the societies in which Shell 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). It should be noted that no major accidents have been caused by the activities of Shell so far. The company is taking immense care not only at the time of extraction and purification of oil but also at the time of transportation of oil. On the other hand, the major competitors of Shell faced many problems in the recent past because of the unexpected accidents caused by their activities. In short, the social performance of the company is much better than that of its competitors. Shell speaks less and delivers more, while other companies speak more and deliver less, in terms of corporate social responsibility and sustainable development. For example, “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). African countries in general and Nigeria in particular are some of the poorest countries in the world. The majority of the international companies operating in this region exploits the natural resources of Africa and returns nothing to the Africans. However, Shell is an exceptional company. According to Jones et al. (2004), “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”. Even though Shell has good reputation in terms of environmental protection until now, some of its activities in the recent past have raised the eyebrows of the public. For example, Shell tried to sink the German Brent Spar oil platform at sea, which raised many protests in Germany (Crawshaw, 1995). It should be noted that sinking of oil platform may cause severe damages to the environment. Environmentalists and politicians in Germany have raised many protests against this decision and Shell forced to cancel this decision. In other words, Shell was able to read the pulses of the people and was ready to cancel a decision which raised protests from the people. Marketing decisions necessary for Shell for theimplementation of an effective marketing mix Product, price, promotion and place are the 4 Ps of the marketing mix. In the case of Shell, oil and gas are the major products. These products are essential for all countries, irrespective of whether the country is developed, developing or underdeveloped. Oil products, especially the petrol and diesel are necessary to solve the energy crisis in all countries. Scarcity of energy or energy crisis is one of the major problems facing by all countries in the world. It is estimated that the available oil resources in this world will last only for 30 or 40 more years since the consumption of oil resources is extremely high. Even though there are many other alternate energy sources such as nuclear power, hydroelectric power, thermal power, coal, solar power etc, none of these energy sources are as popular as oil sources. If it is available, governments all over the world are giving priority to oil sources first before going after other energy sources. In short, the demand for oil products will never be exhausted. Price is the second element in the market mix. “Pricing is not as simple as it might seem. In some situations, a lower price will not necessarily mean that more will be sold as the price level could also influence the perceived quality of a product” (Four Ps Of Marketing - Product, Price, Promotion, Placement, 2011). Extremely low or higher prices may create misconceptions about the product in the minds of the consumers. As mentioned earlier, oil resources are rapidly exhausting because of the uncontrolled exploitation. In other words, the demand for oil products is growing day by day. However, the supply of oil resources is exhausting rapidly. According to economic principles, excess demand and lack of supply are some of the factors which help companies to increase the prices of their products. In other words, Shell need not worry much about the oil price drops until the world finds out some feasible and cheaper energy sources. Place is the third element in the marketing mix. It is necessary for the global companies to identify the suitable places for marketing activities. No international company would show courage to invest in countries with inadequate economic growth. On the other hand, all international companies like to invest in countries which have stable economic growth. That is why Shell has selected many of the European countries with stable economic growth for their business operations. For example, Germany is one country in which Shell has invested heavily. As per the statistics available in 2010, Germany has the largest population in the European Union with 81.8 inhabitants. Moreover, Germany’s economic progress is better compared to that in other European countries. Germany is currently ranked 4th in terms of nominal GDP and 5th in terms of purchasing power (Germany Economy, n. d). That is why Shell has shown more interest in investing in Germany. At the same time, Shell should concentrate more on Asian countries, since Asian countries are currently showing more progress than other countries. In India and China like most rapidly emerging economies, Shell’s presence is only for the namesake. Local oil companies are controlling the oil market in these countries. These countries have already opened up their economy widely for foreign direct investment. Shell can utilize these opportunities and expand their business in these countries also. In order to keep the top spot in the global oil market, it is vital for Shell to capture more business in most heavily populated Asian continent. Promotion is the fourth element in the marketing mix. No company can survive in the global market without adequate promotions of its products. Even better quality products may fail in the market, if they failed to get back support through advertisements and promotions. On the other hand, it is quite possible to make a cheap quality product successful in the market with the help of cleverly formulated advertisements. Since Shell is operating cross culturally, it is necessary for the company to customize its promotional activities in different regions and countries. For example, the promotion activities developed for the European countries may not be suitable for Asian countries such as India and China. Even though Shell sells the same product everywhere in the world, it is necessary for the company to realize that the markets are different. For example, David Beckham or Lionel Messi could be a better brand ambassador for Shell for its European operations since Football is one of the favorite games for the Europeans. On the other hand, David Beckham or Lionel Messi may not be a successful brand ambassador for Shell’s operation in India or China. In India, Shell can utilize the services of Sachin Tendulkar or Dhoni since cricket is the most favorite game in India. Political, economic, environmental, and legal influences that affect Shell “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). Many people in Nigeria believe that Shell has direct connections in the death of Ken Saro-Wiwa. In other words, Shell’s reputation as a responsible company has been spoiled in Nigeria in recent times because of its alleged involvement in the killing of Ken Saro-Wiwa. It should be noted that oil business would definitely cause some damages to the environment in one way or another. Environmentalists all over the world are working against oil companies. Since Nigeria is a major market for Shell in the African continent, protests from environmentalists created a lot of headaches for them. Whether Shell has any hand in the killing of Ken Saro-Wiwa or not, many people in Nigeria believe that Shell’s recent activities in this region are below par. People in Nigeria have already started to shout slogans against Shell even though they are paying a huge amount of money to the Nigerian government in the form of royalty and taxes. Since Shell is one of the biggest companies in the world, it has the capabilities to swallow smaller companies. Mergers and acquisition are some of the major business strategies used by the big companies as a mode of entry to overseas markets. These strategies are used for reducing the competition also. Recently “Royal Dutch Shell embarked on another expansion drive, spending more than $14 billion acquiring gas stations in Germany” (Bruce, 2002). This strategy would help Shell to reduce the competition in the market up to a certain extent. “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. Shell uses this strategy very well to improve its competitive power and to reduce the competition in the market. Conclusions & Recommendations Nobody has any doubts about the capabilities of Shell Company in the global oil market. They are the number one oil company in the global market at present. No other oil companies were able to come closer to Shell in terms of market share until now. Shell’s uncompromised commitments to corporate social responsibility and sustainable development, helped them to become the most valuable oil company in the world. Shell has no reluctance in giving a portion of its profits to charity works and environmental protection. The company knows very well that corporate image is definitely a decisive factor in deciding the success and failures in the modern heavily globalized and the heavily competitive business world. Even though Shell’s business strategies helped the company to become the leader in the oil market, it is necessary for the company to concentrate more on emerging markets such as India and China to sustain its leadership. At present, Shell’s market share is emerging markets is not so good. It is necessary for the company to increase this market share as much as possible with the help of suitable business strategies. It is possible for Shell to acquire an oil company in India and China to conduct their business successfully in Asian continent. Even though Shell has comparatively a good reputation in terms of social responsibility and sustainable development, some of the incidents happened in Nigeria and Germany have caused some damages to Shell’s reputation as a socially responsible company. Shell needs to do something to regain the lost confidence of the people in Germany and Nigeria. References About Shell, N.d.[Online] Available at:http://www.shell.com/home/content/aboutshell/[Accessed 04 May 2014] 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 04 May 2014] 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 04 May 2014] Four Ps Of Marketing - Product, Price, Promotion, Placement, 2011.[Online] Available at:http://www.trade-pals.com/sales-dictionary/four-ps.asp[Accessed 04 May 2014] 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 04 May 2014] Germany Economy, N. d. Economy Watch.[Online] Available at: http://www.economywatch.com/world_economy/germany/ [Accessed 04 May 2014] 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 04 May 2014] 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 04 May 2014] 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 04 May 2014] 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) Macalister T. 2004, Social responsibility is just a PR tool for businesses, says report, guardian.co.uk, 21.01.2004 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 04 May 2014] Oil prices and global economy, N. d.[Online] Available at: http://www.scribd.com/doc/4230029/Oil-Prices-Global-Economy[Accessed 04 May 2014] Shell: Our strategy, 2014. [Online] Available at: http://www.shell.com/global/aboutshell/investor/strategy.html [Accessed 04 May 2014] Social performance, N.d.[Online], Available at: http://www.shell.com/home/content/environment_society/society/nigeria/social_performance/[Accessed 04 May 2014] Read More