Shell's Business Particulars and Its Motivation - Essay Example

Shell Company] SHELLS BUSINESS PARTICULARS AND ITS MOTIVATION TO OPERATE AS AN MNC One ofthe biggest multinational petroleum companies in the world is The Royal Dutch Shell, which originated in Dutch and Britain. It was considered as one of the world’s largest corporation by the Fortune in 2009. There were two separate holding companies Royal Dutch taking 60% of earnings and Shell Transport taking 40%. Prior to the merger, Royal Dutch and Shell Transport were public companies originating in Netherlands and in the UK respectively. (Omoweh, 2005) The complete merger of the two entities took place in 1907 thus the starting of The Royal Dutch Shell Group. The company was then run through different operating companies. Prior to the merger both the companies were struggling to sustain their business. Their decision to join hands led them to become one of the most successful company in the world and all signs showing in the first twelve months of their strategic decision. The company was under the management of Henry Deterding, whose guidance and dedication made the two barely managing companies into a strong force to reckon with, in the oil industry. The company began to make its mark quite quickly around and business started to expand globally. The Marketing companies started coming up throughout Europe and also in certain parts of Asia. With the growing demand of oil all around the globe, Dutch Shell began exploration and production in countries like Russia, Venezuela, Mexico, Romania and even in the United States. Along the timeline, the company has been able to maintain its competitive edge by looking out for newer technologies, alternative resources and advance developments. They have concentrated on their core products as well as kept their eyes open for any opportunities making them one of the most competitive companies in the market. Marketing is one of the core functions of any organizations. It is the function that helps a company defines the right kind of market and allows the company to identify consumer needs and wants and then searches for solutions and ideas for how to aptly satisfy those needs. (Bartels, 2002) When Organizations like Shell and other multinationals define their marketing strategy it evolves through a series of stages. This is because as the company starts growing, so does the demand. Eventually the company adopts a multi national strategy of marketing. At this stage the company has already gone through the local markets exporting and to international marketing. This is the kind of marketing Shell is doing as at this stage the company can use its size and scale to its advantages through lower costs, great national and international presence and economies of scale. Shell has now become a name that is no more associated with its country of origin it has become a multi national brand with brand equity that gives it the benefit of marketing at a multinational level. (Bartels, 2002) Shell has come long way to establish its name and throughout all the years has been able to maintain its brand equity through going through various stages of marketing strategies. (Miller, 1999) MARKET VALUE OF SHELL AFFECTED BY VARIOUS FACTORS Shell is a leading global petrochemical company, and the fact that 25% of its revenue comes from outside its home country gives it enough reason to focus on a strategy which is multinational. This fact tells us that Shell needs to uphold its market value by taking care of the various internal as well as external factors that can affect it. Exchange Rate Risk Management The assets that Shell owns are quite expensive, both in terms of their utility and their natural value. Hence, it gets imperative for them to manage their exchange rate risk, which, if not monitored carefully, can become the cause for the drip in profit margins as well as the loss in the value of the assets held. (Aaker, 2010) There are various kinds of exchange rate risk management strategies, which Shell can use, to hedge itself against the unknown fluctuations in the exchange rate, and save itself from unforeseen losses in profits. Firstly, there is the tactical versus strategically driven hedging, and secondly, there are the passive versus active hedging strategies. If Shell uses active strategies to hedge itself against the risk of highly fluctuating exchange rates, then it would increase its market value, since the stakeholders, especially the shareholders, would feel secure with their investments in the company, and would see their money in a safe zone. Expansion to New Markets As far as expansion to new markets is concerned, the market value would increase only if the new markets are researched upon before expansion takes place. When it comes to starting business in a new market, Shell has to take care of the fact that it adheres to the Governmental rules and regulations, legislations made in that area for international companies, the laws that every business has to follow, and the natives living around the area have to be considered. From labor laws to extraction laws, from marketing laws to management laws – Shell has to have an aerial view about the way it operates in a foreign market, so as to avoid any sort of legal suits or problems. As long as the expansion is a success, and Shell gets an acceptance from the community as well as the Government of the new market, the expansion would add value to the market presence of Shell in the global sphere. Expansion to new markets should also be seen from the perspective of fitting the positioning and the image that Shell has carried for so many years. There should be a strategic fit between the company and the new market which is being entered. There is a difference between related and unrelated diversification, and that line should be understood and maintained. International Financing of Operations International financing of operations, with respect to Shell, would mean the dynamics of doing investments in other parts of the world, and the capital flows associated with it. International finance is a branch of economics, which would help Shell in exploring the viability of putting money in the various operations that take place globally. From incorporating a company from scratch in a new country to acquiring the valued shares of some outside company, from doing a merger or acquisition with an organization overseas to doing an equity joint venture with some investor abroad – all these acts classify as foreign direct investment (FDI), which have to give positive returns, if Shell has to increase its market value. (Levi, 2005) Usually, when companies from other countries want to invest in the native country, the host Government tries to safeguard the local companies by giving the lesser degree of shareholding, power and control to the foreign company. This is when Shell has to take charge, and use individuals who would take up minor amount of shareholding, so as to gain control over the companys workings and administration. (Madura, 2009) Other aspects of international financing of operations would be to take care of the trade barriers with respect to international trade, and adhere by them, so as to maintain and increase its credibility in the world market. REFERENCES Books Omoweh, D. (2005) Shell Petroleum Development Company. Africa World Press. Madura, J. (2009) International finance management. Cengage Learning. Aaker, D. (2010) Strategic market management. John Wiley & Sons. Levi, M. (2005) International finance. Routledge. Website: The beginnings. The Shell History [Internet]. Available from [11th February 2010] Read More