This project examines the procedure of British Petroleum (BP) in the light of established international business theories. Two major aspects are considered; Globalisation strategy and corporate social responsibility & ethics. Although certain failings are highlighted BP is assessed to perform optimally on both counts. A conclusion is drawn and certain advice with regards to the style of research are made in the final section.
The report assesses the procedures of British Petroleum to establish to which degree the functions of BP are in line with related management theory. The project starts with a brief introduction on the business of BP. This sets a stage and develops a context for even more discussion. The next section discusses the research method adopted in the preparation of the project. Several methods are explored and the most feasible selected as the technique of choice. The 3rd section talks about BP's functions in two respects; international trade and globalisation strategy, and corporate responsibility and ethics. The final section of the project is a conclusion that summarises the main themes highlighted in the work, noting its achievements and limitations and sets the stage for future research. At this stage some advice are also made.
British Petroleum (BP) is a global Coal and oil company with its headquarters in the UK. It really is one of the world's greatest businesses by virtue of its revenues. On is corporate website, it terms its self as 'one of the world's largest companies, providing its customers with fuel for transportation, energy for heat and light, retail services and petrochemical products for everyday items'. By its financial year end 2009, it owned 22400 service stations around the world, it owned businesses in 30 countries across the world, it employed 80, 300 people in different countries, it owned 16 refineries about the world (with the biggest in Houston Texas), it produces 2. 3 million barrels each day and owned oil reserves of about 18. 3 Billion barrels (BP web 2010)
This project aims to examine the functions of BP. It requires into focus two major issues in global business and strategy; International trade & globalisation strategy and ethics including aspects of corporate social responsibility. The management literature proposes several qualitative research methodologies (Bryman, 2004). These methodologies include; surveys, questionnaires, case studies, focus groups, experiments and interviews (Bryman, 2004). Pursuant to the aims of the project, a case study approach is employed in which I check with several documents which discuss management theory (detailed in Hill, 2009) and I examine how their application used basing on the case of British Petroleum. I use the BP website as a core source to derive information for this purpose. Given the lack of resources, other research methods such as interviews, questionnaires and focus groups are impractical. The next section details the businesses of BP and the related theoretical underpinnings.
Globalisation refers to the current trend where the world is now a global village by effectively inter-knitting, national boundaries are being relaxed and countries are increasingly dependent on each other for survival. Globalisation presents significant opportunities to businesses as well as challenges. Firms that can manage the trend enjoy larger markets, cheaper resources and for that reason higher profitability. Firms that are unable to compete successfully are faced out.
As highlighted above BP is a global company with an extremely acclaimed globalisation strategy. The success of this strategy could be attributed several (three main) factors as discussed below.
The history of BP can be traced back again to the establishment of the Anglo Persian Oil Company, a subsidiary of the Burmah Oil Company in 1909. This firm explored the Persian golf for quite some time and was converted to the British Petroleum company following the Second World War. Scanty reports show that the firm expanded tremendously by 1960 developing its procedures beyond the Persian golf into THE UNITED STATES. Most importantly it established a substantial occurrence in the North Sea by being the first company to find Oil in Alaska (BP web, 2010).
The above indicates the length to which BP has truly gone to determine itself among the world's biggest and most successful companies.
New Trade theory shows that first movers can benefit enormously from certain financial and strategic advantages in conditions of operations. The theory argues that 'for those products where economies of scale are significant and represent a considerable part of world demand, the first movers within an industry can gain a scale based cost advantage that later entrants find extremely difficult to match' (Hill, 2009. p 187).
First mover advantage could describe the structure of the Coal and oil industry. The industry is made up of few big players and many small players in the Western world where competition is free. In other countries such as Kuwait, Saudi, Russia, China, Iraq and Qatar competition in the industry is fixed and the major oil exploiters are government owned.
BP has established itself in most of the girl because of its first mover advantage. It is able to cut costs in its businesses and derive advantages from economies of scale and scope. Many organizations can compete effectively in Oil exploitation, exploration, extraction and refining, and therefore they turn to activate in the provision of support services such as distribution or the derivation of chemicals for other manufacturing industries.
Porters findings on national competitive advantage can be extended to comprehend why BP locates in the regions it does. BP is a worldwide firm but has businesses at varying degrees in about 30 different countries worldwide (BP web, 2010). Despite operating significantly in 30 countries, its products and services can be purchased in over 100 countries (BP web, 2010).
Porter's diamonds asserts that ' the degree to which a nation will probably achieve international success in a certain industry is a function of the combined impact of factor endowments, domestic demand conditions, related and supporting industries and domestic rivalry' (Hill, 2009. p 191). Hill (2009) argues that based porters theory a profit seeking firm should localize its functions in those countries where such activities can be carried out optimally.
BP operates in Africa, Asia, Australasia, Europe, North America and SOUTH USA.
In Africa, it operates in Joint Ventures with organizations in Egypt, Angola and Algeria. Its choice to use only in join ventures in this country can be explained by the political economy of the countries. These countries cannot be termed as 'full democracies' and are often vunerable to civil crisis. Operating as a jv, curbs the firm's risk in the event of a political crisis but allows it to enjoy the revenues to be derived from its operations. It also has an enormous presence in the Southern parts of Africa however in these regions it engages more with the marketing of its solar technology concepts. This region is rich in natural resources (sunshine) however the development of energy networks is inadequate. The countries in this area rely heavily on hydroelectricity which is not often sufficient to provide for industries and households.
BP also operates as joint ventures in Asia with functions in Pakistan, Vietnam, Indonesia, China, South Korea and Malaysia. It manufactures lubricants and solar power panels in China and India where labour is cheap.
BP does not explore petroleum in Australasia. Its procedures in this region are geared towards the provision of solar energy.
BP operates as a standalone entity in much of Europe. Its operations in Russia are partly owned (joint venture) by way of a Russian company. It offers major exploration and production facilities in Canada, Trinidad and Tobago, Venezuela and Columbia. These regions are rich in natural gas and oil necessitating BP's localisation to the areas.
Hill (2009) noted that Raymond Vernon developed the merchandise lifecycle theory after his realisation that companies needed to keep innovating to be able to keep up a demand because of their products and ensure growth in revenues. The theory may be used to clarify the globalisation trends, innovation drive and product mixture of British Petroleum.
BP currently produces a wide range of energy products including oil, natural gas, wind energy, solar energy, bio fuels and petroleum based lubricants.
Two decades ago, its primary product was Oil. Research and development on the market has resulted in the introduction of cleaner and even more sustainable varieties of energy. These types of energy are widely regarded as the future of the Coal and oil industry. Speculators think that at some point with time oil will be faced out as coal was faced out with the discovery of oil. BP has realised the fact that oil as a product has already reached its maturity stage and its own demand might diminish with the advent of new kinds of energy. The firm has taken a colossal position in the new energy market by owning a major portfolio of energy products representing the mixture of all bespoke and progressive new types of energy.
Unlike televisions for example, Oil cannot be re-engineered and further developed. Innovation by modification is therefore difficult. BP has turned the focus on energy efficiency i. e. researching and developing ways that energy can be saved. Instead of devising 'faster or stronger' energy which might be impossible BP has turned the focus to the development of equipment and use techniques that will save energy through low consumption. This encompasses innovation that fuels the demand because of its products.
As Hill (2009) emphasized ethical issues in international business are as a result of political, legal, financial and cultural differences among countries- 'what is known as normal practice in one country might be looked at unethical in another' (p. 124). The ethical challenge, I am going to argue, is significantly increased for global firms. BP for example operates in every the several continents of the world. Commensurate with Hill's argument ethics is relative and context dependent. In certain countries, it is ethical to employ young people. In the united kingdom, all employees must be above the legal age of 18 to gain full employment. The legal age changes significantly between countries varying from 16 to 21. Most multi national organizations deal with this challenge by devising a set of corporate values which govern their operations in every regions. BP web (2010) argues that the company is driven by four major values; progressive, responsible, progressive and performance driven.
In terms of being responsible, BP asserts that 'We are focused on the safety and development of our people and the communities and societies in which we operate. We shoot for no accidents, no harm to people no damage to the environment'. This commitment is seen in the actual fact that BP reporting covers all aspects beyond financial reporting including health, safety, human rights, environment and energy.
BP reaches the forefront of the cleaner energy debate. It does its bit by engaging in energy preservation initiatives and constantly researching on cleaner ways in which energy can be produced and delivered. It includes diversified strongly into the green energy industry participating in the production of liquefied petroleum gas, fossil fuels and renewable energy.
A major part of corporate ethics that is pervasive in the management literature lately is corporate social responsibility. Hill (2009) argues that multinational corporations such as BP 'have power that originates from their operations and their ability to go production from country to country'. Considering for an instance the revenues made by BP annually, I find that the corporation's revenues is greater than the GDP of several countries. Social responsibility advocates that managers should think about more than just the economic consequences of the decisions (hill, 2009). More importantly, importance should be placed on the social consequences of decision making. The European commission defines corporate social responsibility as 'A concept whereby companies integrate social and environmental concerns in their business businesses and in their interaction with their stakeholders on a voluntary basis' (EC website, 2010). It basically refers to the business's interactions using its surrounding communities and looks at how the company strives to market development and social cohesion and participates in maintaining the surroundings within such communities. A firm's community is a major stakeholder of the firm and so needs to be considered. BP's financial reporting incorporates major aspects such as its social responsibility, its shoot for cleaner energy, its contributions towards preserving the surroundings and its strive to improve sustainable extraction of energy. Communities take corporate social responsibilities seriously particularly when it involves Oil and Gas firms. This is largely therefore of the potential dangers that can arise off their functions with these communities. Recent crises have ranged from large explosions with severe casualties to major spillages with the destruction of nature.
-A review of the BP 2010 Oil spill crisis
BP faced a 'deep water horizon drilling rig explosion' which killed 11 of it's off shore personnel and injured 17 other workers. The rig gushed out over 5 million barrels of crude oil into the Mexican Golf between April and July 2010. The spill was catastrophic therefore were its influence on wild life, the fishing industry, the tourism sector and the encompassing neighbourhoods. In response to this BP create an emergency management program. It publicly apologized for the distress it caused and undertook to foot the tidy up costs. The business has currently setup a $20 Billion dollar fund to manage the after-effects of the crisis. During the crisis, BP showed effort employing several ways to attempt to stop the leakage. In addition, it arranged a compensation plan for those affected by the crisis.
This attests to the actual fact that BP took its corporate social responsibility and ethics very strongly.
Hill (2009) also notes the social contributions or social investments of BP in Algeria. Hill notes that BP realised its communities in Algeria lacked clean normal water and created two desalination plants to create clean what for the public. To increase this, the company provided water cans to help residents transport water from plants to their homes.
Summary of findings
This study has examined the procedures of BP in the global context to observe how certain management concepts are applied in practice. Two aspects; globalisation strategy and corporate social responsibility were reviewed. BP is available to have a sophisticated globalisation strategy which it has fortified over time. This helps it to compete proficiently and also to remain one the world's leading corporations. Again, BP is found to have a robust stance towards corporate social responsibility and ethics. Its industry is hazardous and it is pruned to corporate disasters such as spills and explosions. BP has managed to keep these to a minimum and when they are doing occur, BP has taken necessary steps to control the crisis and limit the damage
This work is bound in the fact so it strongly relies on public information sources to evaluate the operations of BP. Several aspects could have been better scrutinized and invaluable insights drawn through other research methods such as interviews with key personnel and focus groups to draw varied opinion.
Due to the limitations in space (quantity of words) the aspects discussed can not be reviewed in greater detail.
Future research & Recommendations
This research has examined BP's procedures in light of established theory but hasn't confirmed if such a method of operation is optimal. It might be interesting to investigate if the product strategy, globalisation strategy or their approach to ethics and corporate social responsibility affect their performance or contributes significantly for the achievement of organisational goals and objectives. The limitations highlighted above also provide avenues for future research in to the area.
Several theories have been propounded in the management literature. Their understanding is only going to be facilitated by examining how these theories are applied used or by investigating the contributions of such theories to management practice. In light of this argument, this form of study is encouraged.