GRADUATE SCHOOL OF MANAGEMENT
Internationalization in oil and gas industry
Course: International Business Strategy
Student: Vlada Butsyk
Improvements in international communications and transportation and increased homogeneity of international markets are stimulating increasing number of firm to go global (Keogh et al, 1998). Such a process of internationalization has touched not only every segment of world economy but even has stopped being a prerogative of developed countries attracting more and more emerging ones. A historical view on the market-entry literature implies that in the 1960’s, the main focus was on a comparison between two internationalization modes–exporting and FDI. In the 1970’s internationalization literature identified licensing, franchising and subcontracting as other strategic options. In the 1980’s the resurgence of mergers and acquisitions highlighted the choice between greenfield ventures and acquisitions (Buckley & Casson, 1998). Reasons for going abroad vary according to the industry sector as well as to the country of origin. Taking all the motives for internationalization together, they can be represented by the following list. According to Bartlett et al., the earliest motivation to invest abroad was the need to secure key supplies, that’s why the first MNCs were Standard Oil, International Nickel and others. The second reason was market-seeking behavior which drives companies with volume-intensive manufacturing processes (food, tobacco, chemicals, automobiles) to move beyond their home markets. Traditional trigger is access to low-cost factors – exactly low-cost labor stimulated companies in clothing, electronics, household appliances etc. to establish offshore productions. Moreover, some more modern motivations can be pointed out: scale economies, ballooning R&D, shortening product life cycles, scanning and learning capability and competitive positioning (Bartlett et al, 2004). Regarding to country of origin it can be revealed that the decision of firms from developed countries to internationalize is explained by the willingness to exploit their existing competitive advantages, while those from emerging countries may invest abroad to explore critical assets available in global markets (Tsai & Eisingerich, 2010). Despite the reason of internationalization, its process is usually described by the well-known Uppsala model. According to this model, foreign-country entry is a learning process which starts from exporting products through first independent and then own channels of distribution and finishes with own production establishment. However, nowadays this model is not a universal one and different cases can be observed when firms jump over some stages and start joint ventures or acquisitions. Particularly, it is typical for emerging countries and firms with huge start investments. Hence, a reader can notice that reasons and ways of internationalization can extremely vary what gives huge area for investigations. However, in this paper the author is going to analyze internationalization processes in oil and gas industry.
The selection between the different modes is influenced by many issues, such as the control requirement, commitment, costs, the value creative potential and the complexity involved, experience, capabilities and resources possessed, partner-related risks and national/cultural preferences, the knowledge sharing policy, and most of all, the firm’s overall strategy (Liuhto, 2001). Buckley and Casson (1998) name various operation modes based on the operation type and the ownership of production and distribution which can be seen in the table below.
Source: Buckley and Casson (1998)
Let’s discuss the major types.
Despite the increasing number of firms leapfrogging the internationalization stages exporting...