The Shell Case
If companies want to go abroad to make business they have to analyze if the market is attractive for them. In order to estimate the attractiveness of a country the decision does not only apply for the internal factors, which companies can influent themselves, like product or marketing strategies. Before they come to those decisions they have to think about the factors they cannot or just a minimal influence. Those factors are the so called PEST (political, economic, sociocultural and technological) factors.
There are strong interactions between those factors, political developments have a strong influence over economic change and also are economic, social and technological factors interdependent. With a good analysis, the risks of influences can be more manageable.
When Shell and the Sakhalin Energy Investment Company Ltd. (SEIC) signed the Production Sharing Agreement with the Russian government under Boris Jelzin in 1996, Shell had 55% of the shares for the project. Although there were resistances from several environmental organizations Shell considered the project as very promising and they lost the clear view on future expectations and did not think enough about the political risk they would face in Russia. There is for example the expropriation or the indigenization laws. Many communist governments in Eastern Europe expropriated private firms following World War II. The indigenization law requires that national hold a majority interest in a certain enterprises. The corruption and racketeering that led to politically-connected individuals building massive fortunes from, for example, the oil and aluminum industries may have triggered another turning point. The practice of giving preferential treatment for oligarchs has begun to reappear since Vladimir Putin. He promised to end that administrative mechanism, but he has begun to slide back into the old days.
In 2007 there was a lawsuit
against Shell with an amount
of 30 Billion...
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