Unocal Case Study

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UNACOL CORPORATION Unocal Corporation seems an unlikely candidate for a. high-risk global rampage. Consumers everywhere recognize the ubiquitous 76 logo of this quintessential California oil company. They know it as the nation's 11th largest petroleum retailer, with a prestigious downtown headquarters and important role as a Los Angeles civic booster. Casting aside its reputation as a conservative company with tightly defined domestic markets and focused petroleum interests in California, Unocal has rapidly transformed itself into an international company with major investments in some of the world's least-developed economies. It has also become a prominent topic among political activists, human-rights groups, and President Clinton's foreign policy team. Some observers say that Unocal will become a casualty of its high-risk policies. Immediately after becoming chairman of Unocal in 1995., Roger Beach began to sell off domestic retail assets and eliminate exploration and refining activities in the United States. Resources shifted to unlikely places where few other major oil producers had risked operations-places such as Myanmar (more commonly known as Burma), Turkmenistan, Uzbekistan, and the strife-ridden Balkans. Beach turned up the heat on company investments in Indonesian oil fields, launched full-service energy subsidiaries through government alliances in Thailand, broadened holdings in Malaysia, and began negotiations for an integrated refining/ retailing enterprise in Pakistan. Nearly 40 percent of Unocal's exploration and extraction budget was thrown into these emerging markets, much of it pinpointed for very high risk locations in the former Soviet republics and the Persian subcontinent. Why take these risks? Beach answers that Unocal was unable to compete head-to-head with the oil industry giants for capital markets and decided to create an extremely attractive strategic package of full-service energy production in countries grasping to develop infrastructure. "What every government likes about Unocal’s strategy is one-stop shopping; one group able to take the whole project from development to the marketing end," Beach said. "We have become partners in their development and as important to them as they are to us.” The Unocal strategy defies normal industry trends based on distributing huge capital investments to tie up oil reserves and mineral rights, then cutting deals for operations. Instead, Unocal comes in the front door with packaged energy services ranging from turning the first spade of dirt on exploration to delivering power to the end user, and that proposal includes oil, gas, or electric power generation. Beach sees far less risk than industry analysts perceive in the emerging markets. The dangers of war, political upheaval, and currency fluctuations are clear and present, yet the company says it has hedged against these threats by diversifying investments. By 2000, it intends to have reached its goal of establishing nearly 80 percent of its exploration and production capabilities in these underdeveloped areas, and by the end of 1996, it had almost totally abandoned domestic exploration, having sold off nearly $3 billion in assets and oil-field holdings in California. However, according to Beach, success will depend on creating a globally managed company capable of understanding and participating in foreign-market environments. Consequently, in 1996, he initiated a major transformation in Unocal's management systems, beginning by relocating its headquarters from its stately downtown offices to a small, highly efficient suite near the Los Angeles International Airport. Mid-level managers were either repositioned in regional offices, such as Singapore, Istanbul, or Jakarta, or they left the company. The executive core, which had been distinctly Los Angeles in character, gained a multicultural character, representing Eastern European and Asian group alliances. Subsidiaries in Jakarta, Thailand, and Burma...
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