Royal Dutch Shell plc (Shell) is one of global leading energy and petrochemical companies. Its foundation dated back to 19 Century but it fully formed after merger of Royal Dutch and Shell Transport in 1907. Now, Shell, headquartered in The Hague, operates in more than 140 countries or areas and employs approximately 87,000 staffs. Shell businesses expand from upstream to downstream: it is engaged in exploration, production, refining, transportation and retailing of gas, oil, oil derivatives, electricity and chemicals; the company is also interested in global energy innovation such as renewable sources of energies. However, Royal Dutch Shell has been struggling to capture investor’s imagination after 2009 (Shell Annual Report, 2012). Although revenues and profits had recovered, Niger Delta and North Sea oil spilling almost destroyed Shell’s revival dream. The recent figures are still disappointing: Shell suffered more than 30 per cent drop in profits in recent successive quarters (2nd Quarter Unaudited Results & 3rd Quarter Unaudited Results, 2013). What are the factors to Shell’s loss? Is that caused by Financial Crisis or European Debt Crisis? Or caused by Oil Spill? Or caused by deep business environmental changes? Identifying Challenges
Analysis should start at the general to focus down, called outside-in analytical framework (Angwin et al, 2011). The interaction of an organisation with external environment is decomposed into macro-environment influences, meso-environment influences and micro-environment influences. Macro-environment analysis assesses the stability and complexity in energy industry. Meso-environment analysis focuses on competitive arena; more specifically, it reveals interaction and power of Shell with other main market components. Micro-environment analysis shows competition position in energy industry: it identifies and compares performances of global energy giants. However, the largest degree of influence is from focal company itself; namely, internal environment where decisions are made about corporate strategy and resource policy. Employing outside-in approach contributes to avoid myopia which seeing the real business world on focal firm’s standpoint and thus increases the accuracy of strategic analysis. Macro-environment
Macro-environmental analysis is the first and necessary part of systematic strategic analysis. In today varied and complex business world, PESTEL is a common conceptual tool used in macro-environmental analysis. This framework identifies current and potential changes in a large macro-territory (Fahey & Narayanan, 1986) and assesses the impact of changes on firm’s industry and itself (Ginter & Duncan, 1990). P stands for political factors that determine governmental influence on economy or a certain industry. Political aspects have significant influence in oil and gas industry. It is because most countries regard oil and gas, main products in energy industry, as strategic materials. The energy independence is a preferential aim for the countries who intend to avoid economic blackmail and political suppression from other countries and organisations like OPEC (Talevski & Lima, 2009). Thus the authorities strictly control foreign investments into oil and gas drilling and production and allow limited rights to transport and retail oil, gas and other petrochemical products (EIA, 2008), which limit access to proven reserves and potential markets. Besides, the political stability has impacts, especially in North Africa and Middle East. Instability, including political or economic terrorism, civil unrest, acts of war, piracy on high sea and governmental sanctions can discourage investments and disrupt safe operations and products transports (Talevski & Lima, 2009). E stands for economic factors that determine economy’s performance with resonating long-term effects. Demand for oil and gas is determined by economic prosperity because most industries and...
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