Tnk-Bp
Berge, Andrea
MGMT 485W
Spring 2013
Case Study: TNK-BP (Russia)
INTRODUCTION
“This case portrays the highly uncertain scenario facing BP in Russia at the end of 2007. In the midst of unraveling relations with its cooperative partner and undesirable host government practices, ideal strategic conditions are implausible. In order to maximize outcomes under such imperfect circumstances, BP 's senior management needs to fully assess the situational risks, understand the dynamics and motivations driving stakeholder behavior, and establish a plan which can appeal to all interested parties.” TNK-BP is a joint venture established in February 2003 by BP and Alfa Access/Renova (AAR). The two companies combined their resources in Russia to create the country’s third-largest oil and gas business. Each party holds a 50 percent stake in the joint venture.
RISKS
Globalization, the flow of goods, capital, and services across international borders, is leading to increased economic interdependence. Globalization increases the available opportunities for firms; it has led to higher performance outcomes, including quality, cost, and productivity. Although globalization offers potential benefits, there are related risks. These risks are collectively known as the “liability of foreignness.” (p.10)
Political and Economic Risks
Political risks can be defined as the “probability of disruption of the operations of multinational enterprises by political forces or events.” (p. 246) Examples include uncertainty caused by government regulations, legal issues, corruption, and political instability. Economic risks can be defined as “fundamental weaknesses in [an] … economy with the potential to cause adverse effects on firms’ efforts.” (p. 247) Political risks and economic risks are interdependent. In Russia, BP faced an enormous amount of political and economic risk. Russia’s institutional instability combined with a weak legal system and high levels of government
MGMT 485W
Spring 2013
Case Study: TNK-BP (Russia)
INTRODUCTION
“This case portrays the highly uncertain scenario facing BP in Russia at the end of 2007. In the midst of unraveling relations with its cooperative partner and undesirable host government practices, ideal strategic conditions are implausible. In order to maximize outcomes under such imperfect circumstances, BP 's senior management needs to fully assess the situational risks, understand the dynamics and motivations driving stakeholder behavior, and establish a plan which can appeal to all interested parties.” TNK-BP is a joint venture established in February 2003 by BP and Alfa Access/Renova (AAR). The two companies combined their resources in Russia to create the country’s third-largest oil and gas business. Each party holds a 50 percent stake in the joint venture.
RISKS
Globalization, the flow of goods, capital, and services across international borders, is leading to increased economic interdependence. Globalization increases the available opportunities for firms; it has led to higher performance outcomes, including quality, cost, and productivity. Although globalization offers potential benefits, there are related risks. These risks are collectively known as the “liability of foreignness.” (p.10)
Political and Economic Risks
Political risks can be defined as the “probability of disruption of the operations of multinational enterprises by political forces or events.” (p. 246) Examples include uncertainty caused by government regulations, legal issues, corruption, and political instability. Economic risks can be defined as “fundamental weaknesses in [an] … economy with the potential to cause adverse effects on firms’ efforts.” (p. 247) Political risks and economic risks are interdependent. In Russia, BP faced an enormous amount of political and economic risk. Russia’s institutional instability combined with a weak legal system and high levels of government