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    Case Study: (Big Oil Gets Bigger)


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    Join date : 2012-03-24
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    Case Study: (Big Oil Gets Bigger)

    Post  tarek_admin on Tue Apr 03, 2012 8:10 pm

    Question no. 1. Are companies such as Exxon Mobil, BP Amoco, and Royal Dutch Shell MNES? What criteria do they meet that makes them MNES?

    Answer: Off course, Exxon Mobil, BP Amoco, and Royal Dutch Shell are MNES. According to ‘Ranking of oil MNES’ they are three largest MNES of the US respectively.

    How they become MNES?

    In the US, the largest oil co. was Exxon Mobil the result of a 1999 merger. In 2010 they had sales of $210 billion.

    In Europe, the largest oil co. was BP Amoco which was created by a merger in 1998. Also they purchase Arco and Burmah Castrol through acquisition. It also uses strategic alliance with many firms. Its agreement with Solvay and the Belgian chemical group has provided it with help in staking out a competitive position in plastics business. Its revenues in 2000 were just short of $150 billion.

    In Europe, next largest oil co. was Royal Dutch Shell group. It has opted not to use mergers and acquisitions to increase its size. Instead the co. is restructuring and realigning its operations in order to increase overall efficiency and effectiveness. Its revenue was $149.5 billion in 2000.

    The companies are merging because the maturity of existing oil fields is forcing companies to search for new oil deposits in areas that are not easily accessible. Oil exploration in mountainous regions, the frigid arctic, and ocean depths of more than one mile requires extremely large capital outlays and entails a great deal of risk. In addition these firms have to invest millions of dollars in research and development and to build refineries and pipelines there. Only large companies are able to do this.
    In other hand if a company has a major oil strike it will be able to bring the oil to market at a competitive price only large companies can do this.

    These are the main reasons for which companies are making mergers and acquisition in order to become multinational enterprises.

    Question no. 2: How important is an understanding of governmental regulation to success in this industry?

    Answer: It is very important that oil companies must need to understand the government regulations. Governments may impose several restrictions in case of entering in a new economy, tax barriers, share distribution, drilling for oil etc.
    If they don’t understand governmental regulations they may face various types of problem while they starting business in a new market or they operating their business.

    Question no. 3: In terms of Porter’s determinants of national competitive advantage, which one of these four determinants is most important for these oil companies? Why?

    Answer: according to Porter’s determinants of national competitive advantage, there are four determinants. These are as below-

    1.Factor conditions:
    A Nation will export those goods that make most of use of the factor conditions with which it is relatively well endowed. These factor conditions includes-

    • Land
    • Labor
    • Capital

    2.Demand conditions:

    A nation’s competitive is strengthened if there is strong local demand for its goods and services. Hence, oil companies can understand that –what customers want? And if any change is needed then they can take those instantly.

    3.Related and supporting industries:

    Third determinant of national competitive advantage is the presence of related and supporting industries that are internationally competitive. As a result the cost of inputs will decrease also suppliers provide very important information about competitors and market.

    4.Firm strategy, structure and rivalry:

    Last determinant is the context in which the firms are created, organized and managed as well as the nature of local rivalry.

    Best determinant for oil companies:

    We think, the best determinant of competitive advantage is the Factor conditions. Because an oil firm must need land, labor and capital. Countries like SAUDI ARAB, UK with large number of oil fields are very strong in oil business competition. Also nations like US and EU with heavy technology and huge capital are developed in oil market.


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