International Expansion Strategy of
By: Sanket Dave (16) Rashi Garg (21) Kritika Nigam (38) Parin Shah (46) Goral Shroff (49) Nishant Singla (50) Vaibhav Wadhwa (55)
Flow of presentation
Introduction to Royal Dutch Shell history Swot analysis & Competitors Shell's growth in the international market
Market Entry and expansion strategies adopted by Shell
a)Joint Ventures b) Wholly Owned Subsidiaries c) Licensing
Factors influencing the Internationalization of Shell and challenges
Controversies in International Expansion Recommendations
Shell at a Glance
A global group of energy and petrochemical companies, Shell is headquartered in The Hague, the Netherlands The parent company of the Shell group is Royal Dutch Shell plc, which is incorporated in England and Wales Created by the merger of Royal Dutch Petroleum and UK-based Shell Transport & Trading largest company in the world, in terms of revenue, and one of the six oil and gas "super majors"
Raison d etre: The objectives of the Shell group are to engage efficiently, responsibly and profitably in oil, oil products, gas, chemicals and other selected businesses and to participate in the search for and development of other sources of energy to meet evolving customer needs and the worlds growing demand for energy. Core Values: -Integrity -Honesty -Respect for people People: Shell employs around 87,000 people in more than 70 countries and territories
Businesses of Shell
Upstream
searches for and recovers crude oil and natural gas liquefies and transports natural gas, and operates the infrastructure needed to deliver both oil and natural gas to market
Downstream Projects & Technology
manages Shells refining and marketing activities for oil products and chemicals Refining includes manufacturing, supply and shipping of crude oil. Marketing sells a range of products, including fuels, lubricants, bitumen and liquefied petroleum gas (LPG), for home, transport and industrial use
manages the delivery of major projects and drives research and innovation to develop new technologies It is also responsible for providing leadership across Shell in the areas of safety & environment and contracting & procurement
SWOT
Strengths -Strong market position -Vertically integrated operations -Exploration technological capabilities -Invested into other energy sources: Hydrogen, LNG, Wind, Solar Weakness -Oil industry is very competitive industry -Violation of anti-corruption laws -Legal proceedings against Shell -Spills in Nigeria -Alternative energy source venture has not yet paid off
Opportunities -Development of Upstream portfolio -Investment in Advanced Biofuels -Large untapped oil reserve in Brazil
Threats -Competition : ExxonMobil, BP, Chevron, ConocoPhillips -Environmental Regulations -Depletion of the oil reserves
Royal Dutch competitors are
1. Exxon Mobil
2. Chevron Corp.
3. British Petroleum
Exxon Mobil
Irving, Texas 40, 000 gas and service stations Reserves of 13.6 billion barrels of OE Daily production is 6.4 million barrels Major producer of petrochemicals
BP (British Petroleum)
Founded as Anglo Persian Oil Company London, UK 80 countries, 20,700 sites , 86000 employees 2.8 million barrels of oil a day 18.3 billion barrels of OE- reserves Refining availability : 94.8%, reflecting strong operations around global refining portfolio
Chevron Corporation
Merger of Texaco Inc. and Chevron San Ramon, California 11.6 billion barrels of OE in reserves 2.6 million barrel of oil each day 26, 000 gas stations Global refining capacity of 1.95 million barrels of oil per day
Shells presence in the International Market
Growth of Shell in the International Market
Initial years
Fast expansion all over the world, including European, North American and Asian areas Oil exploration and production were developed in Romania (1906), Russia (1910), United States (1912) and many other parts By 1938, its crude oil production per day accounted for more than 10 percent of the world total production
In 1980s offshore exploration technology and projects were developed, such as the Troll in Norway and the Gulf of Mexico
Contd.
Expansion into Eastern Europe
With the collapse of Communist regimes in Eastern Europe in 1989, Shell gained access to markets in these regions The first operation was started in Hungary though the joint venture structure Soon the business expanded at a quick speed to many other Eastern European countries, including Russia
Contd.
21st century
Shell expanded its business into China and Russia In China, Shell has built a massive joint venture company with China National Petroleum Corp. (CNPA)-CNOOC and Shell Petrochemicals Company Limited International agreements to benefit companies from various countries like between Shell Energy Holdings Australia Ltd. and its partner Petro China with Australia-based Arrow Energy Limited In the Gulf of Mexico, Shell has started his oil and natural gas production in the Perdido Development Project characterized by the operation of the deepest offshore oil platform Obtains permission for exploration activities in Pakistan, Egypt, Tunisia and French Guiana
Sakhalin-2 Project
Sakhalin-2 is one of the worlds largest integrated, export-oriented oil and gas projects, as well as Russias first offshore gas project Sakhalin Energy Investment Company Ltd., the project operator, is owned by Gazprom, Shell, Mitsui and Mitsubishi The project infrastructure includes three offshore platforms, an onshore processing facility, 300 kilometers of offshore pipelines and 1,600 kilometers of onshore pipelines, an oil export facility and a liquefied natural gas (LNG) plant Virtually all the gas from Sakhalin-2 is sold under long-term contracts to customers in the Asia-Pacific region and North America
Market Entry and Expansion Strategies
Joint Ventures
Wholly Owned Subsidiaries
Licensing
Joint Venture
Its establishment, based on the merger of the British-based Shell Transport and Netherlands-based Royal Dutch
Joint venture plays an important role in Shells international expansion & development strategy
Shells Joint Ventures
Brazil-> Cosan, for Ethanol based fuels China-> Nanhai Petrochemicals Complex, for Oil and Gas USA-> Gulf Oil, for Nuclear Energy
Global-> ExxonMobil
Infineum: For lubricants and fuel additives Aera: For Natural gas, oil exploration and production
Joint venture Infineum International Ltd
Ownership 50% Shell; 50% ExxonMobil 50% Shell; 50% Saudi Basic Industries Corporation
Activities Manufacture and marketing of fuel, lubricant and speciality additives Manufacture of ethylene, styrene monomer, MTBE, ethylene dichloride, caustic soda and ethanol
Locations
Global
Saudi Petrochemical Company (Sadaf)
Al Jubail, Saudi Arabia
ELLBA BV and ELLBA Eastern (Pte) Ltd
50% Shell; 50% BASF
Moerdijk, The Manufacture of styrene Netherlands; Jurong monomer/propylene oxide Island, Singapore
Petrochemical Corporation of Singapore (PCS)
50% Qatar Petroleum International and Shell; 50% consortium of Japanese companies Manufacture of lower led by Sumitomo olefins, aromatics, MTBE
30% Qatar Petroleum International and Shell; 70% Japanese Manufacture of interests, led by polypropylene and Sumitomo polyethylene 50% Shell; 50% CNOOC Petrochemicals Investment Limited
Jurong Island, Singapore
The Polyolefin Company Pte Ltd (TPC) CNOOC and Shell Petrochemicals Company Limited (CSPCL)
Jurong Island, Singapore
Manufacture and sale of Huizhou Municipality, wide range of base Guangdong Province, chemicals and derivatives China
Wholly Owned Subsidiaries
Several subsidiaries in Nigeria starting from 1958, thus contributing to Nigerias local economy. Operation include, oil and gas production from local lands and swaps, as well as the oil detection and exploration in deep water far off the cost. Shell Nigeria Exploration and Production Company Ltd (SNEPCO) and Shell Nigeria Gas Ltd (SNG), which were established respectively in 1993 and 1998.
SNEPCO - Detection and production of hydrocarbons from Nigerias frontier areas, with the vision of becoming the leader in African market in terms of deep water oil and gas operations. SNG Promote the position of gas in energy industries of Nigeria, which is more reliable and cleaner than the traditional liquid fuel. Also, it has operated a pipeline construction with a length of 80 km, providing reliable guarantee for the gas supply. Shell Petroleum Development Company of Nigeria Ltd (SPDC) This is a wholly-owned Shell company that operates oil and gas production in the Niger Delta on behalf of the partners of an unincorporated joint venture between the government-owned Nigerian National Petroleum Corporation NNPC (55%), Shell (30%), Elf Petroleum Nigeria Ltd a subsidiary of Total (10%) and Agip (5%).
Licensing
Provides support to its customers through licensing advanced technologies. With a license issued by Shell Global Solutions, the client could get a particular technical assistance or operational consultancy to upgrade its own business performance. A wide range of lead-edge technologies for other refineries, such as hydrocracking, fluidized catalytic cracking, thermal conversion, distillation and so on.
Factors that Influence Internationalization
Exporting Franchising
Licensing
Wholly owned Subsidiaries
Collaborative / Joint Ventures
Turnkey Projects
Factors that Influence Internationalization
Choice depends upon multiple factors
Firm Factors Environment al Factors
Cultural Conditions Economic Conditions Social Conditions
Strategy Experience Features
Internationalization Path of SHELL
Greatly influenced by a factor Unique Company Structure ( 4 types of companies)
The Royal Dutch Shell Group Holding Companie s
Parent Companie s
UK Based The Shell Transport and Trading
Operating Companie s
Service Companie s
-Total 9 Companies -Provide Advice to Operating Co.
Netherlands Based Royal Dutch Petroleum
More than 200 companies
Internationalization Path of SHELL
Different companies employ different method of expansion. Example:
Operating Company: Joint Venture Gain detailed knowledge about local market; Shared risks and costs Service Company: Licensing e.g. Shell Global Solutions; Reduction in Costs and Risks; No major investment in peripheral activities; Immunity against restrictive investment barrier
Environmental factors in that country also matter.
Environmental Challenges Faced by Shell
Oil Spills in Nigeria
Philippines: Oil Depot at Crowded Place
Brazilian Pesticide Disease
Sakhalin: Last 130 Gray Whales Fracking Unconventio nal Gas
Canadi an Tar Sands
Political Challenges Faced (Interference) by Shell
Home States of Shell: UK and Netherlands UK and Netherlands might want to secure their interests/ economic benefits These interests might overpower ethical interests Compromise on human rights of host countries
Political Challenges Faced (Interference) by Shell : Examples
Shells access to Nigerian Government Shells access to Dutch and UK Governments
Shell drafts letters for the UK government to get Libya deal
Shell and Dutch government lining up against U.S. Iran sanctions
Invasion of Iraq: UK and Dutch governments
Invasion of Iraq: UK and Dutch governments understand Shells needs
Muddling through in Nigeria
In 2010, Nigeria accounted for 19% of Shells worldwide production
About Nigeria:
More than 30 million inhabitants Ranks 142 out of 169 in HDI by UN Ranks 134 out of 168 in CPI 54.4% official poverty prevalence Over-reliance on crude oil & gas
1) Oil Spills
299,000
169,000 72% 63% 37,000 28% 72% 37% 28%
National Oil Spill Detection & Response Agency (NOSDRA) Report
Violation of several internationally recognized Human Rights
Right to food, work, adequate standard of living, health & healthy env. Pending court case in Netherlands
2) Primitive Gas Flaring
The natural gas is primitively flared in open air Nigeria represents 111% of Global gas flares Nigerian Gas Association estimates loss of USD 72 Billion to Nigeria Environmental consequences: Heat stress & acid rains Consequences to the local communities: Eyes turn red, quick corrosion of roofs, crack in walls due to ground vibrations etc.
Sakhalin-2 Project (Russia)
Worlds largest integrated oil & gas project, capital expenditure amounts USD 22 Billion Russias first LNG plant, offshore Sakhalin island Case: Western gray whales are on the brink of extinction Only 130 left, with 30 mature females International Union of Conservation of Nature created a panel of independent scientists: Western Gray Whale Advisory Panel (WGWAP) Currently 1 platform operational
Oil Spill in Gulf of Mexico
Recommendations
Paradigm Shift: CSR to CSV Shared Value for:
Environment: Bio-fuel development
People: Hiring & training, Educational & Health facilities The Company: New profit models, Six Sigma, Pension benefits for employees
Thank You
