Analysis case study: Shell Oil Company

The following analysis evaluates the challenges faced by Royal Dutch Shell Oil Company involving their monumental proposed investment into their Nigerian operations. When global companies experience extreme criticism such as Shell, they are usually tasked with identifying optimum solutions to reverse the negativity. In addition to assessing the challenges, this analysis provides some potential strategies that can be implemented to resolve the issues within this case.

Problem Statement

Royal Dutch Shell Oil Company proposed to execute the largest industrial investment ever made in Africa. Their proposal was a response to three separate issues. However, there were problems with the proposal. A major problem was that two critical entities that Shell proposed to share in the investment, made it clear that it would take some time before they could even consider Shell's proposal.

Other major problems included political and social instability within regions where Shell operated. Shell acquired a very negative public image, and it was primarily due to the following: Shell had also been accused of waging an ecological war against natives and the natural habitat. Furthermore, the company was accused of being responsible for the deaths of natives from the land in which Shell procured oil.

Situation Analysis

Shell Oil is one of the largest oil traders in the world. With extensive international operations their largest African operation existed in the country of Nigeria. In this case, Shell's operations in Nigeria created a very complex situation, thus creating numerous factors for the various components included in the environmental scanning analysis. The economic factor consists of Shell proposing an $8.5 billion integrated oil and natural gas investment, making it the largest industrial investment ever made in Africa. Shell estimated that their proposal would bring an additional $20 billion to the government of Nigeria over a 25-year period.

The proposal also called for 70 percent of the cost to come from private companies (mainly Shell), and the other 30 percent from the Nigerian government. A government owned company named the Nigerian National Petroleum Corporation (NNPC), which is a joint venture partner in all Nigerian petroleum projects contributes to Nigeria having more foreign direct investment than any other country in Africa. Another important economic issue is that the European Union actually withheld $295 million in aid to Nigeria while protesters attempted to boycott the purchase of Nigerian oil, and while considerations were being made to implement an embargo on business with Nigeria.

The political, legal, and regulatory issues are closely related in this case, and therefore are grouped together. Many companies including Shell Oil have often been skeptical about doing business in Nigeria because of the political and social instability that exists in the country. This instability creates optimum opportunities for corruption to occur, contributing to Nigeria being one of the most corrupt countries in the world today. This instability also made doing business risky within Shell's existing Nigerian facilities.

Shell had been severely criticized outside of Nigeria for its Nigerian political activities and environmental policies. This criticism was more than likely caused by the knowledge of unethical business practices in Nigeria. The NNPC also plays a role in the political component, being a government owned business.

The natural resource issues include Shell selling in Nigeria as early as the late 1920s. In 1937, Shell formed a joint venture with British authorities that had exclusive rights to explore for oil. This venture found oil for the first time in Nigeria in 1956. This oil was found in a 404-square-mile area in the southern part of the country near the delta of the Niger River known as Ogoniland.

Shell's oil procurement operations took place in a large number of countries. However, the Nigerian operations were quite significant, accounting for about 10 percent of the company's petroleum sources. The Shell joint venture included nearly 100 oil wells, two refineries, and a fertilizer plant all in the area known as Ogoniland.

The cultural and social issues involved in this case are extensive and quite complex. Nigeria was a British colony until 1960, and has a population of over 115 million, making it the most populous country in Africa. Nigeria's former colonization could have been a key reason why Shell Oil, a British company had such a vested interest in the country. Nigeria's government has the serious challenge with trying to unite 250 different ethnic and linguistic groups. An interesting issue with the Nigerian culture is that the country continued to be wiling to sell almost unlimited oil supplies, even though their reserves were not nearly as ample as countries such as Saudi Arabia, which is more prone to limit supplies.

Additional cultural and social issues included the problems that native Ogonis had with Shell Oil Company. Even though Shell used the land in this area to run their operations, very little of the revenues were reinvested to help maintain the land. As a result of the lack of attention given to Ogoniland, a group of natives led by author Kenule Saro-Wiwa, formed the Movement for the Survival of Ogoni People (MOSOP).

MOSOP began campaigning for a greater share of oil revenues to restore the environment of Ogoniland, and compensation for losses from Shell's activities. For example, Shell was accused of damaging farmlands and fishing areas due to oil spills. Shell has also been charged with their oil flares at refineries affecting health, and the laying of pipes destroying freshly planted crops.

Furthermore, MOSOP demonstrations have resulted in extreme violence. And Ogonis even began sabotaging Shell facilities causing Shell to discontinue operations in that part of Nigeria. MOSOP members were eventually arrested and executed for their involvement in the Shell Oil violence. Worldwide critics charged Shell with allowing the executions to occur although the company publicly denounced the executions. These executions and increased instability influenced consumer's behaviors as boycotts against Royal Dutch Shell Oil were being held worldwide.

The technology component included the technical tools that were used for predicting where oil might be found. Technology improvements enabled these tools to become sophisticated and allowed the development of rating schemes. These rating schemes were particularly important because they examined the underlying conditions within and between countries that could affect the security of assets and the ability to export them to their markets.

Strategic Marketing Issues

The primary issues that Shell faced in this case accounted for three components of the marketing mix. One major problem that Shell faced was the negative publicity that their Nigerian operations garnered. Critics suggested that Shell discontinue their Nigerian operations as a whole based on the violence and unrest there. The product itself was seen as a problem because its development process created many ecological problems, and there was little to nothing done to try to curb to negative impacts that the oil and oil procurement had on the environment.

The distribution of the oil also can be viewed as a critical issue. Not so much as the distribution channel and/or method, but the method of entering foreign markets. Shell definitely incorporated joint and mixed ventures to begin procuring oil in Nigeria, and gain access and market share there. However, Shell ignored the need to be sensitive to the native land and its constituents. The NNPC which is a local governed entity did not even ensure that Shell be dedicated to restoration of the afflicted areas. This further supports the thought of corruption within the local government.

S.W.O.T. Analysis

Strengths

Long standing, financially sound firm Provides necessary commodity Strong brand equity Extensive resources

Weaknesses

Operating in unstable environment Very negative perception about operations Failure to consider land and inhabitants

Opportunities

Re-establish image by redesigning objectives of proposal Cease violence by making amends with people affected by operations Hold parties committing unethical acts accountable Create partnership with shareholders and local government and constituents

Threats

Possibility of continued violence from native groups Continued and/or increased discrediting of operations Continued and/or increased negative image and publicity

Alternative Courses of Action

I. Shell should consider better utilization of resources. In addition to increasing Nigerian oil revenues, Shell needs to consider allocating resources to be specifically used for the restoration of Ogoniland. The government's oil revenues from Shell's operations have traditionally gone to the country's central government, with little to no reinvestment into Ogoniland. Shell should take this opportunity to make amends with the Ogonis.

An advantage of using this option would give much deserved justice to the people of Ogoniland. This would have allowed Shell to make peace with the people. This reallocation process should also include a way for natives to share their personal issues. This would allow Shell to uphold a firm social responsible stance. Furthermore, this would surely diffuse a lot of the criticism about Shell destroying the native lands. The only disadvantage to using this option would be the extra expenses incurred. However, this is much needed and well worth the effort and money.

II. Shell could build on the shareholder resolution that was put into place. Shell should continue to disclose the accountability of the company's Nigerian operations. This is critical because of the perception of corruption in the government and the obvious and deep rooted issues within the local government itself. This method would show shareholders and critics alike that Shell is not supportive of some of the alleged unethical practices occurring within the government. This option would diffuse the criticism surrounding Shell and their role in the Nigeria's political activities and environmental policies.

III. Shell should redirect the focus and reasoning for their major proposal. The case indicated that Shell had three reasons for their multi-billion dollar proposal. Such reasons included investment analysts criticizing the low return on capital, and the fact that Nigeria offers low-cost petroleum extraction; Shell also felt that additional investments in Nigeria could "win friends" and lower some of the political risks that they faced. Shell thought the new investment would dispel criticism about their involvement in Nigeria's policies. But it seems as if Shell is just interested in pacifying critics rather than really doing the right thing.

They seem to be oblivious to the fact that a lot of the criticism is resultant of their lack of enforcement and overall social consciousness. The political environment in Nigeria is severely unstable, and it doesn't seem that Shell has identified the most appropriate strategy to operate under such conditions. Since this investment involves integrating oil and natural gas, Shell needs to identify and promote the ecological, infrastructural, and economical benefits from this project. They also need to be conscious of the impacts on the land and ensure that native lands are not compromised.

Recommended Course of Action and Justification

When considering an appropriate solution for the dilemma that Shell Oil faced, it is important to understand all of the impacts. Ideally, integration and implementation of all three alternatives would be a complete and well rounded solution for the problems facing Shell. Of the three alternatives, the most appropriate solution is number three. Shell Oil Company has a responsibility to the people of Nigeria to move forward with this project only with the people and land in mind.

Through redefining their strategy, Shell will be able to reposition itself and operate as a socially responsible organization. Shell needs to create a committee that will oversee the public relation activities in Nigeria. The committee should include Shell representatives, government officials, local business people, and civilians. This alternative is the best option because of the broad scope of redefining their strategy. Through the reengineering process, Shell can actually incorporate the other two alternatives to make their reform complete.