Bp in Russia Case Solution

1. The cultural differences between Western and Russian national cultures, TNK-BP founders appointed Westerners to top positions including CEO, COO and CFO; foreigners from heritage companies were in charge of finance, marketing, planning and environmental protection; and Russians managed extraction, legal support, security, and government relations.

2. The country’s oil export tax was unstable and rising continuously. External Environmental Scanning: One of the critical determinants of a firm’s strategy is the evaluation of the threats and opportunities in its competitive environment. If a firm understands these threats and opportunities, it is one step closer to being able to choose and implement a “good strategy”; that is a strategy that leads to competitive advantage.

PEST Analysis: Pest analysis means monitoring trends in the societal and natural environment. The scanning of economic, technological, political-legal, socio-cultural is needed to get overall idea about the economy.

Political-legal:

  1. The Russian government’s restriction on the flow of managers and executives from other countries would make it difficult for BP to introduce Western management standards and establish BP’s corporate culture in Russia.
  2. The Russian government stated that they did not have the appropriate law to work with foreign companies, so they canceled some projects for developing strategic oil fields and denied the permissions for buying more than a 50 per cent share in local companies.
  3. Unstable export tax, rising continuously.

Economic:

  1. Strong Competitors existed in the market. (Shell, Chevron, Total, ConocoPhillips)
  2. From 2003 – 2008 oil reserves and production both were increased and thus economy developed.
  3. Impact of fluctuating Exchange Rates.
  4. Russian Economy and oil price volatility.

Socio-cultural:

  1. Russians attitude towards foreign employee was not good.
  2. Cultural Differences were existed in TNK – BP.
  3. Strong cultural elements changing the environment of Russian energy industry, which reflect the customer preference and of other companies.

Technological:

  1. Energy availability was high and costs were comparatively low.
  2. Local employee’s skill level was low.
  3. No regulations on technology transfer.
  4. Renewable energy technologies.

Industry Analysis:

Porter’s Five Forces (PFF): Bargaining power of Suppliers:

  • The industry is dominated by a few companies, but it sells to many.
  • Substitutes are not readily available.

Bargaining power of buyers:

  • Switching costs is very little.
  • Alternative suppliers are plentiful because the product is standard and undifferentiated.
  • Buyer Purchases a large proportion of the products.

Threats of new entrants:

  • Acquisition or merger can take to serve the existing market.
  • The government did not follow any hard and fast rule to enter in the oil industry that’s why TNK-BP was burnable to foreign competitors.
  •  But high capitals at advanced technical skills are needed for oil companies so it reduces the chance of new entrants threat.

Treats of Substitute products:

  • Crude oil can’t be substituted by any other product, as it is not only the fuel but also the raw material for petrochemical industries
  • Other sources of energy are bio fuel, nuclear energy, solar energy and which at the moment are not cost effective

Rivalry among existing firms:

  • There are eight to ten companies in the Oil industries where low costs are creating a major threat.
  • The product characteristics are more or less the same so they have strong competition among them.

Strategic Group Maps:

  • A strategic group is a set of business units or firms that pursue similar strategies with similar resources. Categorizing firms in any one industry into a set of strategic groups is very useful as a way of better understanding the competitive environment. Research shows that some strategic groups in the same industry are more profitable than others.