Shell Oil in Nigeria and the Transformation of Shell

Shell’s History: In 1833, a man named Marcus Samuel began selling seashells in London, eventually expanding into a thriving import-export business. In 1892, the first oil tanker was commissioned, to deliver kerosene from Russia to Singapore and Bangkok.

During this time, the Royal Dutch was forming to develop oil fields in Asian regions, and by 1896, Royal Dutch had a fleet of tankers. In 1907, Shell and Royal Dutch merged after realizing the benefit of working together. In the early 1920’s, an aviation attempt was made across the Atlantic, prompting the start of Shell’s Aviation Services. Shell had expanded as there was a mass production of cars in the early 20th century, but experienced a reduction in operations during the first World War.

In 1929, Shell continued to expand their operations to include chemicals. However, as the Second World War occurred, Shell again lost business. The rebound occurred by 1950’s and 1960’s, in which the Shell Company had nearly a tenth of the world’s market share. In the 1970’s, Shell experienced increasing crude oil costs, due to an economic recession. In the 1980’s, Shell diversified and became technologically advanced and more aware of environmental concerns. In 2005, the ultimate merger of the Royal Dutch and Shell happened.

Shell Nigeria: Since the 1930’s, an exploration for oil was concentrated in the West African area. In 1956, a discovery of oil was made in the area of the Niger Delta.ited Nations estimated, in 2001, that an additional 3.8 million would be infected on an annual basis, with an approximate 2.4 million dying from this disease or related illnesses that threatened life within a person who had an immunity problem. Furthermore, the undeveloped country did not have the resources to combat this problem. The drugs needed exceeded the affordable cost for its population, regardless of who would pay for it.

Global Intellectual Property Rights: The World Trade Organization (WTO) authored the global intellectual property rights, which granted drug manufacturers to maintain exclusive rights to the products for a period of twenty years. Drug manufacturers greatly supported this right, claiming high costs of research and development. If the rights were not granted, this could have caused the drug companies to not pursue research for new drugs, which would have been detrimental to the world’s population who is constantly searching for cures for ailments, cancers, diseases, and so forth.

Pressure on the Pharmaceutical Industry: A challenge was made, in 2001, by a company called Chemical, Industrial and Pharmaceutical Laboratories, Inc. Yusef Hamied made an offer of selling Duovir – a copy of Glaxo’s Combivir – to an organization for the price of $350 a year for each person. Keeping in mind, GSK’s discounted rate would vary depending on the country served, but was in the neighborhood of $3,000 a year, this came as an absolute shock. Cipla made a similar offer to the African governments to sell the drugs at cost. Cipla found a loophole to fulfill this offer.

The Medicines and Related Substances Act enabled parallel importing and compulsory licensing, of which Cipla planned to utilize on their behalf. Lawsuits were filed by drug manufacturers and trade associations to fight this MRSA. An international human rights group launched a campaign to make the medicines more affordable so that the people could afford to be treated. Oxfam demanded that the pharmaceutical companies lower the costs and forgo patent rights on the drugs, as well as earmark the other drugs to help treat secondary illnesses. Ethics became the hot seat in this campaign.

Formulating a Response: Although GSK joined the Accelerated Access Program earlier, this still did not settle well with the organizations, the governments, and the clinics. In the annual report, the statement was made that although GSK was doing what they could do, that there were other factors needed to be able to accomplish the advancement of treatment needed, such as updated clinics. Though the prices were discounted by other pharmaceutical companies, GSK pointed out that even the sales didn’t increase based on discounts, and stated that the issue of pricing was not the problem.

Core Interests: GSK’s core interests were to be as humanitarian as financially possible, while remaining the leader of the AIDS treatments, and satisfying investors, shareholders, and the employees of the company(ies).

Options: Pricing options, in light of the cost of research and development costs, are limited. The protection of intellectual property is threatened by the pandemic, and the need to treat this virus. The relations with the market shareholders, as well as the non-market shareholders is like a rollercoaster, or a no-win situation, and puts GSK in a tough position in which all cannot be satisfied.

Integrated Strategy: There are many unrealistic strategies, such as offering to buy out Cipla, foregoing the costs of research and development and sell the drug at production costs only. The implications of these problems would result in loss of earnings for the company, as the R & D costs are waived, prices reduced on Combivir, could result in demands for the other drugs to be priced likewise. However, the one that remained to be effective was the continuance of the preferential pricing to the developing countries. This would be my recommendation, to continue with the preferential pricing, but also to establish partnerships with other companies, research labs, to devise new ways of treating this disease.

Other Things to Note: Per the reports provided by the GSK regarding their project, “Facing the Challenge”, which is geared towards providing the drugs needed for developing countries, improving the healthcare of its constituents, there is progress in combating this pandemic, as well as other diseases. GSK worked with the European Union in preventing the diversion of products back into EU, and established rates to be sufficient enough to cover the costs of the drugs, vaccines, and research in same. GSK furthered investment into research for treatment of diseases found in developing countries, and making those treatments more affordable.

GSK also pointed out that the countries need to increase their responsibility and tighten their procurements and distributions as there appears to be inaccuracies in the treatment where people need it, as the World Bank reports that for every $100 spent on drugs for the public sector, only $12 worth of benefit is received by some African countries. GSK also suggested that the countries need to increase awareness, education, preventative health methods, invest more in facilities, research and development, and prioritize healthcare in national budgets in funds coming from the West.

Final Thought: As a corporation, GlaxoSmithKline is doing their best to help the countries combat this pandemic as well as providing vaccinations for other debilitating diseases such as malaria, tuberculosis, lymphatic filariasis and rotavirus. GSK is standing strong and reporting progress on the “Facing the Challenge”, and with this in mind, it has become possible to further research into other diseases also challenging the population of developing countries, such as the Ebola virus. Like the conflict diamonds, one entity cannot fight a battle alone.

Information provided by the Case Study, and GSK’s website, which contained the PDF files for “Facing the Challenge”, and its progress reports.