Strategy & Planning Assignment Help online review study analysis:: International business in Russian Market – National culture

Strategy & Planning Assignment Help online review study analysis:: International business in Russian Market – National culture

Question asked??

With reference to the academic literature and using your analysis of relevant environmental factors, speculate how and why BP identified AAR as a potential partner. In which areas are the expected benefits and synergies for both the companies involved?

Solution the question frames is::

BP took a smart decision by identifying AAR as their business partner to enter Russia. BP has clearly stated in many interviews and talks that entering Russia was not an overnight decision. They have thought to enter the Russian market since long as they knew that this is the only way by which they can capture the oil industry, not only in Russia, but also all over the world.

Few reasons due to which BP was very keen to enter Russia are as follows: –

1. Russia is one of the countries in the world which has lots of natural resources. Many large organizations are willing to enter the country but they don’t dare to do so because they believe that the policies of Russia aren’t friendly for business. BP knew that Russia produced more than 18 million barrels of hydrocarbon every day. It has also estimated to produce 60 billion barrels of oil and 1.7 thousand trillion cubic feet of gas. Apart from these facts, it was very well understood that Russia still has lots more potential and hence, more oil and gas were yet to be discovered (Browne).
2. Russia is very positively motivated to grow economically. If a person checks the history of Russia then they will realize that in the last 18 years, no country has grown to such a large extent. The policies for international business are friendlier than that of other countries like that of the Middle East. A lot of problems were raised by the Russian political parties because BP was holding a 50% stake in the whole business. This problem was sorted out and the Russian government gave a warm welcome to BP (Energy, 2012).
3. Russia believes in technocentricism. Technocentricism means that they innovate and technology betterment takes place simultaneously. Russia wants to do their bit to the environment and hence, they innovate technologies that can be beneficial to production process and at the same time, it doesn’t harm the environment as well. BP is a large organization, they are very much concerned about the environmental factors because if any of the environmental factors is ignored then that might spoil their reputation among the stakeholders of the organization. BP couldn’t afford to take that risk and hence, they choose for Russia so that they can do their bit for the environment.
4. Russia already had all the required assets for producing oil and hence, BP need not take the pain of implementing new technology. This is one of the major reasons due to which BP was attracted to Russia. BP knew that they can get the advantage of existing technology and they can introduce many new technologies to make their presence much stronger (Johnson. T, 2010).

TNK-BP came into existence on September 01, 2003. The 50% shareholder of TNK-BP is BP and remaining 50% shares are held together by Alfa, Access and Renova (AAR); thus, BP is the major shareholder in TNK-BP. Russia had all the required resources and BP decided to explore it for business benefits and it was also noticed that the resources weren’t utilized completely by the oil companies in Russia. Today, TNK-BP is the 3^rd largest oil producer in Russia and they produce 17% of the total oil which is produced in Russia. They are utilizing all the technologies which are available and at the same time, they have introduced all the technologies that they were used in the past in BP.

With reference to the academic literature, explain the risks associated with the choice of joint venture as an approach to this particular partnership. Was there a feasible alternative? Justify your view.

Just like any other international business, BP also had its fair share of risks in Russia. BP noticed that the benefits of TNK-BP are far more than the problems that they were facing initially. Few of the challenges that every international business, including TNK-BP is as follows: –

1. The problem with BP starts when they entered Russia. BP was a well established name in Ukraine and it had its presence internationally even before entering Russia. Initially when BP planned to enter Russia then it realized that it will have to tie-up with other companies. The maximum share that BP can hold in Russia was 50% so BP had a tough time, identifying the potential shareholders.
2. The Government of Russia believes in Bureaucracy and this is one of the most pathetic things for any new business that is willing to enter Russia. All the major decisions of the country are made by the government or the elected representative thus, BP had to run to the state officials every time for a new implementation of rules or policies. AAR was a part of TNK-BP but all the approvals for the business was given by the government thus, making the process complicated. Apart from that, corruption is a major problem in Russia. The officials take bribe for approving any document that is presented by an organization which is willing to enter the country.
3. Culture was one of the major problems with Russians. Russians aren’t well versed with western culture. The management consisted of two professionals from BP thus, making it difficult for them to survive in Russia. BP had a strong belief that westerners can manage business in a better way than that of the Russians and hence, they decided to hire professionals from western countries to lead the production, marketing, HR and environment team but things didn’t work out as it was planned. Getting a permit for these professionals to enter the country was a difficult task and later, these professionals were completely unaware and uncomfortable with the working culture in Russia and the Russian workforce was stubborn and hence, they weren’t willing to change their working style. The managers had to supervise a lot to get them to work, thus making it uncomfortable for the managers as well the workforce.
4. Raising capital was a difficult task for TNK-BP. It was noticed that the tax policies of the government weren’t friendly to TNK-BP and hence, TNK-BP didn’t disclose the facts of business in general public. This led to a reduction in the share value of the organization in the market. Public weren’t sure whether they should invest in TNK-BP or not. Taking credit from banks was one of the most difficult things to do in Russia. Banks in Russia give loans to businesses at a very high interest rate and the loan period was also very short thus, making it difficult for TNK-BP to introduce new assets or processes.
5. The environmental policies of Russia are very strict and hence, TNK-BP had to make investments so that the production process can take place in an environmental friendly manner. To fight with this problem, TNK-BP had set up a new team that would observe the operations which is taking place so that the impact which is created by their operations can be identified and strict action can be taken at the earliest.
6. The infrastructure of Russia is considered as a hurdle by TNK-BP. Russian ports are one of the ways by which travelling is possible inside and outside the country. The availability of roads in Russia is very less and even if the roads are available at a few places, the condition is very bad thus, making commutation a difficult task. Logistics is thus, considered to be risky in the country (VMConsult, 2011).

By applying appropriate theory, compare and contrast the national and corporate cultures involved. Critically evaluate the actual and potential impact of both on this partnership.

National Culture

National culture of Russia is different than that of national culture of Ukraine and hence, BP felt that they have landed up in an alien land when they entered Russia. Following things have been identified about Russia by way of using Hofstede 5 dimensions of culture.

Power distance – The culture of Russia doesn’t believe in equality. The people who are powerful in the country have the authority to decide for things that needs to be done. A less powerful person will always have to listen to people who are more powerful, in terms of power, than that of him.

The Britishers believe in equality and hence, they respect people with due respect. Even in the work environment, it will be noticed that the seniors in the organization will treat subordinates with respect rather than that of dominating them.

Individualism – The communication of Russia concentrates on “we” rather than that of “I”. Russians believe in unity and they expect this from businesses which enter their country. The language that is being used in Russia focuses on group achievement.

Achievers are respected in western culture and everybody will have to decide on their own achievement. It is noticed that rather than working in a group, people like to set their own goals and achieve it.

Masculinity/Femininity – Masculinity states that the society respect people who are strongly and best in terms of performance and femininity refers to the way the society loves and cares for each other. Russia believes in Masculinity and hence, the bosses in Russia are very dominant but it was also noticed that a dominant behavior among peers and friends is not liked by many.

Western culture believes in more femininity and hence, the work culture is also very soft, expressive and supportive. Colleagues believe in helping each other so that they can complete the task easily and in less time.

Uncertainty avoidance – Uncertainty avoidance means the efforts that the business in Russia takes so that they can avoid uncertain situations that can arise at any point of time. Russians are very scared of uncertainties and hence, they take all possible actions to avoid uncertainty. It is noticed that the reports prepared by the professionals in Russia are very detailed thus, leaving no space for risk.

Westerners believe in utilizing the current time to the fullest and hence, they utilize all the resources that they have with themselves rather than that of saving things for the future. They believe that if they excel today then their future is very much safe.

Long Term orientation – Long term orientation means whether the society concentrates on the future of the business or it concentrates much on the things that happened in the past. Russia is balanced over here because bureaucracy government’s rules still prevails in Russia and at the same time, democracy and privatization are also taking place (GreetHofStede).

Westerners believe in adopting new technology and hence, continuous growth of their economy is taking place. They believe that the past is gone and they learn from their past mistakes so that they can make a better tomorrow.

Corporate Culture

As per Kotter and Heskett model, AAR fits in cultural theory 2 and BP fits in theory 3 thus, coordination between both the organizations was a difficult task.

Alfa, Access and Renova Corporation have a corporate culture that is set as per the need of the hour. The changing environment doesn’t create much impact on the corporate culture. The culture of the organization will be changed only when the environment is creating a lot of stress on the organization. In this kind of organization, the values and culture of the organization is more important than that of anything else. AAR concentrates more on culture rather than that of profit of the organization. Managers in the top position can’t give much input regarding the work that is being done as strict rules are set in advance.

BP is a very successful organization and that is because they adapt themselves to the changing environment continuously. BP identifies the problem that prevails in the organization and they try to identify the reason regarding the prevailing problem. Once the problem is identified then the modifications in the environment is made accordingly. The top management discusses the issues that are prevailing in the environment and a solution is arrived at (Gaynor, 2002).

Drawing upon academic literature and theory, critically discuss the long-term, strategic effects, both positive and negative, of exchange rate movements on the TNK-BP deal during the exploration/negotiation period and after the deal was agreed.

The exchange rate is affected due to various reasons and the fluctuation leads to various economic problems in the organization as well. Few of the reasons due to exchange rate fluctuations take place are as follows: –

1. Purchasing power parity – The dollar value of each country is different and hence, the same good will not be available at a same price in two different countries. The value of money is not same in two different countries and it keeps on changing from country-to-country.
2. Inflation – The exchange rates are also affected due to the inflation that is taking place in the country. It is being noticed that the inflation in western countries is much higher than that of the countries in Europe.
3. Interest rates – Higher interest rates in any particular country will attract the potential investor to invest in that country rather than any other. If Russia is giving more interest on the investments than that of Ukraine then people will invest in Russia rather than that of Ukraine.
4. Government – Every government has the authority and power to influence the exchange rates in the country. If it is noticed by the government that most of the investments is being done outside the country then the government may put down a restriction so that the funds in the country are within the country only (Cullen, B, 2006).

Effects of exchange rate movements on the TNK-BP project

The exchange rate movement has affected the TNK-BP project to a large extent thus, making it difficult for the organization to change itself. Few of the effects of exchange rate movements are as follows: –

1. In the year 2009, the whole country was affected due to recession and hence, it was noticed that the price of TNK-BP was also reduced thus, TNK-BP suffered huge loss. In the year 2009, all the petroleum and crude oil products were sold for $39.3 per barrel but this problem was sorted by the year 2010, with the end of the recession, the price was raised to $65.8 per barrel.
2. The reporting of TNK-BP project takes place in US dollar and hence, the profit and loss of TNK-BP takes place as per the value of the US dollar. During recession, it was noticed that the profit of TNK-BP reduced drastically.
3. Initially, when TNK-BP entered Russia then it was noticed that they used the only Transneft system for the purpose of transporting crude oil from Russia to other countries but this pipeline wasn’t enough. Recently, TNK-BP started with ESPO pipeline that can transport 30 million tons of crude oil every year. Apart from this, they have also started with the usage of railways for the purpose of transportation (TBK-BP, 2009).

Identify three specific aspects or challenges of doing business internationally that you personally have come to appreciate through studying this module. Discuss how these will influence you if you go on to an international business career.

If an organization is willing to enter international business then it needs to do a proper research so that it can face all the complications that may arise. Few of the challenges that can arise in any international business are discussed below.

Culture is one of the major constraints that every organization will have to face. Every organization has a pre-defined culture and the culture which is followed in the organization is generally due to the culture which is present in that particular country. When BP entered Russia then it was noticed that they wanted the people in the management to be from the headquarters of BP. This created a lot of difficulty as the western culture didn’t go well with the Russian culture. Russians give a lot of importance to the culture and hence, it becomes really difficult for them to change themselves to the changing environment but westerners want to be ahead of the competition and hence, they are willing to go out of their way to change things that are pre-defined. Russian culture is such that they have pre-defined process and all the people in the organization will follow the set process but westerners change their working style when they believe that changing can be beneficial to the organization. A need for achievement is very less among Russians as they believe in equality but westerners compete among themselves hard so that they can achieve a better position than that of their counterparts.

Finding a right partner is one of the biggest challenges that every organization will have to face. BP decided to merge with three companies (Alfa, Renova and Access) in Russia and they decided on these three companies after checking the assets, liabilities, strengths and weaknesses. Analysis of the company will give a rough idea if the acquiring company will be able to make profit or sustain the loss that might take place in the near future. If an organization merges will an organization that is completely different than what it was expected to be then it can be an expensive deal. Choosing a local partner to enter the business is a must for many countries as a foreign organization cannot enter any country alone.

Checking the technological advancement of the country is of utmost importance when an organization is planning to enter a new country. BP had advanced technology but that was not the case with Russia and this was one of the major problems that BP had faced and is still facing. Technology advancement not only reduces the stress that is caused due to the production process; it also reduces the stress of overall management. The pipelines for the purpose of transportation of oil and other petroleum products were limited and this is a great constraint. Apart from that, it was also noticed that logistics was limited thus, stopping the growth of TNK-BP. Oil and gas industry can be considered to be one of the most risk oriented industry and in the absence of technology, things become even more difficult. Apart from checking the presence of technology, the organization should also check if the organization is using the same technology. In the presence of two different technologies in both the organization, co-ordination will be become a difficult task to achieve (McDonald, B, 2002).

All the challenges that one can think of should be identified before an organization enters another country, otherwise things will be a surprise. Apart from identifying the problem, a proper solution needs to be thought about so that the merger can be a success. All the countries and organizations have its own set of advantages and disadvantages so a decision needs to be taken accordingly. If an organization isn’t sure if they can overcome the disadvantages then it is better to avoid such organizations.

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