International Business Strategy Under High Risk Environment

Risk Environment代写 From the present time and more anticipated Britain Exit from European, heightened war in Syria, China and···

 

From the present time and more anticipated Britain Exit from European, heightened war in Syria, China and United States Economic wars to the historic World Wars, presented large-scale change and uncertainties to both domestic and global businesses. International businesses are the most affected by instabilities in local and international political, social and economic environments which are increasingly becoming the remit of international corporate leaders as much as governments. Nonetheless, the expansion of a business to the global scale means reaching larger market and hence boosting profits. Despite various risks that some companies face in the international markets, there are survival strategies to continue leaping from the market.

This paper will focus on the China National Petroleum Corporation and Lafarge. They are multinational enterprises that have invested in high risk markets in South Sudan and Syria respectively. It will also analyze the reasons why they choose to enter or remain in these markets, prevention and mitigation strategies they use to remain in these markets. The two multinational companies are not competitors and operate in different markets.

Brief History  Risk Environment代写

China National Petroleum Corporation in South Sudan

China National Petroleum Corporation is the 4th largest limited liability oil company based in China by the Fortune Global 500 (2017). The company generated more $392,976.60 million in 2018. It has more than 1,382,401 employees. CNPC has more than 3.7 billion barrels of oil reserve. It is government owned enterprise and listed as PetroChina as part of restructuring in 1999. Both CNPC and PetroChina invest in foreign markets as join venture named the CNPC Exploration & Development Company (CNODC) that PetroChina own 50 percent stake. In 2014, through the then CEO Zhou Jiping, CNPC opened six business units to private investors (Petro Global News, 2014).

According to Membrane Technology (2010), CNPC and UOP Lic, entered into agree to make collaboration in biofuel investment technologies and projects. These strategic alliances and networks aim to getting the company at the helm of global oil leadership. They have enabled it to 30 international exploration and production projects around the world. The adopted organizational structure creates synergy investment and market decisions. The company has been able to withstand market turbulences especially competition from OPEC and oil from western African as well as political instabilities in Sudan.

However, the structure is complex because of different management cultures in the network and alliances created. As a result, decision making processes and internal communications can take time. Nevertheless, the downsides of complex centralized and bureaucratic organizational structure are offset by many benefits that accrue to the company in its international strategy.

CNPC began its operations in African oil and gas through its acquisitions and foreign direct investment in the Sudan in 1997 (Rui, 2010, p. 59).  Risk Environment代写

The form of ownership gives its full control of the operations and the market. The entry of the company was facilitated by the close relations between China and Sudan governments. The main reason for the company entry into the market is because Sudan was rich in oil deposits. Despite South Sudan being a high-risk area for doing business, it holds sub-Saharan Africa’s third-largest oil reserves of 3.5 billion barrels.

The country has been producing almost 400,000 barrels per day since 2011. There is high possibility that petroleum geologists will likely find more oil reserves. The high potential of the country having more oil resources presents large opportunity for companies like China National Petroleum Corporation struggle through war challenges and emerge a dominant oil exploration and exporting company in the country.

MTN Syria in Syria  Risk Environment代写

MTN Group is a multinational telecommunication business organization that has its presence in 21 countries in Africa, Asia, and the Middle East. As at 2016, the company had more about 232 million subscribers and hence becoming the 8th largest company in the world and 1st in Africa. The largest market for MTN Group is Naigeria which made up to 35 percent of the group’s revenues (African Business Central, 2016). MTN Syria is a mobile network operating in the Syrian Arab Republic. The company was founded in 2001, before it was taken over by MTN Group in 2007.

The company is 73 percent owned by MTN holdings and publicly traded under its name. The company operates standard 2G GSM services over the 900 MHz band, and 3G UMTS services over B1 (2100 MHz) since 2008. Despite the country facing challenges with terrorism until 2018, MTN Syria upgraded its 3G network to HSPA+ in February 2016, and began piloting 4G LTE in July 2017. 4G LTE was officially activated in August 2017, advertising peak data rates up to 150 Mbps. The network is understood to be deployed over B3 (1800 MHz) following licensing approval by the Minister of Communications and Technology.

Moreover, MTN Group established MTN Syria as a subsidiary to have foreign direct investment in the country.  

The entry mode gave it full control of the market. The management and decision making are centralized and trickle down from the parent company in Johannesburg to all the subsidiary companies established on various countries. However, subsidiaries are independent to make some local decisions regarding employments, marketing among others. As result, although subsidiaries are independent in the countries of operations, key decisions are made from the head office.

Internationalization Strategy of China National Petroleum Corporation  Risk Environment代写

South Sudan is the world’s youngest nation and is looking for ways to spark its economic growth. Since 2013, the country has been affected by massive civil war that has killed tens of thousands of people and left more than 2.5 million homeless and seeking refuge in neighboring countries like Kenya and Ethiopia (Aurelio, 2018). As a result, there are few countries and businesses which would find South Sudan an ideal location for doing business (Hammond, 2017).

However, China through China National Petroleum Corporation, has found a niche in the market in the country. Through its multinational companies, over the years China has built its reputation as a world power on an economic philosophy of risk taking. South Sudan is a strategic country African and offers a lucrative opportunity that entrepreneurs can exploit.

Therefore, South Sudan is an important country to CNPC to make investment.  Risk Environment代写

The country as a source of crude oil mainly depend on the company to buy and export it to China (Kuo, 2012, p. 3). The civil war has torn it apart and it need to heal and rebuild its economy. Crude oil being the main natural resource is the main source of foreign exchange through CNPC. CNPC on the other hand, use this dependent opportunity to build is oil reserve back in China. Most importantly, is the friendly trade agreement between China and Sudan after United States isolated the country after civil war.

The company has international advantage over many other oil exploration companies. Consequently, it does not face any trade barriers in the country since the relationship between the two countries is mutual. The absence of competition in oil industry in South Sudan presented CNPC opportunities for foreign direct investment in the country.

At the time of civil war, Sudan was faced with falling oil prices, plummeting markets, social instability and terrorism.  Risk Environment代写

These are the political risks that CNPC had and other multinational as well as domestic companies had to deal with. The management under the leadership of Zhou Jiping used winning strategies that made the company withstand the pressure. In collaboration with the government of China and South Sudan government, Jiping created close relationship and networks that he used to protect the company interest as well as that of both countries protected from terrorism, and other forms of attacks (Vasselier, 2016). Chinese government together with company leadership brokered and advocated for peace in the country.

The mutual ties with the locals through jobs, providing relieves and refuge made its hold in the country stronger. The company engaged itself in numerous corporate social responsibilities that saw it locally recognized to contribute to the social welfare of the Sudan citizens. Some of the main CRS activities aimed to eradicate poverty, support education, local development, humanitarian care and construction of overseas communities (CNPC, 2016). These measures saw the company deal with volatile conditions in the country and be able to conduct business with few hurdles.

Moreover, CNPC was motivated by large oil deposits coupled with political support from both home country and Sudan government to enter the market.  Risk Environment代写

The close government ties between China and Sudan facilitated the entry of the company to the oil industry (Large, 2009). The Chinese government negotiated for better terms for its home companies to do direct investments. There were bilateral trade ties that further fostered the relationship between the two countries and culminated to locking competitors especially from the United States (Large, 2009). These favorable conditions made it possible for CNPC to choose foreign direct investment as the main entry mode. The main reason for this is resource-seeking strategy as explained by the Alan Rugman’s CSA-FSA Metrix in figure 1 below (Rugman, 1981).

In regard to Rugman’s argument, CNPC entered Sudan using matrix 1 where international advantages are high. The company aimed to get more resources effectively and, in this case, crude oil than those it gets from the home country (Dunning, and Narula, 1996). Another notable reason is to enjoy the size economies of scale. Its presence in the country brought about fundamental changes in the industry (Lall, 1990). It dominated the oil production in the country. The company become pivotal in the development of South Sudan through foreign export earnings.

1
1

Figure 1: FSA/CSA Matrix

Additionally, the entry motivation and mode can be explained internationalization theory and Dunning’s eclectic paradigm.  Risk Environment代写

According to Dunning, multinational international activities are determined by three factors including ownership advantages, location advantages and internationalization advantage (Dunning, 1980). In context to CNPC, the company is the largest manufacturer in China and owned by the government. The O advantage is then transferred to other countries as it tries to diversify and capture value from them using L advantage and hence internationalizing O advantage to foreign markets. CNPC has used its size economies of scale at home and in the global market to dominate South Sudan market.

On the other hand, internationalization theory can be used to explain CNPC international market strategy that is informed by information related intangible assets with public goods in the target market. It is also used to analyze firm’s choice of entry mode that a multinational company chooses. Thus, CNPC had I advantage over many other international companies entering the market and this FDI was preferred to licensing, joint ventures or alliances.

Moreover, CNPC internationalization strategy to Sudan can be explained using Michael Porter’s Diamond Model as shown in Figure 2 below.  Risk Environment代写

Firm strategy, structure and rivalry determine how a company becomes competitive (Smit, 2010). Traditionally, CNPC is government owned meaning that its management structure is highly regulated and optimized. The hiring of Jiping, the former PetroChina CEO was very strategic in equipping the company international management power. Most of the decisions are controlled by the government and other subsidiaries. Fortunately, the company did not have rivalry in Sudan due to favorable bilateral trade agreement between two countries. The market was also well-endowed with natural gas and crude oil which was in high demand in China. Most importantly, the company was able to get support from the government to be successful in oil industry.

Risk Environment代写
Risk Environment代写

Figure 2: Porter’s Diamond Model of National Competitiveness

In essence, South Sudan is considered a high-risk market because of political crisis that led to civil war.

As a result, there is plummeting market, social unrest and terrorism which pose great risks to multinational companies. Economic risk began in 2011 when the country sunk into civil war that shut off oil flows. The country lost foreign exchanges, and inflation increased to more than 46 percent by 2012. The instability in political and economic system led to the proliferation of bribery and corruption at the scale of about 5. Most businesses including CNPC were not secure because of attacks by terrorists and organized criminals. These were some of the challenges that CNPC had to tackle to remain operational in Sudan.

Therefore, the management was very entrepreneurial to come with prevention and mitigation strategies.  Risk Environment代写

The company had insurance to protect its premises and property. Political risk insurance was most appropriate to protect CNPC in the event of financial loss such as expropriation, unrest and violence in the country. When violence heightened, the company management in collaboration with Chinese government began evacuating its workers out of the country to avoid human resource crisis. It halted its operations and focused on humanitarian activities. More so, the company created mutual relationships with the government and locals so as to contribute towards finding peace and reconciliation. The mix of these strategies gained the company local acceptance, recognition and dominance in the market.

Overall, political risks are unpredictable though can be speculated. It is the role of managers to read the political atmosphere and try to predict the future with relative certainty. Most of the risks that CNPC had to face could not b foreseen and hence the company had no power over their occurrence and impact to its operations. However, the speculative measures were taken to caution the company against looming civil war at early stage.

Internationalization Strategy of MTN Syria  Risk Environment代写

Syria is a civil war-torn country and currently the deadliest in the 21st century. The war began in 2011 and has since then attracted foreign alliances who have joined either sides of the opposing forces. More than 400,000 people have been killed. As at March 2019, about 5.7 million Syrians have fled to foreign countries and more than 6.1 million are internally displaced. Though Syrian government has managed to capture and control much of the country and is in the process of reconstruction, many international businesses fled the country since they could not withstand the political crisis and war that have hit the country for the last eight years (Yee, 2019). Regardless of these political challenges, MTN Syria has continued to have a stronghold in the country’s telecommunication sector since 2007.

Risk Environment代写
Risk Environment代写

References 

Vasselier, A. (2016). Chinese foreign policy in South Sudan: The view from the ground. China Brief: The Jamestown Foundation, 16, 13-22.

Smit, A. J. (2010). The competitive advantage of nations: is Porter’s Diamond Framework a new theory that explains the international competitiveness of countries?. Southern African Business Review, 14(1).

African Business Central. (2016). MTN settles Nigeria fine & looks at listing on the Nigerian Stock Exchange. Retrieved from https://www.africanbusinesscentral.com/2016/06/11/mtn-settles-nigeria-fine-looks-at-listing-on-the-nigerian-stock-exchange/

Dunning, J.H. 1980. Toward an eclectic theory of international production: some  empirical  tests. Journal  of  International  Business  Studies  11(1) (Spring/Summer): 9-31.

Dunning,  J.H.,  and  R.  Narula.  1996.  The investment  development  path revisited. In Foreign direct investment and governments, ed. J.H. Dunning and R. Narula, 1–41. London and New York: Routledge.

Rugman, A.M. 1981. Inside the multinationals. London: Croom Helm.

CNN. (2019). Syria civil war fast facts. Retrieved from https://edition.cnn.com/2013/08/27/world/meast/syria-civil-war-fast-facts/index.html

Fortune Global 500. (2017). Ranking. Retrieved from https://fortune.com/global500/china-national-petroleum/

CNPC. (2016). 2016 corporate social responsibility report (online). Retrieved from http://csr.cnpc.com.cn/cnpccsr/xhtml/PageAssets/zrbg2016-en.pdf

Petro Global News. (2014). CNPC chairman starts courting private investors. Retrieved from https://petroglobalnews.com/2014/03/cnpc-chairman-starts-courting-private-investors/

Membrane Technology. (2010). CNPC and UOP team up on biofuels. European Rubber Journal, 192(1), pp. 1-16.

Hammond, J. (2017). Sudan: China’s Original Foothold in Africa. The Diplomat. Retrieved from https://thediplomat.com/2017/06/sudan-chinas-original-foothold-in-africa/

Aurelio, D. S. (2018). South Sudan Turns to Oil Industry Investors to Spark Economic Growth. The Global Post. Retrieved from https://theglobepost.com/2018/11/21/south-sudan-oil-industry/

Yee, V. (2019). What ‘Victory’ Looks Like: A Journey Through Shattered Syria. New York Times. Available from https://www.nytimes.com/2019/08/20/world/middleeast/syria-recovery-aleppo-douma.html

 

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