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GLOBAL CORPORATE STRATEGY

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INTRODUCTION TO GLOBAL CORPORATE STRATEGY

Global Corporate Strategy refers to the strategies relating to global, multinational and international. The report will focus on studying the various issues related to the oil and gas industry in the present era. For the study of the report, British Petroleum (BP) Public Limited Company has been chosen. BP is a giant in their sector, but due to the present condition in the oil and gas industry, companies are facing various challenges (Fisher, 2004). The first part report will focus on the challenges regarding corporate governance and corporate social responsibility by companies like BP and Shell Petroleum one of the other giants of this industry and BP’s competitor. In second part report will focus on the statement which indicates the uncertainty and risk involved in the oil and gas industry after the threat of new entrants. The last part report will focus on various management and leadership styles that can be adopted by the chairman of BP in order to improve their future functioning.

TASK 1: Corporate Governance and Competitiveness

1.1

Petroleum sector governance includes indulging and making decisions regarding the utilization of the nation’s oil and gas resources. It includes the hierarchal and structural organization of the industry, its communication and decision-making process, policies framing and objectives governing activities and rules and regulation of those activities (Carmeli and Tishler, 2006). Corporate governance refers to a system of rights; structure, duties and obligations through corporations that are directed and managed. Moreover, governance structure assists in specifying the delegation of rights and responsibilities between various participants in the firm such as various stakeholders like owners, managers, customers, employees and regulators (Sirico, 2012).

BP and Shell are the two major giants operating in the oil, gas and petrochemical industries. They are the leading organizations which are involved in supplying oil and gases around the world. In recent times global oil and gas prices have recorded highs which has affected the economies several countries (Rashid, Sambasivan and Rahman, 2010). Demand for oil and gas can be seen in both developing and developed countries like China and India. Energy companies such as BP and Shell are making several efforts to diversify their product mix as non-traditional fuel sources to become more price-competitive in such oil and gas sector. Due to such changes, companies have to face challenges regarding corporate governance, because while dealing with such changes BP and Shell companies have to indulge themselves with the changes in government policies, structure and function according to the rules and regulations (Lakatos, 2008).

BP prepares governance risk and compliance strategy in order to face corporate governance issues and with the help of this strategy several measures were taken as follows:

  • By clearly defining the risk and opportunity BP tries to improve their strategic business decisions.
  • Indulging in adopting proactive and efficient monitoring in order to minimize the uncertainty of risks and unexpected incidents.
  • By dealing properly with factors of corporate governance BP can increase its efficiency in performing business operations.
  • To make effective and efficient functioning roles and responsibilities of the employees should be clearly communicated.
  • Should also concentrate on the governance and regulatory requirements such as combined code, industry regulations like FSA and specific legislation such as the UK Bribery Act.
  • Shell Petroleum Development Company also addresses challenges of corporate governance through:
  • As the company made sound risk management frameworks.
  • Through effective Risk management frameworks firm clearly delegates the roles and responsibilities.
  • Escalation system involved in order to resolve the cases related to breaches of provisions and standards.
  • Shell needs to encourage transparency, proper disclosure, control and accountability in the system.
  • Several measures taken in order to improve the internal control system so that rules and regulations made by the government can be followed effectively and efficiently.

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Corporate Social Responsibilities:

CSR refers to corporate initiatives in order to assess and take responsibility for the company’s negative and positive effects on the environment and social welfare. Corporate social responsibilities play an important role in the competitiveness of enterprises (Aristotelous, 2010). The oil and gas industry has a highly competitive market which means the companies operating in such a market need to have better CSR because it can benefit in terms of risk management, cost savings, access to capital, customer relationship, human resource management and innovation capacity. Both companies indulge in making several strategic plans for indulging CSR in their business operations so that they achieve the above-mentioned benefits (Sisson and et. al., 2000).

Both companies focus on four different responsibilities in order to meet the corporate social responsibilities, these are as follows: Economic, legal, ethical and philanthropic responsibilities.

Economical Responsibilities – The economic responsibilities of BP and Shell are to be profitable and through having corporate social responsibilities they can achieve by satisfying the needs and wants of shareholders.

Legal Responsibilities – Both companies have to perform their task and operations according to the rules and regulations. By doing so companies can perform effectively and efficiently and also have a positive impact on society.

Ethical Responsibilities – Ethical responsibilities will assist them to follow the ethical path in performing any activity regarding business operations (Hermosillo, 2008). The values and philosophies of both the company suggest that they operate in an ethical manner and create awareness in society.

Philanthropic Responsibilities – BP and Shell Petroleum are focusing on maintaining a good working environment which will allow them to build good corporate citizens and they can spread a positive message to society.

1.2

To improve performance and operational effectiveness, both BP and Shell should focus on improving their efficiency regarding business operations. Organizations should focus on the areas of finance and supply chain because these are the major areas which can affect business operations externally (Mohamed and Lashine, 2003). For improving performance companies should focus on making changes internally.

  • Should indulge more and more people who are qualified and able to perform efficiently.
  • The technological aspects of the firms should be changed as the change in the working environment.
  • As BP and Shell deal in such a sensitive sector of oil and gas, they should provide a better working environment to the employees with security regarding any accidents or incidents.
  • Both firms should focus on having optimum utilization of available resources so that targets can be made accordingly (Koll, 2003). Short-term targets should be prepared by the companies so that employees can focus on performing more effectively and efficiently.
  • Standardize at all the level of business operations, so that quality should be maintained.
  • Automation used should be enhanced periodically.
  • Encourage transparency.
  • Identify and evaluate the optimum operational goals.
  • Involving all the stakeholders in making decisions regarding business operations, it will motivate employees to perform more effectively in order to improve the operational performance.

1.3

Oil and gas companies have huge workforces with skills and the ability to perform any task. On the other hand, recruiting employees and relocating them and their families to developing countries where working conditions are challenging creates more complexity in retaining a workforce with such skills, abilities and experience (Hermosillo, 2008).

Recruitment refers to the process of attracting, selecting and appointing appropriate candidates for a specific job or task. Through the recruitment process skilled and qualified personnel are identified and selected in order to perform business operations (Mohamed and Lashine, 2003). Recruitment can be done either internally or externally. BP and Shell have skilled workforce as per their working is concerned. To retain a skilled workforce companies have to offer more perks and policies such as:

Better working environment – Every employee working in an organization wants to work in better conditions in which their physical as well as mental state can groom. BP and Shell being the giants of their industry should provide a better working environment so that employees can be retained (Sun and Anderson, 2012).

Involvement in managerial activities – To make employees work more effectively and in order to retain them for longer periods of time level management of both BP and Shell should involve employees in providing their views and regarding the functioning they are the one who actually deals with the conditions and have to several issues (Aristotelous, 2010).

Health and welfare benefits – Performing such challenging tasks or duties employees of both companies should be facilitated with health care benefits so that without any fear they can perform their task or job, they can be retained for a longer period of duration to serve the company (Landy and Conte, 2010).

Rewards – On the basis of the performance of an employee he or she should be rewarded because doing so will motivate employees to work more effectively and efficiently and to remain in the company for a longer period of time (Sisson and et. al., 2000).

TASK 2: Network level strategies and competitiveness

Critical Evaluation of Statement:

As the statement states the competitive environment for companies like BP and Shell is changing because natural oil companies are seeking much higher participation around the globe (Dressler, 2012). Due to this oil and gas industry has a higher amount of uncertainty and risk as compared past, in order to sustain companies have to focus sustainable future to ensure financial and operational success.

With the changing environment oil and gas companies have to frame strategies accordingly, in order to do so they need to analyze the market first and on that basis make decisions regarding their future functioning. Resources available to the companies should have optimum utilization so that they can face new challenges in the existing market (Duffy, 2000).

Porter's five forces analysis would be effective for BP as it will assist its management to identify and evaluate the forces which are affecting them in the existing market. Porter's five forces analysis is the framework of industry study and also assists in making future business strategies (Sun and Anderson, 2012). Porter's five forces theory consists of five elements which could affect the functioning of an organization, these are as follows:

Threats of New Entrants – Industries like oil and gas which have profitable markets and yield high returns will attract new firms, through which the profitability margin of existing firms will be decreased. On the basis of the statement new entrants of natural gas companies are affecting the future sustainability of companies like BP and Shell Petroleum (Sirico, 2012). On the basis of that manager should analyze the needs and wants of the existing targeted market and according to that indulge new products and services, so that the company can have financial and operational success.

Threats of substitute products – Natural gases are the substitute for oil and petroleum gases, having the substitute in the existing market will affect the sales and revenue generation of the company. For example, if natural gas companies indulge in huge marketing strategic planning then it will affect BP and Shell Petroleum company negatively (Hermosillo, 2008).

Bargaining Power of Customers – Bargaining power of customer refers to the ability of targeted customers to put the company under pressure, which directly impacts on the price of products and services.

Bargaining power of suppliers – Bargaining power of suppliers refers to the ability of suppliers to put the company under pressure (Dressler, 2012). When a company have few substitute suppliers in the market then they can be affected by it. As suppliers switching costs could impact the cost of products and services of BP and Shell Petroleum.

Competitive rivalry – As the market is profitable, the entry of new companies is confirmed which will increase the competitiveness of the existing market and existing companies will have to suffer some changes as it will affect their price (Enderwick, 2009).

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For these above strategic issues companies should involve strategic alliances or mergers and acquisitions in order to raise large amounts for supplying their products and services or to expand into new markets (Powell and Stewart, 2008).

Strategic Alliances – The term strategic alliances can be defined as the agreement between two or more parties or companies in order to share resources and knowledge which could be beneficial for both the parties involved (Wang, Jen and Ling, 2010). In other words, strategic alliances can be two companies sharing their technological or marketing resources for manufacturing products and services together and promoting collaboratively. It is a mutual relationship between two companies to bring together their available resources and produce a product which is highly demanded in the market or to decrease the competitiveness in the market (Valencia, Jimenez and Valle, 2012). There are several types of strategic alliances which are as follows:

Horizontal strategic alliances – This type of strategic alliance can be defined as the agreement of working together by the companies which operate in the same business areas. In other words, firms which were competitors earlier are now working together in order to improve their financial as well as market position as compared to others (Landy and Conte, 2010). BP and Shell Petroleum, if they work together then they are the perfect example of horizontal strategic alliances.

Vertical strategic alliances – Strategic alliances of this type is an agreement between a company and its supplier or distributor. The main aim of vertical alliances is to intensify and improve the relationships between the company and the distributor in order to achieve cost reduction (Dressler, 2012).

Intersectional alliances – This type of strategic alliance involves firms which are neither connected by vertical chain nor operate in the same market (Craig and Campbell, 2012). This indicates that both the companies would not get in touch with each other and have totally different markets.

Joint ventures – A joint venture is a type of strategic alliance in which two or more companies will come together and a new company. For example, British petroleum and natural gas Company decides to operate mutually then it can be beneficial for them because through this BP can solve its problem relating to the threat of new entrants and substitute products, whereas making an entry in such a highly competitive market would be feasible for Natural gas company(Wang, Jen and Ling, 2010).

Equity alliances – This type of alliance is formed when one company takes over another company’s equity stakes. Through these shareholdings, the company would become a shareholder of another company (Craig and Campbell, 2012). Through equity alliances, the power to make strategic decisions remains to the respective companies.

Non-equity alliances – Non-equity alliances can be termed as associations between two or more firms in order to develop a contractual relationship of sharing their unique resources and capabilities to attain competitive advantage.

Merger and Acquisition are both aspects of strategic management. Acquisition refers to the takeover or purchase of another company or business entity. Purchasing of business can be near 100% or 100% fully. Whereas a merger can be termed as an amalgamation of more than two corporations to form a new company, in other words, it can be termed a strategic alliance (Enderwick, 2009).
On the basis of the present condition in the oil and gas industry BP should use strategic alliances in order to increase the cash balance for access supply or expansion into new markets. A joint venture could be the most suitable option for BP in order to sustain itself in such a competitive market or even to get a competitive advantage over its competitors (Fisher, 2004). A joint venture with Natural Gas Company would allow BP to manufacture new products or services that can be offered in the targeted market to gain a competitive advantage. Another benefit of joint venture with in order to form a new company they can target a new segment of the market which would expand business for both the business enterprise. Through this companies can increase their efficiency in financial as well as operational activities (Hermosillo, 2008). joint venture for companies in such as competitive market can make space for growing faster, assist in increasing their productivity and generate high revenues.

If both the companies BP and Natural Gas Company have a successful joint venture then:

  • They can easily access the new targeted market, with a more efficient distribution network
  • The capacity of manufacturing oil and natural gas will be increased
  • Uncertainty and risk are concerned, they will be distributed according to the agreed ratios
  • Natural Gas Company can have optimum utilization of BP resources which will increase the efficiency in performing tasks or operations.
  • Through joint ventures, companies will be able to invest funds for future functioning as they will not have to borrow funds from outside investors.
  • It can provide both BP and Natural Gas Company flexibility in performing their personal business operations comfortably.

Through strategic alliances BP can easily expand its business into new markets with the support of Natural Gas Companies they can manufacture new products in existing as well as new targeted markets (Fisher, 2004).

TASK 3: Creating a High Performance Culture

For improving the efficiency of British Petroleum managers should indulge in having effective and efficient management and leadership style. There are several management and leadership styles that could be beneficial for the company such as autocratic, democratic and laissez-faire (Lakatos, 2008).

Autocratic Leadership Style – The authoritarian leadership style refers to keeping strict and close control over the business operations of an organization. The autocratic leadership style focuses on giving responsibilities and authority to an individual regarding the decision-making for the future functioning of a firm’s operations (Aristotelous, 2010). In other words, managers adopting this leadership style make decisions unilaterally, and without any discussion with subordinates. There are two types of autocratic leaders:

  • Directive autocrat leader who makes decisions unanimously, but closely analyses subordinates
  • A permissive autocratic leader makes decisions on their own but gives leniency to their employees to carry out their work.

Democratic Leadership Style – The democratic leadership style refers to which the manager allows subordinates to take part in the decision-making process. Managers with having democratic leadership style focus on helping their subordinates so that they can present their views and reviews about the current position of the company and several ideas to solve the problems (Koll, O., 2003). Having a democratic leadership style, manager influence their subordinate to work effectively and efficiently to achieve their desired goals and objectives. Several qualities that a democratic leader possesses are honesty, competency, inspiration, influence, innovativeness and courage.

Laissez–faire – In this type of leadership style all the responsibility and authority is given to the worker. Laissez-faire leaders allow their subordinates to work freely and make decisions according to them because they think the actual situation is not faced by top-level management its subordinates or workers who have to face challenges and problems (Valencia, Jimenez and Valle, 2012). This type of leadership style is used when:

  • Workers or subordinates are highly skilful, experienced and educated.
  • Staff members are self-motivated and want to work on their own.
  • Either company can use expertise in order to improve the efficiency of the employees.
  • When recruited employees are trustworthy and experienced.

To improve the efficiency of operations or influence employees' behaviour to deliver high performance the chairman of BP Mr Carl-Henric Svanberg should indulge management and leadership abilities that are democratic style (Barrell and et. al., 2008). Democratic leadership style refers to that type of leader which includes their staff members of middle-level management for making decisions regarding the future functioning of business operations (Sirico, 2012).

Indulging democratic leadership qualities BP Group Chairman would increase the interest of employees in performing their tasks or jobs. Through this style of leadership Chairman can encompass discussion, debate and sharing of ideas and encourage people to feel good about their involvement (Koll, 2003). Democratic leadership style focuses on encouraging other people to be involved in important aspects of business operations in order to achieve overall organizational goals and objectives. British Petroleum Public Limited company has several departments which constantly focus on working together in order to achieve the overall objectives of the company. Chairman through such management and leadership style can influence managers of each department to work accordingly and motivate them to encourage their employees so that they can increase their efficiency in performing tasks or jobs (Landy and Conte, 2010).

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CONCLUSION

From the above study, it can be concluded that the oil and gas industry is one of the most competitive sectors at present time. As per the changes in global prices of oil and gas companies like BP and Shell Petroleum have to face several challenges and have to diversify their product mix to gain a competitive advantage. The first part report focused on various challenges related to corporate governance and corporate social responsibility of BP and Shell Petroleum (Rashid, Sambasivan and Rahman, 2010). Various strategies are used to improve their performance and operational effectiveness. In second part report focused on a statement in which how BP uses strategic alliances in order to sustain the existing market and as well as to target new markets with new products through a joint venture. In the third part, the report discussed the leadership and management style that should be adopted by the Chairman of BP Mr Carl-Henric Svanberg in order to improve the efficiency of their business operations and improve employees’ behaviour towards performing tasks or jobs.

REFERENCES

  • Dressler, G., 2012. The Global Strategic Revolution - Third Millennium Strategic Culture Change Management: The Perspective of the Enforcement of Negotiated Strategic Solutions Worldwide. GRIN Verlag.
  • Duffy, J., 2000. Measuring customer capital. Strategy & Leadership.
  • Fisher, T. J. 2004. M&A integration at Delta Connection Inc.: The importance of employee and company culture in a corporate transaction. Journal of Risk Finance.
  • Sun, P.Y.T. and Anderson, M.A.H., 2012. The combined influence of top and middle management leadership styles on absorptive capacity. Management Learning.
  • Wang. F., Jen. S.C. and Ling, T.M., 2010. Effect of leadership style on organizational performance as viewed from human resource management strategy. Academic Journals.

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