Introduction
A strategic alliance is done by the firm to explore the
international resources and there is a various way to do so. According to Peng
(2013), "Some of those reasons include, looking for new customers, raw
materials, cheap labor, other monitory and fiscal benefits such as lower taxes,
lower energy prices, host country subsidies".
BP, a western firm, has done Joint Venture (JV) with the
Russian consortiums namely TNK-BP to start the business in Russia to explore
oil fields of Russia and Ukraine to make it world's 3rd largest oil
producer. It is better for a firm to align with local firms and not to wholly
owned business while doing business outside the home country. Every country has
its own rules and regulation regarding an alliance with a foreign nation
country and its compulsory for any businesses coming to Russia to have local
partners. By following the industry, resource, and institution-based strategy
any firm can create a strong strategy to sustain in the foreign market. BP and
its strategic partners have clear miscommunication and trust between them as we
can see in both episodes. BP has been trying to explore more business outside
Russia in the first episode and its strategic partner AAR has denied on so. And
in the second episode, BP has clearly breached the agreement in JV to have
third alliance by any of the members in JV.
Discussion
1. From and industry-based view, explain why alliances are a
frequent mode of entry for the oil industry in Russia.
A strategic alliance is one of the most efficient modes of
entering the foreign market and the industry-based view helps to examine the
competitive advantages and external forces that the industry can survive in the
external environment. The industry-based view helps the industry to measure its
opportunities and threats in the external environment. The joint venture
between BP and AAR to form TNK-BP has been very advantageous to scale up in the
oil and gas industry.
The Russian government rules and regulation is not suitable
to for any foreign investors to establish wholly-owned organization so it makes
best to have strategic alliances with the local firms as BP has done by doing
JV with AAR. The Russian Government encourages foreign investors to align with
the local firms. The rules and regulations in either host or home country can
change at any time so it is the best option logically and safest to collaborate
with local firms as of industry-based view.
2. From a resource-based view, what are the complementary
resources and capabilities both sides brought to TNK-BP?
The resource-based
view helps an organization to evaluate its capabilities and limitations and
helps in making the decision to groom its strength. TNK is a combination of
three Russian firms and BP a foreign firm. The Russian consortium is very much
aware of the political and legal situation within Russia, and they know how to
operate according to the bureaucracy. BP has strong technical knowledge for
extracting the resources (gas and oil) and properly distribute. So the combination
of these companies together as a strategic alliance will benefit mutually.
3. From an institution-based view, what are the formal and
informal rules of the game governing this industry in Russia?
The institution-based view suggests that the organization
should consider country, state, and societal factors to have wider influences.
BP announced to have a strategic partnership with state-owned Rosneft to
explore new offshore oil field on the Russian Arctic continental shelf in the
Kara Sea. AAR refused that BP could not ally as per the TNK-BP Joint Venture
agreement so BP has to pull back the alliance with Rosneft.
BP finally aligned with the Russian government and Rosneft
and furthermore for adding up in the frustration of BP, its strategic alliance
Rosneft aligned with Exxon Mobil to explore the Arctic Kara Sea.
4. ON ETHICS: As an ethics consultant to BP, how would you
advise it during both episodes of the conflicts with AAR?
An organization should follow business practices, ethics,
and norms as of industry-based view while entering into alliances in a foreign
country. In the first episode, BP was eager to extend the JV to Cuba, Syria,
and Iran and AAR were not ready for it. And in the second episode, we can see
BP clearly violated the JV agreement of doing business in Russia with other
firms.
As an ethics consultant to BP, they should respect the
agreement and follow it in an ethical way. They should communicate with its
alliance while pursuing further business, expanding management, and employee
benefit in the same region though they could have profited financially by doing
independently.
5. ON ETHICS: If you were an arbitrator in Stockholm,
Sweden, which side would you support in both episodes?
In the first episode, due to lack of proper communications
between BP and its Russian alliances for spreading the business in Syria, Cuba,
and Iran, the deal was not forwarded. BP being a western based firm has to
comply with the legal formalities of the host nation. So both the parties
should have communicated properly and sorted out differences.
In the second episode, we can see that BP has been a failure
in extending its alliances with other firms in Russia. BP was going to an alliance
with the competitor of TNK-BP with which it has a JV. As a business, it is most
to work for the partner's interest and best-practices. It is clearly BP's fault
to break down the agreement and work outside the contract.
Conclusion
The strategic alliance was formed between BP and TNK by
creating joint venture TNK-BP to explore oil reserves in Russia and Ukraine by
making JV the third largest oil company in the world. The lack of proper
communication and trust between alliances let down the alliance to go for legal
action. The interference of the Russian government and the realization of BP
that the failure was ahead if the agreement was violated helped BP to regain
business in Russia.
References
Peng, Mark W. (2013). Business Strategy, Business-level
Strategies. Retrieved May 13, 2019, from
Unknown. (2012, November 8). AAR consortium says agreed with
BP on TNK-BP board. Retrieved May 13, 2019, from
Rammandala Charm. (2016, November 6). A Study to Explore the
International Business Strategy using TNK-BP Strategic Alliance as a Case Study.
Retrieved May 13, 2019, from
