Impact of Existing Competition and Globalisation on Shell Petroleum Operations

This article discusses the impact of existing competition and globalisation on Shell petroleum operations, including the challenges faced by the company and the unethical behavior that has affected its performance.

EXTERNAL INFLUENCES

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Contents
Task 1.........................................................................................................................................1
Executive Summary................................................................................................................1
Impact of existing competition...............................................................................................2
Globalisation and its impact on Shell petroleum operations..................................................2
Task 2.........................................................................................................................................3
Shell’s poor ethical behaviour’s impact.................................................................................3
If Shell was a very ethical company.......................................................................................3
Cost Benefit analysis table-....................................................................................................3
Conclusion..................................................................................................................................4
References..................................................................................................................................5
Task 1
Executive Summary

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Within the industry of Oil and gas, competition has become much higher. This has forced
organisations to improve the way in which they are doing their business especially related to
ethical considerations. Shell or Royal Dutch Shell Plc. is a British-Dutch oil and gas firm.
Shell came into existence after the merger of UK’s “Shell” Transport and trading company
and Netherland’s Royal Dutch Petroleum firm. The Company is in the group of six major oil
and gas firm and as per revenue it is the fifth largest (Schifferes, 2007). Shell has vertical
integration and is very active in the business in different parts of the world. They have
operations in the areas such as exploration, production, transportation, refining,
petrochemicals, trading, power generation and marketing and distribution. It also deals in the
renewable energy activities such as energy-kite systems, wind bio-fuels and hydrogen.
Production as well as exploration of gas is one of the most essential business activities of
Shell. After acquiring BG group in the year 2016, Shell become the biggest producer of LNG.
Company is primarily listed on London Stock Exchange and it is also a part of FTSE 100
index. Organisation of the company is in four major business grouping i.e. integrated gas and
new engines, upstream, downstream, Project and technology. Other competencies of Shell lie
in the natural gas. Vertical integration business model provides large amount of barrier to
entry and economies of scale. The profit for 2018 crossed 36% mark and touched $21.4
billion (Shell, 2018).
Their multinational competitor is British Petroleum while their national competitors include
Citgo, Repsol, Velero energy, HollyFrontier etc. This company is having its operations in
around 70 countries and generates around 3.7 million barrels on everyday basis. In all across
the globe they have 44,000 service stations. It is having an oil reserve of 13.7 billion barrels
of oil equivalent till 2014.
Impact of existing competition
Shell is facing intense rivalry from both multinational and national firms doing their business
within UK. Toughest competition is given to them by the companies from United States. This
competition has made industry of oil and gas UK to be Red Ocean and hence companies are
forced to follow red ocean strategy. Since the oil and gas reserves in various regions of the
globe are reducing hence ensuring sustainability in the existing rivalry is becoming difficult.
This has also forced the organisation to improve the resource base they have especially in
terms of exploring new oil reserves throughout the globe. Due to this, Shell has to invest a lot
of money on highly expensive deep ocean exploration (Topmba, 2014).

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This competition has also become a threat because the growth of the Britain and Europe’s
economy is poor. This is making it difficult for the companies like Shell to ensure higher
profits. New investors are also not making their moves to fund Shell in these areas. Due to
this, intense rivalry, companies are forced to do make strategies that are better than their
competitors and companies are demanding for continuous changes in their strategies so as to
remain ahead of their rivals especially in the areas like quality of their products (Hennchen,
2015). This competition has also led to problems related to sustainability as they have been
forced to enhance their capabilities and resources regularly. Due to competition, this
company is exploiting their reserves to the optimum level which again is a threat to
environment and also for the firm’s long term planning. It is due to this competition that
firms are required to cut-down their product prices which again have an impact on the
profitability of the firm (Meredith, 2019). The international and national rivalry has also
made the firm to do major reductions in different operational areas for filling the gap created
in the profits levels due to competition. Due to the competition, it is seen that companies in
order to stay in advance of their rivals, they are practicing unethical behaviour. This
enhancement in the unethical behaviour is threat to the industry.
Globalisation and its impact on Shell petroleum operations
Due to globalisation, world has become a global village. It is termed as the interaction and
integration process between governments, individuals, companies at the global levels. It acts
a tool that ensures expansion of the business becomes easier. Due to globalisation, there is
reduction in the complexity of the trade rules and hence companies can easily expand their
business out of the national boundaries. Since technology acts as a facilitator of the
globalisation hence they are improving the reach of the company. Firms are easily able to
interact with the people in other parts of the world and hence they are able to deliver their
products and service easily (Donovan, 2013).
Shell being a multi-national company has their functions in various regions across the globe.
This has favoured the companies as they are free to do trade in region around the globe with
limited restrictions. It is also favouring Shell in terms of the fact that they are getting
investors from different regions of the globe as well hence more opportunities of business
growth is available with the firm. Globalisation also had impact on the policy making of the
company as the strategies made by them must be complied with the rules and regulations
being present in various regions of the globe. It has also assisted the firm in making strategies
such as Merger and Acquisition which made it easier for them to add new partners (Shell,

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2018). Globalisation also has a negative impact on their performance as large numbers of
competitors from different parts of the world came into UK in the oil and gas industry.
Task 2
Shell’s poor ethical behaviour’s impact
In the past few years this company was indulged in various unethical behaviours in different
parts of the world. These behaviours were common in the nations where the laws related to
ethical conduct in business is weak. Shell’s business in Nigeria has seen large numbers of
such behaviour. The most famous was the bribery incident. This was done by the company to
enhance their profit margins. Shell bribed the officials from Nigeria so that they take lower
taxes on their products and equipment while importing (Kwee, Van Den Bosch and Volberda,
2011). Nigerian officials were told to avoid custom duties. For this when the probe was done
by U.S. justice department, they had to give $48.1 million to settle down the problem. This
sum was quite larger than the profits that they have earned through bribery incident which
was around $14 million. This was a huge loss to the company.
In January 2004 another such unethical behaviour was noticed when Shell mislead the firm
by the giving wrong statement about the reserves it has. Due to this, company had to pay a
fine of $120 million which again reduced their profit share. The investments on the
environment related concerns have not been made seriously and also they have not given
actual focus towards initiatives related to climate change. Due to this, health related concerns
are increasing in UK. Due to these unethical behaviours the image of the firm is on the line
and hence the interest of the stakeholders is being compromised (Ekatah, et al. 2011). It is
also seen that this company has also not given proper attention towards the sustainable
growth of the community they are living in. In the areas such as data protection also they
have not invested as much they should have invested which is again creating a threat to the
privacy of their huge stakeholder’s group. Due to unethical behaviour, the community that is
associated with this firm has to face issues like resource scarcity. For example over
exploitation of resources by different units have helped them in gaining control over the
larger part of the market but has a bad impact on the environment.
If Shell was a very ethical company
In the recent years, the unethical behaviour of the company has made it an unethical
company. If Shell would have been an ethical firm then there would have been a better

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chance of their success. For instance ethical behaviour would have promoted the company to
do business in the countries that have strict regulations without any fear of getting penalised.
This would have attracted larger numbers of investors and other stakeholders to join the firm
which would have ultimately enhanced the chances of growth of the company (Fontaine,
2013). If Shell would have been an ethical company, there would have been a better chance
to exploit their opportunities. This would have also given Shell a better image which is very
much essential in the time when branding has become a key to success. Ethical companies are
more likely to build an image of trust in the minds of stakeholders so they could have worked
more effectively towards the success of the organisation with higher commitment.
Cost Benefit analysis table-
Environment related cost
Amount
($)
cost for environmental issue review 18000
Anti-environmental system set up cost 40000
Environmental control cost 25000
Training cost 15000
Total cost 73000
Benefits related to environment
prevention of significant damage to ecological
system 15000
team Productivity 25000
performance appraisal 55000
reduction in social economic variable 35000
Total benefits 130000
Net cost benefit 57000

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According to environment’s cost benefit analysis, it can be said that this tool might
effectively work. The overall cost including training cost, environmental control cost, Anti-
environmental system set up cost and cost for environmental issue review is 73,000 $ while
the overall benefits including team productivity, performance appraisal, reduction in social
economic variable, and stoppage of significant damage to ecological system will be 130,000
$. The net cost benefit might be 57000 $. It would be advantageous for Royal Dutch Shell.
The corporation may get more productivity by issuing the environmental issues.
Conclusion
A conclusion can be drawn from the above report that Shell faces tough rivalry at both
national and multi-national. It is impacting on their growth rate and profit generation
capacity. Globalisation has helped the in extending their business in other regions of the
globe but has also increased competition in UK. They have been doing unethical business
which has a negative impact on the financial performance of the company as well as their
image. The unethical behaviour has influence on the operations of the firm in the longer run.
References
Donovan, J. 2013. Shell accused of unethical conduct against Shell retailers in India. [Online]
Available at: https://royaldutchshellplc.com/2013/01/25/shell-accused-of-unethical-conduct-
against-shell-retailers-in-india/. [Accessed on 29th May 2019]

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Ekatah, I., Samy, M., Bampton, R. and Halabi, A., 2011. The relationship between corporate
social responsibility and profitability: The case of royal Dutch shell plc. Corporate
Reputation Review, 14(4), pp.249-261.
Fontaine, M., 2013. Corporate social responsibility and sustainability: the new bottom
line?. International Journal of Business and Social Science, 4(4).
Hennchen, E., 2015. Royal Dutch Shell in Nigeria: where do responsibilities end?. Journal of
Business Ethics, 129(1), pp.1-25.
Kwee, Z., Van Den Bosch, F.A. and Volberda, H.W., 2011. The influence of top
management team's corporate governance orientation on strategic renewal trajectories: a
longitudinal analysis of Royal Dutch Shell plc, 1907–2004. Journal of Management
Studies, 48(5), pp.984-1014.
Meredith, S. 2019. Shell’s full-year profit surges to four-year high, beats expectations.
[Online] Available at: https://www.cnbc.com/2019/01/31/shell-earnings-full-year-profits-
soar-to-four-year-high.html. [Accessed on 29th May 2019]
Schifferes, S. 2007. Globalisation Shakes the World. [Online] Available at:
http://news.bbc.co.uk/2/hi/business/6279679.stm. [Accessed on 29th May 2019]
Shell, 2018. Annual report. [Online] Available at: https://www.shell.com/media/annual-
reports-and-publications.html#iframe=L3JlcG9ydC1ob21lLzIwMTgv. [Accessed on 29th
May 2019]
Topmba, 2014. Business Ethics: What is the Role of Business?. [Online] Available at:
https://www.topmba.com/jobs/career-trends/business-ethics-what-role-business. [Accessed
on 29th May 2019]