Internalization in Business: Challenges and Benefits - Desklib

This article discusses internalization in business, its benefits, and challenges faced by Chevron Nigeria. Internalization is a process that allows a business to operate internally in the context of a specific field. Chevron Nigeria is the largest producer in Nigeria and has an interest in deep-water operations. The company faced a loss of $497 million in 2017 due to the inability to replace crude and natural gas. Internalization helps businesses save costs and maintain control over their operations. However, it also creates challenges such as lack of skilled workers, cost of training and development, cost of purchasing machinery and tools, impact on quality and customer satisfaction, and the need for strong regulatory and management knowledge. The article concludes that internalization is important for businesses to save costs and reduce control of third parties, but it also requires significant investment and effort to overcome the challenges.

Internalization

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................6

INTRODUCTION
Internalization occur when a transaction is handled by an entity itself rather than routing it out to
someone else. This process may apply to business and investment transactions, or to the
corporate world. In business, internalization is a transaction conducted within a corporation
rather than in the open market (Bolívar, 2020). Internalization also occurs in the investment
world, when a brokerage firm fills a buy order for shares from its own inventory of shares
instead of executing the trade using outside inventory. Internalization can also apply to a
multinational corporation. This happens when the company decides to shift assets between its
own subsidiaries in different countries.
The internalization activities of Chevron Nigeria have increased remarkably in scale, scope, and
sophistication over the past two decades or so (Boso, Adeleye, & White, 2016). This rise in the
number of nascent African multinationals appears to have coincided with the “Africa Rising” era
of the last decade, when the region experienced phenomenal economic growth (Ibeh, 2015). As a
result of this growth, African firms are now emerging as serious challengers in their domestic
and regional markets, on a continent where formal economic activities have been historically
dominated by Western multinationals since the colonial era (Del Giudice and Cillo, 2022).
Chevron Nigeria get different benefits of internalization as it helps the company to save the cost
of outsourcing. On basis of internalization, the business is able to deliver the products and
services of the company to customers by using its own resources and does not take other help
which provides proper control over the operation to the company.
Chevron Nigeria is facing a loss of $497 in the year 2017 as the company is unable to place all
its crude as well as natural gases pumped by them into the new reserves. Adoption of
internalization also creates different challenges in the context to internalize of operations. The
business needs to purchase new technologies in their organization and also, they need to provide
proper training and development opportunities to the employees working in the company.
MAIN BODY
Internalisation
Internalisation refers to transaction to be handled by the company itself without making any
transfer and routing in the external source. It consists a process that can be applied to the firm,
individual or business entity that has made a decision to handle their issues and transaction in-
1

house instead of including the third party through outsourcing. Internalisation is a process which
allow business to operate internally in context to the specific field. In context to economics, it is
a practices which is adopted in the field of multinational enterprise for purpose of transactions in
the organisation and also they are depending on the outside market. There is a different process
to be applied in the organization and corporate world (Kannan and Miah, 2019). In the corporate
world, transaction to take place inside the organization instead of the open market. Chevron is
one of the companies is operating in Nigeria and is also the largest investor. It is an organization
that is the largest producer in Nigeria. Chevron company is one of the companies which operated
under the joint venture arrangement through Nigerian National Petroleum Corporation for
purpose of onshore as well as offshore assets. Chevron is one of the organizations which also has
an interest in the deep-water operation. In the year 2017, Chevron organization is facing the loss
of $497million as it is failing to replace the crude as well as natural gas as it is pumped to new
reserves. Due to this loss, it is important for the company to focus on internalization as it enables
them to produce their in their own organization and also decrease their cost. But while adopting
internalization, there are different challenges to occur in the business. These challenges related to
internalization are mentioned below:
Lack of skilled workers: There is a lack of skilled and capable employees in Nigeria which is
creating a challenge for the business of Chevron. For purpose of internalisation, it is also
important for the business of Chevron to have proper trained employees in their organization
who are capable enough to develop the products in the organisation in effective manner with the
higher quality (Marrucci, Daddi and Iraldo, 2022). It is also important for the company to have
the availability of skilled employees in their organisation. There are lower wage rates in Nigeria
and due to this, it is easier for the company to reduce the cost of operation but lack of availability
of skilled employees does not allow the company to produce the products in an effective manner.
It creates a negative impact over the quality of products and services.
Cost of training and development: Training and development are also one of important
components which are essential for the employees. It is also an important component for the
organization for the purpose of improving the build quality of the products. In Nigeria, there is a
lack of availability of skilled and trained employees in the business and in order to produce the
product internally, the business needs to provide proper training and development opportunities
to the employees. Training and development help to enhance skills, knowledge and capabilities
2

which allow a person to complete work in an effective manner. It is also important for Chevron
to provide training and development to their employees in order to develop their in-house
production system. It will increase the cost of the company as they need to hire a tutor for the
employees and also needs to waste time and resources for the employees (Ooi and Richardson,
2019). This cost creates long-term benefits for the company but in the short term, it is only
resulting in the cost of the company and also does not provide them effective results.
Cost of purchase of machinery and tool: Business while adopting internalization, also needs to
bear the cost of the purchase of machinery and tools. For purpose of production, businesses
prefer to outsource their products in order to avoid the higher cost of machinery and equipment.
In order to manage all these things, a business needs to invest huge money in business but still
there is not surety about the success of the company. Chevron is one of the large organizations
which is involved in the production of oil and gas (Park and Lee, 2021). For internalization of
these operations of the company, they need to install large plants and machinery in their
business. It incurs cost of the company along with the time. Business needs to invest proper time,
money and resources for this work. It is important for Chevron to ensure arrangement of safety
and security of the employees while doing this work as it is a large organization and any safety
threat can create a negative impact on the image of the organization.
Impact on quality and customer satisfaction: Internalisation also creates challenges for the
business as the business is involved in some activities which is new for them. There are different
outsourcing companies which are producing products on a regular basis and provide expertise in
the specific field. Chevron Nigeria is an organization which is started focusing on internalization
for some activities which are new for the business. For these things, the company does not have
proper experience and skills. It creates a probability for the company to result in a negative
impact on the quality of the products along with customer satisfaction (Posselt and et. al., 2019).
In today’s time, customer satisfaction and quality are considered as important part for the
business. It is important for the company to consider these factors in the organisation in order to
maintain customer satisfaction in order to meet the standards to be set by them. These impacts on
the quality can be dependent on the different components like the experience of the organization,
skills of the employees, types of machinery used and other factors. It is important for Chevron
Nigeria to consider it in their organization.
3

Require strong regulatory and managing knowledge: It is also one of the important
challenges for the business of Chevron. In order to adopt internalization, it is important for the
management of Chevron Nigeria to develop proper management knowledge which allows them
to manage all the employees, provide them guidance and also to monitor their work. It is also
important for the company to enable management to develop this knowledge as, without it, it is
not possible for the company to manage the knowledge of the organization (Sheehy, 2022). It is
also important for the company to develop strong regulatory knowledge about the operation of
the company and to manage the culture in the organization. If internalization is a new process for
the company, it is important for them to develop knowledge of how to manage the culture in the
company, how to manage the operation of the firm and also how to operate different activities in
the organization. All these activities are such types as the business does not have previous
knowledge about these components. So, Chevron Nigeria needs to develop proper knowledge in
the context of the regulatory environment, culture and management for purpose of effective
implementation of the internalization in the business (Браувайлер, 2019).
CONCLUSION
From above mentioned project report, it can be concluded that internalisation is one of the
important activities which allow a business to carry out a transaction or the completion of the
activity in the business. It is important for the business to develop internalisation in order to
ensure proper control over the business and also to saves the cost for different things as it
provides long-tern benefits for the firm. But adoption of these components in the business also
creates different challenges. These challenges to be occur in the business due to lack of
knowledge about the production activities, lack of experience, lack of availability of the
employees, and no knowledge of regulatory and management components. These components
can create impact over the productivity, values and also quality of the products and services.
Internalisation is important for the business in order to save the cost of the company and also to
reduce control of others to the third party. Outsourcing can also leak the private information of
the business to the externals and in order to such types of leaks of information, business focuses
to adopt internalisation. Challenges occurred in path of the adoption of internalisation in the
large organisation is creating the impact over the business. There are different types of efforts to
be made by the company to avoid such impact like company is raising proper funds in order to
install higher quality of products and service which is creating a positive impression in minds of
4

the customer. It is also creating positive impact over the profitability of the company and
reducing the cost of the company in the short term. In short term, it only results in increasing cost
as business needs to invest on the training of the employee, purchase of the machinery and other
equipment, renting of workspace and other things.
5

REFERENCES
Books and Journals
Bolívar, L.M., 2020. Educating the Global-Minded Business Professional and Manager.
In Contemporary Global Issues in Human Resource Management. Emerald Publishing
Limited.
Del Giudice, M. and Cillo, V., 2022. The Spiral of Knowledge Creation in a Dynamic and
Evolving Business Environment. In The Routledge Companion to Knowledge
Management (pp. 15-32). Routledge.
Kannan, S. and Miah, S.J., 2019. Integration of knowledge management and business
intelligence for lean organizational learning by the digital worker. In Applying Business
Intelligence Initiatives in Healthcare and Organizational Settings (pp. 130-140). IGI
Global.
Marrucci, L., Daddi, T. and Iraldo, F., 2022. Do dynamic capabilities matter? A study on
environmental performance and the circular economy in European certified
organisations. Business Strategy and the Environment.
Ooi, S.M. and Richardson, C., 2019. The internationalisation of service-sector SMEs in an
emerging market: Insights from business training and consultancy firms in
Malaysia. Review of International Business and Strategy.
Park, B.I. and Lee, J.Y., 2021. The survival of the fittest in the global markets: multinational
corporation challenge, evolution and decline. Management Decision.
Posselt, T., and et. al., 2019. Opportunities and challenges of Higher Education institutions in
Europe: An analysis from a business model perspective. Higher Education
Quarterly, 73(1), pp.100-115.
Sheehy, B., 2022. Sustainability, justice and corporate law: redistributing corporate rights and
duties to meet the challenge of sustainability. European Business Organization Law
Review, 23(1), pp.273-312.
Браувайлер, Х.К., 2019. Globalization, small and medium sized enterprises and internal audit:
requirements and challenges. Вестник ПИТТУ имени академика МС Осими, (2),
pp.61-72.
6