British Petroleum's FDI Strategies: Challenges and Mitigating Factors

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Expansion of Foreign Direct Investment: A Case Study of British
Petroleum

Abstract
This study highlights a proposal for a research work where a brief structure of the research work
is provided. In the initial phase, a brief introduction is given where rationale of the research, aim,
objectives and questions of the research are given properly. A brief overview of the existing
literature is given regarding different aspects of Foreign Direct Investment. On the other hand, a
brief methodology is also provided where a structure of the research work is introduced vividly.
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Table of Contents
Section One: Introduction................................................................................................................4
Section Two: Reason for Choosing Topic.......................................................................................7
Section Three: Literature Sources...................................................................................................8
Section Four: Activities and Timescale.........................................................................................13
Section Five: Methodology............................................................................................................14
Reference List................................................................................................................................16
Appendix........................................................................................................................................18
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Section One: Introduction
Effects of globalisation bless contemporary business industries, as global markets are unveiled to
multinational companies. With improved technology applications and new age market
acquisition strategies, companies are introducing new processes to enter new target markets with
their USP’s. This study will focus on unique foreign direct investment processes of British
Petroleum and issues they have faced while doing so in different situations of foreign direct
investment. Aim of this study will be to identify key mitigating factors of challenges faced by the
company in recent times and introduce new factors through which can show more efficient paths
regarding FDI.
Background of the Company
The company was formed in the year of 1935 with the name of Anglo-Iranian Oil Company, Ltd
and in the year 1954, the name was changed into British Petroleum Company Plc. The company
has rich expansion strategy as in the year of 1998; the company merged with Amoco and took
the name BP Amoco that settled in with BP PLC in the year 2000 (bp.com, 2018). In recent
years, the company has introduced different Foreign Direct Investment Strategies as in the year
2015, the company has introduced a deal worth 12 billion dollars in context of Egypt. On the
other hand, the company has introduced a new plan to introduce a partnership business deal with
reliance to acquire Indian market in order to mitigate Oil Spill issues in Gulf of Mexico.
Research rationale
Business expansion in contemporary condition of UK is the issue for most of the companies. In
order to expand their business, companies are mostly rely on foreign direct investment strategies
through which a business can be expanded through events such as joint ventures, partnership,
merging and business acquisition strategy. Foreign Direct Investment introduces different issues
such as legal issues, issues regarding taxation and policy related issues, issues related import and
export and market acquisition issues. Foreign direct investment not always improves the profit of
a business as it increases the costing of import and export and new business installation. Oil Spill
case of BP was acknowledged as the worst environmental disaster in context of the USA as the
oil-rig explosion took lives of 11 rig workers and the company also faced loss over 4.2million
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barrels of an oil spill. This incident has affected the company's growth in recent years, as
downstream revenue was very low in the year 2016 (theguardian.com, 2018).
Figure: Revenue of BP
(Source: statista.com, 2018)
This is the prime example of challenges and risks regarding foreign direct expansion. In
contemporary context, the company also faced certain issues regarding the incident of Brexit that
introduces issues such as maintaining large workforce and expansion of the oil company in
different markets of Europe. These contemporary issues of oil-rig explosion and impacts of
political and economic condition of UK are affecting global expansion in recent time. This
research will shed lights on different aspects through which BP can avail a steady growth and
unforeseen issues such as oil spill incident can affect as less as possible to the company.
Research Aim
Aim of this research work is to highlight factors that can improve foreign direct investment
process of British Petroleum PLC.
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Research Objectives
 To identify different aspects of Foreign Direct Investment of BP
 To analyse trends and strategies of Foreign Direct Investment of BP
 To evaluate challenges of BP’s Foreign Direct Investment processes
 To assess mitigating factors of FDI challenges faced by BP
Research Questions
What are different aspects of Foreign Direct Investment of BP?
What are the trends and strategies of Foreign Direct Investment of BP?
How BP’s Foreign Direct Investment Strategies are facing challenges?
What are mitigating factors of FDI challenges faced by BP?
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Section Two: Reason for Choosing Topic
Main reason behind choosing this topic as I found this topic very relevant to contemporary
global business situation and also I found it as one of the most interesting topic. As a business
student, it is my future plan to become an entrepreneur and conducting this research work on this
particular topic will help me to acquire knowledge regarding expansion of business in global
markets.
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Section Three: Literature Sources
Foreign Direct investment Trends
Foreign trade Investment is an investment through ownership in order to expand a business in
foreign environment. According to (Paul and Benito, 2018) Foreign Direct Investment is
generally through different processes such as acquisition and mergers, building new facilities in
different environments, profit reinvesting in overseas operations. In terms of economic, FDI is
the total sum of equity capital, short-term capital and long-term capital that is generally shown in
the ‘balances of payments. There are several determinants of FDI regarding different conditions.
These are:
Firm-Specific advantages: A firm can exploit different advantages of a market if domestic
investments are exhausted that is the main advantage of FDI processes.
Conflict removal case: Conflict in a market among rivals can be mitigated properly if a joint
venture and partnership business is started with rivals that can improve business condition of
both companies as each one of them can use resources of each other and can share their markets
and assets (Buettner, et al., 2018).
Internalisation strategies to mitigate risk: In contemporary business world, external and
internal factors can change the contemporary condition of a market therefore, acquiring a
contingency plan by introducing internationalisation strategies are essentially important which
can be done through FDI process.
Foreign Direct Investment Strategies
It is mentioned in recent reports that identifying the target market is the key factor of FDI
strategies through which a business can expand hugely in global market. Asian countries such as
India and China are two most popular countries for companies through which they promote
foreign investment. The global financial crisis intensified needs of foreign direct investments as
companies are now looking forward to turmoil economic situation and acquire a sustainable
business practice. On the other hand, Beazer and Blake (2018) opined that Branding is one of
the most important strategies that are acquired by companies through multichannel marketing
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and advertisement processes. Different factors such as communication and transport networks,
skilled labors, opportunities for learning for employees and selection of the location to expand
the business (Yamanoi and Asaba, 2018).
A recent report has shown that UK companies have prolific trend and strategies regarding FDI as
a comparison is drawn regarding inward stock of FDI among USA, EU and UK which has
shown the development of recent UK economy. In UK’s foreign direct investment process,
European Union was the main region where different companies from UK had greatest inward
and outward foreign direct investment. It was mentioned in a report that UK’s FDI with different
regions of EU was 41% of the total asset of UK that was huge. The incident of Brexit has huge
impact as it can be seen vividly that since 2013, FDI inward position of UK started to decline.
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Figure: FDI inward position UK
(Source: ons.gov.uk, 2018)
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Theories of Foreign Direct Investment
1. Internationalisation Theory
This theory provides most vivid explanation regarding the growth of different transitional
companies and their processes to achieve FDI. According to Bianchi et al. (2018), transitional
organisations have different internal approaches through which they can introduce different
trends to acquire foreign markets. It is mentioned that companies who had introduced foreign
business trades and acquired competitive advantage in the industry achieve firm-specific
advantages. On the other hand, imperfection in target markets often causes issues for companies.
Different factors such as cost comparison in home and abroad firms, currency risks and political
issues are main contributing factors regarding improper foreign market condition of companies.
2. Vernon’s Production Cycle Theory
It was mentioned by Foellmi et al.(2018), that the theory of production cycle has prolific
explanation regarding different types of foreign direct investment that were made by transitional
companies of U.S in manufacturing industry of Western Europe after second world war.
According to Vernon, four stages of production cycle: innovation, growth, maturity and decline
define the life cycles of products in the international markets. Through development of
technology, product life cycle can be understood as in initial or innovation stage, introducing
new technology provides new opportunity to acquire a brand name. In product development
stage technology becomes known to other companies and in growth stage, other companies starts
to manufacture same technology. This process helped US companies as European firms started to
manufacture US technologies in this period.
Issues of foreign direct investments
There are different disadvantages of Foreign Direct Investment, which are:
1. Domestic investment Hindrance
It is seen very often that availability of huge resources in different foreign nations compels a
company to shift its focus regarding resources in home country (Simmons et al., 2018).
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Therefore, business condition often faces jeopardised situation by this lack of focus on home
business.
2. Political Change risks
Global business always has risks because of different political conditions in different countries.
Brexit is one of the contemporary examples where UK companies who have FDI in different
countries of European Union and companies who had business investment on business
industries.
3. Influence of Exchange rates
According to Rygh and Benito (2018), exchange rates depend on economic conditions of
countries that are not fixed. In several occasions, it is seen that companies often compel to make
huge expense because of improper exchange rates as creates advantage for a country and
disadvantage for another one.
4. Higher Costs
Exporting goods to different countries are very high and because of that reason only, many
companies do not acquire foreign direct investment facilities to expand its business. Therefore, it
is important for companies to avail a huge capital base in order to direct investment in foreign
businesses.
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