Executive Summary

            The purpose of this report is to outline the optimal strategy that the Shell, UK based company has to adopt to expand in a foreign market. The overseas market that we think the company should enter in China. While it has already to do this, we believe there is space for a lot more expansion and exploration. The challenges the company has faced in the past have been due to scandals that were posed on the company and the theft losses it had to face in Nigeria. Other than this, there is also, of course, a lot of competition for Shell now compared to when it was first founded. The strategy that seems to be the optimum for the company is joint-venture as it maximizes profit margin and minimizes risks.

Introduction

The United Kingdom-based oil company which is a multinational business today was founded back in 1929 by the name of Shell Chemicals. Not much later, the company became one of the world’s leading oil companies. Gradually the company spread its business across the globe and has come a long way since then. During its journey, the company has faced ups and downs and has continued to restructure and update its strategy according to its needs. There have been scandals such as the 2004 reserves scandal (Taylor, 2006), which tarnished the image of the company quite severely and it is still recovering from it. There are several challenges that Shell has to face. Firstly, concerning Nigerian Operations.

There have been countless cases of theft, and attacks on the oil infrastructure over there that have resulted in a lot of losses in the reserves of Shell in Nigeria (Boele, Fabig, & Wheeler, 2001). This hasn’t been the issue with Shell only. There were other companies in Nigeria that had to move out or cut down on their investments in Nigeria because of the crimes taking place there. So Shell has been forced to sell some of its Nigerian oil reserves to other companies. Hence, this is one challenge that it has to face. Shell faces Regulatory, legal and equipment-related challenges in its operations in Alaska concerning the environment and weather conditions over there (Raye, 2015).

Other challenges faced by the company reside in Motiva Refinery, where services were greatly hindered by unforeseen unfortunate events such as a fire. To combat these challenges, Shell has to come up with a more active international business strategy IBF. It needs to discover other places where it could expand the business and develop industrial bases. Improvement in strategy is the only way that Shell will be able to move towards relative success and acquire more partners across the globe. Hence, the purpose of this report is to analyze the best possible international strategy for Shell to overcome its challenges and enter new potential markets.

Different Market entry strategies

It is essential to realize that despite the setbacks, Shell has also been quite successful which is why it has earned an international label. Most of its strategies have been quite fruitful for the business. Just by 1938, Shell was providing 10 percent of the world’s crude oil supply after getting founded in 1929 (Grant, 2007). By the 1980s, the company had made a lot of expansion in the United States. Shell used a joint venture strategy to spread in Eastern European countries such as Hungary and Russia.

Once liquid gas technology became widespread, Shell also expanded via the same approach in Malaysia marking a whole new chapter in the business (Shell, 2016). Shell has applied different, useful market entry modes in different situations and has been quite successful mostly. The joint venture strategy has proved to be quite helpful for the company ever since its early days. In Brazil, Shell joined hands with the biggest ethanol producer Cosan, a local looking forward to establishing influence globally as well (Waltz, 2010). It helped Shell in expanding business in a whole new realm of biofuels.

Right now, this strategy is effectively working in assisting shell in making business ties with China. This will be discussed more in detail further on in the report.

Wholly owned subsidiaries are the second strategy for Shell in its internationalization process. The Nigerian aspect comes into play here. Shell built numerous subsidiaries in Nigeria. And has played an essential role in the development of the economy over there. Shell also has reserves in Nigeria. Shell has two sub-companies functioning in Nigeria, namely the Shell Nigeria Exploration and Production Company Ltd and Shell Nigeria Gas Ltd (Boele, Fabig, & Wheeler, 2001).

As the name suggests, these companies work on further exploration of reserves inside Nigeria. A third important strategy that we will consider here is licensing and franchising. Shall built a business out of licensing out technologies to other companies as a support for their development. This venture of theirs is called Shell Global Solutions. This license enables the client to avail assistance in how the processes should go about and how they can take their business up a notch using the licensed technologies (Shoemaker, 1992).

Optimal Market entry strategy for internationalism.

In light of all the different factors that affect a company’s optimal choice of the internationalization strategy, the right mode of foreign market entry is decided. Like all other companies, Shell also has to take into account firm and environmental factors, which would also include the social and economic implications. Shell has many sub-companies some of which are local and others that are international. It applies different strategies to them.

For expansion in a foreign market, companies generally tend to use the joint-venture approach. It enables the company to learn about the local market and economic conditions in that particular region. Shell also has been quite successful when it employed the joint-venture strategy. Owning subsidiaries, licensing, and franchising is strategies that a company uses during the process of expansion. Licensing helps reduce costs in a foreign market. According to our study of the different entry strategies, it seems that the joint-venture approach is the best for Shell to enter a new market.

Further details on the joint-venture strategy only make it more convincing why it should be the mode of entry for Shell. first of all, it helps in the foreign entry when there isn’t enough knowledge of the new market conditions. Hence, it reduces costs, risks, and uncertain setbacks. It is also easier to build up the standard of the company globally.
In order to form a joint venture, Shell would have to find a suitable partner company in the market. This company should have a similar, adjustable business model. The joint venture strategy is more successful if both the partnering members openly share information and resources whether they be capital or labor. There also has to be transparency and a proper framework for how input costs and profits will be shared and distributed. The investment strategy should be sound.

Foreign country to enter and why

the country that we think Shell should expand in is China. Shell already happens to have subsidiaries in China but there is still a lot of expansion potential over there. China is dictating the world market and business in China right now is quite favorable. Firstly, it has become easier to start a business in China because they have introduced an online registration system by simplifying security regulations.

Construction is also easier as China has streamlined the process of obtaining the permits. Quality control of buildings’ constructions has also improved as it has applied stricter regulations. The process of registration of property has also becoming streamline Electricity as a very important energy resource has been made cheaper and more accessible in China. China has also made the whole ordeal of paying taxes easier as taxes in themselves have been reduced over there. A drop in administrative charges has also lowered the cost of exports and imports.

Conclusion

The territory that we think Shell should enter and further expand in is China. China is an economic hub for the entire world. It is a superpower country having a lot of scopes for other businesses to enter. Although Shell has already had ties with China there is still a lot of growth potential. China also has ranges for bringing innovation for the company as it is itself very technologically advanced. Costs will also reduce if Shell plans to expand there as China is reducing import duties on chemical products.

This is why Shell can easily invest over there. Plus, other social, economic, and political factors are also quite controlled over there, so there would be a lesser chance of thefts and mishaps, as were the cases with Nigeria and Alaska.

References

Piwowarczyk, A. (2016). Expansion strategies as an effective way of competition on the global market on the example of the Royal Dutch shell investments on Polish market. Central European Review of Economics & Finance, 13(3), 95-107.

Waltz, E. (2010). Shell’s billions to convert Brazilian biomass into fuel.

Zhang, J. (2004). Catch-up and competitiveness in China: the case of large firms in the oil industry. Routledge.

Boele, R., Fabig, H., & Wheeler, D. (2001). Shell, Nigeria and the Ogoni. A study in unsustainable development: I. The story of Shell, Nigeria and the Ogoni people–environment, economy, relationships: conflict and prospects for resolution 1. Sustainable development, 9(2), 74-86.

Raye, R. (2015, March). Forecasting ice and weather conditions for field operations in Alaska. In OTC Arctic Technology Conference. Offshore Technology Conference.

Schoemaker, P. J., & van der Heijden, C. A. (1992). Integrating scenarios into strategic planning at Royal Dutch/Shell. Planning Review, 20(3), 41-46.

Kwee, Z., Van Den Bosch, F. A., &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), 984-1014.

Grant, R. M. (2007). Organizational Restructuring within the RoyalDutch/Shell Group. Cases to Accompany Contemporary Strategic Analysis, 6

Shell, R. D. (2016). The History of Shell in Malaysia.

Zhang, J. (2004). Catch-up and competitiveness in China: the case of large firms in the oil industry. Routledge.

Related Keywords: Market Entry Strategy