Lukoil Internal Environment and Strategy (Case Study Sample)
You are required to choose a company (domestic or multinational) in the oil and gas industry. You
are expected to provide a critical evaluation of relevant theoretical concepts, external and internal
environmental considerations that applies to this firm as it expands from its domestic market into a
host country where it is not yet currently present.
Your evaluation should include the following:
1. Critical evaluation of the company in its domestic market
2. Critical evaluation of the selected host country’s business environments
3. Critical evaluation of the company’s internal business environment when expanding to
the selected host country
4. Critically evaluate the reasons for attractiveness of your selected host country
5. Critically evaluate the ethical issues that should be considered.
6. Critically evaluate relevant strategies that applies to this company as it expands to a new
Date of Submission:27/11/2019
Global Business: The Case of LukoilError! Bookmark not defined.
TOC \o "1-1" \h \z \u Abstract2Introduction3Literature review3: Critical Analysis of Lukoil in its domestic market4: Critical analysis of Iran’s business environment4: Lukoil internal environment and strategy6: Reasons for Iran attraction7: Ethical issues considered7: Relevant strategies of Lukoil expansion to Iran7: Conclusion8References9
Lukoil is company in Russia which deals with oil and gas processing and production. The company aims at expanding its business geographically to another country which is Iran. In understanding
how Lukoil plan to expand to Iran, the essay will begin with an introduction giving brief details about the company. After introduction, there will be a critical analysis of Lukoil in its domestic market followed by a critical analysis of Iran’s business environment. Lukoil internal environment and strategy will then be discussed and followed by reasons for Iran attraction. After the reasons, the essay will cover on ethical issues considered in the expansion which will be followed by the relevant strategies of Lukoil expansion to Iran and lastly a conclusion about the whole case of Lukoil.
Oil and gas companies operate either domestically or multinational. Most of these companies expand their services within host countries or to other countries with attractive markets (O’neill, 2017). Lukoil, a second-biggest oil producer in Russia, is among the companies in the world that plan to expand its services to other countries, which is yet to invest in due to various reasons. The company has succeeded in the current station of business, and this has made it stable making able to expand in its geographical boundaries (Deresky, 2017). The essay covers a critical evaluation of the external and internal environments Lukoil may face in expanding to markets into host country where it is yet to invest.
2 Literature review
This article covers the framework of PESTLE, Hofstede's Cultural Dimensions Theory, RBV and CSR.
The PESTLE framework analyzes from a macro-environmental perspective. This framework provides a general direction for companies when making market choices, which is helpful for companies to screen the market and formulate strategies. However, the factors in the pestle framework may differ in importance for different industries.
Hofstede's Theory reflects trends within culture, not absoluteness. Because a country may contain multiple cultures, and the actual workplace is more complicated than the result of Hofstede. This theory is helpful for a preliminary understanding of cultural differences and the impact of these differences on managers.
The resource-based view (RBV) and The Value Chain to analyze the company's internal business environment. These help companies discover their potential comparative competitive advantages.
Using CSR as explained in Carroll’s pyramid of corporate social responsibility (Dawkins et al., 2016).
1 : Critical Analysis of Lukoil in its domestic market
Lukoil's success is evident in how the company has been able to perform in oil and gas industry currently in the world. Lukoil's principal activities are exploration and production of oil and gas, petroleum products and petrochemicals, and then marketing of the products. Most of the company’s production and exploration activities are located in Russia while its main resource base is found in Western Siberia (Picciotto, 2017). The company’s headquarters is best located geographically, enabling it to expand without many difficulties, unlike the issue of insecurity due the country's business rivals with other oil and gas producing countries (Liuhto, 2019). Lukoil owns some of the modern refineries, petrochemical, and gas processing plants located in Russia, Western and Eastern Europe, and near-abroad countries (Koutlaki, 2010).
The company sells most of its products to international markets. Lukoil petroleum products are majorly sold in Russia, near-broad countries, United States of American, and Eastern and Western Europe. Russia’s economic environments are suitable for gas and oil industry because the country’s government policies favor the business (Katz, 2010). The business cycles, energy costs, communication tools, currency value, transport costs, exchange rates, and raw materials costs are readily available and favor Lukoil business in Russia. Good democratic regimes, robust legal systems, market-based economic policies, new technology adoption, and the success of Lukoil in Russia are the main drivers of Lukoil's international expansion to Iran.
2 : Critical analysis of Iran’s business environment
Iran’s business environment will be analyzed using PESTEL framework. Politically, Iran has created a significant opportunity for foreign investors to establish democratic political institutions. Iran has inclined to a fast-growth economic country economically, creating more opportunities for foreign country investments (Deresky, 2017). Due to the political stability of the country, Iran
named foreign companies, including Lukoil, which it claimed was allowed try applying for the projects. This encouraged Lukoil to target on expanding its services to Iran because of its democratic regimes and the active property rights protection since it had given room for such investments (Deresky, 2017). The oval attractiveness of Iran to Lukoil explains the potential market of the company and the excellent reputation the company has in the services it offers.
Economically, Iran’s economy is dominated by oil and gas sector, service sectors, agriculture, and presence of manufacturing and financial services. The country aims as self-sufficiency in food production, among other services as Maslow’s hierarchy of needs explains since it aims at its self- actualization. Economic activities and government revenues in Iran depend primarily on oil revenues hence, opening a branch in the country will get governmental support and protection. Iran opened about 70 oil natural gas fields to foreign investors in 2016 after its international sanctions had eased (Kolk, 2016).
Socially, Iran has adopted a well-trained workforce to create good business relationships with foreign countries and their competitors (Deresky, 2017). On cultural factors as Hofstede's Cultural Dimensions Theory explains, Iran has intermediate scores as follows, power distance of 58, individualism of 41, masculinity of 43, uncertainty avoidance of 59, long term orientation of 14, and indulgence of 40. Iran has enhanced on customs, traditions, and beliefs of the country making them accommodative to foreigners. In social institutions, Iran has improved its business culture which is strong business ties with other countries and influential family, mosque, and labor organizations with foreign countries (Elsmore, 2017). In terms of trade barriers Iran has created social and cultural factors like communication styles and negotiation tactics with host countries. Iran improved on fighting against social-cultural factor which leads to stagnation of the economy like cultural factors, informed trade barriers and social institutions (Hamiltonand Webster, 2018).
Legally, Iran has stated clearly the contract policies, ownership of properties, and policies on security to guard and protect its legal status. Lukoil has been in oil and gas business talks with Iran, where together they have been discussing Abe Timur and Mansuri oilfield’s developments. The opening up of Iran to Lukoil about investing in the country led to the Gati Al-Jebouri, Lukoil’s head of upstream operations in the Middle East report “Iran is our target area at the moment” as reporters in Dubai had reported on January 29, 2017 (Bilgin, 2009). Iran has a bid size of the
economy, which explained how Lukoil would best fit in the country as there was a clear likelihood of economic growth in the country.
3 : Lukoil internal environment and strategy
This section will use the resource-based view (RBV) and The Value Chain to analyze the company's internal business environment (Wernerfelt, 1984).
Lukoil is privately-owned, and it is one of the largest international oil and gas companies globally. The company operates in more than 60 Russian regions and has employed more than 10,000 employees (Deresky, 2017). Lukoil controls roughly 1.3% of world oil reserves and around 2.3% of global crude oil production with the central reserves located in Western Siberia. In the private sector, the oil and gas company enjoys the top position. Lukoil's business model is geared by the principal of efficient vertical integration aiming at creating added value and making the business highly resilient through risk diversification (Deresky, 2017). It has a balanced value chain in all its three main sectors which are upstream, midstream, and downstream. The company gets a competitive advantage from its vertical integration both regional and international.
Upstream, Lukoil deals with the exploration and production of oil and gas which refers to the central pillars in its group business. The upstream operations cover the twelve countries, and the most concentrated being Russia, Central Asia, and the Middle East (Poussenkova, 2010). The key competitive advantages of the company include, first, technology expertise, which has propelled the company to its current business glory. The second advantage is the low production cost of standard barrels, which has helped the company to produce more products with little expend...
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