International Strategies for Abu Dhabi National Energy Company - Case Study Example

RUNNING HEAD: International Strategic Plan for Abu Dhabi National Energy Company Name Institutional Affiliation Instructor’s Name Date Table of Contents Executive Summary This project gives an important insight a business strategic plan needed to be used by the United Arab Emirates’ Abu Dhabi National Energy Company to venture into foreign markets, in this case the German markets. Over a long period of time, Germany has been known well worldwide as one of the states ideal for business. This is attributed to the fact that it has a better national competitiveness. This paper not only looks into fact that makes Germany a better option for Abu Dhabi National Energy Company to invest in, but also gives an analysis of the economic situation of Germany in terms of its Gross Domestic Product (GDP), business situation, political, social and cultural situations, its markets and financial status as well as the technological aspect. Likewise, the paper gives the general profile of the United Arab Emirates with regard to how it is performing in its renowned oil business. The strategic layout of entry into German markets is also discussed. The factors looked into include its competitive advantages against Germany, product situation and pricing policies, nature of the competitors as well as how it intends to perform the promotional activities and distribution of its products in the region. Last but not least, this paper gives an analysis the organization of the company and how it executes its operations. It discusses the Human Resource personnel and its capability to effectively ensure the successful entry and establishment of the company in Germany. The recommendations and conclusions are given at the end of this paper. Introduction As per the report released by the World Economic Forum Global Competitive in 2008-2009, the UAE was ranked the 5th nation globally in terms of oil production. Its dependency on oil has however reduced drastically over the recent years due to diversification of business opportunities by the country. According to the International Monetary Fund IMF, the United Arab Emirates has the biggest sovereign wealth invested. With the Abu Dhabi National Energy Company being among the top moil producing company in UAE, there is need to diversify its global strategies so as to achieve a better competitive positions for the global market. To help the company achieve this, this project highlights the strengths, challenges and opportunities underlying the company. This is done in relation to the prevailing situations in Germany. The analysis is done on the basis of different sectors of contributing to the development of the economies of the two countries. For this reason, the general profiles of the UAE and Germany are looked into. The aspects of concern in the profiles of the two countries include the geographical locations, the flexibilities and openness to commerce, infrastructure and the exchange rate history. The macroeconomic aspects like the GDP, population size, unemployment rates and per capita income with regard to Germany are discussed in this paper. United Arab Emirates’ Profile The United Arab Emirates is located in the center of the Arab Gulf. The gulf borders the country from the North and North West. Qatar borders from the west while the Saudi Arab Kingdom borders from the South. It lies between 22-26.5°N and 56.5° E. This central location of the country is of a comparative advantage. This has seen the UAE turn this opportunity into not only a strategic but also a competitive advantage. In terms of flexibility and openness to trade, UAE is amongst the world’s most preferred logistics and trade hub. This is reflected clearly by the World Bank’s Doing Business report of 2012, which placed the UAE in the fifth position for simplicity of doing trade across borders. This is of great importance especially in the present world of increasing global independence and development in international commerce. In pursuit of economic advancement and competitiveness, UAE has created conducive and business enabling environment through creation of invaluable infrastructure, hence giving it a key role to play in the international trade. Reports by Cordesman and Center for Strategic and International Studies (Washington, D.C.) shows that the country has made heavy investments in world class infrastructure e.g. Cargo hubs in Abu Dhabi and Dubai, state of the art airports, roads across the country as well as the model facilities in the seaport of Port Jabel Ali. With the help of this infrastructure, the UAE has managed to improve the trade efficiency process, thus giving it a competitive advantage. UAE is one of the world’s top ten oil and natural gas producing nations, having produced 2.8 million barrels on average in the year 2012. It is also member a member of the Gas Exporting Countries Forum (GECF) and the Organization of the Petroleum Exporting Countries (OPEC). Petroleum is the main contributor to its economy. The mode of currency used in UAE is the United Arab Emirates Dirhams (AED) while that of Germany is the Euro (EUR). The following graph is a representation of the historical exchange rate between the AED and the EUR 18TH September 2013 to 16th December 2013. Germany’s Profile Germany borders the North Sea in the Western Europe. It is situated between France and Poland. The growth and development of economy has been very significant and promising to the international investors. Its economic freedom and openness scored 72.8 % in the 2013 index as indicated in the graph below, thus putting it at the 19th position of the freest or open economies to trade. Time (years) This is quite promising to the Abu Dhabi National Energy Company as there are very minimal entry barriers to enter the German markets. It has a very low index of trade tariff of 1.6% as compared to other European Union members. The regime of trade in German trade supports and encourages vibrant growth and equal treatment of both domestic and foreign investors. With this, the Abu Dhabi National Energy Company has a uniform competition platform with the domestic investors. The investment freedom stands at 85% while the trade freedom is at 86.8%. In addition, the German economy has been able to withstand the uncertainties of the global economy such as the inflation and the European debt crisis. The legal framework and commitment are fundamental tools in regulating the German open-market policies, alongside protection of the property rights and powerful tradition of little tolerance to corruption. The highest tax rate is 45% while that of federal corporate is 15.8%. The trade tax increases general tax burden to 36.5%. Germany is one of the best nations with the best infrastructural facilities. In the 2011-2012 Global Competitiveness Report, Germany’s infrastructure received outstanding praise for being the best capacity to offer effective transport and communication. The ranking was based on the quality of airports, roads port and rail infrastructure. The energy and communication sectors are also outstanding. The EUR has shown some stability against the US dollar meaning that the rate of inflation is not so high. The graph below shows the Germany’s exchange rate history against the US dollar as from 2009-2013. Economic Situation in Germany As at the 2011 population census, the German population was at 81.8Million. However, its rate of growth is lower compared to that of the United Arab Emirates. Nevertheless, this population plays a crucial role in contribution to the country’s GDP by proving ready market for most of domestically produced goods and services. The Gross Domestic Product GDP is $3.1 trillion and its growth is estimated to be at 3.1 %. On the other side, the per capita income is $37, 897 with the rate of the unemployment population being at 5.5%. This means majority of the entire population is working. The German’s Consumer Price Index CPI is at 2.5% and the confidence of the consumer is quit imperative. The Foreign Direct Investments amount to $40.4 billion. This is an indication that Germany encourages the foreign investors hence a better chance for the Abu Dhabi National Energy Company to invest in the region. Political and Legal Situation of UAE and Germany There exist three forms of governments in the United Arab Emirates. These are the federal, administrative and the municipal governments. The UAE’s federal government is tasked with overseeing the strategy off the country, the administrative government is in charge of each emirate while the municipalities are within every emirate (Gorgenländer, 2010). Initially, the strategy was pioneered by the Emirate of Dubai. Unlike Germany, there are no trade unions in UAE. However, the UAE is consolidating the governments to facilitate a better strategizing for entry into the German markets. Economic reforms in Germany remain slowed down due to the fall of the euro (Aune, 2008). To help safe the adversity of the fallen euro, a new coalition was formed by the Christian Democratic Union’s Chancellor Angela Markel and the Free Democratic Party in 2010. The government formed was to fund the largest share in the rescue package within the Euro zone. To meet its target, foreign investment is strongly encouraged by the German government. This is a splendid opportunity for the Abu Dhabi National Energy Company as there is room for business in the region. In addition to this, Germany has the largest industrialization economy in Europe which is integrated very well in accordance with the existing needs of the global marketplace. The economy facilitates the generation of fairly good per capita income which is among the top in the world. The regulatory system is competitive and it helps in creation of dynamic businesses and innovations. The entire process of launching and licensing a company in Germany is straight forward as there is no minimum capital requirement. There exist sound labor relations but under heavy regulations. The trade unions facilitate the corporation of workers and employers through as well as smooth adjustment of working hours and wages to suit the dynamics of the ever changing economy (Doern & Eberlein, 2009). With this, the financial stability is managed well. On one side, the Central Bank relates closely with the government. This means that the Central Bank has minimal independence as the financial sector is very competitive and provides a wide range of services. Traditionally, the public, cooperative and the private banks are intact in a three-tiered system. Comparison of Cultural and Social situation between UAE and Germany The graph below shows the comparative analysis of the United Arab Emirates’ cultural situation to that of Germany using Hoefstede’s theory of cultural communication theory. The comparison is done is based on 5-D Model. I.e., Power Distance Index PDI, Individualism IDV, Masculinity MAS, Uncertainty Avoidance UAI and Long Term Orientation LTO. Power Distance Index (PDI) The UAE’s score is higher than that of Germany, implying that people readily accept hierarchical order where each person is entitled to a space. This means that the Abu Dhabi National Energy Company subordinate staff is expecting information on what is to be done and the supreme boss is a kind autocrat. Individualism (IDV) The UAE’s score of 25 is an indication of a society that is collectivistic. It shows commitment of employees to their member organization. For this case the employees of Abu Dhabi National Energy Company are committed to their employer and set to gear for the company’s objectives in the foreign country. Masculinity/ Femininity (MAS) Germany has a higher score than UAE. This means the whole society is propelled by competition. Therefore, the successes and achievements are extended to the organizational level, hence no doubt that the company will register success in its operations in the region. Uncertainty Avoidance (UAI) Compared to Germany, UAE has high preferences for avoiding the risks associated with future uncertainties. For this case, the company believes in rigid codes of conduct. Each activity is performed with precision having in mind that time is money. Punctuality and hard-work are the norms of the company (Burger et al., 2007). Long Term Orientation (LTO) Germany has a score of 31 on this unlike UAE with null. It is an indication of the society’s perspective of practical-oriented future rather than viewing the future from a short-term perspective. Consequently, Hall’s theory views culture from high and low contexts. The UAE is within high-context meaning it has the ability to develop given its stable population. On the other hand, Germany is within low-context hence contracts long term contracts and minimal chances of disagreements in presence of foreign investors. Financial Situation of the UAE Company The total asset value of the company for the period ended 31st December 2012 was AED 122,590 million while the total equity was AED 13,358 million. Current assets value was AED 15,743 million while the total equity and liabilities was AED 143,488 Million. (Low, 2012). Market Entry Strategy The mode of entry into the German market is through export of energy petroleum products. German y has high demand for activities which will contribute to the sustenance of its energy supply sector. The country is also in need of efficient measures that lowers the consumer demand for energy (Cambie, & Ooi, 2009). On the other hand, the Abu Dhabi National Energy Company is capable of supplying petroleum products, technological services for supplying energy in various areas like the hydro and non-hydro carbon energy sources. Others include energy-saving services like creation of awareness with regard to energy reduction using smart tariffs. Marketing Situation Competitor Analysis The largest direct competitors the Abu Dhabi National Energy Company include the Qatar Electricity and Water Company, Kuwait Foreign Petroleum Exploring Company and Dubai Electricity and Water Authority. The three companies produce almost similar products and services due to the fact they are based in the same region. Other indirect competitors include the Royal Dutch Shell plc and Assam Company Limited which produce substitutes to petroleum products and sell them to the German markets (Sharan, 2011). Competitive Advantage The company has a strong believe in value creation and addition. All assets which do not contribute to this vision are eliminated from the company’s portfolio. As a way of offering unique and attractive products and services to the customers, the company intends to have its products and services go through a series of value addition processes. The prices also set at a slightly lower level to that of the competitors during the initial entry. This helps in pulling the customers into buying the company’s products and getting maximum utility. Product Situation At the moment, the main products offered by the company mainly include; Crude oil, natural gas, lubricant oil, Sulphur, grease, liquid natural gas and the natural gas liquids. The services involve marketing of natural gas and the crude oil, drilling as well as transportation or distribution of natural gas and crude oil. Pricing Situation The pricing of the company’s products and services is done basing on the demand and supply forces prevailing in the markets. The cost of production is also considered before the final prices are fixed. The following price chart shows the Abu Dhabi National Energy Company’s information on pricing of products and services. Distribution of the Products and Services The distribution process takes various forms. To maximize the contact with customers, the company intends to sell its products and services via agents and wholesalers. The agents are to be stationed in various parts of Germany both in small and large cities. Promotion Situation The nature and profile of our customers is not limited to specific group. It covers a broad group of people ranging from those in the transport industry to the ordinary people. Energy is needed for various forms. It is needed in manufacturing, processing and assembling industries among others. Nevertheless, it is a necessity in almost every household. The promotion of products will be done through the print media and the social media due to the accessibility of internet by many customers. The estimated budget for the promotion campaign is about AED 157,000 for every issue posted on the newspapers. Additional Factors Daily Operations of the venture The operations of the company are governed by the principles of mutual respect, protection and clear understanding of the business environment. The company is committed to steering the achievement diversified sources of energy in its operational areas. Human Resource Organization Currently, the number of human resource employees of the company stands at 2800. The company will hire about 250 more human resource personnel to work in the new country. The kind of people hired must have adequate skills especially in sales and marketing in order to achieve maximum profit margins. They must be also energetic and proactive in their conduct. Conclusion The emerging markets were traditionally evaluated on the basis of political and macroeconomic concepts. However, the ever changing dynamics of the global markets and economies has led to a further analysis of the markets using the other aspects. These include the cultural dimensional aspect which measures the cultural distance, potentials of the long-term market, the receptiveness of customers and the analysis of the competitiveness of an industrial sector. Foreign policy analysis is crucial for any company intending to enter a foreign market. It gives an insight of the legal policies and requirement s for the performance of any commercial activities in a country. Nonetheless, sound pricing policy is paramount to the success of a company. A good pricing policy protects the company from incurring lose by selling its products at a cheaper coast than its production costs. Recommendations Since the Abu Dhabi National Energy Company is a new entrant into the German markets, I strongly recommend a further analysis of the inflows as well as the outflows of its Foreign Direct Investment to help it not only get the source of funds but also the investment niches. I also recommend analysis of the German microenvironment which the company is to operate on. This is one way of identifying the areas of optimum market potential for its products. Since Germany is an area of interest to many investors, it is worthy to consider the spillover effects. The company also should consider franchising rather than Greenfield investment in order to minimize the risks and investment costs. In general, market entry considerations should cover the following areas; areas of economic thrust, foreign policy, FDI inflows and outflows. References Aune, R. (2008). Liberalizing European Energy Markets: An economic Analysis. Cheltenham, UK: Edward Elgar. Burger, M., Graeber, B., & Schindlmayr, G. (2007). Managing Energy Risk: An Integrated View on Power and Other Energy Markets. Chichester, England: John Wiley & Sons. Cambie, S & Ooi, M. (2009). International Communications Strategy: Developments in Cross- cultural Communications, PR and Social Media. London: Kogan Page. Cordesman, H., & Center for Strategic and International Studies (Washington, D.C.). (2004). Energy Developments in the Middle East. Westport, Conn: Praeger. Doern, B., & Eberlein, B. (2009). Governing the Energy Challenge: Canada and Germany in a Multi-level Regional and Global Context. Toronto: University of Toronto Press. Gorgenländer, V. (2010). A strategic Analysis of the Energy Industry in the United Arab Emirates: Opportunities and Threats in the Energy business. Hamburg: Diplomica-Verl. International Monetary Fund. (2013). United Arab Emirates: Selected Issues. Low, L. (2012). Abu Dhabi's Vision 2030: An Ongoing Journey of Economic Development. Singapore: World Scientific. Sharan, V. (2011). International Business: Concept, Environment and Strategy. Delhi: Dorling Kindersley (India)/Pearson. The Report: Abu Dhabi 2010. (2010). Oxford Business Group. Read More