British Petroleum Global Political Economy - Case Study Example

BP global political economy Name Institution Course Unit Instructor Date BP (British Petroleum) is a leading multinational corporation headquartered in London with subsidiaries in over 70 countries. The firm has a rich history since its establishment in the early 20th century and has grown to be a multibillion dollar corporation listed in several stocks market around the world. The firm is best known for oil exploration and drilling though it is well vertically integrated starting with oil drilling and exploration to managing thousands of company-owned and franchised petrol stations dealing in petroleum products including diesel, natural gas and oil lubricants. The company has also venture into renewable energy such as wind and biofuels as part the firm’ effort to reduce the environmental impact of fossil fuel and also embrace a new direction in the industry. The company is the sixth largest in the energy sector by market capitalization and continues to record impressive growth driven by new oil explorations. The success of the firm comes in the midst of operating in the relatively politically sensitive industry where major oil producing countries in the world have faced major political upheavals while others experience unique political climates that influence economic conditions and the general business environment for BP. This paper seeks to explore the manner in which the political economy in various markets where BP operates influences the firm’s organizational strategies and the larger business environment in the energy industry. To capture core contextual issues, the paper will explore several major events assess the manner in which BP has adapted to the new market conditions created by these events. In several developing countries, the major issue facing BP is military insurgencies and other military groups fighting governments that force BP to seek extra security and protection in such countries. The mere estimation in dollar value of oil and gas deposits are an incentive to cession calls and military insurgences. Majority of the world’s mineral rich countries suffer from major political upheavals with different political and military functions seeking to control the valuable resources. For instance, Philippines gas and oil deposits are estimated at $26.3 trillion. Such immense wealth is incentive enough to encourage military groups seeking to control the wealth. This might also be intertwined with other issues. A common accompanying issue is the threat of terrorism enjoined by religious fanaticism. One of the recent highly publicized case occurred in 2013 when over 40 BP employees working in the Ain Amenas gas field in Algeria were attacked by an insurgent group. The attack saw two employees lose their lives. Following the attack, BP was forced to cease operations in the areas temporary until security was guaranteed by the Algeria government. These kidnapping are unique to BP alone but apply generally to foreign owned companies operating in hostile regions. Such incidences have greatly affected BP HR policies as well as its productivity given that employees are more afraid of working as expatriates in foreign countries. Furthermore, the employer is legally bounded by the UK law on ensuring safe working environments for employees. The Health and Safety at Work etc Act 1974 (HSWA) clearly provides and includes among other things as providing protective gadgets as well as protecting employees from life endangering situations. In recognition of such provisions of the law as well in line with proper HR policies, the firm has always sought to evacuate employees caught up in such incidences. Long term solutions to such problems require the firm to look outside for assistance. BP has strategically sought to equip employees within needed skills in the face of a dynamic global political economy and also cushion the firm from legal liability. Looking at some of the firm’s contractual agreements to be signed by prospective employees, there is a huge emphasis on the issue of risks stakeholders may face in dealing with the firm or taking up employment with the firm. BP relies on the HSE risk categorization and also utilizes an in-house risk profiling framework to categorize various risks. To better equip employees accordingly, BP has liaised with external firms such as ISNetworld to train employees on managing risk that may be brought about by virtue of their employment in their global operations. According to Preston “their respective concerns and contributions and about the risks that they assume because of their involvement with the corporation” should be made clear so that they can make an informed decisions. General opinion has in some cases blamed MNCs including BP of putting their employees at risk or even forcing them to work in high risk prone regions. Richey (2009) conducted a study involving over 800 workers in the supply chain of several MNCs with operations in terrorism-prone Pakistan and examined their attitude towards their jobs as informed the terrorism-risk they faced by virtue of their jobs. The study revealed that there was no correlation between attitude towards their jobs and the risk they faced. This therefore supports the claim that BP understands the risk that her employs face and has made attempts to address the situation. BP strongly applies the stakeholder concept in its global operations to rope political and economic issues within the respective markets. BP simply understands the political attention to hydrocarbon sectors by various countries around the world. The company has experienced nationalization of resources in several countries such as Nigeria and Venezuela. To reach out to the political class and stakeholders affected by the firm’s operations, BP has sought to popularize its operations across the board targeting different stakeholders and non-stakeholder groups. According to Mitchell and colleagues et al. (1997, p.855), the core idea behind the stakeholder concept is to broaden management’s vision of its roles and responsibilities beyond the profit maximization functions to include interests and claims of non-stockholding groups.” This allows the firm to drawing public support from the larger population where in markets that it operates in. for instance, BP has a largely fossil fuel oriented company ventured into renewable energy, though the firm later divested, both as a strategic option and as part of the firms moral obligation. The firm’s top management thus presented itself in the eyes of the public and even government enforcing strict environmental laws as an entity equally concerned about global warming and carbon emissions. The Suez Canal Crisis of 1957 further reveals the susceptibility of BP as a company to the dynamic global political economy. In the 1940’s and 1950s, BP was acting as a representative of the UK government in global oil dealings. The company was sourcing over 90% of oil from the Middle East specifically from Iran (White, 2000). The move by the Iranian government to nationalize BP oils resources in the country would also encourage Egypt to nationalize the Suez Canal later. Britain had invested in the Suez Canal as it significantly lowered the distance from the Middle East to Europe and the nationalization of the canal was a direct hit to Britain in many ways. The country experienced the petrol rationing of 1957. The incidence again revealed the extent of government influence on operations of BP under the chairmanship of Eric Drake. Given that the UK government held significant shares in BP, the then UK premier repeatedly instructed the BP chairman to allocate a greater share of the firm’s oil resource from Middle East to the UK in order to address the petrol rationing in the UK. However, the Drake defied the orders and pursued a fair oil distribution regime among western European countries (White, 2000). This clearly demonstrates that BP clearly understands its place as an MNC. More recently, BP has retained this globalized approach in its operations in respect to the interplay of geopolitical relations and the global economy. Specifically, in 2010 the firm was involved in a huge environmental and legal crisis after an explosion in an offshore rig off the Gulf of Mexico led to a massive oil leak. The leak, which lasted 87 days, saw the rig pump about 130 million barrels of oil into the marine environment. The oil affected thousands of kilometers of shoreline and numerous marine species were killed following the leak. The US government, the UN and numerous environmental agencies and activists groups such as Greepeace were very vocal in condemning the leak and offshore drilling of oil. While the firm accepted blame and responsibility over this issue and even offered apologies, the firm has invested heavily to mitigate the effects of the oil leak that endangered some protected species and habitats. This is besides agreeing to the payment of $20 billion over several years to mitigate the oil leak effect as it affected the lives of many communities living along the Gulf of Mexico (Gilbert & Kent 2015). The agreement enabled BP to avoid greater costs in years of litigation over the environmental impact of the spill. Nonetheless, the firm stills faces thousands of civil cases brought up by shareholders and those affected by the oil spill. The move to settle the compensation for such amount was strategically genius for the firm and stakeholders. Some experts were worried that the oil spill would be the end of the global firm not only because of the huge settlement fee but also because of bad publicity the firm gained. The effects the spill on the stock prices of the firm across different markets was huge which the wall street Journal placed at about 55% loss of shareholder value. However, five years on, BP is still recovering from the incidence and the company has been reporting losses. Further to that, the firm has used the incidence to highlight the measures that the firm has employed to address the oil leak and gain good publicity (Gilbert & Kent. 2015). Starting from May 2010, BP was providing daily updates on its website on the oil leak issue and the cleanup operation with the assistance of the US military. By conservative estimates, 170 vessels, and nearly 7,500 personnel were participating, with an additional 2,000 volunteers assisting (BP 2015). BP understands that the global warming issue requires a multifaceted globalized approach that involves all parties. In so doing, BP, a company that largely deals in fossil fuels largely blamed for global warming through carbon emissions has been sponsoring global warming initiatives within and without its operations. In fact, the firm has invested in solar and wind energy as well in biofuels. Since 2006, the firm has invested over $3 billion in biofuel research across various countries around the world. While this might be impressive by modern standards, it marks a reduction in investment in green energy compared to the investments the firm made in 70’s and 80’s on renewable energy. Macalister (2015) reports that BP had over 4,400 research scientists and R&D support staff and was spending in-house close to $450m (equivalent of $830m today) annually on research alone. Although BP has reduced investments in this filed, the firm still retains a strong appeal in the market as a leader in alternative energy solutions. The firm acknowledges the importance of environmental laws and caps on emissions as a necessary option in addressing the common threat of global warming. The firm has thus invested heavily in community projects in several countries around the world dealing in global warming matters. The firm has also been actively involved in rehabilitation of mining and exploration sites across the world. From the discussion, above it is clear BP acknowledges its place as a global organization whose operations are not influenced by the political economy of the UK alone but the entire world. Geopolitical relations are critical in influencing operations of the firm and the strategies it adopts in the market. The sensitivity of the hydrocarbon industry especially in developing nations also highly impacts on the firms operations. The cases of nationalization of the firm’s assets point to some of the risk that the firms faces and the impact of such risks in influencing the choice of markets and even the market entry modes chosen in such countries as informed by the perceived risks levels. It is thus clear from this case that MNCS such as BP are greatly affected by global events and more those happening in specific countries where they have operations. Thus, the global political economy is a core business environment component for MNCS as it influences their day to day operations as well as long term strategies. References BP (2015). Environmentalism. Retrieved from, http://www.bp.com/en/global/corporate/energy-economics/statistical-review-of-world-energy/renewable-energy/renewables-in-this-review.html Gilbert, Daneil & Sarah Kent. 2015). BP Agrees to Pay $18.7 Billion to Settle Deepwater Horizon Oil Spill Claims. http://www.wsj.com/articles/bp-agrees-to-pay-18-7-billion-to-settle-deepwater-horizon-oil-spill-claims-1435842739 Greenpeace. BP Deepwater Horizon Gulf Oil Spill: Overview. Retrieved from http://www.greenpeace.org/usa/research/overview-gulf-oil-spill/ Macalister, Terry. (2015). BP dropped green energy projects worth billions to focus on fossil fuels. Retrieved from http://www.theguardian.com/environment/2015/apr/16/bp-dropped-green-energy-projects-worth-billions-to-focus-on-fossil-fuels Mitchell, R., Agle, B., Wood, D., 1997. Toward a theory of stakeholder identification and salience: Defining the principle of who and what really counts. Academy of management Review, 22(4), 853-886. Preston, L., Donaldson, T., Brooks, L., 1999. Principles of stakeholder management. In: principles of stakeholder management. The Clarkson Centre for business Ethics, Toronto, Canada. Reade, Carol (2009) "Human resource management implications of terrorist threats to firms in the supply chain", International Journal of Physical Distribution & Logistics Management, Vol. 39 Iss: 6, pp.469 – 485. White, N., J. 2000. The Business and the politics of decolonization: the British experience in the Twentieth century. The Economic History Review, New series, 53 (3), 544-564. Read More