In general, the paper "British Petroleum Oil Company - Investment" is a perfect example of a finance and accounting case study. The world has increasingly become globalized and for several decades now, local enterprises have increasingly been extending their business tentacles to all corners of the globe. This globalization has led to the development of multinational enterprises which by definition are corporations that deal with the management and delivery of products and services in more than one country. Indeed, global business is booming business and is in the actual sense where the real money is.
The oil industry, in particular, is an industry in which tapping into international markets is crucial. Yet, despite the profits associated with such profitable global business, there exists a resultant increased risk. In the contemporary world of business, every investor considers risk as a constant factor to be considered in the business decision-making process. Be it in the marketing strategies, business planning or the expansion of business operations, appropriate ways of assessing risks are important to the ultimate success of new or already existing business operations.
Risk assessment is very crucial with regards to the economic performance of international investment companies like the British Petroleum Oil Company (BP). In fact, the oil industry, due to the high-risk nature of their products faces greater risks than other industries whereby even prior to prospecting, oil companies have to evaluate not only the geological risk but also the political risk (Sadgrove, 2005, p. 140). Political risk is particularly detrimental since, without political backing, no oil corporation would be able to thrive internationally. BP is a global gas and oil company whose headquarters are situated in London in the United Kingdom.
It is the third-largest energy company globally and the fourth largest in terms of companies that deal with oil exploration, natural gas and petroleum product marketing. Its operations are spread over 80 countries with its largest division being in the US (BP, 2010). And while US is a huge market for BP, there is great risk in this country due to the high level of awareness concerning issues surrounding the environment and thus any oil corporation operating in the country has to conduct itself according to environmental laws failure of which can easily elicit massive protests from the public and consequently sanctions by the government. Identifying how companies such as BP deal with the risks of government and financial penalties, collapses in the company’ s share prices, difficulties in raising capital, boycotts by stakeholders as well as environmental risks during foreign direct investment particularly in a country such as the US is very key.
A proper risk management strategy is significant to managing risk and central to BP’ s strategy are price risk management tools which are designed to give companies room to lessen their exposure to price risk through the contractual shifting of the risk to others (BP, 2010).
The types of exposure that are mainly covered against risk include credit risk, weather risk, event risk, supply risk among others (BP America Inc, 2010). These risks are assessed and measures to curtail them summarily put in place. In addition to these tools, to effectively deal with risk, one of BP’ s measures is to adhere to well defined externally generated policy statements that define and govern its undertakings.
BP follows international policies to ensure that the required standards are established and most importantly, to help identify other possible risks facing company operations (BP, 2007). Most of these policies mainly deal with the relations a company has with other stakeholders in the global market especially in areas of marketing, advertisement, sponsorship, transportation of oil and competition in general. They also address environmental standards like cutting back on industrial emissions, safety in production and transportation of products. Principles and other instruments that define norms for acceptable corporate conduct formulated by organizations such as United Nation, International Labor Organization and also Organization for Economic Co-operation and Development are very essential in BP’ s risk assessment program.
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