A Case Analysis

On
Emerging Markets: BP, AAR, and TNK-BP
( W e ek 5 C a s e St u d y A s s i g n m en t , Ma ki n g St r a t eg i c A l l i a n c es &
N et wo rk s W o rk , B u s i n e s s St ra t eg y )

Prepared by:
S a u j a n K a r ki
N o va In t e r n a t i o n a l C o l l e ge

Submitted to:
N o va In t e r n a t i o n a l C o l l e ge
( C a l i f o r n i a In s t i t u t e o f Ma n a g e m e n t a n d T e c h n o l o g y )

M i n b h a wa n , K a t h m a n d u
Kathmandu, Nepal
1 3 t h M a y 2 0 19
Introduction
Strategic alliances is an agreement between the two or more organization that gives the
winning results for all the alliance organization through cooperation in the field of
manufacturing, product and service development and others. Through strategic alliance, the
organizations combine their resources, capabilities and core competencies to design,
manufacture, or distribute goods and services. The case talks about the strategic alliances
through Joint venture between the TNK and BP.
While going outside the country it is better for a company to alliance with the local
company than wholly owing. To have a strategic alliance there is a different types of rules and
regulation depending upon the country and for Russia if any international company want to
come there is a compulsion that they can only enter through alliance with local company. The
case explains about the benefits and risk that results from strategic alliance. From the case the
strategic alliance between TNK and BP is done to increase market power, overcome entry
barrier, lower risk, regional control and others. In case it shows Russia have an opportunities to
get excess to external technology where for BP it has a golden chance to enter to a Russian oil
industry and have an excess to use Russian natural resources. The case explains what problems
they could invite through the strategic alliance and the different ways how they could
overcome those problems that arise from the Joint venture.

Discussion Question
1. From and industry-based view, explain why alliances are a frequent mode of entry for the
oil industry in Russia.

An industry-based view, illustrated by Porter (1980), decides firm strategy and performance.
Sustainable competitive advantages can be discovered by industry analysis and by selecting
from the generic strategies. The competitive strength and the firm’s ability can maintain
positional advantages through the efficient and effective implementation of competitive
strategy. (Morgan et al, 2004).

From the case, we know BP is the third largest energy company in the oil and gas sector. Its
main operation is to Exploration and production, refining, distribution and petrochemical and
power generation. To enter into the Russian Market there is the rules that the company most
have strategic alliance with the Russian local company in order to exploits its oil resources. One
of the main reason western companies such as BP interested in doing business in Russia is due
to large reserves they possess within their territories .Russian firms always in look out for
attracting latest technology to the industry and strategic alliance is an excellent strategic
framework for all parties to work together (Norman 2012).
2. From a resource-based view, what are the complementary resources and capabilities both
sides brought to TNK-BP?

From the resourced base view helps each firm to determine its own capabilities and
limitations. This knowledge helps to determine the best strategies to grow the business in
terms of whether to expand to overseas markets and what type of entry strategy to pursue
(Reed 2013) TNK is a combination of three different entities and all three are Russian firms.
They have the necessary know how on how to navigate the local legal and regulatory
frameworks. This is a very important aspect of the business when it comes to Russia. BP is
one of the leading player in the oil market and they know how in the latest technologies to
extract oil from the fields and on distribution it’s leading industry. Both companies have their
own strengths in and off the field hence coming together as a team using strategic alliance is
mutually benefitting both companies.

3. From an institution-based view, what are the formal and informal rules of the game
governing this industry in Russia?

From the point of view of the institution. In forming the strategic alliance, BP needed to
be aware of the political dynamics as well as the expectations and ambitions of the TNK. If
BP had the appropriate due diligence, they would have realized the extent of political
influence on the Russian market. While it is a strategically important move to link up with
Russia's second and third largest oil producers, BP ignored the scenario what would happens
if one firm object to the deal. This short coming brought the Russian government in to
picture and created a difficult situation for BP. In essence, politics is presence in all Russian
business activities formally as well as informally.

4. ON ETHICS: As an ethics consultant to BP, how would you advise it during both episodes
of the conflicts with AAR?

An organization should follow business practices, ethics, and norms as of industry-based

view while entering into alliances in a foreign country. In the first episode, BP was eager to
extend the JV to Cuba, Syria, and Iran and AAR were not ready for it. And in the second
episode, we can see BP clearly violated the JV agreement of doing business in Russia with
other firms.
As an ethics consultant to BP, they should respect the agreement and follow it in an ethical
way. They should communicate with its alliance while pursuing further business, expanding
management, and employee benefit in the same region though they could have profited
financially by doing independently.
5. ON ETHICS: If you were an arbitrator in Stockholm, Sweden, which side would you support
in both episodes?
In the first episode, due to lack of proper communications between BP and its Russian
alliances for spreading the business in Syria, Cuba, and Iran, the deal was not forwarded. BP
being a western based firm has to comply with the legal formalities of the host nation. So both
the parties should have communicated properly and sorted out differences.
In the second episode, we can see that BP has been a failure in extending its alliances
with other firms in Russia. BP was going to an alliance with the competitor of TNK-BP with
which it has a JV. As a business, it is most to work for the partner's interest and best-practices.
It is clearly BP's fault to break down the agreement and work outside the contract.

Conclusion
In 2003 BP and AAR entered in to a joint venture agreement to jointly explore oil reserves in
Russia and Ukraine. This strategic alliance known as TNK-BP and became the 3rd largest oil
company in the world. Due to the lack of communication and mistrust between the Russian
partners and BP, there were grievances from the inception of the strategic alliance and this was
escalated to the point where media as well as the governments had to intervene. Russian
government was much more aggressive and eventually BP had to come to terms with the ground
reality and compromise in several fronts to be able to continue to work with TNK and gain and
retain the access to Russian oil reserves.
 References

Peng, Mark W. (2013). Business Strategy, Business-level Strategies. Retrieved May 13, 2019, from

https://books.google.com.np/books?id=nY4WAAAAQBAJ

Unknown. (2012, November 8). AAR consortium says agreed with BP on TNK-BP board. Retrieved May
13, 2019, from

https://www.reuters.com/article/us-bp-russia-idUSBRE8A70QE20121108

Rammandala Charm. (2016, November 6). A Study to Explore the International Business Strategy using
TNK-BP Strategic Alliance as a Case Study. Retrieved May 13, 2019, from

https://www.slideshare.net/CharmRammandala/a-study-to-explore-the-international-business-
strategy-using-tnk-bp-strategic-alliance-as-a-case-study?from_action=save