BRITISH PETROLEUM

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Executive Summary

British Petroleum Plc. is a global oil and gas corporation based in the United Kingdom that has

been active in the international market for many years and has operations in practically in

continent on the planet. The objective of this report was to recommend a new market and entry

mode(s) for British petroleum (BP). This report recommended India as the next market for BP to

explore as a result of the following reasons; firstly, the market is underexplored by many of BP

rivals, secondly the country has being unable to fulfill its oil consumption through domestic

production, it is still reliant on imports to meet its oil requirement, thirdly its slowly but steadily

regional integration, fourthly the size of the market as a fact, India is on the path to be the world's

third biggest economy by 2030 and lastly, because of its fast urbanization, industrialization, and

economic expansion, as a growing global powerhouse, offers enormous energy growth potential.

BP have pursued entry into a new market in the past using entry modes; Greenfield FDI, joint

ventures, and licensing. For India market entry, this report recommends joint venture as the best

entry mode. It suggests collaborating with Reliance Industries Ltd. (RIL), the biggest oil and gas

firm in India's private sector, which is struggling with problems like a lack of technical know-

how, complicated geology, and high capital costs. To address these problems, RIL is looking for

a technical partner; BP can provide assistance in this area due to its extensive years of

experience. And offers lesser risk to BP.

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Table of Contents
1.0 Introduction................................................................................................................................4

2.0 British Petroleum International Business Strategy....................................................................6

3.0 Market Selection and Entry Modes...........................................................................................9

3.1 BP's entry modes..................................................................................................................12

3.2 Analysis of Macro-Environment of Selected Market Using PESTLE Framework.............14

4.0 Conclusion...............................................................................................................................15

References......................................................................................................................................16

List of tables

Table 1: CAGE analysis: favorable conditions of India for UK firms…………………………11

List of Figures

Figure 1: international business strategies………………………………………………………7

Figure 2: PESTLE analysis of India (selected market)…………………………………………14

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1.0 Introduction

After the discovery of oil deposits in the Arabian world (in what is now Iran), the British

Petroleum (BP) group was created in 1909 as the "Anglo-Persian Oil Corporation" as a British

Empire enterprise. Because of the Iranian nationalization process, the business was compelled to

expand to oil fields in the North Sea and Alaska in 1954 and was renamed British Petroleum.

Since its inception, BP has been a globally oriented firm with a concentration on America and

Europe - since it provided items on which many nations relied and which they could not create

on their own (Heller, 2012). The firm reached an all-time low in the late 1980s due to the sale of

the UK government's final share-block (31.5%), implying that privatisation had now been

completed. Today's business is organized into four major sectors (streams) (Heller, 2012):

1. Oil and gas exploration and production are spread all over the planet. BP has or has a

stake in 24 refineries producing oil (62% of total company production) and natural gas

(38%).

2. The processing and commercialization of natural oil into client goods. BP owns 29,200

gas stations (USA 15,000, Rest of the World 14,200).

3. Petrochemical processing: BP operates 38 chemical manufacturing plants across the

world.

4. Energy, gas, and renewable energy (BPsolar). Especially the growing market for gas

becomes more and more an important sector for the BP group (bp, 2023).

The current solar power capacity is 67 Megawatts per year (bp, 2023). “British Petroleum is the

world's second biggest oil corporation and the eighth largest firm overall, employing 115,250

people in hundreds of various professions” (bp, 2022). This incredible number of items is sold in

over 80 countries worldwide, including Europe, North and South America, Asia, Australia, and

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large areas of Africa (bp, 2022). “Since the early 1980s, this worldwide network has been

realized and is continuously being expanded by collaboration and mergers with hundreds of

other firms. As a result, the number of subsidiaries is almost limitless. The two most significant

mergers in British Petroleum's history occurred in 1998 with Amoco (established 1889) and 1999

with ARCO (1866), both of which were US American enterprises. The merger with Burmah

Castrol occurred as a purchase in 2000. These large transactions, which expanded the worldwide

British Petroleum group, brought several subsidiaries into the group, necessitating

reorganization. This entailed the liquidation of numerous small businesses that did not fit within

the company's restructuring. In 2002, the firm merged with ARAL, one of Germany's largest

petrochemical companies, in an intriguing combination that followed a rise in the company's

operations in Germany” (Russell, 2017). Just this merger, or should I say takeover (since it was

not a merger of two equal corporations like Amoco or ARCO) added 28 subsidiaries to the

company, and Aral itself was made up of two large groups, the Aral group and Veba Oil, which

merged in 1998 (Russell, 2017). All the above mergers are ways the organization enter into new

international markets and expand their international network. The next section will explore the

reasons and strategies used by British Petroleum for international expansion into new markets.

This report is divided into four sections; the first section introduces the organization in question

(British Petroleum), the second examines the international strategy of BP, the third recommends

new market to BP, entry mode and PESTLE analysis of the new market and the last section

contains the conclusion.

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2.0 British Petroleum International Business Strategy

An international strategy is one that a company employs to sell its products and services outside

of its home market. The company in issue may have opportunities by entering international

markets (Ireland, Hoskisson, & Hitt, 2012). Following are some incentives:

1. Expanded market size: In accordance with Ansoff's growth matrix strategy, BP has

adopted a market development strategy in an effort to expand the market for its current

goods. They are expanding their regional reach (Harrell, 2016).

2. Greater returns on big capital investments - When BP first expanded, other nations

provided a better return than their own. So they looked into various marketplaces. They

have currently chosen the US as their primary market because it offers better returns

(Heller, 2012).

3. Economies of scale can be tapped into by using globally standardized products in

marketplaces with homogeneous customer tastes that don't require much adaptation. The

standardized BP products were well received by the European market thanks to the

identification of trends in customer purchasing behavior.

4. Opportunities for internationalization and learning include the ability to access and

develop resources and skills through value-adding activities, as well as to expand one's

knowledge base by entering markets that are significant as sources of innovation in a

given industry. By serving more customers, BP could increase the market's size if the

target market segment grew

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5. Competitive advantages of location: administration, geography, particular economic

factors, and cultural differences can all be used. After some time, rivals redesign their

goods and figure out how to copy them. BP made the decision to join new markets in

order to increase return on investment while also protecting the resources they had.

There are four fundamental tactics for entering and competing in the international

environment. The appropriate strategy for a corporation is determined by the level of cost-

cutting pressure and local responsiveness.

Figure 1: international business strategies (Hill, Jones, & Galvin, 2004)

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Profitability from global growth is tied to company level strategies of cost leadership and

differentiation. Companies that transfer distinguishing capabilities to other sectors are attempting

to maximize the value of their present competitive advantage. British Petroleum has relocated to

sophisticated economies such as Europe, the United States, Asia, and Africa in order to obtain a

competitive edge through new market development (Hill, Jones, & Galvin, 2004).

British petroleum uses multi-domestic and global strategies as its international strategy.

Companies use multi-domestic approach to obtain optimum local response. The essential

element is the comprehensive customization of product and marketing approach to satisfy market

variety. This has a high cost structure and does not adequately use key strengths ( (Hill, Jones, &

Galvin, 2004). For example BP is developing greener goods, such as BP Ultimate for its

European markets (especially London and Barcelona), a gasoline that minimizes pollution, in

order to control emissions from BP's own products. This is as a result of increased concern

relation to climate change and movement for renewable energy (Harrell, 2016). Many

automobiles in Europe now utilize gas instead of oil to cut GHG emissions, and hydrogen fuel

cell technology is being employed. Vehicles powered by hydrogen cell fuel emit just water,

which is excellent for the environment making BP to produce more gas than oil for the European

markets (Harrell, 2016).

While worldwide BP uses the global Strategy. Companies aim to boost profitability by cutting

costs by using global strategy. To ensure economies of scale, production, marketing, and other

operations are focused in a few sites, and there is minimal customisation, as it adds costs and

necessitates shorter position runs. BP has a global strategy to ensure that its goods, services,

branding, and marketing initiatives are consistent across the board. Nonetheless, certain changes

are made to advertising and items available in local marketplaces (Hill, Jones, & Galvin, 2004).

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3.0 Market Selection and Entry Modes

The global oil and gas industry is confronted with both obstacles and possibilities. Because of

increased urbanization and population expansion, the global energy consumption level has been

increasing. “According to the United Nations, the world's population will reach 8.9 billion in

2040, up from 6.9 billion in 2010, with the majority of the growth centered in Asia and Africa.

The urban population will expand, and energy consumption will rise, creating an opportunity for

the global energy industry to seek and generate more energy to satisfy the rising need” (Panda &

Leepsa, 2019).

The Middle East, North America, and Eurasia are the world's top three oil producing areas,

accounting for almost 70% of total global energy consumption, whereas Asia, North America,

and Europe are the world's top oil consuming regions. Similarly, Asia and Europe are the world's

largest gas users. Yet, Asia and Europe generate far less oil and gas than they use, posing a

concern for these regions. This imbalance presents an opportunity for Asian and European

energy corporations to explore new oil fields and gas basins in their respective countries in order

to meet demand, since the worldwide oil and gas business struggles with deficient transportation

facilities, which is another barrier to international commerce.

This report recommends India which is in Asia as the new market for BP to explore. India can

generate on average 77% of total gas consumption and 30% of total oil consumption locally,

resulting in enormous imports of oil and gas. “The disparity between energy production and

consumption represents a lucrative potential for domestic firms. After the United States, China,

and Russia, India is the fourth largest user of petroleum products. India has an energy imbalance

and imports about 90% of its oil usage” (Panda & Leepsa, 2019). Whilst India has been able to

fulfill its gas consumption through domestic production, it is still reliant on imports to meet its

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oil requirement. Owing to India's reliance on petroleum and gas imports, Indian national

corporations have invested in abroad oil reserves in Africa, the Caspian Sea area, and South

America. “According to the Oil & Gas Journal, onshore resources account for 53% of Indian

reserves, while offshore resources account for 47%” (Panda & Leepsa, 2019). The oil and gas

sector is one of India's most important core industries, and it plays a critical part in the country's

economic growth. Yet, India relies heavily on oil and gas imports to satisfy its energy demands,

which must be reduced. As a result, Indian oil and gas corporations must explore and produce

more oil and gas, both onshore and offshore. Because of its fast urbanization, industrialization,

and economic expansion, India, as a growing global powerhouse, offers enormous energy growth

potential.

Using the CAGE framework to further justify market selection (Ghemawat, 2007):

 Cultural distance: differences in language, customs, religion, etc.

 Administrative distance: differences in foreign investment policy, regional economic

blocs (the existence or absence of free trade agreements), political proximity, currency,

lack of colonial ties, etc.

 Geographic distance: differences in transportation costs and times, time zones, etc.

 Economic distance: differences in income levels and wages, transparency in commerce

practices, characteristics of corporate systems, etc.

Low linguistic barriers make India particularly appealing in terms of cultural attractiveness (short

cultural distance). Because India was formerly a British colony, English is extensively spoken.

Also, a sizable section of India's elite is westernized and has studied in the United Kingdom.

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 Ghemawat, the CAGE framework's creator, is of Indian ancestry; he formerly worked at Harvard

Business School, which also includes numerous Indian academics.

In terms of administrative distance, India and the United Kingdom have comparable legal

systems since their economic systems were developed by the same colonizer—the United

Kingdom—and an Indian hallmark is its entrenched democratic political system. Geographically,

India is closer to the west coast of the United Kingdom and has the essential infrastructure, such

as ports, in place.

In terms of economic attractiveness, India has a large number of engineers. Also, the market is

less competitive, resulting in increased profitability for enterprises doing business there.

Additionally, management in India is conversant with the Western way of business, maybe as a

result of the top class's westernization.

Table 1: CAGE analysis: favorable conditions of India for UK firms

County Cultural aspects Administrative Geographical Economy aspects

aspects aspects India
India English-speaking,  Common ruler  Proximity to west  Specialized labor
westernized elite (from the coast of UK  High profitability
colonial era)  Ports and road  Westernized
 Legal customs infrastructure business customs
 Political
familiarity
 Low political
risk
Source: (Motohashi, 2015)

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3.1 BP's entry modes

British Petroleum's entrance modes are divided into three categories: licensing, joint ventures

and Greenfield FDI, (Sindraj, 2003). When British Petroleum wishes to expand quickly in a

certain nation, it adopts the licensing technique. This strategy offered several advantages,

including a cheap capital outlay, lesser risk and losses in the event of failure owing to the

contract's extremely defined duties and requirements, and a fantastic starting place for British

Petroleum to join a new market to develop Market-specific information. The disadvantage of this

strategy is the high information transfer that may be stolen or replicated by competitors, and the

business had little to no influence over the day-to-day operations of the licensed outlets.

British petroleum employs a joint venture model to communicate its business principles to the

local market; the partners generally have complementary assets/knowledge of the market, and

this strategy has been widely adopted and promoted by governments. While this strategy

provides a higher degree of control than licensing, it has a higher risk for the corporation owing

to the possibility of a control disagreement, a conflict of goals, and it is typically challenging to

oversee due to the unpredictable nature of the operation. Furthermore, the two non-equity entry

approaches may be leveraged by British Petroleum to gather host nation expertise while

providing its partner with a globally renowned brand, understanding of high-quality petroleum

products, and economies of scale. All of these strategies serve as British Petroleum's non-equity

entrance modes, allowing the company to gain market knowledge and expertise before

transitioning to the equity modes of Greenfield FDI (Foreign Direct Investment), in this case,

wholly-owned subsidiaries. Since BP has market expertise in the markets in which it operates,

such as the United Kingdom and the United States, it uses the wholly-owned subsidiary model.

Together with the advantages of full control and improved operation management, it entails more

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risks and expenses to the organization. In other cases, the company may realize that non-equity

models of governance may not effectively protect their FSAs against third-party abuse. In such

cases, firms may choose to engage in full internationalization right once by establishing a wholly

owned subsidiary. British Petroleum's brand is its most well-known firm-specific asset (FSA).

British Petroleum which has a worldwide known brand, great experience in high-quality

petroleum, and economies of scale, is combining resources and developing its firm through

licensing and joint ventures. As a result, in order to maintain its premium brand while

simultaneously portraying a strong corporate social responsibility (CSR) image, British

Petroleum needs to switch to fair trade. Notwithstanding the strategy's flaws, British Petroleum

will be able to profit on FSA's ability to choose prime and critical areas, as well as enjoy the

benefits of economies of scale provided by global distribution networks and bargaining power

over suppliers. In such cases, decides to enter the internationalization market by establishing a

wholly-owned subsidiary (Hobbs, 2019). British Petroleum employs three distinct ways to adapt

to the diverse local demands, requirements, and influencing factors in each location. This means

that the adoption of alternative entry modes is mostly due to an external reason. Because of the

fast-growing economy, which results in people having discretionary income to spend on products

and oversaturation in the home country, British Petroleum focuses on global expansions in

emerging nations.

For BP entry into the Indian market, this report recommends that the best entry mode is joint

venture. BP can partner with Reliance Industries Ltd. (RIL), the largest private sector company

in India, invested in oil and gas fields by winning the bid under New Exploration and Licensing

Policy (NELP) in the year 1999 and aspired to exploit the growing Indian energy market.

Though RIL developed the KG-D6 gas blocks in record time, soon after, it was engulfed with

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some issues like lack of technical expertise, geological complexities and huge capital

expenditures. To tackle these issues RIL has hunting for a partner with technical expertise which

BP can help with due its long years of experience (Panda & Leepsa, 2019).

3.2 Analysis of Macro-Environment of Selected Market Using PESTLE Framework

One of the methods used to identify and assess the primary drivers of change in the

organizational environment is the PESTLE Analysis. The abbreviation PESTLE stands for

political, economic, social, technological, legal, and natural environment. PESTLE analysis is an

organizational audit of a firm's operations that seeks to identify the many external elements and

forces that influence an organization's performance. (Buye, 2021)

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 Figure 2: PESTLE analysis of India (selected market)

4.0 Conclusion

India is a fast-growing market for British petroleum to operate, which is on the path to be the

world's third biggest economy by 2030. This is due to the free economy, democratic government

that offers effective commercial decision-making, and economic diversification. British

Petroleum can form partnerships with qualified and reputable Indian oil companies like Reliance

Industries Ltd which will speed up it entry into the Indian market with lesser risk.

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References

bp. (2022). bp-energy-outlook-2022. Retrieved February 20, 2023, from

https://www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/energy-

economics/energy-outlook/bp-energy-outlook-2022.pdf

bp. (2023). Reimagining energy. Retrieved February 20, 2023, from

https://www.bp.com/en/global/corporate/news-and-insights/reimagining-energy.html

Buye, R. (2021). Critical examination of the PESTEL Analysis Model. Project: Action Research

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Ghemawat, P. (2007). Redefining global strategy. Boston: Harvard Business School Press.

Harrell, L. (2016). BP: A critical analysis of its corporate and international strategies. Retrieved

February 20, 2023, from PING PDF: https://pingpdf.com/pdf-british-petroleum-bp-a-

critical-analysis-of-its.html

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Singapore.

Hobbs, G. (2019). British Imperialism and Oil: A History of British Petroleum, 1901-2016 .

(Doctoral dissertation, SOAS University of London).

Ireland, R., Hoskisson, R., & Hitt, M. (2012). Understanding business strategy concepts plus.

Cengage Learning.

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Motohashi, K. (2015). Global business strategy: Multinational corporations venturing into

emerging markets . Springer Nature.

Panda, B., & Leepsa, N. (2019). RIL’s Strategic Alliance with BP. Asian Journal of

Management Cases, 218-239.

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in-a-global-world

Sindraj, R. (2003). Impact of the merger between British Petroleum Southern Africa (BPSA) and

Castrol South Africa on Blendcor (A joint venture between Shell Southern Africa (SSA)

and British Petroleum South Africa). (Doctoral dissertation).

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