PETRONAS Company Analysis

PETRONAS Company AnalysisJump to PEST Analysis of PETRONAS Impact of globalization on PETRONAS Recommendations for PETRONASThe union of my choice is PETRONAS, the cover colour Multinational Corporation ground in Malaysia. The paper will outline the background of the social club followed by identification of the actual and potential impacts of globalization on the company. Recommendation of strategies which the company might use to respond to the impacts is covered in the last touch off of the paper.1.0 Overview of PETRONASMultinational enterprise is defined as a large company with substantial imaginativenesss that perform various transmission line activities by a communicate of subsidiaries and affiliated located in multiple countries. (Cavusgil, Knight Riesenberger, p.13).PETRONAS, the acronym for Petroliam Nasional Berhad is a vegetable oil colour multinational corporation headquartered in Kuala Lumpur, Malaysia which was incorporated on 17 gamey-minded 1974 under the Companies Act, 1965. It is national inunct company of Malaysia, vested with the entire ownership and go out of the petroleum resources in the estate (PETRONAS, 2010). Under the leadership of Tan Sri Hassan Mari stop, PETRONAS is alter quickly into a global company with oil geographic expeditions and personal line of credit formulate makes with oversea partners. Over the historic period of effort, it has become a fully- ruffled oil and blow corporation with operations in more(prenominal) than 30 countries worldwide and graded among FORTUNE global 500 largest corporations in the world (PETRONAS, 2010).1.1 Integrated business of PETRONASPETRONAS is fully integrated across the value chain from the upstream exploration, discipline, takings, processing, and point and bollix transmission to the merchandising of liquefied cancel bungle and former(a) petroleum harvest-times as shown in Figure 1.0. PETRONAS the likes ofwise involved in municipal culture, petrochemi cal substance manufacturing and merchandising business, magic spell managing a globally coordinated downstream operation designed to optimize product delivery to its customers through its marketing and trading operation (PETRONAS Capital, 2009). PETRONAS in any case engage in shipping, automotive engine room and property investment.1.2 petroleum as the Core Business of PETRONASPetroleum is the essence business of PETRONAS because refined petroleum products account for 37% of the company jibe revenue amounting to RM80.7 billion (PETRONAS, 2010). Exports and domestic operation contri scarceed 35% and 19.7% of PETRONASs total revenue respectively which bring positive balance of payments to Malaysia (PETRONAS, 2010). Thailand, Japan, Korea and Singapore has been the main sensitive oil export countries of Malaysia which account for 87% whereas over 40% of particle accelerator was exported to markets in Japan, Korea and Taiwan, most of the remainder used domestically for electrici ty genesis (Malaysia Green Technology Corporation, 2010).The international operations be as strategic to PETRONAS which generated 45.3% (RM98.1 billion) of the company total revenue. PETRONASs production atomic number 18 mainly comes from Ind sensationsia, Thailand, Myanmar, Vietnam, Chad, Egypt, Sudan, Mauritania, Iran, Pakistan and Turkmenistan. Africa remains to be the companys prominent operation region which contributed 57.7% of the company international production followed by South einsteinium Asia (25.1%) Oceania and Middle East Asia (17.2%).1.3 Organisational Structure of PETRONASPETRONAS adopted a centralized functional organisation structure which the executive vice prexy (EVC) and vice presidents (VC) accept to constantly report their performance to the CEO. Each VC or EVP from respective function are prudent to monitor and controlling the afield operation with the aids of overseas joint venture companies or partners2.0 extraneous Analysis of PETRONAS2.1 semip oliticalPETRONASS oil exploration often takes place in high political risk countries much(prenominal)(prenominal) as Sudan and Iraq with abundant resources of oil and natural shooter. Sudan has been in political instability and having war for more than three-quarters of its humanity due to the independence, protracted conflict rooted in deep ethnic and phantasmal differences which has slowed down country economic and political maturation (U.S. subject Department, 2010). Recently, Sudans internal war evolved from the issue of exploring more oil region removed the territory because of depletion of the existing oil reserves. Despite political instability of Sudan could chop off PETRONAS in oil exploration, the company had strengthened its government activity affiliation through Malaysian Government to mitigate the effect. For example, PETRONAS is welcome by Sudan Government to absorb exploration and development works in its, Melut and Muglad Basins which has expanded in tw o the upstream and downstream sectors of the countrys oil and ordnance exertion (PETRONAS, 2010).Besides, liberalize of countries distribute policy is prominent to guarantee the profitability of PETRONASs overseas operation. In Malaysian, fewer tariffs are imposed on petroleum and gas product. PETRONAS is assigned to mildew the upstream activities in oil and gas as well as controlling the foreign investment of upstream petroleum and gas industry through the form of production-sharing contracts (PSCs), between foreign investors and PETRONAS. Likewise, South Africas governing body also developed their national oil and natural gas company, Petroleum embrocate and Gas Corporation of South Africa (PetroSA) on managing and promoting the licensing of oil and gas exploration accepts onshore and offshore exploration of the country. Thus, PETRONAS set its own oil refining and marketing presence in Africa through its 80% owned subsidiary, Engen Petroleum Limited ENGEN, a leading South A frican refining and marketing company.2.2 SocialIslam remain as the principal(prenominal) role in establishment Malaysias position on many international issues especially those related to the Muslim world of which the Middle East is a part (Ruhanas Harun, 2009). Middle East and North Africa account for 60.4% of the world oil reserve which are the important for PETRONASs exploration and production. Thus, Malaysian government has been proactive to build up religious affiliation by developing membership of a worldwide Islam br separatehood. The put to death is paid off when Malaysia oil reserves have dwindled and few domestic opportunities exist to drill for bare-ass reserves, PETRONAS has successfully to expand its operations to Iraq and Sudan which are Islamic oriented developing countries.2.3 EconomicPETRONAS is the biggest contributor to the Malaysian government budget, accounting for 39.3% of the federal governments revenues in 2008, up from 36.4% in 2007 (CIA, 2010). accord to margin Negara, 26% of inward FDI of Malaysia was channelled into manufacturing oil and gas in 2008. With the financial hold water of PETRONAS, Malaysian Government has been subsidizing the topical anesthetic fuel prices since 2004 which is different from many countries whose followed the use up fuel prices regulated by global market price of throttle (Bernama, 2010). The fuel price subsidies is intended to protect the local welfare of spirit income household but it causes 5.0 to 44% of Malaysias fiscal deficit (JATRO). The activities of the state-owned PETRONAS influence the amass patterns, resulting in substantial investments in exploration and extraction in the oil and gas industry which is more towards the US, Canada and Australia as the recent rapid development of unconventional gas resources.2.4 Technology EnvironmentIn Malaysia, domestic reservoirs are maturing due to the fact that Malaysian production is depleting since oils has been produced for hundred years. PET RONAS has been expanding overseas exploration and production of resources such as South Africa, Egypt and so on. Just like many opposite oil companies offshore rig has caused ecological imbalances such health and reproductive problems for surrounding marine life, destroys kelp beds, reefs and coastal wetlands, and exposes the wildlife to threats of oil spills (Greening Forward, 2008-2010). In such way, PETRONASs image is harm through the directly linkages to environments pollution. Company has been focal point on green technologies and developing in-house greening solutions. In particularly, the company has an current research for strengthening PETRONAS ECOPLUS environmentally friendly, degradable polymer series (PETRONAS Annual Report).3.0 Overview of GlobalizationAccording to Business Dictionary, globalization implies opening out beyond local and nationalistic perspectives to a broader outlook of an inter machine-accessible and inter-dependent world with free transfer of cap ital, goods and work across national frontiers.As world economy globalizes the national economies integrate into the international through trade foreign direct investment short-run capital flows international movement of workers and people in general and flows of engineering (Najam, A., Runnalls, D. Halle, M). This has created probability to the rise of multinational like PETRONAS in developing country venturing to the petroleum industry that used to be the exclusivity of companies from developed countries such as Royal Dutch Shell from United Kingdom and Exxon Mobil from United States.With the globalization effect, PETRONAS has been growing organically and through strategic federations, via joint ventures, mergers acquisitions and so on as catalysts for escalated performance (Dato Shamsul Azhar Abbas, 2010). PETRONAS is impinge oning more freedom either on trade petroleum products or orbit up oil refineries in worldwide. This enable the company to continue dominant its pos ition in the international business environment by penetrating larger capital market that has lesser regulations on foreign direct investment. For instance, PETRONAS is included in The New 7 Sister ranking by Financial Times which considered as wiz of the most influential international oil and gas companies which controlled about one third of the of the worlds oil and gas production and reserves (Nicholas Vardys The Global Guru, 2010).However, globalisation is not a bonus self-aggrandizing for all companies but imposes authentic opportunity salute to the companies operations. PETRONAS may enjoy of possessing diversified revenue fanny which generated from its overseas operations and marketing. At the alike time, the company has the opportunity make up of facing unexpected problems of like changing economic, regulatory and political environments globally and regionally which would create a overserious impact to the companys result. The actual globalisation impact on PETRONAS will be political risk, global challenger and global applied science transfer.3.10 Actual Globalisation Impact on PETRONAS3.11 Political riskPolitical risks of operating countries remain as the fundamental globalisation impact of PETRONAS because 42.1% of the companys revenue derives from international operation in countries such as Iran, Myanmar, Cuba and Sudan in the fiscal years ended in 2009. PETRONAS strategy was to fault strongest partner in operating countries to minimise these risk. For instance, the company is in partnership with China National Oil Corp. and Sudans National Oil Company, Sudapet, while in Iran it has a tie-up with Frances TotalFinaElf, which has a strong relationship with the country (Leslie Lopez, 2003).3.12 Global CompetitionGlobalization makes it increasingly difficult for PETRONAS to rely only on national regulation to protect its local positions in oil and gas industry. PETRONAS is deemed to face intense competitions of its oil and gas and refining industries in twain domestically and internationally. For instance, PETRONASs retail subsidiary company, PETRONAS Dagangan Sdn Bhd used to compete with its main enemy Royal Dutch Shell but now competing with other retail competitors like ESSO (Exxon Mobile subsidiary), Caltex and BHP (Boustead Petroleum Marketing Sdn Bhd). On the other hand, globalisation of liberalization enables oil firms to set up oil refinery in other countries which lead PETRONAS in a competition of oil exploration and production operations in Sudan.3.13 Risk and Benefit of Technology TransferAs economies open up, more people become involved in the processes of companionship integration and the deepening of non-market connections, including flows of information, culture, ideology and applied science. New technologies move across boundaries quicker, by connecting workers and citizens across boundaries and oceans (e.g., the rise of global social movements as well as of outsourcing), but they can also threaten social and economic networks at the local level (Najam, A., Runnalls, D. Halle, M). Under the effect of globalization, engine room transfer is performed from MNC crustal plate country to host countries. PETRONAS presence in Sudan has transferred its exploratory and production technology to expand upstream and downstream sectors of Sudanese oil and gas industry. This could have harmed PETRONAS in a sense that transferring its competitive proceeds to Sudan because the nation can explore the countrys oil reserved through skills describeed from PETRONAS.Nevertheless, PETRONAS also learn special technology skill through its overseas joint venture partners. PETRONAS learned appropriate petrochemical technology through its joint venture partners include The Dow Chemical Company (Dow Chemical), BASF Netherlands B.V. (BASF), BP Chemicals, Idemitsu Petrochemical Co. Ltd, Mitsubishi Corporation, and Sasol Polymers International Investments (Pty) Ltd, (Sasol Polymers) which possess financ ing capability, marketing and distribution expertise (PETRONAS Capital).3.20 Potential Globalisation Impact on PETRONAS3.21 Depletions of Natural ResourcesThe rapid acceleration in global economic activity and our dramatically change magnitude demands for critical, finite natural resources undermine our pursuit of continued economic prosperity (Najam, A., Runnalls, D. Halle, M.). Under the globalisation process, firms gain free access to exploit natural resources of one country to another without any restriction. Non renewable resources like petroleum and gas sooner will be depleted over the years through uncontrollable exploration and productions. These impose serious environmental cost as well as the influencing the future prudence of oil and gas industry. Sustainability of PETRONAS and other petroleum companies is deemed to be affected as petroleum product is source of revenue of the industry. Therefore, finding replacement of these depleted resources through purpose of new technology is crucial to back up the companies the industry.3.22 Changes in foreign environmental laws and regulationIn order to protect the environments, some countries might ordain additional environmental legislation and regulation regarding exploration and production of oil and gas, petroleum, petrochemical products and other activities. Environmental law and regulation would limit or require the company on drilling activities within protected areas and certain other areas and impose penalties for pollution resulting from oil, natural gas and petrochemical operations, including criminal and civil liabilities for serious pollution ( Green Forward, 2008-2010). These would incur significant unforeseen expenditures for PETRONAS to comply with such requirements, which could adversely affect on PETRONAS business, financial condition and results of operations in overseas. Therefore, PETRONAS is in dis favor because of taking longer time to response the changes in foreign environment laws and regulation attributes to its centralised management structure which connected globally3.23 Risk of Brain DrainDuring the year under review, the deficit of critical skills faced by the oil and gas industry represent the key people related challenge faced by PETRONAS (PETRONAS, 2010). With the globalisation effect, PETRONAS could have enjoyed the benefit of penetrating and extracting talents in different countries by setting up overseas operations. However, it put the company at risk of ace drain in worldwide operation. Brain drain is referring to the net overtaking of a countrys highly trained and skilled manpower through migration (WebFinance, 2010). This is because globalisation process improves the mobility of skilled labour to move around the world freely. This delegacy workers are be access active information seekers and concern about their benefits in the organisations. Conveniences of knowledge sharing like pay standards and job opportunity via Internet able to influence the workers decision on staying in the same organisations. If PETRONAS Malaysia unable to offered attractive incentive to motivate skilled workers, the company is liable(predicate) to find very difficult to retain the higher skilled workers who attracted advance remuneration and benefits from companies in developed countries such as UK, Middle East, and so on.4.0 Recommendations4.10 Diversify to innovative green technologyIn order to exceed the potential impact, PETRONAS should not over dependence on natural resource like oil and gas to sustain the company future. PETRONAS is recommended to acquire new market with new product line through diversification. The company could boil down on developing green technology as the environment economy is key concern of around the world. Thus, PETRONAS is recommended to develop alternative fuels such as converting plastic waste to fuels, wastewater to fuels and so on which are considered economical to consumers yet reducing the po llution and damages to environment. In Malaysia, PETRONAS should emphasize on recycle energy supply technology by turning drivel into energy because Malaysian produced 23000 tonnes of garbage individually day. With this technology, PETRONAS could form partnership with local electricity producer, Tenaga Nasional Berhad (TNB) as a way to increase its competitive advantage of diversification in energy industry over other oils and gas competitors as well as improving the environment status in Malaysia.4.20 Reposition PETRONASs imageBy addressing the environmental problem causing by exploration and production activities, PETRONAS has been investing on its corporate social responsibility (CSR) centred on enhancing the education and community programme in Malaysia and abroad. In Vietnam, PETRONAS grant to the nations development through education was recognised through the Certificate of virtuousness in Education by the President and Deputy Prime rector of Vietnam in 2010 (PETRONAS, 2010). moreover still there is a limitation of the companys CSR direction which should be refocuses on preserving the environments. Therefore, it is important for PETRONAS to reposition its image to be responsible and environmental concern oil and gas corporation. The company has to be active of the changes foreign environmental laws and regulation as well as choice Environmental Assessment (EIA) before setting up exploration, production, refining and chemical projects in overseas. The company should increase investment on its research and development by reducing the air emission and discharges resulting from the operation of natural gas processing plant, chemical plants, refineries, pipeline system.4.30 Retain talents with attractive incentives program and growthPETRONAS believe staff is selflessly built, nurtured and grown under the corporation get by value of loyalty, integrity, professionalism and cohesiveness. PETRONAS should continue its CSR on providing quality education in each country as a way to recruit talents from amongst the local and overseas graduates. However, retaining the existing high quality staffs of PETRONAS is a prominent factor to sustain the future of the corporation. Therefore, PETRONAS should increase the human empowerments by offering occupational mobility along both the technical or managerial tracks and ample opportunities for learning and growing. PETRONAS should also launches special incentive program to motivate staff through giving bonuses, company trips and other staff benefits. In this way, staffs would find themselves appreciated and more willing to serve the company with loyalty.5.0 ConclusionFrom time to time, the most decided globalisation impact on PETRONAS is the government activity instability of oil exploration and production countries followed by the global competition of building market share as well as the oil and gas resources. The trend of technology transfer under globalisation, on the other hand, has ben efited PETRONAS of capturing technical skills from overseas partners but it also leads PETRONAS losses its competitive advantage through transferring patented technologies while exploring other countries. Potential impact of globalisation would be the depletion of resources, changing environmental law and regulation and loss of human capital which are infallible to take account by PETRONAS of sustaining its global presence in the coming future.In order to mitigate the actual globalisation impacts, PETRONAS has to strengthen its politics and religious affiliation with oil production countries for the future benefit. As for resolve the potential impact, PETRONAS is recommended to perform diversification in innovative green technology as the world is stressing on environment preservation. In addition, the company needfully to reposition its global image not only by office of its current corporate social responsibility that solely focus on regional education but it should be more fo cus on environment preservation. Next, PETRONASs re-evaluate their incentives plan to avoid brain drain problem which high skilled workers are poached by competitors in developed countries.As a conclusion, it is important for MNC to join hand with government to mitigate the globalisation impact. PETRONAS strategy of growth through joint venture and partnership in the global is a brilliant way of reducing business risk. But without the effort of Malaysia Government of being proactive in developing politics and religious affiliation with Middle East countries, PETRONAS can never gain the opportunity to explore in these countries. Therefore, PETRONAS has to maintain its current competitive advantage as well as keep an eye on the secret impact of globalisation.2897 words