Challenges Facing The Internationalization Of Chevron Management Essay
Chevron falls among the world’s top leading energy companies. Its headquarters are in San Ramon, California, and it boasts of numerous branches and divisions in many countries worldwide. Its core business is oil and gas, and the drilling and harvesting of the same from oil reservoirs all over the world.
Chevron can trace its origins back to 1879, when oil was discovered at Pico Canyon, California. Because of that discovery, the Pacific Coast Oil Company was formed, and it later became Standard Oil Company of California. With the 1984 merged with Gulf Oil Corporation, Standard Oil Company then became Chevron, as it is known today. The merger with Gulf Oil corp. almost doubled Chevron’s reserves of oil and gas, and went a long way in the making Chevron the energy giant it is today (Biographiq Business Profile 2008, p.4). However, Chevron was not done yet, and continued to expand its territory through further mergers. In 2001, Chevron merged with The Texas Fuel Company, which was also known as Texaco, of Beaumont, Texas. In 2005, it also acquired the Unocal Corporation, and affirmed its position as a leader in the energy industry. Their natural gas and crude oil reserves had greatly increased all over the world through these acquisitions (Qontro 2008, p.12).
In the light of such success in the oil industry, Chevron expanded its influence into other industries like coal, petrochemicals, technology, and power generation. Chevron Mining Inc., a subsidiary company of Chevron, operates three coalmines in Berry, Alabama, McKinley, New Mexico and Wyoming and a mineral mine in Questa, New Mexico in the United States. Chevron Mining Inc. is headquartered in Englewood, Colorado and supplies molybdenum and coal to customers all over the world. In the industry of petrochemicals, Chevron combined with Phillips Petroleum Company, now ConocoPhillips, to form Chevron Phillips Chemical Company LLC (CPChem, p. 2).
CPChem is a leading producer of products like Olefins and Polyolefins, Aromatics, Alpha olefins, and Styrenics. CPChem has 35 manufacturing plants in the United States, Colombia, Brazil, China, Singapore, Saudi Arabia, Qatar, South Korea, and Belgium and employs over 4500 employees. In the power generation industry, Chevron currently has 13 power-generation facilities in the United States and in Asia that make the use of geothermal, wing and natural gas to produce electricity. The wind-powered facility is only one, and it is located in Casper, Wyoming. It began operations in 2009. In Asia, Chevron facilities are mainly geothermal; two of these are in Indonesia, at the Darajat and Salak fields in West Java. It also has facilities in the Philippines, where it manages steam fields that supply geothermal energy to the Mak-Ban and Tiwi power facilities.
Chevron, in light of the evolving global energy industry, also invested in research and technology. It was seeking cleaner solutions, and more affordable and more reliable energy than the solutions the energy industry had to offer. In seeking these solutions, Chevron specialized in bio-fuels and emerging energy applications, and formed the Energy Technology Company, Information Technology Company, and Chevron Technology Ventures to assist it to accomplish its goals.
Presently, overall, Chevron’s network stretches over 28 countries in six continents in the world. These nations are Angola, Argentina, Azerbaijan, Australia, Bangladesh, Belgium, Brazil, Canada, Chad, China, Colombia, Kazakhstan, Indonesia, Kuwait, Netherlands, New Zealand, Nigeria, Philippines, Russia, Saudi Arabia, Singapore, South Africa, South Korea, Thailand, Cambodia, Trinidad & Tobago, United Kingdom, United States, and Venezuela.
Chevron has had to use various strategies to enter into international markets that it has considered lucrative. In some nations, it has used the principle of Foreign Direct Investment (FDI) to gain favor with prospective nations whose markets it has wanted to explore, or whose resources it has desired to harvest.
Angola is one example of a nation in which Chevron penetrated and established roots.
Presently, Chevron stands as one of the largest producers of oil in Angola. Chevron discovered considerable reserves of oil and natural gas, thus, in order to be accepted by the Angolans, it committed itself to working closely with the local communities to empower and equip the people with skills and knowledge that they could use to create lasting social development and economic growth. This was shown in the introduction of the Angola Partnership Initiative, which was initiated in 2002. The goal and purpose of this initiative was to help build capacity of government development agencies and nongovernmental organizations, and to assist in alleviate poverty through the development of small and medium sized enterprises. Chevron invested an initial amount of $25 million in this project, and multilateral and national development programs later matched that by $31 million.
In healthcare, Chevron committed funds towards the reduction of mortality, especially in women and children. In 2009, combined with several partners, it gave to the Cabinda Tuberculosis Program drugs worth $185,000 as well as consumables and x-ray equipment. According to statistics, the program treated 110 patients, and 73 of these were cured. Between 2008 and 2011, Chevron also boosted the government’s efforts in combating malaria by giving $5 million, towards this purpose, to the Global Fund. As at 2009, more than two million individuals and over 70 institutions had benefitted from programs funded by Chevron. These institutions included schools and hospitals.
This kind of community development was done not just in Angola, but also in other countries into which Chevron’s invested, and it has created good name for Chevron. Unfortunately, other countries were also exploited by Chevron, so that good name did not stick.
Chevron has made several joint ventures with several companies both locally and worldwide that have enabled it to tap into markets that it would not have been able to tap into alone. It involves the joining of assets between two or more companies for a specific goal or task (Vonortas, 1997). The joint ventures that Chevron got into came with several advantages, namely:
1) They enabled it to expand its market coverage. For example, when Chevron merged with Phillips Chemical Company LLC to form CPChem, it gained access to the international market stretch of Phillips Chemical Company. The Phillips Company had establishments and investments in nine countries worldwide. Chevron products were now sold alongside the products of Phillips Chemical Company in those countries.
2) Access to new technologies: In the joint ventures, Chevron and the companies involved came together and combined their technological knowhow and research to come up with a superior product. Both Chevron and the other company owned this product. The objective of this was to make products that were more appealing to customers, as opposed to their own individual products. In the end, both companies got a product that was better received by the public, thus, it increased profits. Chevron and the companies also all benefitted from learning new technology from each other that they did not have before.
3) Reduced costs of production: in the joint ventures, the companies shared the cost of manufacturing, distribution, transport, technology and all other required production components, which ended up being of great benefit to the companies. 4) Spread of risk: the risk of the failure of the project was shared equally by all the companies in the merger. 5) Increased quality of product: the products that came because of the joint ventures were of greater quality. The shared cost of production allowed the companies to spend more on perfecting the products, thus, the quality of the joint venture product was superior.
An example of a joint venture that Chevron undertook was the joint venture company called Catchlight Energy LLC- formed by Chevron and Weyerhaeuser Company in 2008; it also formed joint ventures with Star Petroleum Refining Company of Thailand, Petrobas and Venezuela’s PDVSA Company, TPAO for Black sea exploration, and many more (Vonortas, 1997).
This is mode of internationalization has been most used by Chevron and all other oil producing and supplying companies. According to Franchisehelp Inc. (1998, p.11), petrol stations have been set up under Chevron’s name in uncountable countries all over the world. Having a globally recognized and respected name, chevron franchises have been greatly sort after. This number of franchises has continued to grow steadily, and will continue to grow, as Chevron continues to conquer new global territories.
Challenges facing the internationalization of Chevron
Chevron, as well as many other oil producers, has had challenges in the area of acquisition of rights to drill for oil in international countries. There are several areas around the world where oil has been discovered, and Chevron has tried to come in and seal the deal for these reservoirs, but has not managed to do so. This is because the host countries have not been willing to give up their oil, even though have not been in a position to harvest it. It has not been easy for countries to give up their oil, which has been considered a national treasure. Chevron has had to give extremely generous compensation packages for the opportunity to drill in these countries. Again, in the countries that Chevron has been given the go ahead to harvest oil, great tension has remained over agreements, mainly due to the large amounts of money that have been involved in getting the rights to drills.
Another challenge that has hindered Chevron’s progress in internationalization is the way their operations have affected the environment. A specific case of this was in Ecuador, in the Northern Amazon. In 1964, Texaco, which is currently under Chevron, came to the area and began prospecting for oil. It was the first company to come to the area and discover large quantities of oil that could be harvested commercially. Texaco, working in a joint venture with Petroecuador, commenced operations in the area. According to a 1993 report called “Crudo AmazÃ³nico,” by an environmental lawyer by the name of Judith Kimerling (1993, p.90), Texaco had dumped more than 19 billion gallons of toxic waste in the area between 1972 and 1992. It was also responsible for the spilling of a further 16.8 million gallons of crude oil into the forest from the main pipe. This dumping and spilling of oil was said to have contaminated the soil and seeped into the ground water reservoirs, and subsequently, it affected the health of the people of that region greatly. Statistics shown that cancer rates went up.
Another study by the International Journal of Occupational and Environmental Health attributed a high abortion rate in the people living in near the contaminated streams to the spillage. This has served to discourage many countries from allowing Chevron to operate in them (Rubovits 1991, p.30). In Chevron’s operations in Nigeria, Prince Gabriel B. Atsepoyi laments at the way the Nigerians expected so much from Chevron in terms of electricity, schools, and clean water, which was its duty (Atsepoyi Sep 2010, p.9). Instead, since 1963, Chevron came and exploited the resources of crude oil, and caused daily spills and widespread pollution from waste. In all of this, the people did not receive any benefits. Atsepoyi also stated in his book ‘Chevron and Ethics’ (Atsepoyi 2010, p.41), how Chevron never used to pay the Nigerian workers.
Another challenge that Chevron has come across is the issue of government regulations. Governments of some countries, having set stringent conditions concerning air pollution, demanded a superior grade or quality of the gasoline produced. Gasoline that was more refined meant higher production costs for Chevron in that country. Another thing that the government controlled and still controls is the pricing of the gasoline or petroleum products. It would normally control this through taxes. When taxes were high, it meant that Chevron would not make as much sales as it would have wanted.
One additional challenge was issues with workers. In the countries that Chevron penetrated, it would set up large facilities that required a lot of labor. The governments of these nations required of Chevron that majority of its employees are of the indigenous ethnicity of the country in question. Chevron would have to educate them and train them sufficiently so that they could work in the facilities. It proved to be quite a challenge to work with these people if the country in question did not previously speak English.
There were also always those nations whose people considered the giving of drilling rights to foreigners as wrong. In these countries, they felt that the wealth of the country should remain in the hands of the ethnic people of that country. Normally these countries had been colonized. Because of the exploitation and torture that they had experienced during that time, they formed a dislike and even hate for westerners. Thus, they were not willing to allow them to manage their resources. Having foreigners come to take over their resources, especially those similar to their colonizers, also worried them of being taken advantage of again.
In considering all things ethically, Chevron did well in several countries like Angola, investing heavily in the wellbeing of the men, women, and children of that country, in all areas. One could argue that Chevron did this kind of community investment only in the countries where it had the largest financial interests. This argument seemed to be justified because the contrast between the countries that it supported financially and others that it abandoned like Ecuador. It left the Ecuadorian people suffering serious medical complications because of the spills and the toxic waste they dumped.Order Now