ROYAL DUTCH SHELL: STRATEGY AND PERFORMANCE (1999-2003)
As one of the original members of Seven Sisters, Shell has now become second of the largest leading private sector oil company worldwide in terms of revenue apart from being Europe’s largest energy group and the major actor in the petrochemical industry. With meeting the energy requirements of the society as its main aim, Royal Dutch Shell developed products that are economically, socially and environmentally viable for present and future utilisation. The company was created to incorporate Shell operations worldwide in 1907 (Georjon, 2003) and is now operating in over 140 countries. The strategies from 1999-2003 are illustrated and discussed below, and as followed by the discussion of the performance of the company as represented by the BCG matrix.
Shell’s Strategy Between 1999 and 2003
Market Penetration
Penetrating the global market was made possible by the quality core businesses such as Exploration and Production, Gas and Power, Refining and Marketing, Chemicals and Trading/Shipping. Primarily, Shell is a vertically integrated oil company whereby the establishment of core competencies was purported by technical and commercial expertise. Economies of scale provided Shell with high barriers to entry from both geographical and global contexts. Nonetheless, the vertical integration venture allows the core businesses to operate with autonomy and less interdependence, which are all profitable in their own right.
Market Development
From the 1980s, Shell saw a generous development in their offshore exploration projects and in the 1989 when the Communist regimes in the European region had collapsed, Shell was endowed with the opportunity to reopen the markets. From then on, the Group acquired assets through joint ventures which grew to 50 outlets from a single venture with a Hungarian auto retailing company. Joint production agreements and marketing, however, started in Russia which proved to be more strategic than joint ventures. In the next decade, Shell finds its place on otherwise hard to penetrate markets such as China and Russia as well as Saudi Arabia. The joint venture between Shell, Texaco and Saudi Aramco has been one of the largest joint venture during that year since it combines the refining and marketing businesses of Eastern and Gulf Coast US.
Product Development
In 2002, Shell invested in a partnership with an Ottawa-based company in the research of the use of bioethanol, a fuel that is made from corn stock, hay and other agricultural waste. The purpose of the partnership is to take advantage of the creation of a faster path to commercialization with a guaranteed customer base and as a response to the lack of distribution network for bioethanol and other alternative fuels on the part of the Iogen Corporation and the establishment of a competitive edge to control the sources of fuel sources of the future. As predicted, renewable energy will contribute to the global energy demand by 50% by 2050. This green fuel technology endeavor is a positive development for Shell (Tuck, 2002).
Diversification
Continuously, the company sought to diversify its core business such as the oil, gas and chemicals. Shell diversified to include nuclear power, coal, metals and electricity generation. However, none of these diversified products proved to be financially feasible for the company especially for the nuclear power and had been divested. Alternative energy and the embryonic renewable business was the next best thing to do for Shell. In the year 2000s, the company diversified into alternative energy resources that would deplete the natural environment including solar power, wind power, hydrogen and forestry. Most recently, the company diversified into hydrogen products development.
Table 1. Ansoff Model for Shell
Shell’s Performance Between 1999 and 2003
In the year 2000 alone, there is a significant amounts of produce that could leverage the competitive advantage of Shell: 2, 274 thousand barrels of crude oil, 8, 212 million standard cubic feet of natural gas and 5, 574 barrels of oil products on a daily basis. Capital expenditures also decrease and the proceeds from sales of assets were increased with , 265m (2001); , 099m (2002) and , 286m (2003). There are also proceeds from sale and other movements in investments in 2002 with m and in 2003 with , 988m. Between 2001 and 2003, the income attributable to the shareholders are , 321m, , 671m and , 322m, respectively through the operating activities. Through the associated companies, Shell was able to increase the net income by 1.33m on average between these periods, in addition to the average decrease in long-term liabilities as , 212.33m. Further, Shell obtains new borrowings in these periods and repaid a total of , 465m.
Table 2. BCG Matrix for Shell
Reference
Financial and Operational Information 2001-2005. Shell Company. Retrieved on 9 September 2008 from http://www.shell.com/html/investor-en/reports2005/faoi/finstate/constate_cash_flows.html#2003.
Georjon, A. (2003). Shell Truck Marketing Communication Strategy. Leeds Business School. University of Leeds. London.
Tuck, S. (2002). Royal Dutch/Shell taking minority stake in Iogen. Globe&Mail Print Edition.
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