Harvard Case - Caspian Oil (A): Tengiz
"Caspian Oil (A): Tengiz" Harvard business case study is written by Michael Moffett, Andrew Inkpenr. It deals with the challenges in the field of Business & Government Relations. The case study is 10 page(s) long and it was first published on : Dec 31, 2012
At Fern Fort University, we recommend that Tengizchevroil (TCO) prioritize a multifaceted strategy to navigate the complex political and economic landscape of Kazakhstan. This strategy should focus on enhancing business and government relations, fostering economic growth through foreign investment and infrastructure development, and ensuring environmental sustainability while navigating government policy and regulation. By prioritizing these areas, TCO can secure its long-term success and contribute to the overall development of Kazakhstan.
2. Background
The case study focuses on Tengizchevroil (TCO), a joint venture between Chevron, ExxonMobil, and KazMunayGas, operating the massive Tengiz oil field in Kazakhstan. The company faces various challenges, including:
- Political instability: Kazakhstan's political landscape is characterized by a strongman leader and a history of political repression.
- Government intervention: The Kazakh government actively intervenes in the oil industry, seeking to maximize revenue and control.
- Environmental concerns: Oil extraction activities have raised concerns about environmental damage and potential long-term consequences.
- Globalization and competition: The global oil market is highly competitive, with fluctuating prices and increasing pressure from alternative energy sources.
The main protagonists in the case are:
- TCO: The joint venture company seeking to maximize its oil production and profitability while navigating complex political and economic realities.
- Kazakh government: The government seeking to maximize revenue from oil extraction, control the industry, and ensure national economic development.
- International oil companies: Chevron and ExxonMobil, seeking to secure their investments and maintain their competitive advantage in the global market.
3. Analysis of the Case Study
The case study can be analyzed through the lens of competitive strategy and international business. TCO's success depends on its ability to navigate the following key issues:
Competitive Strategy:
- Porter's Five Forces: TCO faces intense competition from other oil producers, both domestically and internationally. The threat of new entrants is high due to the abundance of oil reserves in the region. The bargaining power of buyers is moderate, as oil is a global commodity. The bargaining power of suppliers is low, as TCO has access to a vast oil field. The threat of substitutes is increasing due to the development of renewable energy sources.
- Competitive Advantage: TCO's competitive advantage lies in its access to the massive Tengiz oil field and its partnership with experienced international oil companies. However, this advantage is threatened by the Kazakh government's intervention and the volatility of the global oil market.
International Business:
- Political Risk: Kazakhstan's political landscape presents significant political risk for TCO. The government's intervention, potential for instability, and unpredictable regulations create uncertainty for the company.
- Cultural Differences: TCO needs to navigate cultural differences between Western and Kazakh business practices. This includes understanding local customs, building relationships with government officials, and respecting cultural sensitivities.
- Economic Environment: Kazakhstan's economic environment is characterized by significant dependence on oil revenue. Fluctuations in oil prices and government policies can significantly impact TCO's operations.
4. Recommendations
To address the challenges outlined above, TCO should adopt a multifaceted strategy:
1. Enhance Business and Government Relations:
- Lobbying strategies: Engage in proactive lobbying efforts to influence government policy and regulations in favor of TCO's interests.
- Corporate political activity: Develop a strong understanding of the Kazakh political landscape and engage in strategic political activities to maintain positive relationships with key government officials.
- Partnerships: Seek opportunities to collaborate with Kazakh companies and institutions on joint ventures and infrastructure projects.
- Corporate social responsibility (CSR): Invest in local communities through social programs and initiatives to enhance TCO's reputation and build goodwill with the government and public.
2. Foster Economic Growth and Infrastructure Development:
- Foreign investment: Encourage and facilitate foreign investment in Kazakhstan's oil sector and other industries to stimulate economic growth and diversify the economy.
- Infrastructure development: Partner with the government to invest in critical infrastructure projects, such as transportation networks and energy infrastructure, to support economic growth and improve the business environment.
- Public-private partnerships: Explore opportunities for public-private partnerships (PPPs) to leverage private sector expertise and resources for infrastructure development and economic growth.
3. Ensure Environmental Sustainability:
- Environmental regulations: Comply with all environmental regulations and implement best practices to minimize the environmental impact of oil extraction activities.
- Innovation: Invest in research and development to explore and implement cleaner technologies and sustainable practices in oil extraction and production.
- Transparency: Be transparent about environmental performance and engage in open dialogue with stakeholders on environmental concerns.
4. Navigate Government Policy and Regulation:
- Political risk analysis: Conduct regular political risk assessments to identify potential threats and opportunities related to government policy and regulation.
- Regulatory compliance: Ensure strict compliance with all government regulations and proactively address any potential issues.
- Government contracts: Negotiate favorable terms for government contracts and ensure transparency and accountability in all dealings with government agencies.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: TCO's core competencies lie in oil exploration, production, and technology. The recommendations align with TCO's mission of maximizing oil production while ensuring long-term sustainability.
- External customers and internal clients: The recommendations consider the needs of TCO's external customers, including the Kazakh government and international oil buyers, as well as its internal clients, including employees and shareholders.
- Competitors: The recommendations aim to enhance TCO's competitive advantage by fostering economic growth, improving infrastructure, and navigating government regulations effectively.
- Attractiveness: The recommendations are expected to generate positive financial returns by maximizing oil production, securing favorable government contracts, and attracting foreign investment.
6. Conclusion
By prioritizing a multifaceted strategy that focuses on enhancing business and government relations, fostering economic growth, ensuring environmental sustainability, and navigating government policy and regulation, TCO can navigate the complex challenges of operating in Kazakhstan and secure its long-term success. This approach will also contribute to the overall development of Kazakhstan and its economy.
7. Discussion
Other alternatives not selected include:
- Exiting the Kazakh market: This option would be highly risky and could result in significant financial losses.
- Adopting a purely confrontational approach: This approach could lead to increased government intervention and potential for nationalization of the Tengiz field.
The key assumptions underlying these recommendations include:
- The Kazakh government's commitment to economic development: The recommendations assume that the Kazakh government will continue to prioritize economic growth and attract foreign investment.
- The long-term viability of the oil industry: The recommendations assume that the oil industry will remain a significant contributor to the global energy market for the foreseeable future.
8. Next Steps
To implement these recommendations, TCO should take the following steps:
- Develop a detailed strategic plan: This plan should outline specific actions, timelines, and resource allocation for each recommendation.
- Establish a dedicated team: This team should be responsible for implementing the strategic plan and monitoring progress.
- Engage with stakeholders: TCO should engage in open dialogue with government officials, local communities, and other stakeholders to build consensus and support for its initiatives.
By taking these steps, TCO can position itself for long-term success in the challenging and dynamic environment of Kazakhstan.
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Case Description
The Tengiz Field in Kazakhstan was discovered by Soviet geologists in 1979 but largely ignored for years as the Soviets focused their oil development efforts elsewhere. When Chevron formed a joint venture with the Kazakh government in 1992, development of Tengiz started. By the spring of 2011, although producing 700,000 barrels of oil per day (bbls/d), Tengiz was yielding only half the oil expected. Chevron was under increasing pressure from its partners, including the Kazakh government, to bring the joint venture to its productive promise.
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