Harvard Case - Mr. Five Percent: Calouste Gulbenkian and the Origins of Global Oil
"Mr. Five Percent: Calouste Gulbenkian and the Origins of Global Oil" Harvard business case study is written by Geoffrey G. Jones, Yazeed Al-Rashed. It deals with the challenges in the field of General Management. The case study is 26 page(s) long and it was first published on : Jul 7, 2020
At Fern Fort University, we recommend a strategic analysis of Calouste Gulbenkian's business model, focusing on his innovative approach to international business, corporate strategy, and risk management. This analysis will provide valuable insights into the evolution of the global oil industry and the emergence of multinational corporations. We recommend a deep dive into Gulbenkian's negotiation skills, his ability to leverage political connections, and his understanding of emerging markets. This case study exemplifies the importance of strategic planning, adaptability, and risk management in navigating the complex world of international business.
2. Background
This case study explores the life and career of Calouste Gulbenkian, a prominent Armenian businessman who played a pivotal role in shaping the global oil industry in the early 20th century. Gulbenkian, nicknamed 'Mr. Five Percent,' was known for his shrewd business acumen and his ability to secure lucrative deals with major oil companies. He emerged as a key player in the development of the oil industry, particularly in the Middle East, and his influence shaped the global energy landscape for decades to come.
The case study focuses on Gulbenkian's role in the formation of the Turkish Petroleum Company (TPC) and his subsequent involvement in the development of oil fields in Iraq and Persia (Iran). It highlights his strategic partnerships with major oil companies like Royal Dutch Shell, Anglo-Persian Oil Company (later BP), and the French company CFP (Compagnie Fran'aise des P'troles). Gulbenkian's success was built on his ability to navigate complex geopolitical landscapes, negotiate favorable agreements, and anticipate future trends in the global oil market.
3. Analysis of the Case Study
This case study provides an excellent opportunity to analyze Gulbenkian's business model through the lens of various frameworks:
Strategic Framework:
- Porter's Five Forces: Gulbenkian operated in an industry with high barriers to entry, strong supplier power (oil-producing nations), moderate buyer power (major oil companies), and intense rivalry among oil companies. He successfully navigated these forces by building strategic alliances, leveraging political connections, and securing long-term contracts.
- Competitive Advantage: Gulbenkian's competitive advantage stemmed from his unique combination of skills: deep understanding of the oil industry, strong negotiation skills, and a keen awareness of geopolitical dynamics. He was able to secure favorable terms in oil concessions, ensuring a steady stream of revenue.
- SWOT Analysis:
- Strengths: Strong negotiation skills, deep understanding of the oil industry, political connections, and a global network of contacts.
- Weaknesses: Potential vulnerability to political instability in oil-producing regions, dependence on major oil companies, and potential for conflicts of interest.
- Opportunities: Growing global demand for oil, expansion into new markets, and technological advancements in oil exploration and production.
- Threats: Political instability in oil-producing regions, competition from new oil producers, and fluctuations in oil prices.
Financial Framework:
- Risk Management: Gulbenkian's business model was inherently risky, given the volatile nature of the oil industry and the geopolitical complexities of oil-producing regions. He mitigated these risks by diversifying his investments, securing long-term contracts, and maintaining a strong financial position.
- Investment Strategy: Gulbenkian focused on acquiring equity stakes in oil companies, leveraging his financial resources to gain control over valuable oil concessions. He also invested in infrastructure projects, further strengthening his position in the oil industry.
Leadership Framework:
- Leadership Styles: Gulbenkian exhibited a combination of visionary, strategic, and transactional leadership styles. He was able to inspire and motivate his partners, negotiate complex deals, and manage a global network of contacts.
- Decision Making: Gulbenkian's decision-making process was characterized by careful analysis, risk assessment, and a long-term perspective. He was willing to take calculated risks, but he also understood the importance of maintaining a strong financial position and securing long-term contracts.
4. Recommendations
- Strategic Planning: Gulbenkian's success was built on his ability to anticipate future trends and adapt to changing market conditions. Modern businesses can learn from his example by developing robust strategic planning processes that incorporate scenario planning, risk assessment, and a deep understanding of industry dynamics.
- International Business: Gulbenkian's success in navigating the complex world of international business highlights the importance of cross-cultural understanding, strong negotiation skills, and a deep understanding of geopolitical landscapes. Modern businesses operating in global markets need to prioritize these skills to succeed.
- Corporate Social Responsibility: While Gulbenkian's focus was on maximizing profits, modern businesses are increasingly expected to consider their social and environmental impact. Companies can learn from Gulbenkian's approach by integrating sustainability and ethical practices into their core business operations.
- Innovation Management: Gulbenkian's success was built on his ability to identify and leverage new opportunities in the oil industry. Modern businesses can learn from his example by fostering a culture of innovation, investing in research and development, and embracing new technologies.
5. Basis of Recommendations
These recommendations align with the core competencies of modern businesses, including strategic planning, international business, corporate social responsibility, and innovation management. They are also consistent with the mission of creating long-term value for stakeholders, including customers, employees, and society.
The recommendations are based on a thorough analysis of Gulbenkian's business model, taking into account the external environment, competitive landscape, and internal resources. They are also informed by best practices in strategic management, international business, and corporate social responsibility.
6. Conclusion
Calouste Gulbenkian's story is a testament to the power of strategic planning, adaptability, and risk management in navigating the complex world of international business. His innovative approach to business, his ability to leverage political connections, and his understanding of emerging markets made him a key player in the development of the global oil industry. Modern businesses can learn valuable lessons from Gulbenkian's example, particularly in the areas of strategic planning, international business, corporate social responsibility, and innovation management.
7. Discussion
While Gulbenkian's business model was successful in its time, it is important to acknowledge the ethical and environmental challenges associated with the oil industry. His focus on maximizing profits led to environmental degradation and human rights abuses in oil-producing regions. Modern businesses need to adopt a more sustainable and ethical approach to business, balancing economic growth with social and environmental responsibility.
Another alternative approach would have been for Gulbenkian to invest in renewable energy sources, anticipating the future shift away from fossil fuels. However, this would have required a significant departure from his established business model and a willingness to embrace new technologies.
8. Next Steps
- Conduct a comprehensive review of Gulbenkian's business model, focusing on his strategic partnerships, negotiation skills, and risk management strategies.
- Develop a strategic plan that incorporates lessons learned from Gulbenkian's approach, including the importance of adaptability, political awareness, and long-term thinking.
- Implement a corporate social responsibility program that addresses the ethical and environmental challenges associated with the oil industry.
- Invest in research and development to explore new technologies and alternative energy sources.
By taking these steps, modern businesses can learn from the past and build a more sustainable and ethical future for the global oil industry.
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Case Description
This case describes the business career of Calouste Gulbenkian, a skilled intermediary who was able to secure 5 per cent of a vast oil concession covering much of the Middle East that was signed in 1928. Gulbenkian was an ethnic Armenian born in the Ottoman Empire, which was a large multi-ethnic empire covering large swathes of the Middle East and eastern Europe. Gulbenkian's career is set against the steady erosion of the Empire's sovereignty by Western powers, and mounting ethnic tensions. These trends reached their climax in the modernizing Young Turk Revolution of 1908, the Ottoman entry to World War 1 on the side of Germany, the massacres of millions of Armenians and other ethnic groups, and the creation of the Republic of Turkey in 1923. Against this background, Gulbenkian distanced himself from the family merchant business, became a financier in London, and formed a close relationship with Henri Deterding, the leader of the power Royal Dutch Shell oil group. After the Young Turk Revolution, he also worked for the new government, forming a company to exploit the oil resources of the Empire with him and Royal Dutch Shell among the shareholders, and securing a vast oil concession. These arrangements were disrupted by the war, the disintegration of the Ottoman Empire, and the entry into the region of the United States government and oil companies. However, Gulbenkian survived numerous attempts to dislodge him and his shareholding was confirmed in the Red Line Agreement of 1928. The case provides an opportunity to explore the role of intermediaries in global business and more specifically, to show how the control of Middle Eastern oil ended up for a half a century in the hands of a small number of oligopolistic Western oil companies with no ownership by local stakeholders.
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