The Petronas Corporation Based In Malaysia Economics Essay

The Petronas skunk Based In Malaysia political economy EssayIntroductionThe political party of my choice is PETRONAS, the veget able-bodied inunct Multi home(a) batch based in Malaysia. The paper will out occupancyd the background of the participation followed by identification of the actual and potential impacts of world(prenominal)ization on the company. recommendation of strategies which the company might use to respond to the impacts is covered in the cultivation part of the paper.1.0 Overview of PETRONASMultitheme enterp hold up is defined as a cosmic company with inviolable resources that per melodic line various melody activities by a network of subsidiaries and affiliated located in multiple countries. (Cavusgil, Knight Riesenberger, p.13).PETRONAS, the acronym for Petroliam Nasional Berhad is a petroleum multinational corporation headquartered in Kuala Lumpur, Malaysia which was incorporated on 17 August 1974 under the Companies Act, 1965. It is national an oint colour color company of Malaysia, vested with the entire self-possession and control of the petroleum resources in the republic (PETRONAS, 2010). Under the leadership of tangent Sri Hassan Mari ass, PETRONAS is transformed rapidly into a global company with petroleum explorations and business control stick ventures with abroad partners. Over the years of effort, it has become a fully-integrated cover and feature corporation with operations in more(prenominal) than 30 countries ecumenical and ranked among FORTUNE Global 500 largest corporations in the world (PETRONAS, 2010).1.1 integrate business of PETRONASPETRONAS is fully integrated across the value chain from the upstream exploration, intimacy, exertion, processing, and transportation and hit man transmission to the marketing of liquefied innate(p) sport and early(a) petroleum products as shown in guess 1.0. PETRONAS also involve in domestic refining, petrochemical manu pointuring and marketing business, w hile managing a globally coordinate come outstream operation designed to optimize product deli really to its customers through its marketing and trading operation (PETRONAS Capital, 2009). PETRONAS also engage in shipping, self-propelled engineering and property coronation.Figure Integrated Business of PETRONASSource PETRONAS yearbook Report 20101.2 Petroleum as the Core Business of PETRONASPetroleum is the philia business of PETRONAS because refined petroleum products flier for 37% of the company issue forth gross amounting to RM80.7 billion (PETRONAS, 2010). Exports and domestic operation contrisolelyed 35% and 19.7% of PETRONASs total tax respectively which bring positive balance of payments to Malaysia (PETRONAS, 2010). Thailand, Japan, Korea and Singapore has been the main cutting oil export countries of Malaysia which account for 87% whereas over 40% of go down on was exported to markets in Japan, Korea and Taiwan, most of the stick aroundder used domestically for electricity generation (Malaysia immature Technology Corporation, 2010).Figure PETRONAS Composition Revenue 2010Source PETRONAS yearly Report 2010The internationalist operations are as important to PETRONAS which generated 45.3% (RM98.1 billion) of the company total tax. PETRONASs production are mainly comes from Indonesia, Thailand, Myanmar, Vietnam, Chad, Egypt, Sudan, Mauritania, Iran, Pakistan and Turkmenistan. Africa remains to be the companys s well(p)ed operation region which contributed 57.7% of the company international production followed by sulfur einsteinium Asia (25.1%) Oceania and shopping centre East Asia (17.2%).1.3 Organisational Structure of PETRONASFigure Organization organize of PETRONASSource PETRONAS Annual Report 2010PETRONAS adopted a centralized operable organisation structure which the executive vice president (EVC) and vice presidents (VC) direct to constantly report their process to the CEO. Each VC or EVP from respective portion are respons ible to monitor and controlling the overseas operation with the acquired immune deficiency syndrome of overseas joint venture companies or partners2.0 External Analysis of PETRONAS2.1 governmentalPETRONASS oil exploration often takes place in high political risk countries such as Sudan and Iraq with abundant resources of oil and natural gas. Sudan has been in political instability and having war for more than three-quarters of its existence due to the in addiction, lengthened conflict rooted in deep cultural and religious differences which has slowed down country economical and political go upment (U.S. State Department, 2010). Recently, Sudans internal war evolved from the issue of exploring more oil region outside the territory because of depletion of the vivacious oil reserves. Despite political instability of Sudan could disrupt PETRONAS in oil exploration, the company had strengthened its political relation affiliation through Malayan giving medication to mitigate the ef fect. For example, PETRONAS is welcome by Sudan authorities to pursue exploration and development works in its, Melut and Muglad Basins which has expanded in both the upstream and downstream sectors of the countrys oil and gas manufacturing (PETRONAS, 2010).Besides, liberalize of countries trade policy is full- cock-a-hoop to guarantee the profitability of PETRONASs overseas operation. In Malaysian, fewer tariffs are enforce on petroleum and gas product. PETRONAS is assigned to regulate the upstream activities in oil and gas as well as controlling the external investment of upstream petroleum and gas effort through the form of production-sharing contracts (PSCs), between contradictory investors and PETRONAS. Likewise, South Africas government also developed their national oil and natural gas company, Petroleum Oil and Gas Corporation of South Africa (PetroSA) on managing and promoting the licensing of oil and gas exploration includes onshore and seaward exploration of the coun try. Thus, PETRONAS set its own oil refining and marketing heraldic bearing in Africa through its 80% owned subsidiary, Engen Petroleum Limited ENGEN, a leading South African refining and marketing company.2.2 SocialIslam remain as the important role in shaping 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 otherwisehood. The action is paid morose when Malaysia oil reserves have dwindled and few domestic opportunities exist to drill for new 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). According to Bank Negara, 26% of inbound FDI of Malaysia was channelled into manufacturing oil and gas in 2008. With the financial support of PETRONAS, Malaysian Government has been subsidizing the local fuel sets since 2004 which is different from many countries whose followed the exact fuel prices regulate by global market price of gasoline (Bernama, 2010). The fuel price subsidies is intended to protect the local welfare of middle income household but it causes 5.0 to 44% of Malaysias financial deficit (JATRO). The activities of the state-owned PETRONAS influence the aggregate patterns, resulting in substantial investments in exploration and extraction in the oil and gas effort which is more towards the US, Canada and Australia as the recent rapid development of unconventional gas resources.2.4 Technology EnvironmentIn Malaysia, domestic reser voirs are maturing due to the fact that Malaysian production is depleting since oils has been produced for hundred years. PETRONAS has been expanding overseas exploration and production of resources such as South Africa, Egypt and so on. Just like many other oil companies offshore rig has caused ecological imbalances such health and procreative 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 focus, PETRONASs type is harm through the directly linkages to purlieus pollution. smart set has been focusing on dark-green technologies and developing in-house greening solutions. In particularly, the company has an ongoing research for beef up PETRONAS ECOPLUS surroundally friendly, degradable polymer series (PETRONAS Annual Report).3.0 Overview of globalizationAccording to Business Dictionary, globalisation implies opening out beyond local and nationalistic perspectives to a broader watch of an interconnected and inter-dependent world with free transfer of capital, goods and services across national frontiers.As world economy globalizes the national economies integrate into the international through trade foreign direct investment short-term capital flows international movement of workers and large number in general and flows of engineering science (Najam, A., Runnalls, D. Halle, M). This has constituted opportunity to the emission 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 globalisation effect, PETRONAS has been growing organically and through strategic partnerships, via joint ventures, mergers acquisitions and so on as catalysts for escalated performance (Dato Shamsul Azhar Abbas, 2010). PETRONAS is gaining more freedom eit her on exporting petroleum products or tantrum up oil refineries in worldwide. This enable the company to move on dominant its position in the international business environment by penetrating larger capital market that has lesser decrees on foreign direct investment. For instance, PETRONAS is included in The New Seven Sister rank by Financial Times which considered as one of the most important 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 non a bonus giving for all companies but imposes certain opportunity comprise to the companies operations. PETRONAS may enjoy of possessing diversified revenue base which generated from its overseas operations and marketing. At the same time, the company has the opportunity cost of facing unhoped problems of like changing economic, regulatory and political environments globally and regionally whic h would create a serious impact to the companys growth. 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 governmental 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 pick strongest partner in operating countries to minimise these risk. For instance, the company is in partnership with China matter Oil Corp. and Sudans National Oil Company, Sudapet, while in Iran it has a bandage 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 tearing competitions of its oil and gas and refining industries in both domestically and internationally. For instance, PETRONASs retail subsidiary company, PETRONAS Dagangan Sdn Bhd used to compete with its main competitor Royal Dutch Shell but now competing with other retail competitors like ESSO (Exxon planetary subsidiary), Caltex and BHP (Boustead Petroleum Marketing Sdn Bhd). On the other fade, 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 try and Benefit of Technology TransferAs economies open up, more people become involved in the processes of knowledge integration and the increase of non-market connections, including flows of information, culture, ideology and engineering. New technologies move across boundaries quicker, by connecting workers and citizens across boundaries and ocea ns (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 take aim (Najam, A., Runnalls, D. Halle, M). Under the effect of globalization, applied science transfer is performed from MNC home country to multitude countries. PETRONAS presence in Sudan has transferred its exploratory and production engineering science 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 learned from PETRONAS.Nevertheless, PETRONAS also learn special engineering skill through its overseas joint venture partners. PETRONAS learned beguile 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, Mitsubish i Corporation, and Sasol Polymers International Investments (Pty) Ltd, (Sasol Polymers) which possess financing capability, marketing and distribution expertise (PETRONAS Capital).3.20 voltage Globalisation Impact on PETRONAS3.21 Depletions of Natural ResourcesThe rapid acceleration in global economic activity and our dramatically increased 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 to begin with will be depleted over the years through disobedient exploration and productions. These impose serious environmental cost as well as the influencing the future direction of oil and gas industry. Sustainability of PETRONAS and other petroleum companies is deemed to be run intoed as petroleum product is source of r evenue of the industry. Therefore, finding replacement of these depleted resources through invention of new technology is crucial to father the companies the industry.3.22 Changes in foreign environmental laws and regulationIn order to protect the environments, some countries might enact 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 prohibit 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. Therefo re, PETRONAS is in damage 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 shortage of critical skills approach by the oil and gas industry represented the key people related challenge faced by PETRONAS (PETRONAS, 2010). With the globalisation effect, PETRONAS could have enjoyed the put on of penetrating and extracting talents in different countries by setting up overseas operations. However, it put the company at risk of heading drain in worldwide operation. Brain drain is referring to the net loss of a countrys highly trained and consummate manpower through migration (WebFinance, 2010). This is because globalisation process improves the mobility of skilled labour to move around the world freely. This means workers are bonny active information seekers and concern about their benefits in the organis ations. 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 mesmerizing incentive to inspire skilled workers, the company is likely to find very difficult to retain the higher skilled workers who attracted better remuneration and benefits from companies in developed countries such as UK, Middle East, and so on.4.0 Recommendationhttp//www.franteractive.net/resources/Ansoff-Matrix.GIFFigure Ansoffs Matrix StrategySource http//www.franteractive.net/resources/Ansoff-Matrix.GIF4.10 Diversify to innovative green technologyIn order to overcome 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 focus on developing green technology as the environment preservat ion 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 pollution and amends to environment. In Malaysia, PETRONAS should emphasize on recycle energy supply technology by turning garbage into energy because Malaysian produced 23000 tonnes of garbage apiece day. With this technology, PETRONAS could form partnership with local electricity producer, Tenaga Nasional Berhad (TNB) as a carriage to increase its competitive advantage of diversification in energy industry over other oils and gas competitors as well as upward(a) 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 right (CSR) centred on enhancing the education and community computer programme in Malaysia and abroad. In Vietnam, PETRONAS contribution to the nations development through education was value through the Certificate of Merit in Education by the chairman and Deputy Prime Minister of Vietnam in 2010 (PETRONAS, 2010). But still on that point is a limitation of the companys CSR direction which should be refocuses on preserving the environments. Therefore, it is important for PETRONAS to change over its image to be responsible and environmental concern oil and gas corporation. The company has to be alert of the changes foreign environmental laws and regulation as well as filling 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 uphold talents with attractive incentives p rogram and growthPETRONAS believe staff is selflessly built, nurtured and grown under the corporation share value of loyalty, integrity, professionalism and cohesiveness. PETRONAS should continue its CSR on providing role education in each country as a commission 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 humankind 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 end pointFrom time to time, the most distinct globalisation impact on PETRONAS is the politics 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 benefited 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 needed 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 resolving the potential impact, PETRONAS is recommended to perform diversification in innovative green technology as the world is stressi ng on environment preservation. In addition, the company needs to reposition its global image not only by means of its current corporate social responsibility that solely focus on regional education but it should be more focus 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 deem its current competitive advantage as well as support an eye on the unknown impact of globalisation.2897 w ords