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In this essay, I select The Royal Dutch Shell Company and write to analyze its secret to become successful. This international firm has lots of special experience for today’s Chinese companies to learn because they are aspiring to rush out to the world. I will focus on four aspects, which are firm’s international strategy and policies analysis; international management and decision making style; macro analysis on how to change to survive and the company’s globalization and adaption analysis functional analysis, including a brief financial information description. We will also give our own opinions and critics through the whole article.
Royal Dutch Shell Group is the world’s second largest oil company and headquartered in The Hague, the Netherlands. It is composed by Royal Dutch Company and British Shell Company. It is a major international manufacturer of oil, natural gas, chemical and petroleum (PricewaterhouseCoopers CI LLP, March 14th, 2012). It is also the world’s largest automotive fuel and lubricating oil retailers. It has rich experience in the aspects of financing, management and operation. It develops its business in about one hundred and forty five countries, with almost one hundred and twenty thousand employees. (PricewaterhouseCoopers CI LLP, March 14th, 2012). Oil and gas production accounts for three percent and 3.5% respectively of the world’s total output. As the Netherland’s largest industrial company, it has ranked the first in the fortune global top 500 list.
1.2 Brief Introduction to the Company Structure
The structure of Shell Company is very unique. Subsidiary companies all over the world are managed collectively by Royal Dutch Shell Company and Shell Transport and Trading Company, including Royal Dutch holding sixty percent, Shell holding forty percent. The largest shareholder of Royal Dutch Shell Company is the investment company of Dutch royal family (Dai, Shell’s Way to Success., July 15, 2006).
Royal Dutch Shell Group has the long-term vision of development business. The company developed on the basis of operating foreign oil and other commodities trade. It has more than one hundred years business history in many countries and its long-term cooperation partners spread over various fields. The investment scale of many Shell projects (whether upstream or downstream) is very large (Armstrong, March, 2010), and the operation cycle of these projects proceed for decades. As a result, the Royal Dutch Shell establishes and uses complex perspective plan technology research the future development
2.1 Long Term Goals
Royal Dutch Shell’s long-term goal as published states that they will, “meet the energy needs of society” in “economically, socially and environmentally” viable ways. The Royal Dutch Shell firm is continually trying to expand its business and profits with environmentally safe methods; however the extent to which an oil company can keep the environment safe is still questionable. Peter Voser, Shell’s CEO, said, “Shell’s strategy is innovative and competitive” explaining how 2011’s dividends reached over 10 billion US dollars, and he is expecting further growth in 2012 as well (Solutions for Business). IEA describes this as the ‘Industry’s resurrection’ which “promises huge benefits for the US economy” and subsequently economies around the world (Crooks, Ed; Guy Chazan, 2012). The International Energy Agency or (IEA) is a multinational regulatory energy committee who have stated that as little as five years ago, “oil and gas productions” were on an “inexorable downward trend” in the US but “Shell’s strategy is innovative and competitive” (Crooks, Ed; Guy Chazan, 2012). Shell’s stock price fell rapidly during this time. They are still recovering from oil crisis. The resulting fallout left many oil companies around the world wounded and many economies damaged, however Shell has helped the North America revitalize its economy. Royal Dutch Shell is striving to achieve its goal of finding ways to viably meet society’s energy needs while increasing its profits in the world economy.
2.2 Macro Effect: Global problems
Shell faces many global-macro level problems and the majority of them are difficult to resolve. First, the power difference between high and low levels in the workplace is very large. Shell macro-executive responsiveness may not be effectively projected upon “local communities and the developing world” (Wheeler, Fabig, & Boele, 2002). Wheeler argues that the executive decisions made on the corporate level are not effectively being passed down the lower levels. Daniels describes this vertical differentiation in his book “International Business: Environments and Operations” as a problem that all companies must address (Daniels, Radelbaugh, & Sullivan, 1998). Along with communication problems, price fluctuations also affect the company’s profits. The Washington Journal reports, because “weak US gas prices drag down [Shell’s] earnings,” they are considering converting natural gas to road fuels to sell at higher prices (Williams, Shell Sets Sights on Natural Gas to Fuel Growth). This is still very early however and it will take nearly a decade before results are seen from any investment Shell decides to make.
Royal Dutch Shell faces another major problem-the global energy shortage. As fossil fuels combust the create carbon dioxide and water. This chemical process is irreversible. Shell must also worry about their long term growth potential because of the fundamental economic principle of scarcity. Shell has decided to increase their global efforts to exploit and research renewable energy sources in the face of this problem. An external committee consisting of representatives from five different countries conducted an investigation on Shell’s ability to withstand with this ever changing and volatile market. Upon the investigation’s conclusion, the committee stated, “[Shell has] successful management of its complex operations in the midst of global economic turmoil” (Solutions for Business). The fact that five professionals concluded that Shell is doing well during this difficult time says a lot about the quality of this multinational company. Shell publically acknowledges the, “Global economy” will very likely see, “continued volatility” in the future (Solutions for Business). In fact Royal Dutch Shell recently had to write down its assets value according to a recent Wall Street Journal article resulting in a shift in North American Energy production (Williams, Shell Profit Hit by Weaker Oil, Gas Prices, 2012). Shell is facing many macro-level problems that are not completely in their control; they are working very hard to lessen the effects that the global recession and resource scarcity are placing on them.
International Management and Decision Making Style
Shell’s Special Management and its Reasons
3.1.1 Shell Has a Large Scale
Royal Dutch Shell Group, as an oil company which has a long history and hires a large scale of employees, an appropriate management is very important for it to operate well and become successful. Shell has its own distinct management style as a multinational joint company with capital from the Netherlands, America and Britain (PricewaterhouseCoopers CI LLP, March 14th, 2012).
3.1.2 Characteristic of the Industry Determines Its Integrated Management
The capital intensive characteristic of the oil industry and Shell’s large scale both determine its integrated management (Liu, 2008) and decision making style rather than hierarchical management or any other styles.
3.1.3 Structure of Senior Management
3.2 The Two Parent Companies Are Relatively Independent
The Royal Dutch Company and British Shell Company are two parent companies of the Royal Dutch Shell Group. They each registered independently in the Netherlands and in the United Kingdom (PricewaterhouseCoopers CI LLP, March 14th, 2012). Although according to the contract, the two parent companies exchanged shares, but they have their own decision-making bodies and are responsible to their shareholders respectively. The two parent companies are not constituent parts of the group and do not participate in the group’s operations directly. However, they have the right to appoint board members in their own holding companies in the group and charge interest from these companies.
3.3 Shell Service Companies Play an Important Role
The Shell Group has total 11 service companies to bear management and service functions assigned from the headquarters. These companies’ main task is to provide consulting services for all group companies and associated companies and subsidiaries in their business. Service companies are divided by business, regions and functions (PricewaterhouseCoopers CI LLP, March 14th, 2012).
3.3.1 Management Approach on Service Companies
The Shell Group takes an integrated matrix management approach to conduct organizational management on its service companies. For instance, the service company in The Hague, the Netherlands focused on technical services but the service company in London, the UK focused on commercial services (Lei, 2007). The reason is that the Netherlands have some best technological universities in the world while London is the global trading center with much financial resource. From a functional point of view, this allocation of service companies can maximize the group’s profit as well as optimize its management.
3.3.2 Segregation of Service Companies and Coordination Bureaus
In order to facilitate regional coordination, service companies are also segregated geographically. The Shell Group established five Coordination Bureaus, which are Asia-Pacific, Western Europe, the CIS and Eastern Europe, the Western Hemisphere and Africa and Far East and South Asia (PricewaterhouseCoopers CI LLP, March 14th, 2012).
3.4 Business Company Is Mainstay of the Group
3.4.1 Business Company Definition
The Shell Group has more than 300 business companies in more than 100 countries around the world. Their business scope includes oil, natural gas, coal, chemicals, and metals. Each business company is an independent organization and many of them are mutually associated. They are not wholly-owned by Shell because their Shareholders are various, including other companies, governments or individual investors. Where if more than 51% of these companies’ stocks are owned by the Shell Group, they are called the Group companies, the rest are called the associated companies.
3.4.2 Operational Mode of Business Company
Management personnel in each business company are solely responsible for the company’s own operations and long-term approach to development. A business company can either draw on the experience from service companies, or obtain other companies’ experience via them (Pender, March 16, 2002). The five-year plans and annual plans of a business company have to be viewed so that it can receive opinions from service companies. Therefore, a business company has to consult the planning, finance, personnel and other departments in service companies and then report to their corresponding regional coordination bureau. The regional coordination bureau will analyze and provide researches on the aspects of regional resources, market conditions and the group’s ability to provide support (Dai, Royal Dutch Shell’s Secrets., March 15, 2003). After this procedure of research coordination, if the regional coordination bureau agreed, they would report to the group’s board of directors for an approval.
3.5 Shell Keeps Pace with the Time
From what mentioned above, the Shell Group has an integrated management model. Recently, the Shell group keeps up to date and takes a reform on its management structure. It developed its commercial companies in accordance with professional divisions, such as Shell Chemical, Shell Refinery, Shell Exploration and Exploitation and other business sectors (Knott, 2012). Shell also incorporated research institutions into respective companies, conducting these actions will improve the group’s competitiveness continuously.
4.1 Global Adaption
Once the Royal Dutch Shell decided to step into the global market, they need a complete international strategy to adapt the complicated problems and challenges. However, the challenges they faced could be the opportunities they own in some degrees. Obviously, Royal Dutch Shell have turned the challenges to opportunities successfully which due to their core international strategy. It covers the operating decentralization, international HR management and emergency mechanism (Pender, March 16, 2002).
4.1.1 Operating Decentralization
Oil resource has a large relevance with the geopolitics situation which means the local political changes would have huge influence on the Royal Dutch Shell’s subsidiary company settled in that place (Liu, 2008). For this reason, Royal Dutch Shell has adapted the strategy which implements the operating decentralization.
4.2 Investment Diversification
Investment diversification can maintain a favorable balance among their entire pattern. Royal Dutch Shell has oil and gas exploitation operation in more than 50 countries and areas, with refinery established in about 30 areas the corporation’s sales network covers more than 100 countries and areas (Pender, March 16, 2002).
The political systems and wars are two of the most impact factors to the Oil Corporation. Yet the Royal Dutch Shell constructed a global investment network. Once one of the invested places suffered in war or the new political system changes put the company into an unfavorable situation, Royal Dutch Shell would cancel or transfer the investments (O’Hara, 2001).
For example, on 20 August, 2012, Royal Dutch Shell announced that they achieved the oil concession of Skifska which is located in the Black Sea, Ukraine (Pender, March 16, 2002). That is a locality successful this year. However, just few months ago, Royal Dutch Shell had withdrawn from Libya due to its unstable social environment.
4.3 Product Diversification
Though the Royal Dutch Shell has a wide product diversification network, their products only limited in energy sources and chemical industry which are relevance and cooperation to their familiar industry areas. There are four main products divisions.
4.3.1 Oil and Gas Products
The oil and gas industry is the core business which is most important earning source. Its manufacturing equipments take over more than 80% of the total amount while the sales income occupies over 85% of the total sales (PricewaterhouseCoopers CI LLP, March 14th, 2012).
Beside it as a supplier for several airline companies, Royal Dutch Shell is the biggest crude oil producer in offshore, USA. In order to cooperate with its oil and gas business among the world, Royal Dutch Shell has a strong, efficient shipping chain.
4.3.2 Chemical Products
In order to provide raw materials to subsidiary companies in Europe which could decline the costs and increase the competitiveness of the products, Royal Dutch Shell established chemical raw materials manufacturing factories in the Middle East where have abundant chemical raw materials resource. Over 80% of the chemical products would sell in Europe (Dai, Shell’s Way to Success., July 15, 2006). The main products involves in the catalyst, agrochemical and plasticizer market.
4.3.3 Coal Products
Though the price of coal has a trend of decline, they require amount is increasing. The oil market has presented a trend that the supply is excess than the demand, it is more important to focus on the development of coal. Royal Dutch Shell provides coal products in over 70 countries and now they are making an effort on the expansion on the markets in North America and Hong Kong (Hua, 2008).
4.3.4 Non-Metallic Materials Products
This kind material’s representative as aluminum and bauxite. The non-metallic material products are part of the products diversification. It contributes to the implement of products diversification. A health balance could be maintained by adjustment of income in different areas.
4.4 International HR Management
It is hard to say which country that Royal Dutch Shell belongs to as the international human resources is the tradition among the group.ã€€
4.4.1 Global Talented Person Mechanismã€€
The employees chosen standard that Royal Dutch Shell adapted is faced the international human resources. Which country that the employee comes from is not important if the employee meets the standard. As the data in annual report, 2011, Royal Dutch Shell has about 5700 international employees come from 76 different countries who work in its branches among 100 countries (PricewaterhouseCoopers CI LLP, March 14th, 2012). The global talented person mechanism contributes its operation and management level into an international high level. Royal Dutch Shell has over 1000 joint ventures with other companies because of their multicultural environment.
For example, the subsidiary company in Australia which mainly operating in steelmaking had surpassed the Nippon Shell. The president of the company is cone from Australia who has a wide human relationship.
4.4.2 Relative Independence Management
Compare with its global talented person mechanism, the management to different local subsidiary companies have relative independence. The subsidiary companies in charge of their own operation business. The central offices in London and The Hague are in charge of providing financing institutions and technology skills to all the subsidiary. In this situation, the subsidiary companies can handle the emergency accidents by themselves with flexibility and subjective initiative (Heinrich C. C., 2005).
Meanwhile, Royal Dutch Shell does not just give up the control of the subsidiary companies in different areas in the world. The experienced managers come to local branches and companies with their international management knowledge. It promises the concentration of the whole group which prevents the abruption.
International Financial Analysisæœªå‘½å
From the statement above we can see that Shell group in recent years keeps a good developing trend: sales, operating profit, net assets and increase year by year, Current ratio, average working capital rate of return, net profit/average net assets indexes, such as keep rising trend; Total debt/working capital is reduced year by year (PricewaterhouseCoopers CI LLP, March 14th, 2012).
5.2 Shell’s Revenue in Geographic Area
In the statement we can see that in the Europe Asia Oceania Africa and the USA, the revenue are growing rapidly especially in the year 2010 to 2011. It is the reason why Shell can be the second column in the fortune magazine of global top 500 in 2011 rank only behind the Wal-Mart and on the top beyond Wal-Mart in July 9, 2012.æœç‹-æˆªå›¾121130_3
5.3 Conclusion of Financial Condition
From the statement we also can see that the intangible assets, property, plant and equipment and equity-accounted investments growth the fastest in Asia. It is because in China, the Shell’s five core businesses are has made great strides in development such as exploration and production business and engaged in oil production. Also Shell has all over the country 250 cities of lube oil sales network and more than 40 shell brand gas station in Beijing Tianjin Chengdu and other big cities (Weiser, 2010).
Meanwhile we noticed that the growth in other Americas is not as quick as in other areas. Through the discussion, we thought maybe these areas’ economic environment is not so good to do investment.
As one of the biggest multinational enterprises in the world Royal Dutch Shell plc is certainly one of the global economic giants pushing forward our global economy. It has demonstrated excellent functional ability evident through its marketing and sales numbers. It has a clear published company goal and moves closer to it by executing its long-term macro strategy. Although it faces numerous problems, Shell is using innovative and decisive ways to counteract the adverse effects of the global market while adapting to fit its customers. In conclusion, the Royal Dutch Shell Company is an excellent company worthy of investment with solid prospects for future growth.
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