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In the year 1993, Russian Joint Stock Company Gazprom was formed that was a major transformation done by the State Gas Company, Gazprom. In 1998, the RAO Gazprom was again incorporated into an Open Joint Stock Company (OAO) Gazprom with the aim of increasing the supply of natural gas and oil across the globe. Gazprom is recognized worldwide as a global energy company that has primary focus on the geological production, exploration, storage, processing, marketing and transportation of gas along with other hydrocarbons and production and distribution of electric power and heat energy (“Gazprom Today”, 2012).
Gazprom is the world’s richest natural gas reserve holder and it has share of 18% and 72% in its global/international and Russian gas reserves’ market respectively (“Gazprom – Joint Stock Company”, 2012). Gazprom accounts for about 15% and 78% of the gas output in its global and Russian markets. Currently, the company is actively implementing large-scale ventures that are aimed at the exploitation of various gas resources of the Arctic Shelf, Eastern Siberia, Far East and Yamal Peninsula along with the abroad projects that are targeted at the exploration and production of hydrocarbons in the international market (Pankratov, 2011).
Gazprom is the most reliable and trustworthy supplier of the gas to foreign and Russian consumers. It has been mentioned by Karasevich (2009) that the firm is owning the largest gas transmission network among all the companies operating worldwide which is the United Gas Supply System of Russia the has the length of about 161 thousand km. The company has reported to be selling more than 50% of the total gas produced both to the consumers in Russia and is exporting it to more than thirty countries within and outside the former Soviet Union.
In Russia, Gazprom is the sole producer and exporter of LNG (Liquefied Natural Gas); in the global LNG market, the company’s output is standing at 5% (“Gazprom Today”, 2012); it is among the largest five producers of oil in Russia. It is even the largest possessor of the power generating assets in the region which accounts for about 17% of the complete capacity that is installed for the energy system at national level.
Mission, strategic goals and strategy of Gazprom
The mission of Gazprom is defined as “to be the reliable, balanced and efficient supplier of the natural gas in addition to various energy resources along with the company’s derivatives to the consumers” (“Gazprom Today”, 2012). The strategic objective of the company is to establish itself as the leader among all the international energy companies by means of entering into new markets, ensuring diversification of its activities and developing cordial and trustworthy relations with the suppliers. According to Gazprom Today (2012), the goals of the company are as follows:
To increase the fulfillment of energy needs of Russian market by stabilizing the business activities.
To enhance the transformation network of the gas market at domestic level.
To undertake initiatives that will reform the sector to make it an attractive and potential market for investment purposes.
To widen the role in international market by following a strategic diversification strategy.
According to Griffiths (2010), the main aim of the company’s dynamic and well-integrated strategy is to ensure that there is uninterrupted supply of the gas to all consumers present in the Russian market and ensure stringent procedures are implemented for fulfilling every intergovernmental agreement along with exporting contracts. The primary goal of the strategy is enhancement of the company’s market value by ensuring that the corporate management is efficient and the commercial activities are effective and productive as well.
As of December 2011, the total number of people employed in Gazprom is about 404.4 thousand; 58% are workers, 25% are experts, 13% are managers and 4% are other employees (“Gazprom – Joint Stock Company”, 2012). Like all large corporations, the organizational structure of Gazprom had to undergo various developmental phases so that it had a corporate structure compatible with its business operations which allowed it to compete successfully in both domestic and foreign markets.
On frequent basis, the corporate structure gets reformed for the purpose of improving the company’s operational activities. The first phase of the corporate reform was aimed at enhancing three aspects of the parent company i.e. regulatory procedures, techniques of management and system of developing and implementing the budgets (“Gazprom in Russian Markets”, 2012). When the phase one was successfully completed, the phase two was put into the process; the primary purpose of the second phase was improving the company’s efficiency as a firm that is integrated vertically and ensuring that the core structure of business management is streamlined to its all subsidiaries.
During the attainment of these objectives, the entire individual activities were focused on the particular wholly owned subsidiaries of the company (Balashov, 2012). Currently, Gazprom is described as a huge vertically integrated energy firms spread across the world; it has developed its subsidiaries so that it can perform important functions such as the exploration, storage, transportation, processing, distribution, production and marketing of the natural gas (“Strategy”, 2012). Along with natural gas, the company is involved in the exploration, production and refinement of the gas condensate and crude oil. Presently, Gazprom is operating its business operations through five valuable segments that comprise of Exploration and Production, Refining, Marketing, Electric Power and Transportation and Storage (“Gazprom Today”, 2012).
Gazprom has focused its operations in accordance with the requirements and rules of the Russian Federation and has spanned its operations in the form of network that is branched out to about 1,600 fuel stations in former Soviet Union, Russia and even on Balkans. The operating locations of the company comprises of Belarus, Switzerland, China, Russia, Ukraine, the UK and among other places (“Gazprom in Foreign Markets”, 2012). In order to further its corporate governance system, the company is aiming to reform its structural transparency as well as visual identity of the company both in Russia and international market. The subsidiary name now has the parent company name i.e. Gazprom.
Alignment of Business Activities with the organization’s vision
The primary aim of the company is to focus on the implementation of its projects by ensuring maintenance of long-term relationships with the constituents of Russia. The growth strategy of the company is to ensure that it has strong and rich base of resources that has a branched infrastructure for transmission; it has intention of strengthening its presence in its market by development of new markets along with appropriate diversification of its various business activities (Pankratov, 2011).
In order to ensure that the company’s business activities were aligned appropriately with its mission and strategic objectives, Gazprom has undertaken following steps to achieve its stated goals:
Improving the supply of gas to the European consumers – To attain this objective, Gazprom has started entirely new projects of the gas transmission i.e. South Stream and Nord Stream; it is allowing the company to ensure both the diversification of the Russian export routes of the gas and ensuring the ultimate reliability of gas supplies to every consumer in Europe.
Developing to make it an attractive place for investment – In order to expand further in the LPG market, the company is implementing a phased strategy so that it can extend its business geographic boundaries. In February 2009, the first Russian LNG plant was inaugurated in Sakhalin and its spot sales totaled about 6.3 million tons i.e. 9.2 cm3 in the period of 2005-2011.
Enhance the transmission network at the local level – In order to have a well-developed transmission network, Gazprom has entered into various alliances with top-ranked companies in the energy and oil sector within the country. In Autumn 2010, the gasification of Kamchatka was initiated when the Sobolevo-Petropavlovsk-Kamchatsky gas pipeline was started as an integral element of its Eastern Gas Program. Even in Septmber 2011, Gazprom completed the construction of its Sakhlain-Khabarovsk-Vladivostok trunkline of gas which is the first inter-regional transmission gas system in East region of Russia.
Follow a well-integrated diversification strategy – The Russian Federation is providing support to Gazprom for efficient coordination and execution of the company’s Development Program for ensuring an effective integration of all procedures for the production, supply and transportation of gas in the Far East and Easter Siberia along with taking account of the potential exporting of gas to China and Asia-Pacific countries.
Strategic projects – In order to diversify in international and local markets, it has undertaken some strategic projects such as exploitation and utilization of the hydrocarbon processes in Central Asia, development of gas transmission system in Russia, Eastern Gas Program, development of resources for Yamal Peninsula, production and exporting of LNG, exploitation of Arctic shelf resources in Russia, development of international hydrocarbon fields and expansion of gas transmission system in Central Asia Center (CAC).
Areas of Improvement
After analysis of the company’s mission, strategic goals, organizational structure, management structure, business activities and expansion plans, it can be stated that the company is well-aware of its reputation in the market and has ensured that it has all the mechanisms in place that will provide it support in the attainment of its business objectives. According to Lewin et al. (2007), the vision and mission statement are the guiding principles of an organization that help it in developing a strategy which will ensure that all the resources are effectively utilized and everything within and outside the organization is well-integrated and coordinated.
When the company realized that it was having improper management structure and there was misalignment between Gazprom’s vision and business activities in early 1990s, the organizational structure was completely revamped. Since there was no relationship between the parent company and its subsidiaries, the name of the subsidiary companies were reformed that included the name of Gazprom so that there was an association between the firm and its sister companies.
In the last few years, there is strong emphasis on the environmental activities which means the protection of ecosystem by undertaking activities that are not harmful for the natural atmosphere. Gazprom realizing its responsibility towards the environment, it has implemented Comprehensive Environmental Program that ensures that all operations of the company are within the ethical code of business conduct so that the environment does not get damaged and is safe and secure for the citizens as well.
Comparison with other companies in the market
The main competitors for the company are Sidanco Oil, Statoil Energy, Tatneft, OAO Lukoil, BP Amoco PLC, Gasunie, Yukos and Sibneft. In order to compete successfully in the market and ensure compliance with its mission and strategic objectives, the company has ensured that it conducts its analysis on an ongoing basis. It even reviews its performance on frequent basis by conducting surveys on the customer’s satisfaction level and new demands so that it can develop and target new markets.
When none of its competitors identified the potential in LNG market, Gazprom decided to enter into such a risky and new market; it was able to successfully meet the demands of this market globally as it had conducted proper market survey. In order to ensure that it is able to successfully supply natural gas in an adequate manner, it is developing new routes, gas pipelines, transmission systems and international contracts so that the company is able to enter into new markets effectively. The gas supply of Russian gas to European Union through Nord Stream has started from the month of November in 2011.
The company has started the preparations for its Shtokman field project which is in the first phase of development project in the Barents Sea. This project will become the resource base for the gas export market of Russia to Europe through the Nord Stream. Gazprom has allocated the amount of RUB 37.66 billion to have more investments in the Russian regions. The company’s Gasification Program is expected to comprise of about sixty-nine parts of the Russian Federation that comprise of Eastern Siberia regions along with the Far East for the execution of the Eastern Gas Program.
In order to ensure compliance with both the Russian and international legislation of environment, Gazprom has ensured that all of its business activities are compatible with the respective laws so that their operations are effectively coordinated and smoothly implemented. It has even implemented its Environmental Policy that has its basis on the conservation of resources, protection of climate and optimum alleviation of the adverse impacts of environment.
After careful review of Gazprom from the mission of the company to its business operations, it can be concluded that the company has designed an effective and well-integrate strategy that has been developed in consensus with the strategic objectives that the company wants to attain. Gazprom has been leading the Russian market for decades and is ensuring that every mechanism is in place to have proper alignment with its stated aim i.e. to be the global leader in the energy industry by ensuing appropriate and continuous supply of gas within Russia and across the globe.
In order to improve its efforts in attainment of its strategic objectives, the management team is making necessary reforms within its business operations. The company is well-aware about the target that it wants to achieve and has already taken important initiatives to ensure that the organization handle all disruptive factors beforehand so that it can successfully prosper in its industry.
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