BP in Russia: Settling the Joint Venture Dispute Harvard Case Solution & Analysis

Internal Analysis

SWOT Analysis (Exhibit 2)

Strengths: TNK-BP was a vertically integrated business which helped them to establish a very successful international joint venture. This increased the power of the company in the industry and had helped them in achieving economies of scale. The capabilities of having strong and comparatively advanced technologies were the strength of the JV whereas its competitors were backed by traditional technologies only. The increase in reserves would increase a stable production growth for TNK-BP.

Weaknesses: The management of TNK-BP and BP had poor control on the allocation of resources which resulted in poor distribution and caused several issues. TNK-BP had a strong dependence on the Transneft pipeline system. The joint venture was created without fully understanding the cultural differences of the countries where the participants of the joint venture were operating.

Opportunities: Investment in different sectors would increase the growth and efficiency of TNK-BP in the global market. It could achieve more benefits by expanding its retail presence in new markets/regions. The company could revise its strategic planning to improve its productivity and to align its goals and objectives effectively.

Threats: It would be difficult to predict the increase in the oil reserves of Russia and any sort of environmental change could easily affect oil and gas reserves in Russia. Fluctuation in the prices of oil and gas in the global market could threaten the productivity and market position of TNK-BP. Increasing importance of renewable energy resources could reduce the demand for oil and gas which would dramatically harm the profit of TNK-BP.

The Appropriateness of Joint venture TNK-BP

The joint venture TNK-BP was appropriate enough because Russia had lots of proven oil reserves and the JV could enjoy such potential benefits in Russia however, the assessment of the culture and political environment made by BP was not appropriate which resulted in several issues and led the companies to a dispute. They had opportunities to expand their global presence as well as they could gain economies of scale in Russia and surrounding regions due to their access to advance technologies. The threats which were present in the industry were common and could be avoided through effective planning and management.

Assessment of Alternatives

TNK-BP was a profitable joint venture, but it was facing difficulties in continuing its business in Russia and was confronted with some serious disputes. The three proposed alternatives those that were available to BP are as below:

  • 1.      Maintain Status Quo

By maintaining the status quo, BP would have to continue the joint venture as it is while focusing only on ways that could resolve the disputes effectively. It would be really difficult for BP because they would require convincing its Russian partners about their actions they had taken previously. Although, it would be really hard for BP but by introducing a new culture, a new committee and a new strategy to ensure a fair and effective environment in the company would make it easy to proceed further. Unfortunately, by choosing this alternative, BP would have to face unfair treatment of the Russian government, which would be a continuous threat for them in the future. They would also be at the risk of a number of minor disputes because a new culture would definitely be a blend of Russian and British culture, which would be difficult for the workforce to follow. Such minor disputes could also lead to serious issues in the future; therefore, BP should thoroughly analyze this option before making any decision.

  • 2.      Acquire AAR’s Stake (Full or Partial)

The acquisition of AAR’s stake (full or partial) was another option which would further increase the hold and control of BP over the joint venture. Though, this would help the company to get a great part of profit while operating in Russia, but this would also compel AAR to feel that they were trampled by BP. It may be possible that AAR would not agree to sell its stake to BP, which would further increase the degree of disputes among the two companies. The acquisition of the AAR’s stake could bring a feeling of insecurity in the management of TNK and Sidanko that would automatically affect the relation of BP with these two companies...................................

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