GRAN TIERRA ENERGY Case Study Analysis
Different or similar is the Brazilian market
There was not much difference between Brazilian and other markets because GT entered into other markets based on resources and Brazil’s market was not a successful enter because of technology advancement and the cost for the company increased and overall revenues were not able to sustain in the market.
The company has made several researches and before making expansion, the decision to Brazil has analyzed all possible problems. The company has identified that the Brazilian government has favorable policies to encourage foreign investments. The language difference that would have arisen would have prevented the company from making the decision to hire locally.
The business environment is less intense in terms of competition and there is relation based business community. There is economic stability in the country as well as there is free flow of transactions as the company can get into agreement without any intervention of the public authorities. There are vast opportunities to gain partnership with the other big companies as well as the company can get experience in the off-shore production. All these have confirmed that this proposal to make operations setup in Brazil is in line with the strategy of the company and it seems profitable and feasible.
Current operating methods& economic Viability
The strategies that Gran Tierra used was feasible because it was successful in all other countries except Brazil. The fiscal laws and available resources in the country supported Gran Tierra’s strategies. In Peru there was few issues of skilled workforce and there was dominant players in the market. There was environmental issues but company managed in Peru as well.
Main risks for Tierra
The main risk for Gran Tierra was political risk, environmental risk and the trends risk. There was price fluctuations in the market that was also a risk for the company. These all risks were main issues for the Gran Tierra.
Internal Analysis
Strengths
The company has achieved a cost effective position, and it is operating at lower cost as compared to other competitors in the market. Gran Tierra has also eliminated the higher costs that would have been incurred if the company made a research and development department for internal research and innovation. Apart from this, the company uses the already developed research work thus; this gives it a competitive advantage. The labor cost is also low as the company preferred local residents to carry its day to day operations. The company’s capital structure entirely comes from the equity. Moreover, the government of the country provides many incentives to encourage the foreign investments.
Weaknesses
Gran Tierra is majorly pursuing the in-land oil extractions and has fewer activities that are off-shore. Therefore, it lacks off-shore drilling experience. This also implies a loss of opportunity. The company has been operating at a small scale and has different small business units at different countries. This somehow causes loss of synergy in operations through economies of scale. The company’s operations are also affected by the infrastructure of the area in which it operates. It has no direct control over it as it is the local government, which is responsible for it.
Main Risks
External Analysis
Opportunities
There are many opportunities that the company can avail and in line with its strategy, it can make many acquisitions. The company has enough earnings from its operations to fund all its cash requirements and thus, there is no need of contribution for more investment from the investors. The company can raise more capital through these investors when needed. The company can explore the area near Reconcavo Basin after a successful bid round. The company has made several collaborations with other big companies and has gained a moderate share of interest in the operations and opportunities they provide, such as the opportunity to gain access to offshore oil extraction.
Threats
New small companies are entering in the industry therefore; this will affect the prices of the resources, its availability and overall competition in the market. Along with this, there are large competitors already, which will cause more shrinkage in the market share. In addition to this, as large organizations enjoy economies of scale therefore; they can pose a threat of being strong competitors. Moreover, the global price of oil is volatile in nature; as a result this causes fluctuation in the revenue of the company.
Recommendation
The main recommendation for Gran Tierra is to focus on other factors while evaluating any international market to cover the risks. The company should have a R & D team to evaluate these factors for the international market.
Gran Tierra’s management has been trying to convince the senior executives to disinvest from Brazil and use these resources to expand the business in Peru, where more opportunities of growth exist with the most favorable conditions. However, as per the analysis Brazil also has the potential for the company to grow and with proper planning, the deficit results will be transformed to a more pleasant results. The company has got the opportunity to explore new areas by having a successful bid round in Brazil. Thus, there is opportunity available to make the operations in Brazil more feasible. Peru has some uncertainty in the economic viability if there is large investment is made. Therefore, there is higher risk for the company. Giant companies such as Petrobras should be convinced to make use of the new technology; and by its collaboration; the company would still be able make the business unit more profitable in Brazil................
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