1. Odum 1
Name: Francis Odum
Teacher: Professor Chip Izard
Course: IBUS 1305
5 May 2010
InternationalBusiness Project
Company Name:
Safety Oil Exploration Corporation
Company Description –
Safety Oil Exploration Corporation is a Dallas, Texas-based oil exploration company operating
in the Gulf of Mexico. Although most of its success has come from drilling in shallow waters,
the company has become increasingly involved in riskier, but potentially more rewarding,
deepwater plays. The company has a massive 3-D seismic database of the Gulf of Mexico, one
suitable for a business far larger in size, which has created a competitive advantage for Safety
Oil. From its start in late 2000 until early March 2009, the company has drilled 200 successful
wells out of 270 attempts. As a result, Safety oil boasts proven reserves of 543.6 million barrels
of oil. The company is publicly traded on the New York Stock Exchange. It also looked beyond
the Gulf of Mexico for the first time, announcing in early 2010 that it would be looking into
taking a 12.5 percent stake in a deepwater play in Nigeria. Currently Safety oil has 200 full time
employees and 1000 seasonal/part-time employees, who come on stream anytime we hit a rich
oil well. Most of all our products which are mainly crude oil are meant for domestic
consumption only but with the increase in our production capacity we are targeting the
2. Odum 2
international market – mostly emerging economies such as India and China. We are also
considering developing nations like Nigeria and South Africa.
Country under consideration:
Nigeria.
Current Political Environment:
Nigeria is very important to the region, the continent, yet it remains unsettled as a result of their
President’s uncertain medical condition. Since his return home from Saudi Arabia, the President
has not been seen publicly, generating additional unease about the stability of the country and
physical capacity of the president to lead the government.
In the President’s absence, the Vice President has been holding the country together and has
taken steps to restore confidence in the country’s political system while adhering to democratic
principles. One of the main reasons why the economy is unstable is the unstable nature of the
Niger Delta, where all the oil wells are located – although the government has created an
Amnesty programs which had brought peace to the Niger Delta region without which there can
be no drilling. But this peace initiative could be seen to be very fragile as there are too many
factions to deal with talking about the militants fighting for the lands and water-ways. As you are
making peace with one faction, another faction is breaking away, blowing up oil wells and oil
pipelines as they go. Nigeria has had a democratic government for the past ten years and could
be seen as stable due to the hatred of the military by the people, so there is good reason for the
military to stay in their barracks and not get involved in governance. But there are no guarantees
3. Odum 3
on this issue as was the case when the military took over in a bloodless coup in 1983 after just
four years of civilian rule under President Shehu Shagari.
Financial Stability of Country and Market.
The country of Nigeria in the past few months has had a lot of political and market situations that
has made both the market and the country unstable, such as the up and down swing of the value
of the Naira because of the crack down on commercial banks recently by the Central Bank of
Nigeria (CBN), who fired the board of directors and their CEOs of six of the biggest banks in the
country, but since the beginning of the year when the Vice President became the acting President
the country and market has enjoyed a huge amount of stability. This could be seen as a country
risk because it seems the country does not have a stable government as no one has seen the
President in public since he came back from his medical trip. And because of all the changes in
leadership, this could invariably lead to social and political unrest and instability, government
intervention, bureaucracy, red tape and economic failure.
Products to be sold:
Since we are an oil drilling company, we will be sticking with what we know best and that is
Petroleum products and its derivatives such as lubricating oil, diesel and kerosene.
Our Competitors:
Shell Oil, Chevron, Exxon Mobil, Unipetrol, Total Oil and Nigerian National Petroleum
Corporation (NNPC).
4. Odum 4
Entry Strategy:
Based on my research I have come up with two options when talking about entry strategy –
1. Establishing a company-owned subsidiary. This involves bringing together a Global team
from our Global talent pool made up of diverse person with experience, knowledge, and
skill. These people can later be sent to Nigeria as Expatriate who will then be in charge of
training the host-country personnel. This is a very attractive mode of entry because of the
potential high yield on investment as oil prices just keeps rising.
2. Entering into a joint venture agreement with another established Oil Company or the
Nigerian government itself. This will be an alternative to the above and below are the
advantages with choosing this entry method:
1. Provide Safety Oil with the opportunity to gain new capacity and expertise from
our joint venture partners.
2. Allow Safety Oil to enter related businesses or new geographic markets or gain
new technological knowledge.
3. Access to greater resources, including specialized staff and technology.
4 Sharing of risks with a venture partner.
5 Joint ventures can be flexible. For example, a joint venture can have a limited life
span and only cover part of what you do, thus limiting both your commitment and
the business' exposure.
6 In the era of divestiture and consolidation, JV’s offer a creative way for
companies to exit from non-core businesses.
5. Odum 5
7 Companies can gradually separate a business from the rest of the organization,
and eventually, sell it to the other parent company. Roughly 80% of all joint
ventures end in a sale by one partner to the other.
Marketing Strategy:
Because this type of business requires decision to be made on a country by country basis,
the best marking strategy would be the Multidomestic marketing strategy. In this oil
exploration business its best to create our marketing strategy on the facts that are
available on ground and not by a generally acceptable strategy being practiced worldwide
known as Global Industry. Multidomestic can also be linked to Local Responsiveness,
which has to do with meeting the specific needs of buyers in the host country being
Nigeria. This means we would have to concentrate our production on three major
products which are in very high demand – Petrol, Diesel and Kerosene.
This strategy will be very different from our current one because this will be our first
attempt at breaking into the international oil market, and this will be so because of the
major reason stated above: different country, different environment, different
government, different customers, different mentality, hence the difference in marketing
strategy.
Financing Method:
Since establishing a company-owned subsidiary or a joint venture is our entry strategy,
we would need a huge upfront infusion of cash which we can get from three options:
6. Odum 6
a. Withdrawing cash from our reserves.
b. Getting a loan from a commercial bank with a very good interest rate or
partnering with one in this venture. Or
c. Initial public offering (IPO): Referred to simply as an "offering" or
"flotation," is when a company (called the issuer) issues common stock or
shares to the public for the first time. They are often issued by smaller,
younger companies seeking capital to expand, but can also be done by
large privately-owned companies looking to become publicly traded.
Staffing:
This involves bringing together a Global team from our Global talent pool made up of
diverse persons with experience, knowledge, and skill. These people can later be sent to
Nigeria as Expatriates who will then be in charge of training the host-country personnel
who will be hired on the commencement of drilling operations.
Pricing Strategy:
There are certain factors that have to be looked into before fixing of prices can be
implemented, such as:
Nature of the product
Location of the production facility
Type of distribution system
Foreign market considerations
7. Odum 7
After all of the above has been considered price fixing can then be implemented. From
my research the best pricing strategy would be for Safety oil to enter the market just
below the current market price of oil, so that we can corner a percentage of the market
and after a few months of doing business gradually increase prices to the competitive
levels with other companies in the same business.
Expected Revenue Growth:
Below is the projected sales revenue for four products that we will be producing in
Nigeria. Since Petrol generates the highest revenue for us, I would suggest we concentrate most
of our resources in its production. All monies generated in the chart below are in millions of
dollars.
$0
$1
$2
$3
$4
$5
$6
$7
$8
Petrol Kerosene Diesel Lubricants
1st 6mth
2nd 6mth
3rd 6mth
4th 6mth
8. Odum 8
Conclusion:
An extensive research was carried out to bring this report to this board and my findings as listed
above has a lot of reasons why we should invest in the Nigerian oil market, but after further
evaluation I will advice this board to hold off on going into this emerging market for the
following reasons:
Country risk: Nigeria, it seems has a very unstable political government which could
change at any time and this could lead to social, political unrest, red tape, corruption,
economic failure and legislation unfavorable to foreign firms. Currently the country is
having issues with its current President who no one has seen in public since November
23, 2009. This might give the military an opportunity to seize power and as they always
do, they scrap all the democratic laws and bring in military decrees which no one can
contest in a court of law. Some of these decrees will not be in favor of any foreign firm
as they would be seen as interfering especially in the oil sector which is their “bread and
butter” in Nigeria. Another problem we might encounter if there is a change in
government would be repatriation of our revenue back to the home office, as a new
government would freeze all repatriation of funds through the local banks to maintain
their local foreign current supply.
Currency Risk: As a new oil firm in Nigeria, we would also face currency risk because
Nigeria’s currency, the Naira is known to be never stable; hence most foreign companies
9. Odum 9
do their business transactions in dollars or any other stable currency (convertible
currencies). This is basically caused by the fluctuating exchange that occurs in Nigeria on
a very regular basis. In the 80s the naira was exchanging against the dollar at a rate of
1:1, but today it’s going for 1:150. This means that any service, supplies or raw materials
we have to pay for in dollars will be really expensive.
Cross-Cultural Risk: This is a situation or event where a cultural miscommunication puts
some human value at stake. And in Nigeria such stakes usually involves someone losing
their live as could been seen with the situation in the Niger delta area of the country
where all of the oil is being produced. The situation there has degenerated so bad that
all the oil companies were ordered to leave or be bombed by the local militants. We
really don’t want to send our employees into such a tense and volatile situation that
could explode at any moment. We know that there is a cessation of hostilities right now
due to the Amnesty program initiated by the government but from our research we
know that this has been broken a few times. This would be too dangerous a place to
start our international branch off.