Aspenuniversity: Problem Summary and Recommendation

PROBLEM SUMMARY1

Darren Naugler

AspenUniversity: Problem Summary and Recommendation

July 17, 2017

Problem Summary and Recommendation

Introduction

The Canadian oil and gas industry is faced with certain problems among which the flight of investment deserves special mention. To concentrate on the issue and to assess the overall condition of the Canadian oil and gas industry, one primary leader within the said industry has been chosen and that leader is Imperial Oil Ltd. The pivotal problem that Imperial Oil is experiencing is about investment and growth. It has been seen that lack of proper sources of investment has gradually emerged as a serious problem for the Canadian oil and gas industry, and Imperial Oil has been a victim of such circumstances.

Summary of Problem

The primary problem is that, Imperial Oil Ltd is experiencing the flight of monetary resources. Considering the energy sector to be a saturated one, potential investors are gradually withdrawing from Canadian enterprises and they are now more eager to invest in international ventures. Canadian investors and companies that are looking for growth in the energy sector are naturally depending more on the strategy of playing in the international field where the competition is open and where opportunities for growth are immense (Quesnel, 2016). Moreover, lack of proper financial regulations in terms of putting checks and balances on the revenue earning of oil and gas companies has also been a problem that has created internal problems for Imperial Oil Ltd. Besides, environmental problems have also infused confusions within the internal sphere of the oil and gas leader in Canada. In 2014, Imperial Oil was directed by the federal government to follow rules set out by the Sahtu Land and Water Board, and the company was mandated to do so because it was required to clean-up the company’s 70-year-old oil pumping operations in Norman Wells, N.W.T” (Railroaded, 2014). Also, the company has suffered enough from litigations and lawsuits brought over it by organizations and individuals in the context of environmental safety and security. In 2014, Imperial Oil had to request the Alberta Court of Queen’s Bench to dismiss a lawsuit that was brought against the company by an individual who claimed that the company committed environmental infractions on his family’s century-old grain farm in Calmar and Devon, Alberta (Railroaded, 2014). Hence, it can be observed how the external factors have put Imperial Oil’s business at stake. And the most significant and troublesome problems for the company constitute flight of investment, government deregulation, environmental safety and security and the volatility of the global market of oil and gas.

Possible Alternative Strategies to Address the Problems

Imperial Oil has to overcome the listed problems and to overcome the problems the company needs to resort to certain strategies and policies. As a matter of fact the alternatives that Imperial Oil should explore are also applicable for the recovery of the Canadian oil and gas industry from the stated problematic state. First of all, Imperial Oil (and the Canadian oil and gas industry as a whole) must try to find out alternative sources of financial investments and it should also concentrate more on policies of attracting foreign direct investment (FDI). It is to be noted that the history of Imperial Oil’s growth and success is infused with events of foreign investments that provided the company with strength and vigour. It can be interesting to note that “Both supporters and critics of foreign direct investment in Canada may find ammunition for their arguments in the story of Imperial Oil between 1898 and the 1920s. On the one hand, it is unlikely that Imperial could have survived into the twentieth century without access to capital and technology that was provided by Jersey Standard” (Marchildon & McDowall, 2013). In order to overcome the present problems, hence, Imperial Oil has to resort back to its past strategy of attracting foreign investment. It has already been found that Canadian investors have become more apathetic towards the option of investing in the country’s oil and gas industry whose market has already saturated. So, it is high time for the management of Imperial Oil to formulate and implement strategies that would help the company in its effort of attracting foreign investors without worrying much about the lack of support on the part of the indigenous investors. This could be an alternative strategy that could help the company in overcoming its primary problem. But to achieve success in such a strategy implementation, the management of Imperial Oil has to make sure certain things. Primarily, the organizational structure and the inter-departmental communication processes should be flexible so that people with marketing expertise can be attracted and employed in promoting the company when it comes to foreign investors (Wells & Wint, 2001). The marketing team of Imperial Oil must have sufficient autonomy to design and implement strategies meant for promoting the reputation and goodwill of the company before global investors (Wells & Wint, 2001). Moreover, Imperial Oil has to develop “integrated management control systems that tied the activities of marketers to particular investments” (Wells & Wint, 2001). Furthermore, to become successful in the process of attracting foreign investments, the management of Imperial Oil must equip its overseas officers with staff who would be “full-time promoters who were directly controlled by, and accountable to, the agencies” (Wells & Wint, 2001). In investment-generating activities the aforesaid strategies become quite an imperative. The top management of Imperial Oil should also invest more in technological implementations that would be helpful for the company to promote itself before potential foreign investors. In this respect it must be noted that “they do not have to build supply chains on their own; rather, they can join supply chains waiting for their participation. In fact, multinational manufacturing investment offers many target-rich opportunities for supply-chain development – especially supply-chains in middle- and higher-skilled industries – than is commonly supposed” (Moran, 2015).

Also, in respect of promoting the oil and gas industry of Canada before global investors, the management of Imperial Oil might look up to the government for obtaining help. It must be noted that if Imperial Oil is able to draw the attention of foreign investors then that would ensure thoroughly growth and development of the Canadian oil and gas sector, and to ensure that the theory is really going to be a reality, government of Canada must extend its hands to help Imperial Oil in marketing and promoting the industry before potential foreign investors. One should bear in mind the fact that investment promotional activities are often financed by the government because; “they generate social profits that are greater than the private profits they could provide. When this condition prevails, a government must either finance the activity or risk that it will be underprovided” (Wells & Wint, 2001). Moreover, to overcome the problem associated with environmental protection and safety, the management of Imperial Oil has to take both the responsibility and accountability. It must be noted that multinational entities have global environmental liabilities (Namballa, 2014), and being an industry leader, Imperial has to perform responsibly in this respect. One must take into account the fact that, the top management of Imperial Oil must “analyse the extent of international rules that apply to multinational corporations (MNCs) regarding their environmentally degrading activities and quality control qua environmental impact” (Namballa, 2014). Imperial Oil has to steadily remain compliant with the environment-related rules, regulations, and laws and such compliance can be of great help for Imperial Oil in terms of overcoming the barriers to growth offered by environmental issues. It is also very much important for the top management of Imperial Oil to ensure that the company refrains from exporting polluting activities through subsidiaries located in less developed countries (Namballa, 2014). Exporting of pollutants is a crucial environmental issue (Namballa, 2014), and Imperial Oil should take care of such avoidable risks. Also, being the industry leader, Imperial Oil enjoys certain political powers that must be utilized appropriately in the course of lobbying for certain governmental policies. Often it has been noticed that large corporations eventually become the reason of environmental degradation primarily because; they are often exempted from the liability and mandate to abide by certain environmental laws established and enacted within the state. It must be noted that, “By being non-state actors, MNCs are not directly bound by obligations set down in multilateral environmental agreements (MEAs) between states. Only when governments implement environmental rules on a local level may MNCs come under pressure to enforce them” (Namballa, 2014). Hence, in order to remain complaint with the laws, rules and regulations and in order to avoid environmental issues, the top management of Imperial Oil must convince the local key governmental players about the need of establishing proper environmental regulations that would be easy to follow and easy to implement.

Moreover, the top management of Imperial Oil has to cope with the challenges posed by both extreme government intervention and undue deregulation. It is noteworthy that, “In recent years, the efforts of host governments to maintain control over their own national economies have increasingly restricted the freedom of MNC managers in deploying economic resources. Of equal importance, host governments have often interfered with the autonomous process of MNC strategy formulation” (Doz & Prahalad, 1980). Moreover, the aforesaid fact suffices the conditions that have often restricted Imperial Oil from properly utilizing resources. Hence, Imperial Oil has to first cope with excessive government intervention and then it must step out to counter the government tactfully and legally in order to stop deregulations. Besides, it is a fact that the dearth of foreign investment is also an outcome of extreme regulation of the Canadian government. In this respect it must be stated that, “As foreign trade and investment have made national economies less responsive to such chestnuts of economic policy as the stimulation of demand to increase production, host governments have progressively moved toward the closer regulation of entire industrial sectors” (Doz & Prahalad, 1980). This has happened to the Canadian economy too, and Imperial Oil, being a key player in the industry, must strengthen its lobby to force the government to alleviate its degree of intervention and undue deregulation. Also, it has been observed that excessive government intervention and unnecessary deregulation of the oil and gas industry has made it difficult for Imperial Oil and the Canadian oil and gas industry to tackle locally sensitive issues, including product/market choice, proper use of technology to gain the competitive advantages, level of employment, and sustaining the national trade balance (Doz & Prahalad, 1980). Hence, it is imperative for Imperial Oil and the Canadian oil and gas industry as a whole to combat undue government interventions and deregulation.

Recommended Chosen Action

There are multiple strategies available to Imperial Oil in respect of overcoming the concerned problems. Among the discussed alternatives the strategy of promoting the company before potential foreign investors should be considered one of paramount importance. To initiate and implement such a strategy, the top management of Imperial Oil should indulge in certain policies and procedures. The top management of Imperial Oil must always put emphasis on the fact that there are certain factors that must play their roles appropriately in order to draw the attention of potential foreign investors. Primarily, the management of Imperial Oil must employ policies that would help it to convince foreign investors about the prospects existing in the realm of Canadian oil and gas industry. It must be noted that, “Foreign direct investment is often targeted to selling goods directly to the country involved in attracting investment. Therefore, the size of the population and scope for economic growth will be important for attracting investment” (Pettinger, 2016). Hence, the management of Imperial Oil should try to convince potential foreign investors of the scopes and opportunities for growth related to the Canadian oil and gas industry. If foreign investors are convinced that the Canadian oil and gas industry has the potential for revenue-earning then they would definitely start investing in the industry. Such inclination would be beneficial for Imperial Oil in a thorough manner from the perspective of financial growth. But only adherence to aforesaid policies is not going to provide Imperial Oil with hundred percent surety of obtaining foreign direct investment. This is because; “There are many different factors that determine foreign direct investment (FDI) and it is hard to isolate individual factors, given there are many different variables” (Pettinger, 2016). Hence, in order to draw the attention of foreign investors, the top management of Imperial Oil has to resort to multiple strategies that would fit to the company’s policy of securing foreign investment and thereby ensuring its growth, expansion, and development. Also, the management of Imperial Oil should keep in mind the fact that, it is quite rational “to assume that minimal trade barriers (tariffs and quotas), a bigger trade sector, lower interest rate regulations, freer international capital market, lower credit and labour market regulations will make investment in a country more lucrative for foreign investors” (Dutta & Roy, 2009). Hence, the top management of Imperial Oil must invest in lobbying for the implementation of government policies conducive to the growth of such favourable factors.

Metrics for Success

The success in properly implementing the recommendation can be evaluated by assessing certain metrics for success. The top management and marketing team of Imperial Oil should, after implementing the promotional strategies meant for attracting foreign direct investment, should ascertain the total number of qualified leads that should be categorized by sector and their likelihood of investing in Canada (OECD, 2014). One category should be devoted to enlisting those clients who have the potential to invest in the company within few months, and another category should be meant for listing those potential investors whose period of investment is still uncertain (OECD, 2014). Also, the top management of Imperial Oil must put under the third category those investors who are willing to invest within the next few years (OECD, 2014). Such evaluation should act as a metric for success in respect of proper implementation of the recommended action. Moreover, by assessing the number of new companies added to the qualified leads portfolio that has been analyzed by sector and time of investment, the top management of Imperial Oil would be able to determine if the policy application has been a success. Finally, if it is observed that the conversion ratio is on the positive side then it would be considered that the policy implementation has been successful (OECD, 2014).

Conclusion

To concentrate on the problems faced by the Canadian oil and gas industry, one primary leader within the said industry has been chosen and that leader is Imperial Oil Ltd. The pivotal problem that Imperial Oil is experiencing is about investment and growth. It has been seen that lack of proper sources of investment has gradually emerged as a serious problem for the Canadian oil and gas industry, and Imperial Oil has been a victim of such circumstances. There are multiple strategies available to Imperial Oil in respect of overcoming the concerned problems. Among the discussed alternatives the strategy of promoting the company before potential foreign investors should be considered one of paramount importance. To initiate and implement such a strategy, the top management of Imperial Oil should indulge in certain policies and procedures. The top management of Imperial Oil must always put emphasis on the fact that there are certain factors that must play their roles appropriately in order to draw the attention of potential foreign investors. Primarily, the management of Imperial Oil must employ policies that would help it to convince foreign investors about the prospects existing in the realm of Canadian oil and gas industry.

References

Doz, Y., & Prahalad, C.K. (1980). How MNCs Cope with Host Government Intervention. Harvard Business Review. Retrieved July 10, 2017, from

Dutta, N., & Roy, S. (2009). What attracts foreign direct investment: A closer look. ResearchGate. Retrieved July 10, 2017, from

Marchildon, G.P., & McDowall, D. (Eds.) (2013). Canadian Multinationals and International Finance (2nd Ed.). New York: Routledge.

Moran, T.H. (2015). How to encourage foreign investment. Retrieved July 10, 2017, from