Case Study on the International Business Expansion Strategy

YadvendraaJaipuria Institute of Management

Introduction of ONGCIt was established in the year 1956.Its Head quarter is in Dehradun.The chairman and MD of ONGC is Mr.

Radhey S. Sharma.Its revenue was $24.032 billion in the year

2008.Currently there are 34000 employees.

Cont…ONGC is business organization involved in the

exploration and production of hydrocarbons in India and abroad.

ONGC is the leader in the upstream petroleum sector and a leading Navratna public sector.

ONGC set up OVL in 1996 as a wholly owned subsidiary.

Cont…It is the largest Oil exploration and

production (E&P) company in India.

It has market share over 84% in crude oil and gas production.

Around 57 % petroleum exploration licenses in India for over 588 thousands of area belongs to ONGC.

Cont…

It major products includes petroleum, crude natural gas, liquefied petroleum gas (LPG), kerosene and petrochemical products.

Reason for Expansion ONGC business Licensing Policy

Demand of Crude Oil

Oil Prices

Competition

Burden

Dependency

Licensing Policy:- by this private sector can also participate in the exploration and production.

Demand of crude oil:- demand was increasing day by day.

Oil Prices:- The trend of international prices was volatile and rising.

Competition:- Domestic competition was increasing.

Burden:- Increasing burden on the country due to the rising oil import bill.

Dependency:- The bottom-line was crude oil prices.

Major strategic decisions taken…ONGC changed from a Commission to a

company.

ONGC appointed MC kinsey as a consultant for complete revamping and restructuring of the organization.

ONGC expanded its global operation through its subsidiary OVL.

Cont…ONGC bought 71% stake in the MRPL

refinery.

ONGC decided to acquire equity oil abroad through the endeavors of the OVL.

Human resource development.

Objectives of ONGC…Doubling reserves to 6 billion tones by 2020.

Improving average recovery from 28% to 40%.

Tying 20 MMT per annum of equity of hydrocarbon from abroad.

Internationalization Strategy of ONGC

Carried out in house studies of various moderate and semi-major, major offshore and onshore fields.

Came up with about 400 Oil and Gas blocks.

Evaluated these fields with available data Came up with the priority list for foreign foray

Combination of marketing entry strategy of:Joint venture with equity participation in producing

oil/gas fields.Joint venture with equity participation for exploration

and development blocks.Consortium approach, pooling other Indian oil

companies, such as IOC Ltd, GAIL, etc.Operator ship contracts (management contracts)Turkey engineering Contracts.

Countries where OVL has its producing assets

Producing assets of OVL : a. Having 20 percent holding in Sakhalin(Russia) b. Having 45 percent stake in partnership with British

Petroleum. c. Having 25 percent equity in the Greater Nile Oil

Project in Sudan.

Countries where OVL having discoveries and exploration

OVL assets with discoveries & exploration : a. Having 100 percent interest in Appraisal &

Development in Qatar. b. Having 70 percent interest in Exploration & Appraisal

in Egypt. c. 15 percent interest in Development Phase in Brazil. d. 20 percent participation interest in Myanmar.

OVL OperationsVietnam Sudan

Myanmar Sakhalin-I

QUESTIONS

Critically evaluate the reasons influencing ONGC’s international expansion?

Factors influencing expansion -New exploration licensing policy

Lack of new discoveries

Domestic competition

Identify the key factors affecting OVL’s country selection.Opportunity in the area of oil exploration.

Future relationship with the countries.

Size of the other company or its growth

OVL made use of strategic alliances and joint ventures for its international expansion ventures rather than opting for complete ownership. Do you agree with such a kind of approach?

Reasons for Joint Ventures and Alliances

Gain Access to a Particular Resource

Risk and Cost Sharing

Learning

Speed to Market