Background

Though ONGC is a public company, it has proved itself to be an expert in Oil exploration and related
business. ONGC is as competitive as any private sector company in the world. It expands and
operates its business through its wholly owned subsidiary ONGC Videsh Limited. In Egypt, Libya,
Sudan, Congo, Nigeria, Brazil, Columbia & Venezuela, it has active operations of Oil exploration and
crude oil transportation. It has also acquired a lot of companies, oil reserves and gas reserves
abroad. Considering rapid international expansion of a government company, we are fascinated to
learn the international business strategies of the company. Its acquisition of Imperial energy in UK or
partnership with British Petroleum and Petro-Vietnam are note worthy steps of the company.
Hence, it creates a lot of curiosity, how company is managing itself in different cultures. Energy is
too critical for a developing country like India. Hence, exploring opportunities outside are
indispensible now a days.

Also, while considering the country risks, we are trying to make a universal strategy which may be
applicable for other companies’ as well. Hence, in country risk analysis, we have included every
possible risk and challenges that are expected to be faced by the company

Importance of Energy Security

The secured source of energy is essential for a developing country like India. Energy can be obtained
from various resources such as coal, oil, natural gas, hydro energy, solar energy and wind
respectively. India is rich in coal. But coal is not of excellent quality. It contains a lot of ass and water.
This, when burning, creates a lot of carbon dioxide and other harmful gases such as oxides of sulphur
and nitrogen. Also for running a vehicle for public transport, diesel or petrol are the best fuels. India
has no large reserves of oil. Hence it has to depend on the other countries for this. Hence the
domestic oil exploring companies have to reach out the oil reserves and companies abroad.
However, assuring the energy security is a tough task now. There are several reasons which account
for it. If it is going for exploring the oil reserves abroad for example in the oil field of South China sea,
it will face direct competition from the south Asian countries like China, Malaysia etc. In addition to
that, enrichment of countries like Sudan, Syria and Iran is not in the best interest of India as they
spread huge Islamic terrorism. Hence India has to assure its energy security by both international
and domestic strategies. Domestic strategies are clean coal technology, shift to natural gas and LNG
and increased domestic production. Similarly, international strategies include maintaining foreign
relations, forming alliance, JVs and acquiring oil reserves and exploring them.

Risk Associated with Cross Border Investments

The main objective of cross-border investment is diversifying the risk. But risk associated with the
investment cannot be nullified completely. The developed countries invest in the emerging
economies to reduce their labour costs and the manufacturing costs. The main risks associated with
the cross border investments are transfer risk, exchange rate risk and location risk. These risks are
unavoidable as these are not in the control of the company or the domestic government. The change
in the exchange rate in a small amount even can affect the net worth of a very large scale
investment.
The risks associated with the cross border investments are evaluated as follows.

Flow Chart

Objective

Strategy
Country’s
comparative
Overlaying Tactic: Choice of
advantage plays
Location/Countries an important
role in it

Choosing new Allocating among

locations/Countries locations/Countries

Making final decision

Reference: Chap 12 ¨country evaluation and selection: Text book of International Business:
Environments and operations: John D Daniels

Evolution of Oil and Gas industry

Initially the oil exploration and production were happening mostly in north eastern states of India. In
Assam the oil produced was 500 barrels per day. In 1954, the government of India included the oil
sector in the core sector industry. This increased the importance of the proper oil exploration and
utilization of the country’s oil resources. After this also a lot of national oil companies came into the
picture. Then NELP (that is NEW EXPLORATION LISCENCING POLICIES) came into picture. The policies
were introduced in 1999, and are frequently modified according to the desired flexibility. The
research and new technology also helped India to explore and utilize natural gas. The crude
petroleum is also converted into CNG by appropriate technology which satisfied the household
cooking needs efficiently. Also big companies came up with oil and gas reserve discoveries which
further enhanced the position of the country in Oil and Gas sector.( Reliance Discovery of Jam Nagar
Gas Reserve: World’s Largest)
Evaluation of country Risk

Countries create an environment for the companies to create value by increasing sells and acquiring
important resources. A company which is confined to a particular region has limitations in accessing
human as well as other resources. The sociological, economical, technical, political, legal conditions
also play an important part in bringing compatibility for a particular company.

The change in business environment in a particular country certainly affects the businesses directly
or indirectly. Some of the Factors that are taken into consideration of country risk are as follows

Change of existing government and mass nationalization

At the advent of the era of new government, sometimes the rules imposed by the old governments
or any treaties are discarded. Due to this, the companies coming from abroad have to bear the
adverse consequences. The country may also nationalize the installations and factories of the foreign
company which owns or have a stake in those properties

Example: Instability and frequent change in government during disintegration of Russia repelled
many companies to establish many units in the country. Increase in tariff, licensing fees and
imposing strict measures would certainly avoid FDIs and FIIs. Example: Government of India banned
tobacco companies coming from outside and penetrating to India. Some companies also withdrew
their investments considering heavy charges due to imposition and modification of rules

Competitive Risk

The four major factors to be considered in this segment are

 Making operations compatible

 Spreading Risk
 Following Competitors & Customers
 Heading of competitors
A nice example could be the “going global or not” dilemma of DATA Clear.

Border Disputes

The border disputes play a major role in affecting the business. Because, sometimes blocks the path
for the transportation of goods from one place to another. Also if a company is having substantial
operation in the neighbouring countries and a sudden dispute started between two countries then
the country is likely not to support the company from the neighbouring country

Frequent labour strikes

Frequent labour strikes increase the cost unexpectedly. The company from abroad is forced to shut
down the plant or hike the compensation. Example: The Toyota motors frequently shuts down it’s
plants in China due to labour strikes.

Civil War

War in Iraq caused huge loss in economy and forced foreign companies to shut down their
operations and leave the country. The security concerns are much more important and need to
assured in the first place.

Example: HUL is unsuccessful in attracting the executives to Pakistan due to war like conditions.

Analyzing the Past events

Companies are largely influenced by the past political risks. They take necessary precaution
according to that. But that is not a full proof procedure. The reason is the frequent change in the
market condition and business and customer requirements. Morever, political risk is not the only
risk. The foreign investor might take into the consideration of the compensation which was made by
the government to the foreign company in case of the government take-over of the company assets.

Political Disputes

Political risk occurs due to the change of opinions and the policies of the political parties and political
leaders. Political disputes may result in policies which prove to be very expensive to be adopted by
foreign companies.

Huge volatility in prices and stock market fluctuations

This problem is mostly considered under financial risk or monetary risk. This is divided into two parts
namely, interest rate changes & mobility of funds. Exchange rate risk acts in a dual manner. Its
change in a particular direction if import is decreased then export is increased and vice versa. Hence
proper balance is what desired.

Social and economic conditions

If big sectors do not meet the expectations of large number of people, than an unrest is created
between the people. The group of people may disrupt the business operation of the company.
Example: In the Nigeria Delta region the group of people attacked the properties of foreign
companies and kidnapped their employees.

References

http://en.wikipedia.org/wiki/Country_risk

International Business: Environments and operations: John D Daniels

http://www.iags.org/n0121043.htm

http://www.dnb.co.in/IndiasEnergySector/GasIndustry.asp