Explain how and why Royal Dutch Shell multinational company has established its current international presence
The Royal Dutch Shell multinational company is the major international producer of oil, natural gas and petrochemicals. The company started exploring their operations in China a century ago. With the implementation of the policy of reform and opening to the outside world in China, the Royal Dutch Shell has sets up two joint ventures oil depots in Shenzhen, China in 1985 and 1987, respectively. After that, the company became more active investing in the Chinese market. It is very hard for a company to enter a market; hence the selection of suitable entry modes is regarded as extremely important. This assignment will identify the reasons for choosing China as a target market and analyze the methods of Royal Dutch Shell has applied in entering the Chinese market.
This part will explain how and why Royal Dutch Shell multinational company has established its current international presence in the aspect of entry modes. The following contents are divided into two parts, first is to consider which markets to enter and the second one is to define the s entry modes Royal Dutch Shell used in China.
Choose a target market to enter
Many factors have contributed to Royal Dutch Shell’s presence in China. The following part will analyze why China is a desirable foreign market to enter in three aspects.
1, Market environmental factors
China’s economy has developed rapidly during the past three decades and still shows an upward trend. According to the statistics provided by National Bureau of Statistics of China, China’s GDP has improved more than 10% annually five years in a row, and even during the period of September, 2008 to October, 2010, when the Global Financial Crisis has swept worldwide, China’s GDP has improved 9.4% and 10.1%, respectively. Consequently, the purchasing power of China grows dramatically. (China’s purchasing power is No.2, reported by the World Bank)However, different from other industrialized countries which have adopted market economy decades ago, China’s market is comparatively immature; as a matter of fact the mixture of Socialist Planning or Market Socialism is the main feature of China’s economy. Therefore, the competition in the Chinese market is not as fierce as western countries. First-movers in China have numbers of advantages over their rivals, preempt rivals and capture demand, build sales volume, create switching costs, just to name a few. China is a huge market both in terms of population (approximately 1.3billion) and GDP(33535.3 billion RMB in 2009, and predicted 368000 billion RMB in 2010) and the Chinese market still has potential, most of the industries are unsaturated, especially the energy industry, high-tech industry and tourism. All in all, the Chinese market offers great business opportunities as a result of its rapid economic growth and huge market. Hence, the multinational companies are trying hard to occupy the Chinese market and enlarge their market shares in China as well.
2, Policy factors
Thanks to the implementation of the policy of reform and opening to the outside world, China’s export and import trade has experienced an astonishing increasement. In 2008 alone, China’s import value has reached 1133.08 billion US dollars. As Petrochemical industry goes, China’s import value is USD 294.83 in 2008, increasing by 35.2%, compared with 2007. Behind this enormous figure, Chinese government’s efforts in promoting the development of global trade can not be reckoned with. For instance, Chinese government has authorized foreign capital wholesale right and management right in crude oil and finished oil transactions in the first of January 2007, as fulfilling its promise when China tried to enter WTO in 2001.This may explains why the Royal Dutch Shell has cooperated with China’s three magnates in Petrochemical industry (China National Petroleum...
References: John D and Lee H., (1995) International Business Environment and operation, 7nd edition, Addison-Wesley Publishing Company
Johnson, D and Turner, C (2010), 2nd edition, International Business, London: Routledge
Li Lusha(2010) Shell announces three new clean coal technology licenses in China [Internet]
Shell (2010) Shell and China National Petroleum Corp. announce natural gas cooperation [Internet]
[Accessed 15th November]
Shell (2006) Shell Is Global Number One In Lubricants [Internet]
Please join StudyMode to read the full document