Analysis Case Study:Shell Oil Company

The following analysis evaluates the challenges faced by Royal Dutch Shell Oil Company involving their monumental proposed investment into their Nigerian operations. When global companies experience extreme criticism such as Shell, they are usually tasked with identifying optimum solutions to reverse the negativity. In addition to assessing the challenges, this analysis provides some potential strategies that can be implemented to resolve the issues within this case.

Problem Statement

Royal Dutch Shell Oil Company proposed to execute the largest industrial investment ever made in Africa. Their proposal was a response to three separate issues. However, there were problems with the proposal. A major problem was that two critical entities that Shell proposed to share in the investment, made it clear that it would take some time before they could even consider Shell's proposal. Other major problems included political and social instability within regions where Shell operated. Shell acquired a very negative public image, and it was primarily due to the following: Shell had also been accused of waging an ecological war against natives and the natural habitat. Furthermore, the company was accused of being responsible for the deaths of natives from the land in which Shell procured oil.

Situation Analysis

Shell Oil is one of the largest oil traders in the world. With extensive international operations their largest African operation existed in the country of Nigeria. In this case, Shell's operations in Nigeria created a very complex situation, thus creating numerous factors for the various components included in the environmental scanning analysis.

The economic factor consists of Shell proposing an $8.5 billion integrated oil and natural gas investment, making it the largest industrial investment ever made in Africa. Shell estimated that their proposal would bring an additional $20 billion to the government of Nigeria over a 25-year period. The proposal also called for 70 percent of the cost to come from private companies (mainly Shell), and the other 30 percent from the Nigerian government. A government owned company named the Nigerian National Petroleum Corporation (NNPC), which is a joint venture partner in all Nigerian petroleum projects contributes to Nigeria having more foreign direct investment than any other country in Africa. Another important economic issue is that the European Union actually withheld $295 million in aid to Nigeria while protesters attempted to boycott the purchase of Nigerian oil, and while considerations were being made to implement an embargo on business with Nigeria.

The political, legal, and regulatory issues are closely related in this case, and therefore are grouped together. Many companies including Shell Oil have often been skeptical about doing business in Nigeria because of the political and social instability that exists in the country. This instability creates optimum opportunities for corruption to occur, contributing to Nigeria being one of the most corrupt countries in the world today. This instability also made doing business risky within Shell's existing Nigerian facilities. Shell had been severely criticized outside of Nigeria for its Nigerian political activities and environmental policies. This criticism was more than likely caused by the knowledge of unethical business practices in Nigeria. The NNPC also plays a role in the political component, being a government owned business.

The natural resource issues include Shell selling in Nigeria as early as the late 1920s. In 1937, Shell formed a joint venture with British authorities that had exclusive rights to explore for oil. This venture found oil for the first time in Nigeria in 1956. This oil was found in a 404-square-mile area in the southern part of the country near the delta of the Niger River known as Ogoniland. Shell's oil procurement operations took place in a large number of countries. However, the Nigerian operations were quite significant, accounting for about 10 percent of the company's petroleum sources. The Shell joint venture included nearly 100 oil wells, two refineries, and a fertilizer plant all in the area known as Ogoniland.

The cultural and social issues involved in this case are extensive and quite complex. Nigeria was a British colony until 1960, and has a population of over 115 million, making it the most populous country in Africa. Nigeria's former colonization could have been a key reason why Shell Oil, a British company had such a vested interest in the country. Nigeria's government has the serious challenge with trying to unite 250 different ethnic and linguistic groups. An interesting issue with the Nigerian culture is that the country continued to be wiling to sell almost unlimited oil supplies, even though their reserves were not nearly as ample as countries such as Saudi Arabia, which is more prone to limit supplies.

Additional cultural and social issues included the problems that native Ogonis had with Shell Oil Company. Even though Shell used the land in this area to run their operations, very little of the revenues were reinvested to help maintain the land. As a result of the lack of attention given to Ogoniland, a group of natives led by author Kenule Saro-Wiwa, formed the Movement for the Survival of Ogoni People (MOSOP).

MOSOP began campaigning for a greater share of oil revenues to restore the environment of Ogoniland, and compensation for losses from Shell's activities. For example, Shell was accused of damaging farmlands and fishing areas due to oil spills. Shell has also been charged with their oil flares at refineries affecting health, and the laying of pipes destroying freshly planted crops. Furthermore, MOSOP demonstrations have resulted in extreme violence. And Ogonis even began sabotaging Shell facilities causing Shell to discontinue operations in that part of Nigeria. MOSOP members were eventually arrested and executed for their involvement in the Shell Oil violence. Worldwide critics charged Shell with allowing the executions to occur although the company publicly denounced the executions. These executions and increased instability influenced consumer's behaviors as boycotts against Royal Dutch Shell Oil were being held worldwide.

The technology component included the technical tools that were used for predicting where oil might be found. Technology improvements enabled these tools to become sophisticated and allowed the development of rating schemes.