International Petroleum Investment Company

Introduction

International Petroleum Investment Company (IPIC) is a state-owned business that controls Abu Dhabi’s sovereign wealth fund. IPIC was established with an overall objective to invest in the energy sector internationally. The purpose of the current paper is to assess the background of the company, the country, conduct its market analysis, evaluate the marketing mix and staffing policy, and assess the market entry strategy of IPIC. The research found out that IPIC is a government-owned global organization (founded in 1984 by the first president of UAE, the late HH Sheikh Zayed Bin Sultan Al-Nayan), dealing with petrochemical products. IPIC’s expansion project to the US is induced by attractive external factors such as the US’ political stability, customer/competitor-related factors such as competition, and the industry-related factors such as IPIC’s core competencies. IPIC also developed a healthy marketing mix using the 4Ps to conquer the US market. IPIC should adopt the polycentric staffing policy to manage its global employees effectively. The company has penetrated the market majorly via acquisitions.

Company Background

IPIC is an energy corporation that was established in 1984 by the Abu Dhabi government whose current managing director is Khadem Abdulla Al-Qubaisi (“IPIC – International Petroleum Investment Company”, n.d.). IPIC was founded by the first president of the UAE whose vision was to improve Abu Dhabi’s natural petroleum wealth. The company grew rapidly, and it now manages a diversification of ventures in more than 18 countries across five continents (“IPIC – International Petroleum Investment Company”, n.d.). As in 2009, IPIC had an investment portfolio of assets worth $14 billion (“IPIC – International Petroleum Investment Company”, n.d.). The Abu Dhabi government appoints IPIC’s board of directors. Currently, it is governed by eight directors; with the chairman being Sheikh Mansour Bin Zayed Al-Nayan (“IPIC – International Petroleum Investment Company”, n.d.).

The major company’s products and services include; the hydrocarbons value chain, shipping and pipelines, retailing and marketing of petroleum products, petrochemicals exploration and production, and utilities and industrial services (“IPIC – International Petroleum Investment Company”, n.d.). Other products include polyolefin and chemical and energy co-products. The products offered by the acquired companies are also termed as IPIC’s products, i.e. CEPSA’s, Nova Chemicals’ products, etc. IPIC’s products have the potential to satisfy its consumers globally as it ensures that all its customers have access to the products. The limitations of IPIC’s products are that some customers find them relatively expensive hence seek its competitors’ products. Some clients also have difficulties in accessing the products as they are located far from them.

IPIC’s history began in 1984 when it was formed and was jointly owned by the two government agencies, ADIA and ADNOC (“IPIC – International Petroleum Investment Company”, n.d.). In 1986, the government took over the full ownership of IPIC. The company has opened many markets across the world through acquisitions. In 1988, the company had its first 9.6% investment in CEPSA (an energy company in Spain), which is now 100% as from 2011 (“IPIC – International Petroleum Investment Company”, n.d.). IPIC also acquired 24.9% of OMV (Australia’s oil company) in 2011. In 1999, 50% of Hyundai Oil Bank was acquired, which later augmented to 70% during its disposal in 2010, realizing $1,950 million profit (“IPIC – International Petroleum Investment Company”, n.d.). In 2008, 20.8% of Cosmo Oil (Japan’s oil company) was acquired. In 2009, IPIC made a 100% purchase of Nova Chemicals (Alberta’s petrochemical company), and made a 95.4% investment in Abu Dhabi’s Aabar. IPIC also acquired 64% of Borealis (Austria’s polyolefin manufacturer) (“IPIC – International Petroleum Investment Company”, n.d.).

Country and Market Analysis

IPIC has the potential of expanding more than it already has. The company should expand its operations to the United States. The company’s expansion success depends on factors discussed below.

The external factors that encompass: political stability rated 8/10 attractive; political threats usually upsurge when oil and gas firms are working on deposits overseas (Kuada, 2008). Since US is a politically stable country, IPIC’s expansion will not face any political problems. For example, IPIC in Spain’s CEPSA is doing well due to Spain’s political stability (“IPIC – International Petroleum Investment Company”, n.d.). Market system of different countries is rated 7/10 as some states have banned the exploration of their oil fields such as the Gulf of Mexico (“IPIC – International Petroleum Investment Company”, n.d.). US runs a free market system with countries it has agreements with (Cun?at & Melitz, 2012); for instance, the UAE, hence no restrictions on the sale of IPIC’s products. The inflation rates is another element rated 8/10 as high inflation rates attract high prices of commodities hence low sales (Kuada, 2008). For example, Hyundai’s collapse due to high inflation rates in 2010 (“IPIC – International Petroleum Investment Company”, n.d.). US has maintained low inflation rates thus doing well in the market, which is perfect for IPIC’s expansion into the country.

The customer/contender-related factors include: the availability of the products rated 9/10 attractive; IPIC always avails its goods and services at all times to avoid losing customers to its existing competitors (“IPIC – International Petroleum Investment Company”, n.d.). The actual competition level is another element rated 8/10 as IPIC faces competition from Kuwait, US, Iran, etc. IPIC should lay a good differentiation strategy to differentiate it from its competitors.

The industry-related factors include: the core competencies of a company; IPIC will expand its operations on what it does best and what no competitor can imitate (Cun?at & Melitz, 2012), its US competitors in this case. IPIC’s core competencies are 9/10 suitable to conquer the market as its products are globally renowned (“IPIC – International Petroleum Investment Company”, n.d.). IPIC considers the transaction costs that will be incurred during its US expansion, and then evaluate the costs to ensure the returns surpasses the initial outlay (Kuada, 2008). Another factor is the availability of skilled labor force in the US, rated 9/10 attractive. IPIC is performing well in its markets since it has motivated skilled staff (www.ipic.ae).

Marketing Mix

For IPIC to be successful in the market, it must formulate a more potent local responsive and standardized marketing mix than its contenders (Richter, 2001). The marketing mix involves 4Ps, which are product/service, place, price, and promotion.

IPIC should provide satisfying products to the consumer locally and globally. The products should meet the US’s: culture, economic development, and technical standards. The product should meet the client’s expectations, benefit the consumer, and outdo the competitors’ products (Richter, 2001).

Place/distribution is the mechanism through which the products are moved from producers to consumers (Richter, 2001). IPIC will develop distribution channels with consideration to its customers. IPIC will adopt short distribution channels thus using retailers and overseas distributors.

Price is the amount that the client is willing to part with to acquire a product/service. IPIC should conduct a background study to know how much the customers are prepared to pay for its products (Richter, 2001). IPIC will develop a pricing strategy to set a suitable price for the customers (Richter, 2001). IPIC’s products are inelastically demanded, meaning that the demand for such goods is not affected by price changes (“IPIC – International Petroleum Investment Company”, n.d.).

Promotion refers to the efficient and effective communication between producers and customers (Richter, 2001). To achieve this, IPIC will develop an appropriate promotional campaign that will overcome cultural and noise barriers. The promotional strategy should adopt both the push promotion strategy (where IPIC will advertise its products to create awareness) and the pull strategy (designed to remind the existing clients on IPIC’s products).

Staffing Policy

International management faces many pitfalls. Consequently, it is vital to pay close attention to the staffing strategies of the overseas subsidiaries (Briscoe, Schuler, & Claus, 2009). The international staffing policies include ethnocentric, polycentric, geocentric, and regiocentric policies. IPIC should embrace the polycentric staffing policy as it plans to expand its operations to the US. A polycentric staffing policy is where a multinational company (IPIC) recruits the host nation’s (US’) citizens to manage the branch in their country (Briscoe et al., 2009). This system is advantageous as language barriers are eradicated, local citizens possess a better understanding of the local rules and regulations, and due to low hiring costs, as well (Briscoe et al., 2009).

Market Entry Strategies

An entry mode is a channel a corporation uses to gain entry into a new market (Geetanjali, 2010). Global companies have six main channels of entry into new international markets that are discussed in the following paragraphs. They are: Licensing, where a company charges a fee or royalty to whoever uses its brands. IPIC can license some US firms to use its name in doing business. Licensing will benefit IPIC as it will require little capital to finance the operations. The US will benefit by escaping product fiasco risks. Licensing has limitations as it condenses market openings and can cause misapprehensions for the US and IPIC.

Exporting is the sale of a locally produced product/service overseas (Geetanjali, 2010). IPIC can also export its products to the US markets. Exporting is advantageous for the company as IPIC will require limited finance and face fewer risks. However, IPIC will face exporting pitfalls such as low control and little knowledge of the US market.

Strategic Alliance (SA) refers to the formation of mutual relationship by different global companies (Geetanjali, 2010). IPIC and other US energy companies can join forces to form a joint operation system to cut costs. IPIC and the US will benefit from SA as shared costs will reduce the investments required, thus the reduction of market risks (Geetanjali, 2010). SA is also disadvantageous as it is difficult to merge IPIC’s and the US corporate cultures.

Acquisitions refer to a process in which an organization gains control over another one by buying its stock (Geetanjali, 2010). IPIC can invest in the US companies hence marketing their products. Acquisitions enhance secure entry and quick establishment of operations for IPIC. IPIC will also incur high acquisition/merging costs and face office integration glitches with the US acquired company (Geetanjali, 2010).

International distributors are globally established marketing and distribution agents to market products in specific countries (Geetanjali, 2010). IPIC can hire international agents to distribute its products in the US markets. IPIC will enjoy low distribution costs. IPIC will be disadvantaged as this method doesn’t allow maximum control of its products as distributors assume control.

A Greenfield venture is the process of establishing a new, wholly-owned subsidiary in another country (Geetanjali, 2010). IPIC will have maximum control over the enterprise and will gain local market knowledge. However, it will also incur high costs and face great unknown risks (Geetanjali, 2010).

IPIC’s appropriate entry modes are licensing and acquisitions. IPIC already has many acquisitions, and so it will not be a new venture. Hence it will be a quick entry method. Licensing will also help the company to penetrate the market faster, and it does not involve a lot of costs.