Royal Dutch Shell, a company created as a result of merger between the multinational corporation being the pioneer in oil industries, Shell, and Royal Dutch, other influential company in the industry, has encountered a series of complicated problems in Nigeria including company stigma, continuing political risks, and mistrust on the part of investors. Nigeria has been both the most desired country for oil corporations due to its enormous oil and fuel deposits and the most difficult to operate in on the reason of constant political instability. The following paper aims at analyzing the challenges the merged Royal Dutch Shell faces in Nigeria along with possible solutions and recommendations.
The Challenges Royal Dutch Shell Faces
The challenges the merged company faces are (1) the downsizing necessity; (2) Shell company stigma connected with the charge in the environmental pollution and with the Shell workers’ discontent regarding social protection standards the company offers; and (3) investors’ incertitude in the profitability of the merged company that may lead to the reduction in funding. The downsizing necessity is explained by the fact that two contenders from the two merging companies will compete for the only position available in the new conditions after the merger (“Nigeria”, 2009). Next, Shell company stigma in Nigeria is another challenge for Royal Dutch Shell since the local population has developed an extremely negative attitude to the company activity due to the environmental hazard reports denouncing Shell extracting techniques and the position of Shell employees in Nigeria stating that their rights are being violated (“Shell sued on Nigeria deal”, 2002). Finally, investor’s incertitude confronts Royal Dutch Shell success because the investors of both Royal Dutch and Shell may back out on the reason of the loss of confidence.
Factors of Risk and Opportunity
The major risk factor that is simultaneously connected with additional business opportunities for Royal Dutch Shell is political uncertainty in Nigeria. In addition, powerful political units affecting publicity matters have appeared in the country. This state of affairs may affect Royal Dutch Shell company image both negatively and positively depending on the quality of the ongoing relationship between the parties. Next, the large amount of investment made the company operations in Nigeria more hazardous and valuable at the same moment because of constant increase of the international demand for oil (“Nigeria”, 2009). This means that the company will be able to provide the greatest amount of oil to satisfy the demand but the stakes for the oil extracting are also higher and thus they will affect profitability levels. Finally, labor force consisting of 10,000 Nigerians presents additional opportunities and is concurrently a ground for concerns. Such situation is explained by the Royal Dutch Shell’s impact on the local economy due to the abundance of the local population employed and the influence of the local labor organizations on the company ability to operate.
Economic and Political Risks Affecting Shell
Economic system in Nigeria peculiar for its poor macroeconomic management has negative implications for Shell’s business. Furthermore, social unrest heated by the economic situation causes instability in sales rates as well as in labor force functioning.
Shell faces a number of political issues of different scope and complexity in Nigeria. These issues relate to the following levels of political relations: the national level, regional level, local level, tribal level, and non-governmental level. At each level, the situation is characterised by instability and discursiveness. Besides, the most outrageous political problem in Nigeria is uncontrolled corruption at each level (“Nigeria”, 2009).
The Role of Nigerian Government
Nigerian Government can affect Shell’s Nigerian investments, operations, and future stake in the oil industry by ineffective use of profits received form the company. In this vein, numerous facts demonstrating high rates of corruption in the government have been registered (“Nigeria”, 2009). The outcome of this situation is the lack of financing in the Niger Delta due to the funds stealing by senior officials. Moreover, Nigerian government fails to perform its basic duties in a variety of fields. This state of affairs has further negative implications for Shell.
To control the emerging challenges, the company top management should implement new company policy aiming to improve efficiency in gas, oil, green energy, and the related industries while lower management practices do not need changes. The new policies should focus on the long-term integrated approach to ensure risk mitigating and credibility restoring. Bedsides, the new policy should pay more attention to the definition of corporate responsibility in social and environmental protection sectors. Furthermore, Royal Dutch Shell should elaborate an effective long-term strategy for the regulation of relations with stakeholders in the Niger Delta including the government and non-governmental organizations.
After the merger, Royal Dutch Shell faces a row of challenges including negative attitude on the part of the local community being the result of Shell reputation letdown in the previous years, political instability in Nigeria, and decrease in the rates of investors’ confidence. To address these challenges, the company should introduce more effective concepts of top management functioning with an objective to increase efficiency and profitability, mitigate risks, and introduce better strategy to regulate stakeholders’ relationships in the Niger Delta.
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Nigeria. (2009). Petroleum Intelligence Weekly, p. 1-5. Shell sued on Nigeria deal. (2002). Oil Daily, p. 1.