Why Shell is looking to exit up to 10 countries after BG deal

An insight may have been given as to the reasons why shell wants to leave some of the countries where it operates across the world.

Christian Stadler, a Professor of Strategy at Warwick Business School who has extensively researched Shell as well as writing a book entitled Enduring Success featuring thefirm, made the following statement:

“Shell has typically been very de-centralised in the past in comparison to say ExxonMobil, giving each country a lot of autonomy. An advantage of this is it was able to establish strong local relationships in a large number of countries.

He said however that the a disadvantage of this, is it is quite costly in comparison to the centralisation of Exxon. With it also being less efficient, it isn’t surprising that cost saving factors have led them to revisit this strategy following the BG merger.

“I would expect when it revisits its country portfolio it will close countries less important to its strategy overall”,he said.

In the oil industry, he said, there are many quirks and peculiarities when it comes to running a business. It is very possible to have a well drilled, but the whole process slowed down by permits and other forms of bureaucracy. So a rig can be established, but sat doing nothing and in essence wasting millions. Issues can vary from regulatory, political and even cultural differences.

He said a less active profile in some countries, therefore, can only be a good thing. Shell focusing on where it is more established and more confident about therefore makes sense from a cost-cutting perspective.

The sensible thing would be to cut down areas of smaller production or greater expense. Having said that some activities, such as the Gulf of Mexico are high risk, high reward for Shell. So it needs to focus on where its expertise lies, such as offshore and now LNG following the BG merger.

In terms of internationalisation generally, the common wisdom is that diversification is more difficult and internationalisation easier, but this is not the reality, lots of big ‘global’ companies have struggled with this. Just take the example of HSBC in the banking sector, it is seen as a global business, but has still been cutting down costs itself. Internationalisation shouldn’t be seen as a default for everyone.

 

Olusola Bello