CASE STUDY ON BRITISH PETROLEUM AND TERRITORIAL STRATEGIES OF THE TNCs
INTRODUCTION: TNCs and their territorial strategies
The globalization process has been developing for years. Yet, it cannot be considered a homogeneous process insofar as it reinforces inequalities between territories and societies. The Trans-National Corporations highly contribute to the increasing of these inequalities – but they also represent numerous advantages for the countries they are established in (such as the LEDCs, for instance).
A Transnational corporation is generally defined as a “company that produces and sells its products in different countries”. It creates links between countries through creation and sale of goods, but their offices and headquarters are not located in the same countries that their factories, so as to increase profits. Indeed, there is a huge gap between the different useful skills – from education to production.
That is why we may wonder to what extent BP (just like so many TNCs) may be perceived as a symbol of this globalization process (including advantages and disadvantages). Furthermore, what kind of specific strategies do the TNCs adopt in the global economic system?
First of all, we will focus on the reasons and manifestations of its establishment in the whole world, and the way different territories are put in competition. Secondly, we will study the development of partnerships and attractiveness in the LEDCs. Thirdly, we will conclude on the boundaries to the expansion of the TNCs (and the increasing of globalization contests).
I. THE ESTABLISHMENT OF BRITISH PETROLEUM ALL OVER THE WORLD
A. THE INCREASING NEEDS FOR OIL (exportations, consumption, reserves through different territories)
It cannot be denied that the needs for oil are increasing all over the world. If we take a look at several maps on exportations, consumptions and oil reserves, we may notice that the most oil producing countries are located in the Middle East or in Africa, or maybe on the American continent. On the contrary, the most oil consuming countries are precisely the ones who do not benefit of natural resources/ of that kind of raw materials. To summarize, there are different territories to produce and consume oil – which is (in a way) a kind of international division of work. The tasks are well shared, between the MEDCs and the LEDCs. The increasing needs for oil are due to the actual model of civilization – because of increasing needs for energy in several economic sectors.
So as to target a new clientele in different countries, and on different social classes, the TNC tries to widen the range of its activities – using different means. Indeed, the firm may open several branches or subsidiaries in more and more countries (especially in the emerging ones, because of their increasing “wealthy” middle-class consumers). Bringing greater consumer choice is also a means to sell more and more products (such as other TNCs: Mac Donald’s or Coca Cola, etc.).
On the other hand, there’s an obvious diversification of the activities led by the firm so as to resist to the renewal of producing energies. Moreover, BP does not only extract oil, but they also refine and export it all over the world.
C. NEW PATTERNS OF TRADE AND PERCEPTIONS OF SPACE (international division of labor, production offshoring, optimum locations)
According to some analysis taken from the International Monetary Fund, “labor has become increasingly globalized”. Indeed, some emerging countries and former socialist economies have been integrated in the world economy – and were confronted to an important demographic growth at the same time. The main consequence of these evolutions is the increase of “the effective global labor force”. In other words, the global labor supply has shot up for the past two decades. Other elements such as offshoring, outsourcing, immigration, etc. may be taken into account to understand this phenomenon.
The most important labor pool is located in the most developed and economically advanced countries (MEDCs). Workers coming from the emerging or developing countries are still integrating these advanced economies – which creates huge benefits and profits.
On the one hand, some opportunities and production efficiencies are rising. It may be useful for the economic growth of Southern countries to be part of this International Division of Labor. As a matter of fact, production offshoring and optimum locations are a means for the TNCs (and more precisely BP) to increase their profits and at the same time to contribute to the development of these less advanced countries.
On the other hand, some may consider that the globalization process is a way for the TNCs to drive wages down, so as to reduce the cost production and the prices of their products. This is what we could call the least cost theory. Several strategies may be led to establish new subsidiaries in Asia or in Africa.
The main problem which is raised by the strategies of the firm is a sort of emancipation from the former geographical and economic location space. Many TNCs such as BP “have control of resources and revenues that surpass the size of many small states”. Evolution in the perceived space may also be associated to the idea of distance decay – or, to quote Mac Luhan: the emergence of a “global village”, in which space and time are reduced, or annihilated. There’s an acceleration of exchanges, and a trickle-down effect (= progressive integration of all spaces in the global economy). We could add that the nation-state boundaries are not actually able to regulate and control the influence of those companies on their economies and policies.
To sum up:
Most of the time, TNC’s choose to manufacture in LEDC’s because labor is cheaper. In New Industrialized Countries (NICs), there is a much smaller minimum wage. The costs of manufacturing are reduced and the profits increase for the company. Moreover, health and safety regulations are laxer, which lowers the cost of manufacturing. As a matter of fact, increasing the working conditions costs a lot of money. On the other hand, workers are consistent because strikes are prohibited. Concerning taxes, some of these developing countries offer a tax reduction to TNC’s who choose to manufacture in NIC’s. Tax free zones are established – which is another important/consequent advantage for them because they pay less in taxes and gain more in profit.
DEVELOPING TERRITORIAL ATTRACTIVENESS AND COMPETITIVITY (comparative advantages, failure of the nation-state model and emergence of regional organizations to regulate TNCs activities)
These new patterns of trade may be the direct consequences of alliances and treaties on trade (with some international organizations such as the World Trade Organization – WTO). Moreover, several actors are part of this process, such as public or private investors, No Governmental Organizations (NGOs) – and even counter-powers like associations, etc.
TNCs may decide to establish and manufacture in Less Economically Developed Countries because of diverse facilities. From another point of view, they represent several advantages for those countries because of the jobs they create, with a reliable income. They may bring new technology and skills. They try to become more inclusive so as to reflect the diversity of the communities in which they are involved. It may be a way to tap into unknown talent pools. Some of these TNCs have acquired the capacity to impulse, or to weigh on local authorities; they have actually a kind of sovereignty opposed to the authorities of geographic spaces. This phenomenon was called “the archipelago economy” by Veltz (the most powerful poles are nearer to each other than to their own states (including marginalized territories).
They may receive bad publicity from exploiting cheap labor, or using up lots of local resources (water or granite) – which can lead to social conflict. The fact is that TNCs put those territories in competition because of free-trade zones (and global cities), and compete with local firms thanks to their economies of scale.
INVESTMENTS ON SOCIAL POLITICS, INFRASTRUCTURES AND TRANSFER OF COMPETENCIES
It cannot be denied that these TNCs represent a lot of advantages for the LEDCs they are located in. Not only they create jobs and contribute to the economic growth of the countries, but also they offer better working conditions.
They spend loads of money to develop the local infrastructure of the area. Even if they create or improve different kinds of infrastructures such as airports, roads, highways and bridges, essentially for their own use, this sort of investment is also useful for the global development of the country. There’s an important transfer of technological know-how, and also an increasing of energy production.
Despite the fact that technical innovations, ideas, goods are increasingly mobile because of globalization – some boundaries remain.
It is important to notice a negative correlation between militarization and trade. In other words, war is not always a great deal to make money, even if Iraqi crisis was an opportunity for several firms to establish and exploit the resources of the country. As a matter of fact, BP has been benefitting for Iraqi oil resources for years – since the beginning of the Second Gulf War. In other countries, for instance on the African continent, it is far much harder to exploit this sort of resources because of civil wars and intrastate armed conflicts. This may lead to control strategic passages such as the Strait of Hormuz.
We may also mention other difficulties to extract and exploit oil in specific areas such as the Arctic and countries at war, because of their instable geopolitics (Chad, Iran, Qatar, Nigeria, Sudan and Libya).
ECOLOGICAL DISASTERS: THE DEEPWATER HORIZON EXPLOSION AND OIL SPILL IN THE GULF OF MEXICO
One of the main problems caused by TNCs in the Least Economically Developed Countries, and especially British Petroleum (exploiting oil and other natural/mineral resources), is the environmental destruction. These firms cause damage to the environment because of explosions, leakages, non-compliance with rules.This is due to the way they extract their raw materials, taking no account for the consequences upon the environment. For example, the recent explosion of the Deepwater Horizon platform that occurred on April, 2010, in the Gulf of Mexico, is still a disaster for local producers working on the coasts.
We cannot deny that the technical knowledge developed and used by the firms could avoid the most part of these problems – but, as a matter of fact, the politics of “zero risks” does not exist and the firms constitute an unsustainable pressure on land, fuel and water.
Because of these natural/environmental limits of TNCs’ growing, there are increasing contests of the role played by the TNCs, and more generally harsh critics against globalization.
INCREASING CONTESTS OF GLOBALIZATION: A NECESSITY TO REDUCE ECONOMIC GAPS?
According to the anti-globalization movement, TNCs represent and symbolize an overwhelming superpower that threatens national identities and prevents people from getting their part of generated profits. This seems to be an obstacle to equal distributions of the benefits.
The recent wave of globalization and the importance of TNCs all over the world don’t seem to be irreversible, insofar as many leading players in the world economy could decide to close their borders. There is still the threat of an international order upset/ the threat of a global industrial shift.
Some economists consider that the main problem concerning TNCs is to establish how governments could control and regulate these activities and abuses. Different international organizations such as the International Monetary Fund or the WTO (World Trade Organization) play an important role of global regulation: is it really efficient?
CONCLUSION: from the global village (McLuhan) to the globalization of disasters?
Actually, there’s a reconfiguration of boundaries and a reshaping of territories because of leading TNCs. This could be the road to a new debate: does globalization really depend on political decisions of nation states? Can these nation states really decide to defend their own national interests, fighting against the increasing power of TNCs? “Openness to trade is still a political choice. This suggests that changes in domestic political equilibria might introduce limits to the process of globalization.”
We should also tackle another point, which is the “dark side of globalization”; in other words, the existing links between TNCs and informal (= criminal) economy.
“A number of TNCs dominate world extraction industries such as oil or gold mining. These industries are inevitably particularly destructive of the environment. Other TNCs, such as motor manufacturers or even service companies have also been accused of destroying the environment for instance in the way in which they source their raw materials. However, any form of production could be argued to be undesirable from an environmental viewpoint. Moreover, TNCs often have better environmental records than smaller national companies. They not only have the financial resources to be able to minimize their impact on the environment; they also have the technical knowledge and ability to innovate which can lead to minimizing environmental problems.”
“The anti-globalization movement portrays TNCs as exploiting poor countries to increase their profits. TNCs pay local labor the lowest wage possible, they employ child labor and conditions of work are very poor. Natural resources are extracted and sold with hardly any compensation going to the local country. Taxes paid are minimal. Goods are sold which show no sensitivity to local culture. As little as possible is put back into the country because this would reduce the amount of profit that can be transferred back to the rich developed home country. It is correct that some individual TNCs can be severely criticized for their historical record. It is also true that some TNCs today are more aggressive in their pursuit of profit whatever the consequences than others. However, other TNCs have an excellent record of dealing fairly with countries, local workers and local consumers. It should also be remembered that most activities of TNCs are focused in the developed world.”
“TNCs can be easy targets for those who dislike capitalism. Market forces do make individuals relatively powerless when factories are closed and production is shifted thousands of miles away. New products, such as genetically modified food, can also raise important questions about whether such technologies should be exploited. On the other hand, without TNCs, there would be far less trade, innovation and world growth. World output would almost certainly be considerably lower, arguably leading to lower living standards. For Free market economists, the focus of debate about TNCs is not whether they should be allowed to exist but about how the government can set up regimes which can regulate the activities of TNCs for the benefit of all. For the anti-globalization movement, TNCs are a symbol all that is wrong with a world where profit and private greed control how resources are distributed.”