Petrobras’ Strategy and Ownership
- Describe the industry in which Petrobras is a major player. Who are the other major players in this industry?
Petrobras is an oil and gas company which majors in refining and development of petroleum products. The gasoline industry is a major contributor to the Brazilian’s economy in terms of revenue generation. It also builds ships and produces plastic bottles and polyester fiber. Other players in the industry include IPOJUCA and private investors such as Previ, and the Brazilian Federal Government. The oil industry is involved in various activities such as refining, transportation, and marketing, exploration and production, gas and power, and biofuels.
- How is Petrobras different from its global competitors in terms of ownership structure? In your opinion, is that difference a comparative strength or weakness of the company?
The company is a semi-public multinational corporation in the petroleum industry whereby the government of Brazil owns 54% of the company’s shares. Its structure is divided into a corporate structure and the operations structure. The CEO, Ombudsmen, Fiscal Council, and other committees form the corporate structure. Unlike other competitors, the company lacks a decentralized structure whereby the adoption of changes starts at the senior level. This kind of ownership is a comparative advantage to the company in that, it is able to adjust from diversity to low-cost strategy and improve profitability.
- Describe the ownership structure of Petrobras. What effect does this ownership structure have on strategy-making?
The company was established by the Federal Government in 1953 whereby it owns about 50% of the total shares. Such a kind of ownership makes the federal government maintain the power to elect most of the members of the company’s board of directors while the other stakeholders have a minor role to play in that perspective. Petrobras has four segments which include exploration and production, gas and energy, downstream, and international (Sewalk, 2014). All these segments are run by various stakeholders including the CEO, directors, managers, and other officers. As the company diversifies to low-cost strategies, the various leaders team up and contribute ideas to identify the areas which can be allocated lower costs and those that require higher costs in order to balance operations.
- Explain the term “downstream business”. Describe the downstream businesses in the Petrobras case.
Downstream business describes the situation whereby a business is closer to the end user. It involves the processing of materials into a finished product and selling it to the governments, other businesses, or private individuals. Petrobras Company converts crude oil into other products and such as gasoline, fuel oils, and petroleum-based product. It is also committed to transporting oil products to the final consumers.
- Describe Petrobras’s key resources and capabilities. What additional resources is the company looking to acquire? What capabilities is it looking to develop in the near future? Do any of these resources or capabilities provide a competitive advantage? Explain.
Petrobras’ main resources include high technology, skilled labor, and other facilities. The company is a global one is also backed by the government. Examples of resources include large domestic reserves, ability to attract partners, and vertical integration. It is also the dominant company in the Brazilian oil industry. The company is aiming to become the market leader in deep-water exploration. The company has impressive capabilities such as the culture, systems, and structure which can be re-designed to attain low-cost strategies. There is also a capability to improve employee compensation negotiations in order to reduce the costs of operations. It can also re-design the integrated network to improve the profit margins and reduce the costs. Having a government back up is advantageous to the company as it can enjoy low tax rates which improve the profit margins.
- Petrobras is facing a choice between two strategic growth options. Describe those two options and explain which stakeholder group is advocating for which option and why? Why are these growth options “strategic?
The coming demand for oil-industry vessels has placed the company between the choices of launching a shipyard or purchasing them cheaply from South Korea or Singapore in a short time and cheaply. Some junior partners and construction firms advocate for the launching of the shipyard who own the order book. A foreman suggested that the same job could be done at a cheaper cost and shorter time by hiring an experienced Asian shipyard. The two options are strategic in terms of short and long-term profitability because if the shipyard is hired, the costs may be lower but for a shorter time while having their own shipyard may cost a lot but in the long run become more profitable to the company.
- What does the term “social responsibility” mean? Explain the conflict between stakeholder groups in terms of the company’s need to be socially responsible.
Social responsibility is a term which suggests that an organization, entity, or individual has the duty to act for the benefits of the entire society. Some junior stakeholders suggest that launching a shipyard is a better option than hiring most of the materials which would create job vacancies for thousands of workers hence improving their economic status (Pita, 2014). Launching the shipyard will require recruitment of many workers for drilling and transportation of materials. In addition, it would lead to the production of enough gasoline for the increasing purchases of vehicles in the country. Contrary, some other stakeholders suggest that purchasing the materials from South Korea would have been cheaper hence saving some money which would mean that many people will lack the employment opportunities.
- If Petrobras’s ownership structure were purely “private” with no government ownership, which strategic option (in question 5 above) would you advocate and why?
If the company would become privately owned, I would advocate for a vertical integration which aims to reduce the costs of operation and diversification of operations to increase the profit margins. Without the government support, it would mean that the company will surely be required to fund all its operations, hence the need to cut down costs and increase productivity. It will also be deprived off some of the benefits such as tax exemption hence would need to increase profits to cater for the reduced government subsidies
References
Pita, I. P. D. F. (2014). Colep in the Brazil market: market growth versus declining competitive
advantage (Doctoral dissertation).
Sewalk, S. (2014). Brazil’s Energy Policy and Regulation. Fordham Environmental Law
Review, 25(3), 652-705.