Introduction
Global expansion is a growth approach or framework used by organizations when enlarging their operations into new international markets. Expanding company business globally helps firms enlarge the market of operations, enhancing faster organizational growth, giving access to new international talent, and significantly boosting profits following an increased revenue. In addition, widening the business market helps promote company stability by creating new streams of revenue which can be used to support the organization’s growth. In the case of Chevron corporation, the company is not new to global expansion, but that does not mean it should not seek to continue growing its operations market. The company can consider expanding its operations and business to Pakistan. Pakistan was founded on 14th August 1947 after gaining its independence from Britain. It is located at the crossroads of South Asia, the Middle East, and China and has a population of over 220 million (Kiran et al., 2022). Following the high population, Pakistan possesses a sound potential for development, making it a good expansion market for Chevron corporation.
The Diamond of National Advantage
The success of a company entering a new market depends on the country it is considering for expansion. This success is measured by four vital attributes of that country in relation to the diamond of national competitive advantage approach (Kiran et al., 2022). According to the model of diamond of national competitive advantage, countries or nations have the ability to develop new factor advantages such as skilled labor, strong technology industry, infrastructure, and government support. In addition, the diamond of national competitive advantage model can be regarded as a corporate approach to explore the aligned advantages of expanding operations and investments in various potential markets. Its elements include industry rivalry, demand conditions, related and supporting industries, and factor endowments.
Industry Rivalry
Pakistan has made substantial progress in its support for businesses, both small and medium businesses. In Pakistan’s oil and gas industry, the country has witnessed stiff competition from companies that operate in this industry (Harianawala & Aziz, 2017). The country’s top oil and gas firms include Shell corporation, Total energies, and the Attock oil company. Shell Pakistan is considered one of the top suppliers of lubricants in Pakistan, which portrays its market competitiveness in the industry. Moreover, Total energies and Attock oil company provide consumers with hydraulic fluids, transmission and axle oils, and grease oils, among other products. These companies offer products that are almost similar to those in Chevron hence setting high competition in the industry.
Demand Conditions
The gap between the total overall energy demand in Pakistan and its local production has significantly widened, mostly because of disinterested investors in the country’s refineries sector. Furthermore, the available refineries refrain from increasing their infrastructure and capacities to support production. As a result, Pakistan’s refineries opt to import purified products from global companies and combine them with their local productions to meet energy demands and increase their profits. Moreover, Pakistan has experienced an acute crisis and demand for energy since 2004 following the significant population growth rate in the country. Due to this, it has resolved to use coal, natural gas, oil, and liquefied petroleum gas has grown to accommodate the surging demands in the country’s energy sector (Rehman & Deyuan, 2018). This has been mostly caused by a lack of modeling tools in policy development and planning of power, poor governance as well as overdependence on imported sources of energy.
In addition, the shortage of energy supply has been largely contributed by the insufficient production of energy that can adequately satisfy the required demand. This results from poor financial conditions, lack of enough energy supplies and exploration activities, improper distribution of resources, and debt recycling (Raza et al., 2022). As a result, it has caused a significant rise in the demand for energy in Pakistan that can effectively support the industrial sector and promote economic growth and development. This creates an opportunity for Chevron to enter and fill the energy demand gap.
Related and Supporting Industries
The growth and success of Pakistan’s oil and gas industry are supported by industries such as the agricultural and transportation industries. The agricultural sector supports the energy industry as it is nearly fully dependent on oil for pumping water used in irrigation and land cultivation and relies on gas to produce fertilizers (Pellegrini & Fernandez, 2018). In addition, the agricultural sector use products such as lubricants and petroleum oils to fuel and enhance the efficiency of farming machinery such as harvesters, tractors, and grinders. Furthermore, the increased population growth in Pakistan has promoted the demand for automobiles in the road transport system, which requires efficient supply by the oils and gas industry. Moreover, there has been an increased demand for air transportation which largely relies on the oil and gas industry to be able to operate effectively.
Factor Endowments
Factor conditions are the pillar and foundation of any economy as they take up a key role in the economic development of any nation, thereby increasing its competitive edge in trade. These forces involve integration and a blend of basic and advanced factors. The factors conditions of production in any nation lie in human resources, infrastructure, and domestic or natural resources. Pakistan has 2p oil reserves with approximately 568 million US barrels as of 2019. In addition, the country owns 2p gas reserves with a volume of about 21.45 trillion cubic feet by 2019 (Pakistan Ministry of Energy, 2020). These reserves were discovered due to the aggressive exploration and production activities set by the country. This offers a market opportunity for companies that operate in oil and gas production and exploration, such as Chevron.
Moreover, Pakistan contains huge numbers of human resources following its substantial population growth. The country has largely invested in training and equipping its human resources with the skills that enhance its competitiveness, especially in the industrial market. This is because the growth of any country’s economy lies in the development of human resources to ensure skill mismatch in the labor section is reduced and improve competitive advantage. Additionally, Pakistan has a wide network of oil pipelines that covers almost 300km from Karachi city to Machike and Faisalabad stations (Pakistan Ministry of Energy, 2020). Furthermore, the country has gas distribution and transmission pipelines, liquified natural gas terminals, and auxiliary systems and equipment.
Forces That Will Help the Organization Succeed in the New Country
The successful expansion of Chevron into Pakistan can be enhanced or promoted by forces such as company involvement and participation in Corporate Social Responsibility (CSR) activities, having a wide product portfolio, and its ability for the complete integration of its products. Corporate social responsibility activities will help Chevron improve its public image by communicating to its customers the company’s commitment to helping better the society, thereby enhancing consumer loyalty (Newman et al., 2020; Pfajfar et al., 2022). Moreover, CSR activities will help market and promote the company’s brand and reputation, giving it a competitive advantage over its rivals.
In addition, having a broad array of products allows Chevron to have increased chances of satisfying more of its customers in relation to their tastes and preferences. Furthermore, a wide product range will help enhance Chevron’s brand awareness and give it a competitive advantage as it may be able to provide products that are not available in the market, which will decrease competition and give it a competitive edge. This is because product diversification enables an organization to produce different and unique product options, which increases the scale of profitability (Shaturaev, 2022). Moreover, the production of different products helps meets the preferences and needs of various market segments or types and protects the company from season variations (Arte & Larimo, 2022). Lastly, the company’s ability to integrate its products completely will help reduce the cost of operations and optimize the business processes.
Forces that Will Hinder the Organization’s Success in the New Country
As much as a global expansion brings forth growth opportunities for companies, it is also accompanied by challenges to successful expansion. For instance, the market entry of Chevron corporation into Pakistan can be hindered by substitutes, competition or rivals, the threat of new entrants, and high start up costs of expansion. Firstly, competition in industry operations threatens a company’s market share, decreases the customer base, and shrinks product prices to maintain a competitive advantage (Bruijl, 2018). In the case of Pakistan, its oil and gas industry is filled with rival companies, including Shell Company, Total energies, BP Pakistan Exploration and Production corporation, and the Attock Oil Company.
Secondly, the threat of new market entrants acts as a significant barrier to the successful expansion of Chevron, especially when they have a similar line of products. This will considerably hinder the company’s operations and will impact chevron’s market competitiveness, making it challenging for the company to stabilize in its new environment (Bruijl, 2018). Lastly, the high start up costs can also be taken as a barrier during expansion. Following Chevron’s experiences with increasing debts, it can be difficult to enlarge its operations as the company might lack the necessary financial resources to support solid and successful expansion into the new or potential market.
Adjustments Leaders Must Make When Expanding Internationally
Leaders in every organization planning to expand its operations globally are faced with significant barriers and will need to prepare on how to handle and get past them. As a result, various adjustments will need to be considered to ensure that the organization is ready for new market entry. These adjustments include developing managers or leaders with a global mindset and possessing cultural sensitivity. Additionally, executives will have to determine the involvement level as well as decentralize the company structure to enhance the empowerment of local leaders.
A global mindset means that leaders must be aware and open to cultural diversity but can grow and produce products amid this difference. This means that leaders will have to be flexible to diverse cultures globally to promote the effectiveness of the organization (Subrahmanyam, 2018). With this, the managers will have to combine and align the company’s international operations approach with the local organization and market needs. Therefore, a global mindset enables leaders to overcome the barrier of not being able to associate with diverse cultures globally. Conversely, having cultural sensitivity implies that there is awareness, cultural understanding, and reduced cultural bias. Thus, leaders will have to learn and adjust to the cultural diversity of the market of entry, enabling the given corporation to meet the preferred preferences of its customers (Nosratabadi et al., 2020). Therefore, leaders will have to develop a great understanding of the target market’s cultural differences, which will demand wide investment in effort and time to facilitate learning and appreciating the new culture, especially in the ways of doing business.
The involvement level of a company, as well as commitment to international markets, is a key factor that any organization will need to determine when considering expanding to new potential markets. For this reason, the company will need to determine if it will conduct its business in the foreign market as a passive exporter, a fully developed international market operator, or any other level of commitment and involvement (Robles & Jauregui, 2017). As a result, various levels of involvement enable corporations to categorize and explore different types of operations involved when expanding businesses and determine their entry strategy to potential markets.
Lastly, decentralization is an adjustment that allows top management to give middle or lower subordinates the authority to take up vital decision-making roles. This specifically works when individuals that understand a specific market and culture are allowed to run the business in the region. This improves the company operations efficiency as coordination is easily achieved and eases the expansion process (Jurado & Leon, 2020). One way that leaders can decentralize is by acknowledging the view of other employees, particularly when they are knowledgeable about the potential market’s culture and traditions.
Recommendation
Chevron corporation should consider expanding its operations into Pakistan since the country has a high demand for oil, gas, and energy. With the high population of Pakistan and its oil and gas reserves, Chevron will be able to expand its operation and market, thereby enhancing business growth. Moreover, it will be able to expand its customer base, leading to increased brand awareness and income revenue. In addition, the company will have a plan for funding that will support smooth and successful expansion to the new market while avoiding bankruptcy.
Conclusion
In conclusion, the paper has covered Pakistan as a potential market for Chevron. The elements of the Diamond of National Advantage have also been discussed, including factor endowments in respect to the selected country, industry competition, demand conditions, and related and supporting industries. Furthermore, the study has examined the factors that will facilitate Chevron’s successful entry into the new market, including its extensive product portfolio, capacity to fully integrate its products, and Corporate Social Responsibility (CSR) initiatives. On the other hand, factors like competition, the risk of new competitors, and hefty startup costs prevent successful expansion. Furthermore, the paper has explained the adjustments leaders must make when expanding globally, including developing managers or leaders with a global mindset and cultural sensitivity. Finally, chevron should expand its operations into Pakistan due to the high population and oil and gas reserves present in the country.
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