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Strategic Management

In: Business and Management

Submitted By leeya
Words 4610
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Perspective

Ibrahim El-Husseini Jake Leslie Melville Sean Wheeler Satyajeet Thakur

Anchoring Success Effective Management of Energy Companies’ Shipping Interests

Contact Information Beirut Georges Chehade Partner +961-1-985-655 georges.chehade@booz.com Ibrahim El-Husseini Partner +961-1-985-655 ibrahim.elhusseini@booz.com Fadi Majdalani Partner +961-1-985-655 fadi.majdalani@booz.com Dallas Andrew Clyde Partner +1-214-746-6566 andrew.clyde@booz.com Dubai Dr. Ulrich Kögler Partner +971-4-390-0260 ulrich.koegler@booz.com Eric Dahl Senior Executive Advisor +971-4-390-0260 eric.dahl@booz.com Sean Wheeler Principal +971-4-390-0260 sean.wheeler@booz.com Satyajeet Thakur Senior Associate +971-4-390-0260 satyajeet.thakur@booz.com Kuala Lumpur Edward Clayton Principal +603-2095-2088 edward.clayton@booz.com London Viren Doshi Senior Partner +44-20-7393-3572 viren.doshi@booz.com Jake Leslie Melville Partner +44-20-7393-3425 jake.melville@booz.com São Paulo Arthur Ramos Partner +55-11-5501-6229 arthur.ramos@booz.com

Vivek Joshi, Kenneth Kanara, Tamer Obied, Sophie Outram, Anil Pandey, Abdul Rahman Saleh, and Sonal Singh also contributed to this Perspective.

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EXECUTIVE SUMMARY

For decades, major energy companies have been at the forefront of the global shipping of hydrocarbons. Producers have played an instrumental role in the development of all aspects of the business, including the design of the ships and the establishment of standards that ensure high-quality operational, safety, and environmental performance. However, shipping has often taken a subordinate role and even been viewed as a cost center as energy companies pursue broader goals, such as access to market, HSEQ (health, safety, environment, and quality) performance, and national industry development. As a result, energy company shipping assets have largely underperformed in commercial terms, and this has generally been accepted as a price worth paying by energy companies.
But pursuit of performance in an energy company’s shipping businesses is consistent with its broader priorities. Indeed, given the shipping business’s capital-intensive and volatile nature— and the consequent implications of underperformance—energy companies need to recognize that improving the commercial performance of shipping assets is a strategic imperative. Poor management of shipping interests can tie up hundreds of millions of dollars of capital unproductively. In time, energy companies may abandon or scale back their legitimate interests in shipping if the business proves to be a black hole, and divert management talent, focus, and capital to competing priorities. A systematic approach to strategy, operations, measurement, and organization can position energy companies to reap major benefits from their shipping assets, ensuring efficiency, profits, and synergy with broader strategic goals.

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KEY HIGHLIGHTS • Most major energy companies maintain in-house shipping capacity, though the scope of their commitment varies. • The shipping divisions of energy companies often do poorly in terms of commercial performance; the shipping divisions of international oil companies (IOCs) and national oil companies (NOCs) have comparatively low returns on capital. • It is imperative to expect high standards of commercial performance from shipping interests. Not holding such high standards is not only value destroying; it can compromise energy companies’ primary strategic reasons for maintaining shipping capacity.

THE GROWTH OF THE SHIPPING INDUSTRY

ship, and the biggest supertankers can carry more than 3 million barrels of oil in a single load. Throughout this evolution, energy companies have stayed the course and have been instrumental in the development of the shipping industry. Historically, major energy companies owned and operated at least some portion of their own tanker fleets, as a result of their interest in controlling the supply chains of their core product. As the shipping industry evolved, numerous independent shipping companies entered the market alongside incumbent energy companies, offering a viable alternative to energy companies’ practice of owning and operating shipping assets. This maturity in shipping led to the natural commoditization not only of crude and refined product tanker shipping, but also of other trades, such as LNG shipping, that were once considered specialized.

The shipping industry has evolved in step with the development of the oil industry, ever since the use of wooden barrels for oil transportation in the 1850s and the Nobel brothers’ creation of early models of the singlehull oil tanker in the late 1870s. The size of tankers has grown markedly since the middle of the 20th century: Today’s double-hull tankers and liquefied natural gas (LNG) ships are built for scale to transport large quantities of hydrocarbons from production sites to markets worldwide. Roughly 2 billion barrels of oil are transported annually by

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ENERGY PRODUCERS REMAIN INVESTED IN SHIPPING

Energy companies are still committed to maintaining shipping capacity, although the degree of their involvement varies (see Exhibit 1). Energy company rationales for involvement in the ownership and management of shipping assets are typically linked to some combination of the five factors below: 1. Strategic coverage: Maintaining control over shipping capacity is a significant consideration, especially

for NOCs in geopolitically unstable regions. Access to markets ensures business continuity and sustenance during periods of emergency. 2. Volume commitments: Because NOCs typically have a higher percentage of CIF deliveries than FOB deliveries, they have a greater volume commitment and baseload shipping capacity requirement.

Exhibit 1 A Representative Sampling of Energy Companies’ Transport Capacity

DEADWEIGHT TONS (IN THOUSANDS) 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 NOC 1 NOC 2 IOC 1 NOC 3 NOC 4 IOC 2 IOC 3 NOC 5 LPG Chemical Product Crude

Note: Excludes LNG fleets. Source: Clarkson Shipping online data, June 2009; Booz & Company analysis

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3. National industry development: Shipping presents some producer corporations with an opportunity to expand and diversify their countries’ domestic economies, and provides an avenue to create local employment and develop local skills.

4. HSEQ considerations: For IOCs that face strict regional regulations and public pressure in addition to international regulations, control over shipping provides a greater ability to manage risks by adhering to health, safety, security, and environmental rules that protect the primary hydrocarbon business.

5. Technological leadership: IOCs that are involved in highly specialized technological trades, such as LNG shipping a decade ago, can use control of shipping to position themselves less as commodity suppliers and more as end-to-end solutions providers.

Exhibit 2 Strategic Considerations Will Vary by Company

Consideration STRATEGIC COVERAGE/ ACCESS TO MARKETS

Relative Importance to NOC / IOC Low High National Oil Company (NOC) International Oil Company (IOC) Low High

COMMITTED VOLUMES Low NATIONAL INDUSTRY DEVELOPMENT Low HSSE CONSIDERATIONS Low High High High

SPECIALIZED TRADES/ TECHNOLOGICAL LEADERSHIP

Source: Booz & Company

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There are no definite prescriptions for how energy companies should rank these five strategic considerations (see Exhibit 2). In fact, energy companies should develop their own priorities depending on their unique circumstances. As a result, setting industrywide benchmarks for fleet size and operating models holds little value; each company will have different goals.

A more nuanced observation from our experience, and one that is much more problematic, is that some strategic considerations are explicitly recognized, whereas others are not. For example, many NOCs recognize that strategic coverage, or access to markets, is a vital consideration (see Exhibit 3). However, other key considerations—such as national

industry development—either are not formally recognized or are so vaguely alluded to that they are not meaningful in terms of shipping strategy development. As a consequence, there is often confusion throughout the organization regarding the true goals of shipping and how to evaluate its subsequent performance.

Exhibit 3 Energy Companies Maintain Varying Levels of Strategic Coverage

RELATIVE FLEET SIZES (REPRESENTED IN TOTAL DAYS OF DAILY PRODUCTION) 40 35 30 25 20 15 10 5 0 NOC 4 NOC 1 NOC 3 IOC 1 NOC 2 IOC 2 IOC 3 NOC 5 Fleet Size Ratio = Total Shipping Capacity (Barrels) Total Daily Crude Production (Barrels)

Source: Clarkson Shipping online data, June 2009; International Energy Agency crude production figures; Booz & Company analysis

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THE CASE FOR FOCUSING ON COMMERCIAL PERFORMANCE

The shipping divisions of energy companies often do poorly in terms of commercial performance: Booz & Company analysis reveals that the shipping divisions of IOCs and NOCs have comparatively low returns on capital. This is primarily because management often views shipping as a cost center. The shipping company is relegated to an operational support area with limited autonomy in decision making. The lack of emphasis on commercial results also provides little incentive to innovate or improve efficiency from within. Many key decisions (ship acquisition and sales, shipping revenues, ship utilization, ship availability, head office costs, and ship management approach among them) are made with only limited consideration of their impact on shipping returns—all such concerns are largely

subordinated to the real and perceived needs of the parent corporation. Unfortunately, this approach does not take into consideration the fact that the shipping industry’s financial dynamics can be unforgiving to halfhearted participants. There are two major sources of value creation (or destruction) in any shipping operation: assets and freight. Both can be extremely volatile, and the impact of incorrect decisions, or even just the wrong timing, can be very material. For example, the cost of a new very large crude carrier (VLCC) at the market peak would have been in the region of US$170 million. In June 2009, it would have been between $100 million and $120 million (see Exhibit 4). Freight markets can also move radically. The average time char-

Exhibit 4 The Cost of Tankers Varies Widely
VESSEL ACQUISITION COSTS (NEW BUILDS AND FIVE-YEAR-OLD SECONDHAND VESSELS) Crude Oil Ship Prices (in US$ millions) 19% 43% New Secondhand

160 140 120 100 80 60 2006

2007

2008

2009 June

80 70 60 50 40 30 2006

Refined Products Ship Prices1 (in US$ millions) 23% 42%

2007

2008

2009 June

1

Using Aframax as a proxy Source: Clarkson Shipping online data, June 2009; Booz & Company analysis

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ter rates for much of 2008 hovered above $80,000 per day; the rate has since dropped to $30,000 per day (see Exhibit 5). The consequence of being locked in at the wrong end of these deals is starkly obvious. As seen in the examples of VLCC costs or the fluctuation of freight rates, the stakes are high, and the threat of value destruction very real. As a result, it is not an option but rather an imperative to focus on maxi-

mizing performance in the shipping arena. In doing so, energy company management must address and dispel three main concerns and misconceptions involving the shipping business. Concern 1: The pursuit of commercial performance diverts management from its core purpose of supporting the strategic aspirations of the parent company. This need not be the case. Any beliefs to the contrary arise from executives’

taking the strategic considerations of their company not as directional aspirations but as firm mandates. The former approach lays out the boundary conditions that the shipping division must meet, while giving the division flexibility in how to meet them. The latter approach, lacking in adaptability, would not be responsive to fast-moving markets, whether in oil or shipping. Internal energy company criteria can rarely be defined so minutely as to dictate inflexible com-

Exhibit 5 Shipping Players Must Be Alert to Volatile Freight Rates

VLCC/ULCC Spot and Time Charter Rates1 (US$ thousands/day) 180 160 140 120 100 80 60 40 20 Oct 07 Nov Dec 07 07 Jan 08 Feb 08 Mar 08 Apr 08 May June July Aug Sept Oct 08 08 08 08 08 08 Nov Dec 08 08

Crude Spot Crude Time Charter Chemical Spot

Crude Spot Comparison Across Ship Types (US$ thousands/day) 400 350 300 250 200 150 100 50 0 Oct 07
1

VLCC Spot Suzemax Charter Aframax Spot Panamax Spot

Nov Dec 07 07

Jan 08

Feb 08

Mar 08

Apr 08

May June July Aug Sept Oct 08 08 08 08 08 08

Nov Dec 08 08

Based on 310,000 DWT D/H modern tanker. Rate quoted for a 300,000 DWT vessel until 12 Sep 2008. Source: Clarkson Shipping online data; Booz & Company analysis

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mercial decisions by the shipping divisions. There is a significant element of subjectivity in all general decisions, enough to warrant a large degree of strategic flexibility for shipping divisions, and through it the pursuit of commercially viable performance. Concern 2: Energy companies cannot do a good job of commercially managing their shipping interests. Contrary to popular belief, energy companies should have an easier task and do a better job of managing their commercial performance than would an independent shipping company. The reason for this is the relative abundance of capital within the parent energy company, which affords the best-managed oil divisions the privilege of taking a much more strategic view on market trends and having the financial muscle to make bold, valueenhancing decisions; independent shipping companies, by contrast, may have their hands tied owing to capital constraints. For example, not many shipping companies currently have the resources to buy assets at today’s

depressed prices. However, an energy company with a long-term strategic interest in building its shipping fleet might find the next few years an ideal time to do so for commercial sustainability in the long run. Two key components affect the profitability of shipping interests of energy companies. The first is capital decisions, including the timing of acquisitions and sales, decisions related to buying new or used vessels, and the selection of shipyards. The second is revenue; making sound freight market decisions and maximizing vessel availability will ensure that companies realize the full revenue potential of their shipping assets. It is important to note that the biggest sources of value creation or destruction in shipping are minimally related—if not unrelated—to actual vessel operations and consequent HSEQ risks. Commercial performance can be easily achieved without any increase to the risk or compromise to the reputation of the parent energy company.

Concern 3: The pursuit of commercial performance does not contribute to the achievement of energy companies’ primary strategic goal. The pursuit of commercial performance can be complementary to the achievement of the strategic goal on several fronts. For example, commercially well-managed shipping divisions are highly regarded by the parent company and find it easier to get support for initiatives that fit with the parent company’s strategic goals. In addition, an energy company with shipping assets that consistently perform well in the market will feel little pressure to abandon its legitimate strategic interests in shipping—which might be the case if the parent company views shipping as a black hole in terms of its capital. Finally, a well-managed shipping operation finds it easier to attract the brightest talent from the industry and from the parent company, increasing the likelihood that its success will be sustainable.

Energy companies should have an easier task and do a better job of managing shipping interests’ commercial performance than would a third-party company.

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MANAGING PERFORMANCE

Management can operate shipping divisions efficiently and contribute to the parent company’s strategic goals by taking a systematic approach to addressing challenges in four major areas—strategy, operations, measurement, and organization. Analytic and Dynamic Strategy In most cases, energy companies’ shipping divisions need to revisit their strategies to ensure overall coherence. The first step involves determining the explicit strategic considerations of the shipping division, which will also include institutionalizing implicit strategic considerations. Once the organization has defined its overall strategy, it should prioritize

the timing, setting parameters for what needs to be accomplished and when. Finally, once these strategic goals are clearly defined and set, it is imperative that they be articulated in the mission, vision, and values statements of the organization. This will ensure a common understanding throughout both the parent company and subsidiaries. A hypothetical example of an NOC seeking to establish its strategic coverage requirements during an emergency illustrates how important it is to define and institutionalize strategic goals. An energy producer seeking to ensure it can deliver an ample supply of oil during a crisis would begin by answering three questions: What are the planned export volumes during emergencies?

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What volumes would be handled by third-party shippers? What is the existing emergency shipping strategy? The first question identifies the volume of crude that the NOC would need to export to sustain critical public service obligations, such as defense, public infrastructure, public transportation, health care, and nutrition. The second question calculates

the volume that the NOC could offload to others. The last question requires the NOC to determine the number of ships that would be needed to carry the remaining volume not covered by third parties. The NOC would pinpoint the size and type of vessel it would need and the minimum voyage duration it would require to transport its volumes outside the emergency zone.

To further extend that example, consider a company that requires 3 million barrels of oil a day to satisfy its planned volume of exports and can use third-party shippers to handle volume of 1 million barrels a day. If that NOC had a 12-day round-trip plan (including a buffer to get its shipments out of harm’s way), a strategic analysis would reveal that it needs approximately 12 VLCCs to continue to operate (see Exhibit 6).

Exhibit 6 An Example of Analytic Strategy Setting

PLANNED VOLUME OF EXPORTS DURING EMERGENCIES

• Depends on volumes that are planned to be exported during emergencies, e.g., 100% or less of normal export volumes • Can differ across hydrocarbon categories • Planning assumptions need to be made on the availability of third-party ships during emergencies • Alternative export routes, e.g., pipelines, should be subtracted from volume calculation • The size of ships must be taken into account

3 million barrels / day

VOLUMES THROUGH THIRD PARTY/ OTHER ROUTES

1 million barrels / day

SHIPPING EMERGENCY STRATEGY

• The duration of standard emergency round-trip voyage must be taken into account

12-day round trip (including 4-day buffer for emergency delays)

Approx 12 VLCCs

Source: Booz & Company

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Booz & Company

Once a base fleet strategy is set, it is critical to keep this strategy dynamic, recognizing that the operating environment is not static but evolves continually. Just as energy companies adapt their hydrocarbon strategies to changing market environments, so should their shipping subsidiaries.

For example, in a tense geopolitical climate experiencing full-scale active conflict, commercial considerations can be abandoned entirely. At the other end of the spectrum, if the geopolitical situation is not dire, the shipping subsidiary of an energy company can seek to reap shipping

profits and maximize asset returns (see Exhibit 7). Clear and Efficient Operating Model There are two overarching objectives for shipping operating model clarity

Exhibit 7 Managing Trade-offs Between Commercial Expectations and Strategic Objectives

Geopolitical Situation and Resulting Coverage Needs

Worst Case

No-go Area—Profitability expectations to be progressively de-prioritized as geopolitical situation deteriorates (as an example)

Status Quo Potential range for prioritizing commercial performance in different scenarios

Best Case Low High Expectation of Shipping Arm to Deliver Commercial Performance

Source: Booz & Company

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and efficiency. The first objective is to put the goals of the enterprise, or parent company, first; a shipping subsidiary always is aimed at driving the results of the parent company, not of itself (i.e., “enterprise first” behavior). The second objective involves a fair recognition of the performance of the business, the

transparency of costs, and returns on shipping assets. These twin objectives manifest themselves in several operational areas, such as the commercial arrangements between the parent company and the shipping arm for the use of shipping assets, decisions on the operational and office footprint of the shipping division and their

associated cost implications, and the overall ship management approach. The objectives of enterprise-first behavior and fair market value can be addressed to determine commercial arrangements between the parent company and its shipping arm for the use of assets (see Exhibit 8).

Exhibit 8 An Example of a Framework to Guide the Commercial Relationship Between the Parent Company and the Shipping Subsidiary

Encourages the Right Behaviors

Yes

Spot Price Basis

Time Charter

No

Cost Plus Basis

No

Yes

Reflects True Shipping Costs/ Returns to Parent Company

Source: Booz & Company

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In this illustrative situation, compensating a shipping division for its costs incurred plus a fixed margin (cost plus) for hypothetical revenues would meet the objective of providing transparency in shipping costs and returns, but would fail in the encouragement of enterprise-first behaviors, as the shipping division

has limited incentive to manage its costs or revenues. Similarly, compensating a shipping division for the prevailing spot price for vessel fixtures would encourage the right behaviors all around, but would not give a transparent assessment of shipping costs and

returns, as it ignores the fact that the parent company has already made the shipping investments and locked in capacity, and spot price fixtures could therefore be an inaccurate simulation of true shipping returns. In this particular example, a time charter based on prevailing market

Enterprise-first behavior and an accurate reflection of asset costs and returns should be the guiding principles of the relationship between the parent company and its shipping arm.

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prices or a relationship on similar terms between the parent company and the shipping arm could both encourage right behaviors and give a fair reflection of shipping returns. The shipping unit would be encouraged to simulate responsible management because its payments are market linked. And this arrangement recognizes the fact that the asset commitments have already been made, and thus effectively simulates shipping returns for the parent company. Accurate and Effective Metrics Performance management is critical, but it is often used by organizations

as a mere reporting tool. In fact, a performance management system that is closely aligned with a company’s strategy provides leadership with the right level of detail and insight into the organization to manage its performance actively and efficiently. In turn, this drives the right balance of strategic and tactical behaviors across the organization. Performance management, however, can be a daunting task. A number of key principles can help management guide the business. 1. Break down the strategy into measurable components—such as coverage, HSEQ, cost, revenue,

employees, social responsibility, and customer satisfaction. 2. Identify performance indicators for each component that will provide senior management with the most appropriate level of detail to determine whether the organization is achieving its strategic and commercial goals. Indicators should link to measurable targets that are assignable to a responsible individual. 3. Ensure that these indicators form the basis of conversations between the leadership of the shipping division and the parent, and between the management and leadership of the shipping division. The fre-

Performance management is critical, but it is often used by organizations as a mere reporting tool.

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quency of discussions will ensure that leaders on both sides (parent and subsidiary) have the ability to intervene and mitigate any critical problems, if necessary. 4. Tie the indicators to individual performance appraisals and rewards, strengthening effective consequence management. Building Blocks of the Organization The final challenge for management concerns building an organization that will achieve high performance—fusing together five discrete capabilities: Organizational structure. The right structure will drive accountability and transparency throughout the organization. From a structure perspective, a

clear delineation between corporate, operational, and support activities is particularly paramount. Process efficiency. Clearly mapped processes and clarity on decision rights for individuals and groups (e.g., committees) help smooth interfaces and increase organizational efficiency. The most critical decision-making process in this business involves the use of capital—timing the purchase or sale of ships and deciding whether to invest in new or used ships, for example. The speed and efficiency of this process is key to the long-term commercial sustainability of the shipping business. Human capabilities. Having the right quantity and quality of people, with a focus on employee development, is a key component of organizational sustainability. Energy company ship-

ping units need to focus on hiring, empowering, and retaining senior and middle management to ensure that they have the right mix of strategic and operational expertise. Technology. Having appropriate fit-for-purpose technology platforms to aid the execution of the business improves organizational flexibility and responsiveness. Companies need to determine where they really need automation and focus their investments in discrete areas. Key interfaces. The shipping company should be organized in a way that provides clarity on the relationships with important constituents of the parent company, particularly those in supply and trading functions as well as special project coordinators and corporate strategic planning departments.

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CONCLUSION

For too long, shipping divisions have not played a central role in the corporate strategy of many IOCs and NOCs. Top commercial performance in the shipping divisions of energy majors is not an option; it is an imperative that can be achieved. Energy producers need to realize that shipping operations can enhance strategic goals. Furthermore, with a systematic approach to managing

performance, energy companies can nurture top-quartile performance from their shipping operations while reaping the benefits for the parent corporation. Continuing to regard these operations as a corollary business is likely to result in a huge missed opportunity that can prove to be severely detrimental in the long run in terms of strategy, finance, and impact on people.

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About the Authors Ibrahim El-Husseini is a partner with Booz & Company in Beirut. He leads the energy practice in the Middle East, and has more than a decade of experience in advising regional oil, chemical, and other energy companies on strategic transformation. Jake Leslie Melville is a partner with Booz & Company in London. He specializes in strategy and organization structure for national and international energy companies in Europe, the Middle East, and Africa. Sean Wheeler is a principal with Booz & Company in Dubai. He specializes in performance management for major energy corporations in the Middle East and Europe. Satyajeet Thakur is a senior associate with Booz & Company in Dubai. He specializes in strategy and operational performance for energy and maritime industry clients, and has several years of deep operational experience in the maritime industry.

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The most recent list of our offices and affilates, with addresses and telephone numbers, can be found on our website, www.booz.com

Worldwide Offices Asia Beijing Delhi Hong Kong Mumbai Seoul Shanghai Taipei Tokyo Australia, New Zealand & Southeast Asia Adelaide Auckland Bangkok Brisbane Canberra Jakarta Kuala Lumpur Melbourne Sydney Europe Amsterdam Berlin Copenhagen Dublin Düsseldorf Frankfurt Helsinki Istanbul London Madrid Milan Moscow Munich Oslo Paris Rome Stockholm Stuttgart Vienna Warsaw Zurich Middle East Abu Dhabi Beirut Cairo Dubai Riyadh North America Atlanta Chicago Cleveland Dallas Detroit Florham Park Houston Los Angeles McLean Mexico City New York City Parsippany San Francisco South America Buenos Aires Rio de Janeiro Santiago São Paulo

Booz & Company is a leading global management consulting firm, helping the world’s top businesses, governments, and organizations. Our founder, Edwin Booz, defined the profession when he established the first management consulting firm in 1914. Today, with more than 3,300 people in 60 offices around the world, we bring foresight and knowledge, deep functional expertise, and a practical approach to building capabilities and delivering real impact. We work closely with our clients to create and deliver essential advantage. For our management magazine strategy+business, visit www.strategy-business.com. Visit www.booz.com to learn more about Booz & Company.

©2010 Booz & Company Inc.

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...Strategic Management and Strategic Competitiveness Paul Warren Strayer University BUS 499 Dr. Hase November 2, 2014 Assess how globalization and technology changes have impacted the corporation you researched What is Globalization? How does it affect a company? What does it do for a country? What are some major benefits of going global? Who are the recipients of these benefits, if there are any? Let’s get started by answering the first question. “Globalization is the increasing economic interdependence among countries and their organizations as reflected in the flow of goods and services, financial capital, and knowledge across country borders” (Hitt, Ireland, Hoskisson, pg. 9. 2013). Starbucks, an American company headquartered in Seattle, Washington is one of the most global companies I know of with more than 20,000 stores in over 50 countries around the world. I have had the opportunity to enjoy the taste of home in at least 5 different countries, which are almost the same as home but more geared to the host country tastes. As you can see, going global allowed for expansion into different markets around the world, which in return lead to countries who supply products to reach those markets as well. For instance, Starbucks by coffee from places such as Africa, Latin America and Asia by doing so this creates jobs in those areas and increases export of goods. These are major benefits from all parties involved. Coffee drinker benefit the most as they...

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... Latrice Smith BUS 499 Week 2 Assignment 1: Strategic Management & Strategic Competitiveness Dr. Machuca 7/13/2014 Globalization is a concept that can be positive as well as negative as it refers to companies around the world and the effects it has on the global economy. Globalization can be referred to as a global movement that is integrating economic, financial, trade, and communications. Globalization will continue to be a force around the world because the global economy is continuing to be more dependent on each other. Even though globalization has been going on for centuries, there has been a new wave of policy and technological developments that have increased relations between trade and investment, and has led to a newer phase of global economic development ("What is globalization | Globalization101", n.d.). A positive outlook on globalization is the fact that there has been a reduction in the prices of goods and services throughout the world. It is reported that the volume of world trade has increased by 20 times, and the foreign investment between 1997 and 1999 has doubled from $468 billion to $827 billion ("What is globalization | Globalization101", n.d.). The negative aspect of globalization can be seen as a downfall for some companies that have not been keeping up with the demands of globalization and contributing to the some economies that are not the most stable because of unemployment and companies closing. Some can also argue that......

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