Motivations behind the Joint Venture
The term can be defined as an agreement or any other arrangement which is entered or signed by two or more business entities and in which the operations and the functionalities of failing business are merged although each firm possess its separate legal entity (Anomohanran, 2012). The concept has been considered as very much empirical for the execution of the documentation of oil and gas transactions. Regulating the roles and responsibilities in a joint venture are the main function of JOA. And now-a-days JV has been considered as very much critical component which plays a crucial role in the successful completion of the complex and risky projects of the oil and gas industry. Huge capital and labour investments are the major factor which are liable in increasing the level of risks in all the major projects in energy sector. Joint ventures comprises of a very major part of most of the agreements in the oil and gas sector as observed from the research, around 70% of the total upstream investment has been made by making use of joint venture. For a successful competition of the projects the business corporations require a good amount of capital, professional experts and assets and which is also accumulated by the business entities by participating in JV. The below presented report has been made focused on joint venture agreement which are agreed between the two multinational corporations which are alo top leading brand names in the oil and gas sector. Mobil and NNPC are the organizations who have done participation for a joint venture with the motive of fulfilling the crucial requirements in Nigeria. 60% of the equity interest is the holdings of NNPC whereas Mobil holds 40% of the equity interest of the joint venture (Shuen, Feiler and Teece, 2014). The below presented report will be further focusing on identifying the factors which activates this joint venture agreement between the two multinational corporations. Moreover, the advantages and the challenges of the joint venture mechanism will be highlighted. The report will also comprise of some effective recommendation so as to enhance the efficiency of the joint venture process in the oil and gas industry.
It has been mentioned by the author that there are varied number of factors which provides their contribution for building the decision of the two business entities incoming or creating an agreement for joint venture and that too in oil and gas sector. In case of NNPC, the business corporation experienced a high level criticism due to agreement of the joint venture with the multinational corporation Mobil (Teka, 2012). A numerous concerns have been raised for the outsourcing of energy with the engagement of international business organizations. On the basis of an executed survey, limelight has been provided on the fact that the faults and the errors in the Nigerian arrangements were not deeply sealed with joint ventures. Moreover the increasing demand has made the business entity to provide the focus on the utilization of help of international business corporations and this should be done so as to ensure the demand for energy by the nation needs to attained and accomplished in an effective way. The below mentioned are the motivational factors behind the joint venture between NNPC and Mobil:
Risk Mitigation
Risk mitigation:
The oil and gas corporations involves numerous processes which are very much challenging and experiences a high level of risks factor which are very much liable in impacting the day-to-day operations and functionalities within the business entity (Mitchell, Marcel and Mitchell, 2012). Three are varied risks involved which are pertaining to the oil and gas corporations for instance the risks can includes the threats to lives of the individuals who are working in the plants and the working units and also who are connected to the operations and the damages can be caused to the infrastructure and the machineries. So for maintaining a sense of safety the business organizations are required implement some safety measures and standards for all the operations and functionalities executed within. This will be enabling the workforce to work fearlessly and which in-turn will improve their efficiency and productivity. Tis will also be aiding the business entity in the form of an increase in the profits and developments in success.
Capital intensive:
Capital has been considered as one of the major and basic element for any project or business and so is for the oil and gas industry. The oil and gas projects are too much capital intensive and it activates and makes the multinational corporations to invest huge amount on the onset project development (Ovadia, 2012). It has been proven very much difficult for the single business entities to handle the business operations which are considered as very much crucial and can develop huge burdens over the organizations and hence the need of the making or adapting the concept of joint venture strategy for segmenting the necessities of the operational procedure. Moreover, JV aids the business entities by providing the solution for the problem of massive investments as the corporations in the joint venture will be dividing the capital required and which will decrease the burden for a single organization. This will be enhancing the performance level of the business operations and the procedure.
Technology limitations:
Due to modernization and globalization it has become very much crucial for each and every business entity to make an, effective utilization of the most contemporary methodologies and procedures and which is considered as very much significant for the successful fulfilment of all the requirements (Hu and Xu, 2013). In fact, the energy sector is slowly drifting away from the conventional technological process for keeping up with the increasing challenges in the market (Keil 2014). Nigeria has been rated as one of the technologically updated and advanced region. And for making the fulfilment of the upstream responsibilities the economy will be taking the assistance of the top multinational organizations. On the basis of the research executed it has been concluded that the top business organizations in oil and gas sector has made investments in the research and development activities. And this will also be enabling the business entities in overcoming the technological limitations.
Capital Intensive
As per the analysis executed the concept has been referred as the reflection for a strategic alliances and which is essentially executed between two or more multinational corporations for a purpose of carrying out a specific and attaining some common goals (Aron, 2013). A corporate and commercial organization will be described where both the business entities who are into the agreement will be joining their forces so as to attain the strategic and competitive and tactical edge in the market place. There are varied joint ventures with distinct descriptions and nature which comprise of joint venture and marketing joint venture and these forms are considered as very much common in the energy sector. Joint operating agreements has been developed by the NNPC so as to execute and perform the responsibilities concerning to the operational procedure (Ey 2017). The joint operating activities has made the sharing of every available resource an easy task for performing all the provided responsibilities. The below discussed are the challenges and the benefits of the oil and gas sector in the joint ventures.
The author wants to explain that over flexibility in functionalities and business operations can result into major confusion in upstream projects. A proper coordination is required by all the departments for carrying out crucial and complex projects in oil and gas sector (. And as a result the joint ventures can be proven as a challenge for managing a balance between conventional approach and flexibility which can be utilized for the execution of all the fulfilments of the operational activities (D’Alimonte 2017). And hence it is the duty of the managers or the senior authorities of avoiding any chances of confusion within the organizational structure and the operations carried out.
Coordination lacking:
It has been observed that the business corporations having and operating business in varied working cultures are expected to have variations in the values, morals and principles and also the operational activities and activities (Harjoto and Jo, 2015). The business organizations in joint ventures are stimulating the employees that too from different entities for working together so as to develop a sense of co-ordination. But as per the survey it has been observed that variations in culture and values can actually create challenges for the organization in maintaining coordination among the employees (Douglas 2016). Therefore, it can also create major impact on the effectiveness of the operational procedure. A number of unwanted situations and issues can be developed in the organizational structure and also communication gaps can be developed due to the cultural differences in the business entity.
Technology Limitations
Assets and liabilities
The term is concerned with motivating and inducing the workforces of both the organizations who are in the joint venture and also utilizations of capital and other available resources are done (Exarheas 2015). By making the involvement of the asset can also develop the chances of confusion while claim done by the other parties involved in the joint venture. And due to which the business entities in this agreement will be motivated for the utilization of royalty and confidentiality contract so as to avoid any of the legal issues which can be developed due to the legal claim made. And due to this complications will be increased in the operational activities and functionalities.
Flexibility in nature
On the basis of the research executed it has been analysed that the business entities in the energy sector require a particular kind of organizational structure (Adewuyi and Oyejide, 2012). Three will be an enhancement and also growth and development will be observed in the flexibility of the nature of the business entities due to entering in the partnership agreements. It has also been noted by the author that the utilization of joint venture procedure allows the business corporations for switching from conventional operational activities to fulfilling all the responsibilities. For instance, both the business entities in the joint venture have been benefited from the emerging opportunities of the introduction of contemporary mechanisms and updated technologies and will, also be enhancing the performing and productivity capacity (Forbes 2017). Moreover the business organization will be adding flexibility in the functionalities and operational activities and which will improve and enhance the tackling strength of the firm.
Sharing expenses and profits
The term joint venture means sharing all kind of profits and losses between the parties involved in the agreement of the venture or business. This will allow both the business entities to share all the gains and expenses incurred during the execution of the operations and business activities (Beamish 2013). This approach will be making the burden light by segmenting the profits and losses incurred by the business entities which were earlier liable over any one single firm. For instance, under the approach of tactical joint venture the business entities are allowed to work or operate the business as per their specialization and in the sector in which they can perform best (Killing, 2012). This will be proven very much for the firms as will be enhancing the performance level of the operational procedure.
Challenges and Benefits of Joint Ventures in Oil and Gas Sector
Learning ground
As the joint venture is the amalgamation of the two business entities from two different regions and culture and which will be allowing the introduction of new and updated technologies, approaches and mechanisms (Nigerian National Petroleum Corporation 2017). This will be enabling the employees to learn new and better improved techniques and procedure and which will bring enhancement in the knowledge and capabilities. This will develop mechanisms which will aid the employees to work in the best possible ways so as to perform in the best manner. For instance, the workforce of NNPC will be having new opportunities for developing communication skills by interacting with the individuals who are from different geographical and cultural background (Yan and Luo, 2016). And this in-turn will aid the employees of the entity by developing new skills and capabilities which will enhance their efficiency and productivity.
- In the limelight off the above executed analysis it has been concluded that joint venture approach has emerged as an approach which will be aiding the business entities who are engaged in the agreement by making the complex operations and functions included un the oil and gas sector. So by managing an effectiveness in the utilization of the strategies involved in joint venture will allow the business organizations to perform all the involved complex responsibilities in a better manner.
- Moreover apart from number of benefits there are many limitations and challenges which are required to be faced by the business entities. So in order to deal with the challenges and issues the employees are required to be provided with proper training sessions and guidance over the concerning topics. The training sessions can include sessions over communications skills and interaction rounds, improvement in techniques and capabilities to work in a coordinated manner.
- Further the leaders and seniors authorities are also required to get an appropriate training sessions for managing the diverse workforce from the different cultures and regions. This will aid them in developing new and improved relations.
- Also the business organization needs to evaluate and analyse the capacity and offerings of other organization so as to develop a flawless and strong agreement. As this will enable them to assess the requirements regarding number of aspects such as the capital required, approaches and mechanisms required, governing authorities and norms and regulations to be considered etc.
- Also the business entity is required to be fair and behave in an un-biased for the employees that rare from the other organization so as to develop a sense of uniformity and equality.
Conclusion
From the above executed analysis it has been inferred that the joint venture strategy has been proven beneficial and also has affected negatively to the business organizations which are agreed for the contract of joint venture. The strategy enables the business corporations in handling the complex tasks and operations in an efficient and easy manner. The analysis also comprises of the reasons which stimulate the business organizations to adapt the approach of joint venture and further it also includes the benefits and the negative aspects which will be experienced by both the business corporations during the execution of the operations and functionalities while being in the contract.
References
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