The Metamorphosis of (a) Shell

Little Digression: Dear SOStainable people! My holidays as a fresh business administration graduate are about to finish unfortunately. Other than fun, friends and, hence, mindfullness, my summer was characterized by the absence of my PC. I will not go in detail about this because it is pretty embarassing, I will just take the occasion to remind you to avoid putting electronics close to liquids in your backpack :).

The current year I will be attending a Sustainability Master still at EUR RSM. I really hope this master will boost my confidence and passion for the discipline while transofrming me in a full-fledged curious and proactive young professional and positive change advocate.

I'll finish this digression now and leave you to today's article, no spoilers on this matter, you'll have to explore Shell's journey by yourself :). For any question/remarks/suggestions/feedback etc feel free to contact me :).

Intro: Royal Dutch Shell plc is a titan of the oil and gas industry that extends its reach across over 140 countries all around the world (Shell.com, n.d.). This global presence immediately suggests that Shell fulfills a key requirement of a multinational enterprise (MNE): control over multiple foreign assets (Shell.com, n.d.); (Brown, 2024). In fact Shell has a central parent company in London orchestrating a network of subsidiaries and foreign affiliates all around the world, thus making it a full-fledged MNE (Brown, 2024). The Uppsala Model and the OLI framework are exploited in part A to analyze the factors behind Shell's strategic internationalization approach throughout their historical background. In Part B, key theories that inform Shell's choices on current and potential new geographic selection are outlined. From this, the paper critically discusses the overall company's past internationalization approach and illustrates potential future actions Shell should implement to ensure keeping up with its dominance considering the switching global energy market trends.

Part A: The history of the exploration of Continent Oil

• The Uppsala Model:

As mentioned before, Shell's progressive rise and internationalization is reflected by the Uppsala Model. Looking back at the beginning of its history, Shell's focus on importing seashells from closeby locations in the 1830s to 1880s can be considered an initial gradual cautious approach to internationalization that immediately helped Shell start to address and mitigate "psychic distance" – a concept according to which culturally and geographically distant markets are scarier and less likely to be ventured (Brown, 2024). Finally, importing seashells laid a solid basis to the company to gain experience for the creation of an import-export business (Shell.com, n.d.). This allowed the importing distance to geographically increase after the 1880s, when they started importing seashells from the Far East (Shell.com, n.d.).

Throughout the early to mid-20th century, Shell established Shell Chemicals, a sales subsidiary with the aim of advancing the refinement of chemicals from oil and thus learning new core competencies in the sector (Shell.com, n.d.). In the Uppsala framework, This showcases their evolving market knowledge and willingness to expand beyond established core business activities and markets while further mitigating psychic distance (Brown, 2024).

•  The OLI Framework:

Shell’s early focus on building knowledge and core competencies on producing and exporting oil helped the company establish a strong ownership advantage (Shell.com, n.d.). In 1892, the commissioning by Shell of the Murex, the first oil tanker specifically designed for exporting via the Suez Canal, markedly revolutionized oil transportation by significantly reducing costs, thus allowing Shell to obtain a competitive in terms of economies of scale by owning this export asset (Shell.com, n.d.).

Throughout their whole history, securing strategic resource-rich strategic locations became a cornerstone of their dominance. Shell actively explored and established their presence in new oil-rich regions such as in Russia in the late 19th century and in Venezuela and Mexico in the early 20th century. Developing relationships with each of these markets helped Shell navigate the shades of each specific market and thus gradually build brand recognition in these diverse markets (Brown, 2024). Moreover, their discovery of oil deposits in Nigeria in the 1930 was pivotal for establishing the country as a major oil producer for the continent and Shell as the continent’s key player (Shell.com, n.d.).

In the early 20th century Shell decided to establish foreign sales subsidiaries in Europe and Asia (Shell.com, n.d.). These subsidiaries allowed the company to have direct internal control on foreign production and distribution channels without relying on external providers (Brown, 2024). 

 Part B: Mapping out a more strategic and theory-based Oil Continent colonization: 

• The Resource Based View

Shell’s sustained competitive advantage arises as a result of possessing valuable, rare, inimitable, and non-substitutable resources and capabilities (Jurevicius, 2023). Having access to capabilities can make the company attractive and suitable for countries with limited expertise in these areas. Shell's technological strength in the oil domain practices might attract countries like Guyana with unexplored oil reserves to partner with Shell for efficient extraction (Dey, 2023). 

Conversely, Shell shouldn't be trying to establish its oil’s core competencies in countries with strong oil expertise like Iran (Voa, 2024). Also, they have to be careful to strategically select where to expand their business to avoid purposefully favoring the profitability of other non-targeted countries, especially if the two countries have been historical enemies. Shell’s joint venture in Iraq is currently unwillingly favoring Iran’s profitability (Wilson, 2023). Besides the risk of creating enhanced enmity between the 2 countries, continuing efforts in Iraq might hurt Shell’s overall profitability and global reputation.

• Porter's Five Forces

The Porter's Five Forces framework analyzes the competitive landscape of an industry considering five key forces that catalyze profitability: threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitutes, and competitive rivalry (Scott, 2024).

Countries with a small number of established oil and gas companies lessen the competitive intensity for Shell, thus allowing for potential greater market share and profitability. Hence, Shell should also consider exploring opportunities in countries like Mauritania, which has recently discovered significant oil reserves and hence at the moment has a limited number of established oil and gas companies operating there (Pacot, 2024). Shell is nowadays conducting agreements to join the market in this country (Energy Capital & Power, 2023).

Conversely, Shell should avoid focusing on countries with a market that is saturated and composed of numerous established players, such as Turkmenistan. Operating here there is Turkmengaz and Turkmenneft, two state-owned oil giants that dominate the Turkmenistan oil industry and hence makes it a challenging market for new entrants (Clark & Ratcliffe, 2023). Moreover, these 2 companies are strong pollutants, so establishing an oil presence in Turkmenistan would possibly result in a harm for Shell’s brand reputation and efforts to switch to the clean energy sector.

Part C: The need to start colonizing a new continent: Renewables

• Critical view on Shell’s internationalization according to Uppsala Model and the OLI Framework

The pivotal 1907 merger with Royal Dutch Petroleum also propelled Shell towards international dominance and erasing psychic distance. However, such large-scale mergers can be complex, time-consuming, and distracting. In Shell's case, the merger might have slowed down their strategic local responsiveness to emerging local (London’s and UK in general) market opportunities in the early 20th century (Brown, 2024).

Moreover, as mentioned beforehand in the Oli Framework section, commissioning and owning the Murex exemplifies their origins commitment to building an competitive edge for oil exporting . This, together with their creation of sales subsidiaries and distribution internalization efforts, solidified Shell’s profitability and dominance in the oil sector throughout history. However, Shell does not have these strengths in the green energy sector. Hence, Shell must continue to strategically explore new venturing avenues to improve their expertise and build a competitive advantage in the sustainable energy market while progressively adapting its internal infrastructure, processes, and capabilities to such transition (Shell Energy Transition 2024, 2023). 

•  Avoid unsustainable unstable regimes and start focusing on stable green countries

To increase the extent of efficiency of this transition, they must firstly keep in mind that unstable regimes can lead to local and global conflicts that can in turn disrupt supply chains and hinder investment in every sector and industry. Nowadays, Shell withdrew from Russia in 2022 and suspended its Red Sea shipment indefinitely in 2024 due the aforementioned reasons (Ganguli, 2022); (Wallace, 2024). In order to avoid continuing this reputational and profitability-hindering cycle in the renewable sector, Shell must shift its focus from a few resource-rich, geopolitically volatile regions to a broader range of countries with stable political environments and growing renewable energy potential. From this, Shell might consider strategically building its green energy dominance in the 4 Scandinavian countries (Nordic Energy Research, 2021). However, This business model re-orientation will come with challenges since they are already facing profitability concerns in their Norway’s first commercial offshore wind farm (Buli & Solsvik, 2024). 

• Start investing in Green Education in Developing Countries

In case Shell pursues their Scandinavian and other expansion, its efforts will need to be focused on investing in training and education programs for the energy transition. Besides allowing building a local workforce with expertise in renewable energy technologies, this would promote local ownership and reduce dependence on foreign talent, thus also internalizing Shell’s operational activities (Brown, 2024). Although is currently doing this in just in the UK, where they aim to help 15000 people into jobs with a focus on the energy transition by 2035 (Shell.com, n.d.), in the developing countries in which they have a market presence they are just focusing on building local skills and expertise for jobs in the oil and gas industry (Shell.com, n.d.).

Conclusion: A Transformed Shell for a Sustainable Future

To conclude, Shell's international colonization is far from consolidated in the sustainability continent. The company must become a maestro of change and continue its internationalization journey by taking inspiration from the remarkable success of its past oil industry internationalization efforts and strategically translate these in the green energy sector. By embracing a multi-faceted strategic approach that focuses on strategic country selection for internationalization and education in the green energy sector, Shell can  secure a solid foothold in the ever-evolving global energy market. This approach will facilitate the development of its tangible and intangible assets in the green energy sector, and at the same time enable the company’s long-term success.

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