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SOCAR and Migros: An Enquiry into a Strategic Alliance

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SOCAR and Migros: An Enquiry into a Strategic Alliance

Introduction

Taking into account a strategic alliance between SOCAR and Migros, it is critical to understand the previous actions that resulted in such decisions from the side of both parties. As for Migros, such sort of partnerships is a typical experience for grocery stores within the last century. Concerning SOCAR, a strategic alliance with a grocery shop chain is a unique experience for this company; although, the company has already performed in terms of many strategic alliances and joint ventures. As a matter of fact, SOCAR has a rich history associated with strategic alliances as the one of the most prominent managerial decisions, so the history of this company should be discussed in detail.

History and Management System

The history of SOCAR dates back to the 1950’s, when Azerbaijan was a part of the Soviet Union, and local gas and oil agency called Azneft was a subordinate to the Soviet governance. Thus, the resource potential of Azerbaijan has been recognized on a large scale, but this territory was of particular interest prior to the World War I, so many of European countries were contemplating launch of their drilling projects (SOCAR, n.d.). It becomes increasingly difficult to ignore the fact that such a favorable geographical location and vast availability of oil resources have caused the majority of events related to the entire span of SOCAR history and its managerial system. Later, in 1965, the Soviet government decided to establish the Ministry of Oil Production Industry of the Azerbaijan SSR, which had to be based on a former Azneft (SOCAR, n.d.). In such a way, the organization’s growth and management were designed with governmental involvement from early years, and this tradition can be traced even nowadays. It is evident that the Soviet form of governance was not responding to all potential opportunities of the organization because of strong Communist ideology and variety of political barriers placed with such a vision, so it is worth noting that the company has made a significant strategic progress throughout its history.

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In 1990, Azerbaijan became an independent state, and Azneft State Concern has become a central oil mining, refinery, and transportation policy-maker for the major part of former states of the USSR (SOCAR, n.d.). On September 13, 1992, the State Oil Company of the Azerbaijan Republic has been created according to the decision of the country’s President (SOCAR, n.d.). At this point, the most active development started for SOCAR: the organization performed as governmentally controlled but market-economy focused company, so contemporary means of management have become the main priority. This event was a big break-through for the company, since the Soviet form of organization was focused on governmental purposes only. The Onshore and Offshore Oil and Gas Production Association was initiated in 1994, and this change has caused a variety of issues related to the reorganization of the company and amendments to numerous internal policies (SOCAR, n.d.). These changes were devoted to the improvement and optimization of SOCAR, so Azerbaijan government has managed to recognize the importance of SOCAR business capabilities and value of the natural resources available (SOCAR, n.d.). As a consequence, drastic organizational changes have caused a more profound strategic orientation of SOCAR, regardless of the fact that Azerbaijan was encountering complex economic challenges after the termination of the Soviet regime.

The aforementioned policy amendments have led to a merger of SOCAR with the Onshore and Offshore Oil and Gas Production Association in order to create the Azneft Production Union in 2003 (SOCAR, n.d.). This event can be recognized as a complete determination of SOCAR as the main industrial, economic and business network of Azerbaijan. It is worth mentioning that the governmentally managed organizations are hardly funded within many post-Soviet states, so Azerbaijans government has made an adequate managerial decision to invest in the most valuable and powerful asset. Furthermore, understanding the interest of multiple countries in the resources and services of SOCAR is fundamental for a subsequent course of action. The matter is that SOCAR started an active expansion to closer markets: Georgia, Ukraine, Belarus, Russia, and other former Soviet countries (SOCAR, n.d.). It becomes abundantly clear that such an expansion was only the beginning, since SOCAR has obtained industry leadership, so that transportation, storage and refinery of oil are one of the most prominent services of the company, and their trade is profitable on a large scale. This caused the other important event, the construction of the SOCAR Tower, which has introduced the company as a macroeconomic player.

The matter is that the company’s management clearly understood two main issues: unified management of all operations and involvement in maintenance of sustainability. Concerning the former aspect, the construction of the SOCAR Tower implies the fact that the company has grown large enough to open its independent area for its managerial and operational decision-making (SOCAR, n.d.). Apart from that, this project caused the development of the infrastructure in the area, thereby supporting social and economic sustainability of Azerbaijan. Eventually, this project clearly describes a new milestone in the history of SOCAR: it is not just a governmentally owned business any longer but an internationally competitive brand.

In terms of such progressive development and transition from a Soviet-governed organization to a globally performing corporation, SOCAR has developed five best practices of management: budget balance, expenditure leverage, debt limitation, revenue management, and strategic withdrawals (Ibadoglu et al., 2013). A budget balance implies a regulation of expenses and profits, so that the company never exceeds the settled margin. Likewise, expenditures are leveraged according to this principle, as well. Consequently, the company observes specific limits and settles a threshold for taking debts (Ibadoglu et al., 2013). The same principle rules revenue management, and strategic decisions, so the firm may withdraw from a particular course of action under specific circumstances (Aslanov, 2014). These regulations and principles obviously present economic robustness, especially in terms of Azerbaijan economic environments, but there are a number of risks. Growth of prices for valuable commodities is the most likely consequence of proactive expansion of SOCAR oil on a global scale (Aslanov, 2014). Nonetheless, since it is the strongest asset in Azerbaijan, economic stability can be sustained with such an opportunity. Azerbaijan is a subject to a variety of geopolitical interests of Russia and Europe, but current political events make SOCAR particularly interested in the European markets owing to a variety of reasons, meanwhile Russian agenda is much less favorable for the company’s dynamic performance worldwide.

Nowadays, SOCAR has long-term plans for the European markets in a wide range of forms. One of the most significant strategic decisions is a partnership with Switzerland and its largest supermarket chain Migros. In addition, other countries are also interested in cooperation with SOCAR, so a project of the Trans Adriatic Pipeline was accepted, as SOCAR manages to obtain 20% of the stake (Kendall-Taylor, 2011). Thus, the company is expected to transport more oil and gas to Europe in 2019-2020 (Kendall-Taylor, 2011). At the same time, SOCAR keeps working on the establishment of different partnerships worldwide in order to build a global oil network, so involvement of other organizations is quite apparent in this regard.

One of the most explicit examples is a recent joint venture partnership with Petrofac, which has been signed on 5 December 2017 (Petrofac and SOCAR, 2017). SOCAR’s stake is 51%, and this joint venture will provide education, training, and testing for the industry of energy in Azerbaijan (Petrofac and SOCAR, 2017). Moreover, SOCAR plans to involve participants from other countries, so the corporation recognizes importance of global sustainability (Kendall-Taylor, 2011). Therefore, SOCAR seeks for organizations with a shared vision of business on the macroeconomic level. As such objectives are hardly attainable for a single corporation alone, SOCAR takes a course of global change and cooperation (Rzayeva, 2015). The other joint venture was established in 2013 with Fugro (Legierse, 2013). The companies work towards the advancement of bathymetric, geophysical, and geotechnical researches in order to optimize the performance of underwater vehicles, as well as remotely operated vehicles (Legierse, 2013). SOCAR has 51% of the stake, and the central objective of this joint venture is enhancement of operational performance and productive maintenance of services and regular activities of SOCAR and oil industry as a whole (Legierse, 2013) The company has grown in challenging environments, and it strives for keeping international market competition at a high level.

On a separate note, joint ventures are one of the key strategic solutions of SOCAR. The company originates from the economy affected by long-term political limitations and its further outcomes, so a large presence of natural resources does not resolve the problem at once. That is why the establishment of partnerships, strategic alliances, and joint ventures is a convenient way of performing on the international markets: the company is facilitated with marketplace incentives and sales-generating demands, meanwhile local businesses receive cost-effective operational and resource support (Rzayeva, 2015). This constraint is one of the core managerial foundations of SOCAR, which is why numerous joint ventures and strategic alliances with this corporation can be observed nowadays. Generally speaking, strategic alliance is a form of business, which pursues long-term objectives. It is hard to argue with the fact that companies collaborate in order to achieve goals that are hardly attainable for their performance alone. Henceforth, the distribution of expenses and benefits on the one hand and the feasibility of the ultimate aim on the other hand are attractive for numerous businesses (Rzayeva, 2015). A common practice suggests that joint ventures are mainly typical of small- and medium-sized businesses, but it does not necessarily mean that large corporations must avoid such an opportunity, especially when far significant benefits can be gained in a forthcoming future.

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Apart from business and marketing incentives offered with strategic alliances, SOCAR manages its operational issues. Entering joint ventures means producing a certain technology or concept that will be used for the purposes of SOCAR, so the company initiates various research and development activities, but the lack of human resource and organizational knowledge implies a need for joint venture partnerships. As a result, the company achieves high rates of performance and reaches new records in drilling, construction, refinery, and storage operations (SOCAR-AQS, 2017). The adoption of last-generation drilling equipment and other maintenance technologies is the outcome of various joint ventures and strategic alliances, so SOCAR is able to deliver its main product to multiple markets worldwide (Nobel Oil Services, 2015). SOCAR contracts top maintenance and construction companies for the advancement of its engineering procurement and equipment modernization, so the availability of a wide range of incentives as well as strategic opportunities is also one of the most critical components of strategic decision-making (Technip, 2016). It is possible to argue that the company should not rely on strategic alliances all the time, but such a solution enables SOCAR open new prospects of its performance and develop new services. Henceforward, the company utilizes its basic asset as agenda for receiving strategic alliances and opens new dimensions of performance that will obtain maturity in a shortcoming future.

All in all, the entire history of SOCAR demonstrates that a large business can be managed by the government, regardless of strong economic challenges. The company experienced persistent problems with the acquisition of independent market placing and maturity, so entrance different strategic alliances may be recognized as an inability to manage macroeconomic barriers. Although, this does not thwart the company from becoming a leader in the industry and acquisition of the long-term prospects that will facilitate further growth of the company. In the light of the close cooperation with Switzerland and Mirgolino in particular, the selected course of action is evidently appropriate because SOCAR enters competition with global brands, such as Shell, so sustaining this competition can cause new strategic decisions and innovative approaches. A strategic alliance enables SOCAR to perform in multiple markets and use such types of incentives for enhancement of its domestic economy and local infrastructure. The history of SOCAR and its managerial system epitomize the best practice of strategic management on the basis of governmental governance. Needless to say, there are many problems to be solved, but current success is the evidence of effectiveness and robustness of the aforementioned strategic decisions.

Summary

The entire history of SOCAR is associated with its dependency on governmental decision-making and acquisition of strategic alliances with various companies. These two main factors reflect on the main managerial principles of the company, but it is difficult to ignore the fact that SOCAR has reached a significant level of operational, market and strategic performance. Viewing business environments as a space for cooperation with other organizations and profound integration into a domestic economy makes SOCAR a unique international competitor, as well as allows initiating cutting-edge and incentive-based projects.