Professional Documents
Culture Documents
What is internationalization?
Internationalization is a terms used in economics to refer to the process of increasing
an enterprises involvement in the international markets. With that being said, there is
still no agreed definition on the terms by economist worldwide.
The process may involve:
1. New markets
2. Diversifying the work force
3. Exploration of new products.
Those entrepreneurs who are interested in the field of internationalization of
business need to possess the ability to think globally and have an understanding of
international cultures. By appreciating and understanding different beliefs, values,
behaviors and business strategies of a variety of companies within other countries,
entrepreneurs will be able to internationalize successfully. Entrepreneurs must also
have an ongoing concern for innovation, maintaining a high level of quality, be
committed to corporate social responsibility, and continue to strive to provide the
best business strategies and either goods or services possible while adapting to
different countries and cultures.
1. Petroliam Nasional Berhad (Petronas)
2. Air Asia
o Established in 2001, Air Asia has experienced a tremendous growth
and is now one of the largest low cost carriers in Asia. It has a vision of
becoming a global company. Currently it flies to over 61 domestic and
international destinations. Air Asia operates over 400 flights daily from
hubs located in Malaysia, Thailand and Indonesia. The successful
strategies of Air Asia and its presence in regional markets give it a
strong case for representing the transportation industry in this study.
3. Astro
o Astro All Asia Networks PLC was incorporated in 1996 and is one of
the leading Malaysian companies in the communication industry. Astro
provides satellite TV programmes for Malaysian citizens and since
2000 it has expanded its operations into Brunei, China, India and
Indonesia. The company has a unique competitive position in the
entertainment industry. This justifies the choice of Astro as one of the
cases for this study.
4. TM Berhad
Discussion
Select one of the four organisations and discuss its characteristics and several
external factors that influence their success in Malaysia.
Very clear explanation of four external factors that influence the success of
the selected organisation that is operating in Malaysia.
o Factors affecting internationalization.
o Two types of factors influence the international strategy, market
selection and the choice of entry mode, i.e. internal and external
factors (see Agarwal and Ramaswami, 1992; Anderson and Gatignon,
1986; Choo and Mazzarol, 2001; Dunning, 1980; Ekeledo and
Sivakumar, 1998, 2004; Koch, 2001b; Kwon and Konopa, 1993; Quer
et al., 2007; Root, 1994; Wernerfelt, 1984).
Intrinsic
Extrinsic
The commodity traded has global demand
Internal factors include firm-specific resources and strategic considerations that can
be managed by firms. External factors such as country factors and industry factors
are usually beyond the firms control (Ekeledo and Sivakumar, 1998, 2004).
PETRONAS was not the first company to extract oil or gas in Malaysia. It was Royal Dutch Shell that began the
oil exploration in Sarawak, then under the White Rajahs, at the end of the 19th century. In 1910, the first oil well
was drilled in Miri, Sarawak. This became the first oil producing well known as the Grand Old Lady. Shell was still
the only oil company in the area in 1963, when the Federation of Malaya, having achieved independence from
Britain six years before, united with Sarawak and Sabah, both on the island of Borneo, and became Malaysia.
The authorities in the two new states retained their links with Royal Dutch Shell, which brought Malaysia's first
offshore oil field onstream in 1968.
Meanwhile, the federal government turned to Esso, Continental Oil, and Mobil, licensing exploration off the state
of Terengganu, in the Malay Peninsula, the most populous region and the focus of federal power. By 1974,
however, only Esso was still in the area. It made its first discoveries of natural gas in that year and then rapidly
made Terengganu a bigger producer of oil than either Sarawak or Sabah. By 1974, Malaysia's output of crude oil
stood at about 81,000 barrels per day (12,900 m3/d).
then controlled more than 90% of the oil trade, toward the Organisation of Petroleum Exporting
Countries (OPEC), as well as a proliferation of new private and state companies joining in the search for
reserves. By 1985, the majors, reduced in number from seven to five, were producing less than 20% of the world
total. It seemed that Malaysia would either have to join the trend or continue to leave its oil and gas entirely to
Royal Dutch/Shell and Esso, multinational corporations necessarily attuned to the requirements of their directors
and shareholders, rather than to the priorities the government of a developing country might seek to realise.
Further, an agreement between Malaysia and Indonesia, signed in 1969, had settled doubts and disputes about
each country's claims over territorial waters and offshore resources at a time when both were heavily indebted
to Organisation for Economic Co-operation and Development (OECD) governments and banks as well as to
the International Monetary Fund (IMF) and the World Bank. Setting up a state oil and gas company, through
which the government could get international capital but avoid tangling with foreign oil companies or
governments, had worked for Indonesia: why not for Malaysia as well? The oil crisis of 197374 made the
government even more aware of Malaysia's dependence on foreign oil and foreign capital in general.
Another factor in the decision was that the technology had recently been developed for extensive exploration and
drilling offshore. The local geography included a combination of broad basins of sedimentary rock with calm and
shallow waters around the Sunda Shelf, making exploration for gas and oil relatively easier and more successful
than in most areas of the world. Malaysian crude turned out to be mostly high quality with low sulphur content.
A final and crucial factor in the creation of PETRONAS, and its continuation in much the same form since, has
been the political stability of Malaysia. Since the restoration of parliament in 1971, the country has been ruled by
the National Front (Barisan Nasional), the heirs to the Alliance Party which had been dominant from 1957 to 1969
and the originators in 1971 of the New Economic Policy, which was designed to improve the economic position
of Bumiputrasnative Malays and other natives in Sabah and Sarawakrelative to Chinese and Indian
Malaysians and to foreign corporations. The difficulties this policy has caused for foreign companies and
investors are outweighed by the benefits they believe they gain from Malaysia's political stability.
The Malaysian government chose to create a state company, rather than using taxes, production limits, leasing,
or other familiar instruments of supervision. The government wanted, and needed, the co-operation of the majors
but also sought to assert national rights over the use of the country's resources. A state company, having both
supervisory powers over the majors and production activities of its own, was a workable compromise between
allowing the majors full rein and excluding them, along with their capital and expertise, altogether.
PETRONAS was established in August 1974 and operates under the terms of the Petroleum Development Act
passed in October 1974. It was modelled on Pertamina, the Indonesian state oil and gas company founded in
1971 in succession to Permina, which had been set up in 1958. According to the 1971 plan, PETRONAS' goals
would be to safeguard national sovereignty over oil and gas reserves, to plan for both present and future national
need for oil and gas, to take part in distributing and marketing petroleum and petrochemical products at
reasonable prices, to encourage provision of plant, equipment, and services by Malaysian companies, to produce
nitrogenous fertilisers, and to spread the benefits of the petroleum industry throughout the nation.
On 6 September 1974, Malaysia's then prime minister, Tun Abdul Razak, announced the appointment of Tengku
Razaleigh Hamzah as chairman and chief executive of PETRONAS. Tun Razak said: "From among the new
blood, I intended to bring Tengku Razaleigh into the Cabinet. However, I have an important job for him, a job as
important as that of a Cabinet Minister. I have decided to appoint him as chairman and chief executive of
PETRONAS, which is equivalent to being a Cabinet Minister.".[10] Subsequently, Razaleigh had to relinquish his
job as Chairman of PERNAS which he held from 1970, but retained the chairmanship of Bank Bumiputra.
Having created PETRONAS, the government had to choose what forms its dealings with private oil companies
would take. Starting with its legal monopoly on oil and gas activities and resources, it had several options: it could
simply award concessions without taking part in production, management, or profits; it could try offering services
at the supply end; or it could make contracts to cover profit-sharing, production-sharing, joint venturessharing
both profits and costsor all stages of the process, under "carried-interest" contracts. PETRONAS' first move
was to negotiate the replacement of the leases granted to Royal Dutch/Shell on Borneo and to Esso in the
Peninsula with production-sharing contracts, which have been the favoured instrument, alongside joint ventures,
ever since. These first contracts came into effect in 1976. Allowing for royalties to both federal and state
governments, and for cost recovery arrangements, they laid down that the remainder would go 70% to
PETRONAS and 30% to the foreign company. Esso began oil production in two offshore fields in 1978, exporting
its share of the supply, unlike PETRONAS, whose share was consumed within the country.
PETRONAS went downstream for the first time in 1976, when it was chosen by the Association of South East
Asian Nations (ASEAN) to begin construction on the second ASEAN joint industrial project, a urea plant. The
subsidiary, Asean Bintulu Fertiliser (ABF), is based in Sarawak and now exports ammonia and urea all over the
world.
Also in 1976, Malaysia became a net exporter of oil, but exports were at such a low level as to make the country
ineligible to join OPEC. This situation benefited Malaysia, and PETRONAS, by allowing the company a degree of
commercial and political flexibility and reinforcing PETRONAS' chief purpose, Malaysian self-reliance.
PETRONAS supervised its foreign partners' oil activities, taking no direct role in production until 1978, when the
government saw to the creation of a subsidiary for oil exploration and production, PETRONAS Carigali. It began
its work in an oil field off the Peninsula. PETRONAS retained its supervisory powers over all oil and gas ventures,
particularly on issues of health and safety and environmental control.
production to offset deterioration in its balance of increased payments to a deficit of $1 billion. It became clear
that this could only be sustained by relaxing the conditions for joint ventures between PETRONAS and the major
oil companies. In 1982, the PETRONASgovernment share, which had risen to 80%, was cut to 70%, and taxes
on company income were also cut.
PETRONAS went into refining and distribution in 1983. It initiated the construction of refineries at Malacca and
at Kerteh to reduce its dependence on Royal Dutch/Shell's two refineries at Port Dickson and Esso's refinery in
Sarawak. These two majors, and other foreign companies, already covered much of the domestic retail market,
but the new subsidiary PETRONAS Dagangan was given the initial advantage of preference in the location of its
stations. By 1990, 252 service stations carried the PETRONAS brand, all but 20 on a franchise basis, and
another 50 were planned. Some were set up on grounds of social benefit rather than of strict commercial
calculation.
As production from Royal Dutch/Shell and Esso's existing fields moved nearer depletion, the companies sought
new fields and new contracts. In 1985, the government and PETRONAS revised the standard production-sharing
contract, increasing the rate of recovery of capital costs from 30% to 50% of gross production in the case of oil
and from 35% to 60% in the case of natural gas, abolishing signature, discovery, and production bonus payments
and increasing the foreign partners' share of the profits. At first the drastic fall in oil prices during 1986, which cut
Malaysia's income from exported oil by more than a third even though the volume of exports rose by 16%,
discouraged interest in the new arrangements, but by 1989 PETRONAS had signed 22 new contracts with 31
companies from 11 countries. However, the contract period was still restricted to five yearscompared, for
example, with the 35-year contracts available in neighbouring Singaporeand there was still a 25% levy on
exported crude oil, a measure that was intended to promote the domestic refining industry. These conditions,
cited as disincentives to foreign investment, were eventually relaxed over the next several years.
The government and PETRONAS aimed to encourage the replacement of fast-depleting oil within Malaysia itself
and simultaneously to foster heavy industries which could help reduce the country's overwhelming dependence
on exporting its natural resources. In 1980, petroleum products accounted for 88% of the country's commercial
consumption of energy, the rest being provided from hydroelectric plants in Sarawak, too far away from the main
population centres to become a major alternative. Five years later, gas accounted for 17%, hydroelectricity for
19%, coal for 2%, and petroleum products for 62% of such consumption, and about half of each year's gas output
was being consumed in Malaysia.
The PETRONAS venture responsible for this shift in fuel use, andalong with Malaysia LNGfor Malaysia's
becoming the third largest producer of LNG in the world, was the Peninsular Gas Utilisation Project (Projek
Penggunaan Gas Semenanjung), the aim of which was to supply gas to every part of the Peninsula. Its first stage
was completed in 1985, following the success of smaller gasification projects in the states of Sarawak
and Sabah, and involved the extraction of gas from three fields in the Natuna Sea, between the Peninsula and
the island of Borneo; its processing in a plant at Kertih on the Peninsula's east coast; and its distribution to the
state ofTerengganu by pipeline and abroad via an export terminal.
PETRONAS' least happy venture was its ownership of the Bank Bumiputra, the second-largest, but leastprofitable, of the commercial banks incorporated in Malaysia. PETRONAS spent more than MYR3.5 billion over
five years trying to rescue the bank from the impact of the bad loans it had made, starting with its support of
theCarrian property group of Hong Kong, which collapsed in 1985, taking the bank's share capital down with it. In
1991, PETRONAS sold the bank back to another state company, Minister of Finance Inc., and announced its
intention to concentrate on oil, gas, and associated activities in future.
Just as PETRONAS was disposing of this liability, the crisis caused by the Iraqi regime's invasion
of Kuwait culminated in military action against Iraq on behalf of the United Nations. PETRONAS had already
raised Malaysia's oil production rate from 605,000 to 650,000 barrels per day (103,000 m3/d) in late 1990 as the
crisis unfolded. This move only reinforced the company's awareness of the need to vary its policies, since, with
known reserves of 2.94 billion barrels (467,000,000 m3), and assuming no new major finds of oil, Malaysia risked
seeing output decline to 350,000 barrels per day (56,000 m3/d) in 2000 and running down to depletion within
another five years. This was exacerbated by the possibility that Southeast Asia in general would enjoy rapid
economic growth in the 1990s, so that demand for oil there would rise twice as fast as demand in the relatively
more sluggish, more mature economies of North America and Europe. The Malaysian government, and its state
oil and gas company, was forced to decide what mixture of policies to adopt in response.
PETRONAS, with its policies of promoting self-reliance, helping to develop associated industries, and varying the
sources and uses of oil and gas, played an important role in the Malaysian economy as a whole. Under
governments whichby current, if not historical, Western standardswere strongly interventionist, the
contribution of oil taxes to the federal government's revenue hovered at around 12% to 16% until 1980, when it
showed a marked increase to 23%, followed by another leap to 32% in 1981. From then until 1988 the proportion
fluctuated between 29% and 36%. PETRONAS was not just another big oil company: it controlled a crucial sector
of the economy and remained, for better or worse, an indispensable instrument of the state.
During the mid- to late 1990s, international exploration, development, and production remained key components
in PETRONAS' strategy along with diversification. A key discovery was made in the Ruby field in Vietnam in
1994. That year, the firm also saw its first overseas production from the Dai Hung field in Vietnam and
established its first retail station outside of Malaysia inCambodia.[citation needed] In 1995, a subsidiary was created to
import, store, and distribute liquefied petroleum gas (LPG). In addition, the company's polyethylene plant
in Kerteh began operations. PETRONAS marked a significant milestone during this time periodtwo of its
subsidiaries, PETRONAS Dagangan Bhd and PETRONAS Gas Bhd, went public on the Kuala Lumpur Stock
Exchange. Between 1993 and 1996, it purchased the former sub-Saharaian branch of Mobil Oil, rebranded
as Engen Petroleum.
In 1996, PETRONAS entered the aromatics market by way of a joint venture that created Aromatics Malaysia
Sdn Bhd. It also formed a contract with China National Offshore Oil Corporation and Chevron Overseas
Petroleum Ltd. to begin exploration of block 02/31 of the Liaodong Bay area in China. While the Asian economy
as a whole suffered from an economic crisis during 1997 and 1998, Malaysia was quick to bounce back due to
successful government reforms. From its new headquarters in thePETRONAS Twin Towers, the state-owned
concern continued its development in the oil and gas industry. Soon India's Liberty Group purchased a 1% stake
in Petronas
During 1997, PETRONAS heightened its diversification efforts. The firm set plans in motion to build three
petrochemical plants inKuantan as well as an acetic facility in Kerteh. Its first LPG joint venture in China was
launched that year and the company acquired a 29.3% interest in Malaysia International Shipping Corporation
Berhad (MISC). In 1998, PETRONAS' tanker-related subsidiary merged with MISC, increasing PETRONAS'
stake in MISC to 62%. That year, PETRONAS introduced the Petronas E01, the country's first commercial
prototype engine. The company also signed a total of five new production sharing contracts (PSCs) in 1998 and
1999, and began oil production in the Sirri field in Iran.
PETRONAS entered the new century determined to expand its international efforts. The company forged deals
for two new exploration plots in Pakistan and began construction on the Chad-Cameroon Integrated Oil
Development and Pipeline Project. By 2002, PETRONAS had signed seven new PSCs and secured stakes in
eight exploration blocks in eight countries, includingGabon, Cameroon, Niger, Egypt, Yemen, Indonesia, and
Vietnam. The firm also made considerable progress in its petrochemicals strategy, opening new gas-based
petrochemical facilities in Kerteh and Gebeng.
By 2003, Malaysia was set to usurp Algeria as the world's second-largest producer of LNG with the completion of
the Malaysia LNG Tiga Plant. Prime Minister Mahathir Mohamad commented on the achievement in a May
2003 Bernama News Agency article, claiming that "the PETRONAS LNG complex now serves as another shining
example of a vision realized of a national aspiration, transformed into reality by the same belief among
Malaysians that 'we can do it.'" Indeed, PETRONAS had transformed itself into a global oil company over the
previous decade, becoming a national symbol for success. The company realised, however, that it would have to
continue its aggressive growth strategy to insure its survival in the years to come.
The PETRONAS overseas expansion drive continues with the acquisition of Woodside Energy
Ltd Mauritania assets for $418 million in 2007.[11] The venture proved successful as they discovered oil in May
2008[12]
In 2004, Minister in the Prime Minister's Department, Datuk Mustapa Mohamed[citation needed], stated that PETRONAS
contributed RM 25 Billion to the country's treasury accounting for 25% of revenue collected via dividends and
other revenues. PETRONAS continuously provides the Malaysian government dividends from its profits. Since
inception in 1974, PETRONAS have paid the government RM 403.3 billion, with RM 67.6 billion in 2008. The
payment represents 44% of the 2008 federal government revenue.[13] PETRONAS continues to focus on
international exploration projects as 40% of revenue in 2008 was derived from international projects such
asIran, Sudan, Chad and Mauritania. The company's international reserves stood at 6.24 billion barrels oil
equivalent in 2008.[14]
On 29 October 2012, PETRONAS sources said it will renew a bid for gas producer Progress Energy
Resources after Canada blocked its bid earlier that month. The $6-billion bid was approved by Ottawa on 7
December 2012.[15]
On 17 January 2013, PETRONAS issued a statement that an onshore oil and gas discovery has been made in
the state after drilling a test well about 20 kilometres away from the city of Miri in northern Sarawak. The well was
found to have a net hydrocarbon thickness of 349 meters. It had flow rates of 440 barrels of crude oil per day and
11.5 million standard cubic feet of gas per day. The find is the first onshore oil discovery in Malaysia in 24
years. [16]
On May 2, 2015 PETRONAS completed its acquisition of oil and gas assets in Azerbaijan from Norways Statoil
for US$2.25 billion.[17]