A Case Study For Vertical Integration Commerce Essay

A Case Study For Vertical Integration Commerce EssayThe word upright piano consolidationdescribes a style ofmanagement control. The crude rock oil industry has always been fertile ground for analysis of the reasons and effects steep integration. One reasons of this popularity is that the stages of production are easily differentiated. The frequent perception is that Integration is a prerequisite for success of the gild as the oil industry is populated by large Integrated companies that makes excessive profits.vertically corporate businesses in asupply chainare united through a common owner. Vertical integration may also be a merger of two companies that are in various stages of production, (for example, an upstream company (ONGC) and a downstream company (HPCL) . Thereby merger with a company which is at a later stage in the production process (and therefore closer to the consumer end) is known as forward integration.Vertical integration may be contrasted with horizontal inte gration, the merger of companies that together are at the same stage of production, for example, merging of two upstream companies or two downstream companies. fall in further back in the process (if a downstream company merged with an upstream company, for example) is known as backward integration. An example of backward integration in India is of assurance Industries Limited that started with textiles to polyester to petrochemicals and now refinery and exploration production.The integration of two organizations that are in completely different business lines is sometimes referred to as the increase integration.Companies are downstream or upstream of the other depending on whether they are closer or farther from the end consumer (the sea, so to speak, to the river flowing production). The benefits of vertical integration come from the higher capacity that gives organizations control access to inputs (and to control the cost, quality and delivery of inputs).Some of the best exa mples of vertical integration pitch been in the crude oil Industry. In 1970 and 1980, many companies that were principally engaged in the exploration and extraction of crude oil refineries decided to acquire downstream distribution networks. Companies like bewilder and BP came to control all the steps involved in bringing a drop of oil from North Sea or Alaska to the fuel tank of the vehicles..Reliance- A Case StudyThe Reliance Group, founded by Dhirubhai H. Ambani (1932-2002), is Indias largest private enterprise, with businesses in the energy and materials value chain. Groups annual Revenues are in excess of U.S. $66 billion. The flagship company, Reliance Industries Limited, is a Fortune Global 500 company and is the largest private sector company in India.Backward vertical integration has been the foundation of the evolution and growth of Reliance. jump with textiles in the late seventies, Reliance pursued a strategy of backward vertical integration from polyester to fiber intermediates, plastics, petrochemicals to petroleum refining and oil and gas exploration and production to be fully integrated along the materials and energy value chain.The Groups Activities span Exploration and Production of oil and gas, petroleum refining and marketing, petrochemicals (polyester, fiber intermediates, plastics and chemicals), textiles, sell and special economic zones Infotel.Reliance enjoys its Global Leadership in Businesses, being the largest polyester yarn and fiber sufferr in the world and among the top five to ecstasy Producers in the world in study petrochemical products.Key Milestones in the history of Reliance Group1958- Dhirubhai Ambani started Reliance Commercial Corporation in Mumbai.1966- Reliance entered the textile industry and set up a mill at Naroda, Ahmedabad.1975- World Bank team visits the mill and declares that it is as modern and well-managed as those in the certain countries.1977- Reliance went public with Indias first IPO1985- Relianc e total assets $227 million.1986- Reliance Capital, a merchant bank was created.1988- Reliance Industrial Infrastructure, a petroleum crinkle provider, came into line.1988- Reliance sales exceed $404 million.1991- Hazira petrochemical plant commissioned.1992-Reliance became the first Indian corporation to raise capital from worldwide markets through Global Depository Receipts offering, and sets a record with a Reliance issue that received over 1 million investor applications.1993- Reliance Petroleum went public in Indias largest public offering to date. sales exceeded $909million, making Reliance Petroleum Indias largest publicly traded company. Also Reliance offered the first Euro Convertible bond issue.1994- Awarded Companion Membership of the Textile Institute (UK). Award is bound to 50 members who have substantially advanced the fiber industry.1994- Reliance offered the second Euro issue of Global Depository Receipts.1995- Reliance net profit exceeded $242 million.1995- Reli ance unwashed Funds, an asset management and mutual fund provider launched.1997- Reliance became the first corporation in Asia to issue 50 to 100 year bonds in the coupled States.1997- Worlds largest multifeed cracker commissioned in Hazira.1998- Reliance revenue tops $3 billion and total assets approach $8 billion.1999- Worlds largest petroleum refinery complex commissioned at Jamnagar.1999- Reliance Infocomm, a mobile service provider is launched.2000- Reliance revenues exceed $4 billion, and total assets are $11.8 billion.2002- Reliance Industries Ltd. and Reliance Petroleum Ltd merge into Reliance Industries. The new firm is named to the Forbes Global 500 in 2003, entering at position 306.Backward integration of Reliance IndustriesObjectives of the StudyThe objectives of the proposed research are as followsTo study the various activities that can be successfully integrated in oil and gas companies.To study the effects of vertical integration on diferrent oil and gas companies. To analyze the effects of vertical integration on Reliance Industries.Research MethodologyCollection of Secondary DataSecondary data impart be collected from already integrated oil and gas companies and it will give an insight on the various activities which can be successfully integrated.The data would then be simulated to analyze the effect of vertical integration on Reliance Industries.Literature ReviewOil companies, both national and multinationals have often adopted a vertically integrated structure. Some of these companies areExxon Mobil it was formed in 1999 by the merger of two companies- Exxon and Mobil. Before the merger, Exxon was an upstream major while Mobil was a chemical Company and its chief products included basic olefins and aromatics, ethylene glycol and polyethylene.After the merger, the company has been operating in the following areasupstreamExxonMobil Exploration CompanyExxonMobil Development CompanyExxonMobil Production CompanyExxonMobil Gas and Power Mark eting CompanyExxonMobil Upstream Research CompanyExxonMobil Upstream VenturesdownstreamExxonMobil Refining and Supply CompanySea River MaritimeExxonMobil Fuels, Lubricants Specialties Marketing CompanyExxonMobil Research and Engineering CompanyInternational Marine TransportationChemicalExxonMobil Chemical CompanyExxonMobil is an industry leader in almost every aspect of the energy and petrochemical business. Its activities range from the exploration and production of oil and gas to coaland dogshit mining, from the refining of petroleum products to the marketing of fuels(under the Exxon. Mobil and Esso brands). waxes. asphalt and chemicals. In addition.ExxonMobil is active in electric power generation.ExxonMobil Chemical is one of the largest petrochemical companies in the world.Its products include olefins, aromatics, synthetic rubber, polyethylene, polypropeneand oriented polypropylene packaging films. The company operates its 54 manufacturing plants in more than 20 countries and markets its products in more than 150countries.Shell Shell has vertically integrated its structure which has helped it develop commercial expertise in all stages of this vertical integration, from the initial search for oil (exploration) through its harvesting (production), transportation, refining and finally commerce and marketing established the core competencies in the company was founded. Similar competencies are also developed for natural gas, which has become one of the most important businesses in which Shell is involved, and which contributes a significant proportion of the profits of the company.Royal Dutch- Petroleums subsidiary, Shell Oil, acquired Pennzoil-QuakerState, the largest producer of motor oil. The vertical acquisition, which included over 2000 Jiffy Lube oil change centers, was consistent with Shells parent companys strategy to acquire a company that complements its lubricant and oil-products businesses and Shells gas station chain.Royal Dutch-Shell was sup ranational from its earliest days. Formed in 1907 as an Anglo-Dutch alliance amongst Shell Transport and Trading and the Royal Dutch Petroleum Company, the Royal Dutch-Shell group was, at that time, the only serious international rival to Rockefellers Standard.By the time that Anglo-Persian was formed in 1909 Rockefellers Standard and Royal Dutch-Shell had already established powerful positions in the international oil industry. But although Anglo-Persian was a latecomer, it had the unique and crucial competitive advantage that it was the first mover in developing the oil reserves of the Middle East, where its first oil field at Masjid-i-Suleiman in southern Persia (later Iran) was a giant, containing vast reserves of crude oil which could be produced in great quantities at low cost.From these different beginnings, the firms that would become international majors, acting at times as rivals, at others as allies, proceeded to establish their mastery of the international oil industry Each of them set out to produce its own crude oil for processing at its own refineries, and to sell the resultant products to the final consumer through its own market outlets.Each also seek to achieve, as far as was possible, a balance between these successive stages in its operations. By this policy of operational vertical integration, each major was fitting to co-ordinate the flow of oil, under its own control, from its oil fields to its markets.In practice, no major was able to achieve a perfect balance between its upstream (producing) and downstream (marketing and refining) operations. Majors with more markets than production could not find new oil fields at will, while others with more production than markets risked bumpy competitive battles with their established rivals if they tried to break into new markets. To rectify the imbalances, and to mitigate the rivalries, the majors adopted a combination of measures they contracted to sell each other crude and products, someti mes in very large quantities they joined in market-sharing agreements, most famously the 1928 Achnacarry Agreement to share out markets by a quota placement and they formed regional alliances in which majors with surplus upstream capacity joined forces with others with surplus downstream capacity, so that they could balance their joint operations without pleasing in competition. By these arrangements, the international flow of oil came to be channeled, not through open, transparent markets for crude and products, but through the closed circuits of the majors vertically integrated systems.There were, both then and later, differences between those who argued that vertical integration was the economically most efficient means of organizing the international flow of oil, and those who saw vertical integration not as an economic exigency, but as a way of suppressing competition and of enabling the majors to control the industry. To a large degree, however, vertical integration was his torically determined by Rockefellers early dominance. Once he had established a high degree of monopolistic control, it became a competitive necessity for later entrants such as Royal Dutch Shell, and later Anglo- Persian, to integrate vertically in order to avoid having to negotiate on uneven monetary value with established competitors for purchases and/ or sales of oil.