Drivers for Internalization of the Royal Dutch Shell

Drivers for Internalization of The Royal Dutch Shell

The oil industry has altered evidently over the previous century. Fundamental swings in the economy, including mounting globalization, transformed the industry, empowering new entrant with unique competitive advantages to joining.

In the later half of the nineteenth century, a small but flourishing oil industry advanced in Eastern Europe, fueled by technological developments in extraction methods and distillation methods. New drilling approaches significantly amplified the potential supplies of crude that could be recovered, reducing the price of crude and crude by-products significantly. Inventions in crude distillation generated kerosene, a clean-burning oil luminate which arose to substitute whale oil as the prime light source in the pre-electric era because of its copious supply and ease of use. Hasty development in demand for kerosene prompted progress of the oil industry across the globe. (Llewellyn, 2013, pp. 1-10)

Industry Based View

Rivalry among the established firm such as British Petroleum, Standard oil company of America and their colluded industries was increased at the beginning of 20th century in European as well as global market and as a part of the oligopolistic oil industry, It forced The royal Dutch Shell to internationalize.

The threat of potential entrant was Very high as it was a growing and very lucrative industry of that era. The demand for oil was constantly increasing over the time and there was no such patent war existed at the time.The technology required to extract oil was costlier at the time but due to higher demand, It was easier to achieve economies of scale. At the beginning of 20th century, each and every government was promoting new entrant to come in this industry and also resources were plentiful which was attractive for new entrants.

Supplier power was higher as Royal Dutch shell had the technology to refine crude oil but the materials required to for same was costlier and very few suppliers were there. also in case of Higher demand, Shell needed to acquire raw crude oil from the supplier of the middle east and American market, But American oil industry formed a cartel and acquired major oil resources.

Bargaining power of buyers was comparatively lower as oil was vastly used for lighting.electricity generation, In automobile Industry and Industries.The industrial revolution was taking shape at the beginning of 20th century in Europe and in eastern countries.Production of oil across the globe was also less which also influenced and reduced the bargaining power of buyers.

Oil was mainly used as an energy source which was most efficient at that time compared to its substitutes like coal, vegetable oil,Whale oil, alcohol, kerosene, and electricity. Most of the automobile engines, steam engines and planes were designed to run on oil as a fuel.

Resource-based Perspective

By the end of the first decade of 20th century, Shell became fully vertically integrated company achieving mastery in technology to extract and refine oil which was very valuable for any oil producing firm at that time.