Identify the differences in the internationalization of state-owned and private oil and gas companies according to the eclectic paradigm. Internationalization of oil and gas companies in the context of state ownership and the specifics of emerging markets.
Review of relevant internationalization theory frameworks
Internalization – the company will benefit from carrying out activities internally in this country, instead of organizing them on the market (contracts for products and services). In the upstream oil and gas segment, this means that a piece of land/offshore zone with underground hydrocarbon resources (oil block or field) can be acquired in the asset market by purchasing it.
Comparison of oil&gas companies internationalization in the upstream sector
This means that oil and gas companies must invest in countries where these reserves are present (table 1). As a result, oil and gas companies have to invest in countries with a low quality of institutions.
Characteristics of national oil companies as a major type of state-owned enterprises
National oil companies are one of the most important types of state-owned enterprises in the global economy (Cheon 2015). NOCs are often seen as symbols of national sovereignty in developing countries, echoing the dominance of IOCs from developed countries before 1970. This is one of the reasons why foreign investment in the oil and gas sector is limited to partnership with local NOCs – to prevent neocolonialism and support sovereignty (Stevens 2004; Linde 2000).
In general, higher rents in the upstream and added value in the downstream can be achieved through a well-designed fiscal and contractual framework, which can promote both rent maximization and long-term growth of the sector (Tordo 2007). Outside the country, it can be used to pursue foreign policy and national security objectives: promoting bilateral trade, securing fuel supplies, gaining political or military support, and more. The implications of this last factor include a strong preference for long-term contracts (and working with foreign state-owned enterprises) and the inability to keep up with the pace of innovations in certain industries.
Internationalization idiosyncrasies of emerging market SOEs and recent empirical research
A third feature of SOMNC's foreign investment strategy is the influence of local institutions ("rules of the game", North 1990). One of the reasons for greater risk acceptance is that SOMNCs are less exposed to the risk of expropriation of their foreign subsidiaries. 5 POE stands for Privately Owned Enterprise - a company with majority shares owned by non-state investors.
Empirical results of the study provide evidence that state ownership acts as a negative moderator of the level of participation in foreign subsidiaries in uncertain environments. Finally, every investor is subject to the “liability of foreignness” – the need to gain local legitimacy due to the different normative framework in which a newcomer must operate compared to the home market. A comparative case study of Chinese and Indian NOCs internationalization and state regulation of the industry in two countries.
Case study of the largest oil companies in China and Brazil with the aim of identifying the role played by the level of technological expertise of companies. In contrast, the lack of oil and gas would mean that NOCs focus on ensuring a stable supply of the resource at home and invest in upstream assets abroad (Lopez-Morales et al. 2017).
Proposition statement
Another area – internalization process, and especially the influence of state ownership on the level of participation in foreign subsidiaries, has received less attention. At the same time, researchers from EMNCs and SOMNCs have developed and tested a number of propositions that can be applied to NOCs to analyze the level of participation in foreign subsidiaries. Duanmu (2014) found support for the proposition that SOEs invest more in locations with weak institutional environments if their home country governments have high economic power or are in good political relations with host country governments. 2014) confirmed that economic uncertainty and political risk of host country reduce the level of ownership in foreign subsidiaries.
Previous studies have also confirmed that SOEs have a relatively higher level of participation in foreign subsidiaries in risky locations, which is very important for the oil and gas industry. As a result, SOEs generally prefer and are able to acquire greater ownership stakes in foreign projects in risky countries. These findings can be applied to NOCs to understand the impact of state ownership on the level of participation in foreign affiliates, leading to the following proposition.
Empirical research design
Empirical setting
Another limitation was the availability of data for non-public NOCs and, conversely, the number of IOCs' projects. The companies for this sample were drawn from a widely accepted ranking of the leaders of the global oil and gas industry - S&P Global Platts. The list includes global oil and gas companies based on a proprietary formula that includes asset value, revenue, profit, ROIC and other parameters.
Those companies are top 25 in the Platts list, with a few exceptions – some companies have been replaced with those with lower ranks due to data availability issue (notably Iranian and Nigerian NOCs). There are 16 companies with majority state ownership, 4 companies with minority state ownership and 5 companies with no government interest in the sample. The unit of analysis is an observation - foreign subsidiary (upstream project), which consists of a company's stake in a separate foreign project, the home country government's share of that company's equity ownership and economic freedom index value of a host country.
Method and variables
In a simple regression, the control variable was added in the first stage (model 1), and independent variables in the second stage (model 2), which is the main focus of the study. Company share was a dependent variable, measured as a categorical variable with two types: minority share of the company and majority share of the company. The independent variable was the level of state ownership in a company, measured as a categorical variable with three types: no state ownership (base category), minority state ownership, majority state ownership.
In the case of an equity stake in a project, the subsidiary's operating company was treated as the majority owner because it controls an entity. No oil and gas companies with equal state and private ownership were observed in the sample. Data on state ownership and foreign upstream projects of the selected companies were collected from their most recent annual reports and official websites.
Empirical research results
Linear regression
A t-test of the control variable in both models is significant at p<0.001, but indicates only a marginal change. At the same time, majority state ownership is a significant predictor with unstandardized beta of 19%, at p<0.01 (table 7 below). While the coefficient of determination shows moderate size of an effect, the unstandardized coefficient (B) shows that the change in state ownership category from 0 state stake to a majority stake leads to an increase of about 19% of a company's share in its foreign project.
Binary logistic regression
The results of the Wald test statistic show that minority state ownership does not contribute significantly to the assessment of whether a company will have a majority stake in a foreign subsidiary at p>0.05. The change in probability (Exp(B)) of a majority share relative to a minority share in a foreign affiliate when moving from stateless to a majority share in a firm is 5.56, meaning that firms with a majority government are more likely to have a majority stake in a project in abroad.
Results discussion and research limitations
Further research can enhance the understanding of the influence of state ownership on FDI decisions in the oil and gas industry by considering four limiting factors of this study, namely the time period, industry segment, control assumption, and government homogeneity policy assumption . However, this type of research in the oil and gas industry requires access to specialized databases, as there is a lack of information on the longitudinal changes (past projects) in the ownership of subsidiaries in open sources. Now that the validity of the hypothesis has been confirmed – the upstream oil and gas sector does indeed have similar patterns of state ownership over upstream FDI decisions – the next step could be to investigate other segments of the industry.
Several studies, especially on Statoil (cited in the first chapter), suggest that oil and gas companies with majority state ownership can have considerable autonomy in making decisions. The outcome depends on the oil and gas sector regulations, the composition of controlling entities and on the extent of market reforms. As with the previous factors, this case also requires a case study method across a larger number of home countries to confirm the applicability of this proposition to the entire oil and gas industry.
Theoretical and managerial implications
University of Illinois, Office of Research, CIBER Working Paper No. Resource Security: Competition for Global Resources,. strategic intent and governments as owners. https://www.researchgate.net/publication/4901940_A_Reconsideration_of_Import_Substitution. Risk and the strategy for foreign location selection in regulated industries. https://www.researchgate.net/publication/227540523_Risk_and_the_strategy_of_foreign_lo cation_choice_in_regulated_industries. Asia Pacific Journal of Management, 2017, vol https://www.heritage.org/international-economies/commentary/2018-index-economic-freedom.
A theory of incentives in procurement and regulation. https://www.researchgate.net/publication/227458482_A_Theory_of_Incentives_in_Procurement_and_Regulation. State ownership effect on firms' FDI ownership decisions under institutional pressure: a study of outward investing Chinese firms. https://www.researchgate.net/publication/227470323_State_ownership_effect_on_firms'_F DI_ownership_decisions_under_institutional_pressure_A_study_of_chinese_outward-investing_firms. López-Morales J., Gonzalez-Barragán A., Maldonado-de Luna A., Vélez-De Alba E., Muller-Jasso J. 2017) Internationalization of State Multilatinas: A Multi-Case Study in The Oil Sector, International Journal of Business, Economics and Management, Conscientia Beam, vol https://www.researchgate.net/publication/320802417_Internationalization_of_State_Multila tinas_A_Multi-Case_Study_in_The_Oil_Sector.
