Bp's Investing Pattern

Investing in the future:

BP’s investing pattern

troduction

In the world, politics are the most common tool used for getting things done. In every level of society and at every stage of life, politics are widely used for getting the best results for the most people. Politics are often considered uninteresting and hard to practice, but having knowledge of politics is a property one should master, especially when talking about business at an international level. Maintaining an international oriented firm requires an enormous knowledge and feeling for practicing politics, and should not be taken lightly. In an international firm like BP there has to be dealt with many different levels of politics, especially due BP is an active player in the oil-market, a market where many political games are played with the OPEC as the best example. One of the most important decisions that have to be made in an internationally oriented company like BP is where to invest the resources that are available. In the decision-making process concerning which country to choose to invest the company’s resources, politics is probably the most important factor that should be taken into account. So the question arises which political factors BP should take into account for deciding in which country the company wants to invest. This paper is going to try to answer that question. The paper has the following structure: first it handles the political factors that are general for all companies. In this section it will also pinpoint the factors that are especially applicable to oil companies. Then it will analyze the results, and define which strategy BP should follow with the political factors in mind. In the same section the paper will apply the political factors to various countries where BP did and did not invest in to analyze the decisions BP made, and perhaps will make in the future. After that the paper will sum up the information and analyses in the last part and form a conclusion about the investments BP should make in the future concerning the political aspects.

Section 1

To give the best overview of all the factors leading to the conclusion, the paper will first explain the political factors applicable to all companies when deciding to invest in a certain country. This first section will also highlight the political factors that are especially applicable to oil companies.

Political systems

The first political factor that this paper will discuss is the political system of the country the potential investor is exploring. The political system of a country is important for the potential investor for several reasons that are going to be mentioned further on. The political system consists of different ideologies that appear in the country, the combination of the different ideologies is converted into a political system. (Daniels, Radebauch & Sullivan, 2004) The different political systems can be divided into

democracy and totalitarianism, both can be divided into subcategories. A democratic government can be reactionary, conservative, liberal or radical and a totalitarian government can be authoritarian, fascist or communist. (Daniels et al.) The political systems are seldom exactly one of the earlier mentioned systems; they are rather a combination of two or more systems. The different political systems vary from not free to completely free. This amount of freeness is measured political rights and civil liberties. In general, the democratic governments are free and the totalitarian governments are not free. Everything in between is partly free. (Daniels et al.) Most governments are striving for a democratic, free government. In general, a democratic government distinguishes itself from a totalitarian government by freedom. In a democratic system the people and companies are almost completely free to do what they want. In a totalitarian system on the other hand, the government controls a great deal of the activities taking place in the country. In communism for example, the government totally controls the economy. Economy and politics are inseparable in a communistic country. (Daniels et al.) So what kind of effect does the political system have on the decision of a company to invest in a country? This question leads us to the question of political risk. Political risk means the risk that a company takes by investing in a country based on the political instability in that country. (Daniels et al.) Political risk occurs in several political systems but it tends to be more represented in totalitarian countries. (Daniels et al.) There are several forms of political risk varying from government takeovers to operational restrictions. Political risk can have several causes, being: opinions of political leadership, civil disorder and external relations. Opinions of political leaders can change, thereby changing the regulations in a certain country, civil disorder can cause other regulations by riots and protests and external relations can cause damages on property by war for example. (Daniels et al.) Also the political system influences how much the government intervenes with the company. There can be spoken of individualistic paradigm and communitarian paradigm representing minimal and maximal intervention of the government respectively. This paragraph has hopefully made clear that the political system is of great influence on a company, and on the company’s decision on going to a certain country. Especially political risk is a very important factor because it severely influences the working of a company. Another important political factor applicable to every company is legal issues that will be mentioned in the next paragraph.

The legal environment

Now the paper will elaborate on the legal environment of a company. Every country has a different legal system but they can, according to Daniels, Radebauch and Sullivan (2004), be divided into three subcategories. These categories are: common law, based on tradition and usage, civil law, based on a detailed set of laws and theocratic law, based on religious precepts. It is important for a company to know what kind of law is used in the country that the company wants to invest its resources. It could be that the strategy of the company has to be altered in the new country to fit the different legal system. Next to the different legal systems, the specific law can be different as well. So, conclusively, the legal environment is something that managers should take into consideration when investing in a country. Another important factor applied on every company that wants to invest abroad is taxes and, this is going to be mentioned in the

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