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Case Study: Halliburton Corp. And The Issue Of Politics

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Case Study: Halliburton Corp. and the issue of politics.

This case study examines Halliburton Corp's current strategy for expanding operations in the Libyan oil market in respect to choosing locations overseas, and integrating successfully with the local community. It highlights the importance of politics in international business. US based oil company Halliburton consists of two main divisions, Halliburton Energy Services and KBR, the engineering and construction arm of the group both of which are seeking contracts in the country.

The recent opening up of Libya's oil markets has created exceptional opportunities for multinational oil companies, Halliburton being one of the pioneers and main players in this market. The current strategy of massive expansion and increased investment has become a major issue in Tripoli and Benzaghi with hotel rooms overbooked due to the vast amounts of US oilmen seeking contracts in the country. Some elements in the Libyan community have already voiced concern of a US-led commercial invasion.

The issue is one of balancing the need to realise profits on investment with the need to be aware of local community and reaction to American values.

The reason for these actions of market entry are, the drive to be the first to exploit the new opportunities arising in the market. The importance of gaining early market share is highlighted by the fact that Libya currently produces 1.5m bpd and production is set to rise to around 3m by March of next year. The country also has some 36 billion of proven oil reserves, and is located close to the European market, creating massive prospects for the future. Another factor is that the oil variation is a special type of sweet high quality oil that needs very little refining in comparison

with other variations of crude.

Other factors leading to the current interest in the market include a high price of oil which has enabled major oil companies such as Halliburton to use more cash reserves in funding R&D projects and investments in finding cheaper ways to make crude ready for the consumer market.

Col.Gadaffi, the Libyan leader, has also just opened up the market to foreign investors after years of isolation, a policy that will no doubt boost investment in the economy, particularly the oil market. His government has also confirmed recent predictions that the possibility of yet further discoveries of large deposits of oil are high.

The recent shift in US-Libya co-operation is no doubt of great benefit to Halliburton, following the Libyan government's decision to halt production of weapons of mass destruction and related programmes. Libya is increasing its drive to join the Barcelona process for euro-Mediterranean co-operation and the US administration has already changed its stance on Libya, thus encouraging increased co-operation and opportunities of American FDI in the country.

Halliburton is well placed to push aggressively for a dominating role in the Libyan market as it has always had a strong presence in Tripoli, even during the US embargo when the group indirectly managed to maintain a presence through a German subsidiary.

Halliburton has pursued this strategy of rapid entrance and expansion because it knows it will receive support from the Libyan government, which is very keen on utilising the company's know-how, network contacts and distribution channels and because they know that if they do not take the lead now, some other company will and they will regret having missed out on this opportunity

Guidance notes

The aims of these guidance notes are to provide an assessment as to the appropriateness of the actions taken by Halliburton Corp regarding the recent expansion drive into the country's oil market. This consists of my personal analysis of the company's strategy, the influence of politics on the situation and some final recommendations as to how to overcome some of the challenges identified.

The reason for the strategy of rapid entrance is based on economic trends in the international oil market and opportunities arising in the country due to political developments that are occurring at the same time. The implementation of their drive for presence in Libya will further balance Halliburton's distribution of operations around the world, therefore spreading risk and increasing the stability of costs of production. It is also good for the market in general and for the final consumer as production costs are being lowered due to the type of oil present in Libya's oil fields and distribution costs are also lowered due to the proximity with European markets and Italy in particular (via the Bahr Essalem pipeline). However, the company must not be seen as trying to bully its way into the leadership role of the market as it might have negative effects on the Libyan public's perception amid increasing accusations of American imperialism

The main obstacles

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