Transcendent Strategies, A new Vision to Managing the Petroleum Business.

A. Perez1,2, W. Smith1, S. Galina1, E. Zelaya2 and P. Nuo2 1 Instituto Mexicano del Petroleo, Mexico City 2 Universidad Anahuac, Mexico City Abstract
The oil industry face heightened challenges as it enters the 21st century. Five major forces are among those shaping the topography of its business landscape: increasing globalisation markets, societal demands for higher environmental performance, financial market demands for increased profitability and capital productivity, higher customer expectations, and changing work force requirements. Due to advanced technical progress and to the new competitive parameters which result from the improvement of both product performance and costs, oils companies must develop a competitive advantage through the effective use of their resources. Develop of a system of making of decisions by means of the evaluation of dimensions of impact social, environmental and economic, to carry out transcendent strategies; those which, they should be consistent between the natural-human resources and the corporate and business strategic objectives of the Petroleum industry. Amalgamating the decision makers inputs is a new and unique decision model that can be classified as a transcendent-system and the business strategies that realise those objectives. The decision model can be applied iteratively in a define-analyse-and-refine cycle that highlights how proposed integral projects (economic, environmental & social) can be enhanced to better fulfil business-level strategic objectives. This research shows, first and foremost, that it must improve operations, with a focus on better management of the supply chain; improve efficiency in the use of resources, the reuse of recycled materials, and the generation and use of energy; balance environmental and economic considerations; and balance investments in technology by leveraging the capabilities of the society, environmental and industry as a whole trough targeted collaborative efforts in R&D.

Introduction
In the petroleum industry, most executives think its good to be big in a globalizing economy. They declare that you can not look at the front pages of the news without seeing yet another megadeal in the headlines. Oils Companies seem to be combining at a rate almost unprecedented in history and on a global scale. In this sector, theres Exxon and Mobil, not to mention BPs mergers with Amoco and Atlantic Richfield. Similar merger examples can be found in industries as diverse as exploration, petrochemical, and chemical1. Pushing these huge and pricey-cross-border deals is the almost universal belief that industries will inevitable become more concentrated as the worlds markets become more globalized. The spoils of the market are supposed to go to a select few in each industry. And oils companies believe that if they are going to be among the winners, they will have to shore up economies of scale in production, branding, and research and development. That is how oils companies hope to scare off potential competitors and sew up new markets. From this perspective, if you want to survive, let alone thrive, you must be one of the worlds biggest players. However, in this paper visualizes one approach: the oils companies need to integrate in clusters, that represent a new way of thinking about location, challenging much of the conventional wisdom about how as universities and R&D institutes can contribute to competitive success, and how governments can promote economic development and prosperity. We develop an transcendent model to improving the productivity of individual refineries and their relationship with others R&D institutions, universities and suppliers. Besides, we will provide an update on recent progress in the global megamergers, including a variety of options that have been explored to get sectors concentration. We will also present results and review several options to do transcendent strategies and a description of our model. Finally, this paper will present the main results in model applications2-5.

Globalisation and concentration

To properly understand the relationship between globalisation and concentration, it is necessary to look at the underlying economics. The firsts author of all globalisation models is the theory of comparative advantage, which was laid out by David Ricardo at the beginning of the nineteenth century. Ricardo studied two countries, which produce two distinct goods, and he demonstrated that as long as one country was in the comparatively better position. This sort of specialisation would be productive even if one of the countries was more efficient across the board. Many business thinkers assume that this theory points toward industry concentration. But in fact, it simply predicts the geographic concentration of production, not concentration of the number of companies in an industry6. In fact, for theoretical models to predict a significant concentration of producers, they have to assume very high economies of scale. That tends to happen only in extreme cases. When an industry undergoes a big technological change, for instance, the oils companies that invest the most money in the new technology can reap huge payoffs. Consequently, those companies drive out competitors, leaving only a few players standing. The Petroleum industry clearly demonstrate an increase in producers and refiners in the first 20 years of the oil industry data. And while the modest uptick in the graph reveals slight concentration in the early 1990s, the earlier downward trend seems to have resumed. Even if we assume that all the oil deals announced in the last few years happen, they will not greatly affect the industry. Of course, it could be argued that the oil industry presents a special case because of its political importance. The government of oil-exporting countries, particularly OPEC countries, effectively nationalised large chunks of their oil production and refining capacities. But we do not think deconcentration in the oil industry is an anomaly7-8.

Concentration can destroy value

Even when concentration happens in an industry, it is often unclear whether the trend makes economic sense. To profit from dominating in a concentrating industry, a company needs to extract value by pushing certain economic levers, for example, reducing production costs, reducing risk, or increasing volume. But the problem with these levers is that they are harder to manipulate than they are to identify. And deals that do not offer advantages along these dimensions may drastically reduce value of take-over premiums, transaction costs, and the like. Stories like Exxon-Mobil and BP Amoco are common. But then why are cross-border consolidations pursued even when they destroy economic value? It seems there is often a pathology involved. Management appears to suffer from one or more of several motivational and cognitive biases toward megamergers, which can lead to irrational decision making and large scale destruction of value. For instance, oils companies that pursue consolidation to improve industry profitability may have a hard time preventing competitors from freeloading on their investments. That companies that want to increase production and sales volume through a merger may face cross-country differences in profitability that could reduce the benefits of scale. Increasing customers willingness to pay by offering a deeper product line is another reason to merger, but customer preferences may vary across countries, thus limiting margins. And multinational customers can have greater bargaining power than regional customers do. Reducing costs is another reason to consolidate, but savings are often overestimated and do not account for take-over premiums. Cross-border adaptation, complexity, and size can actually increase costs. And multinational suppliers can have greater bargaining power than regional suppliers do. Finally, companies may seek to reduce risk through consolidation, but many merger moves are irresistible. And countries may share similar risk profiles that will not diminish with a merger of 9 businesses in those countries .

Transcendent strategies in oil industries

Comparative advantage has a specific meaning to economists. Adam Smith is credited with the notion of absolute advantage, in which a company exports an item if it is the worlds low-cost producer. David Ricardo refined this notion to that of comparative advantage, recognising that market forces will allocate a firm resources to those industries where it is relatively most productive. He attributed these

to unexplained differences in the environment or climate of nations that favoured some industries. The dominant version of comparative advantage theory, due initially to Heckscher and Ohlin, is based on the idea that nations all have equivalent technology but differ in their endowments of so-called factors of production such as land, labour, natural resources, and capital3. Comparative advantage based on factors of production has intuitive appeal, and companies differences in factor costs have certainly played a role in determining trade patterns in many countries. This view has informed much government policy toward competitiveness, because it has been recognised that governments can alter factor advantage either overall or in specific sectors through various forms of intervention.4 Governments have, rightly or wrongly, implemented various policies designed to improve comparative advantage in factor costs. Examples are reduction of interest rates, efforts to hold down wage costs, devaluation that seeks to affect comparative prices, subsidies, special depreciation allowances, and export financing addressed at particular sectors. Each in its own way, and over differing time horizons, these policies aim to lower the relative costs of a nations firms compared to those of international rivals.

Government is a powerful player in the transcendent strategies

In the rapidly changing world of petroleum dominated by both entrepreneurial activity and powerhouse firms with substantial R&D capacity, is there a role for government? Many perceive government to be a problem, not a solution. The following annotated list gives some idea of the persuasiveness of public policy in setting the stage for transcendent strategies: Governments can provide legal and public institutions that encourage or discourage innovation. An enforceable intellectual property regime that carefully balances the need to reward innovators with the need to encourage follow-on inventions is possibly the most important infrastructure for investors of patentable products and process. Transcendent strategies are also fostered in the presence of an educational system that produces skilled workers capable of rapid adoption of new technology and a financial system that provides capital over a broad range of firms. Basic research in physics, electronics, microbiology, software, exploration, production, and other fundamental disciplines has the economically awkward property that its benefits are nonappropriable. Once a theorem or physical principles is known, it can be used by anyone who knows it. While basic research is essential to progress in developing new technologies and business perspective for market, few oils companies are interested in investing in unprotected research that can be appropriated by competitors. Governments need to have several methods of supporting a research infrastructure. Many countries have adopted industrial policies designed to create advantages for domestic oil industry at the expense of foreign firms. These industrial policies often have a technology, strategic and trading components to them, but are not explicitly a industrial policy, and so are not discussed here. Firms have an important role to play in shaping government policy, and in placing their weight and support behind constructive government programs. The central goal of government policy toward the economy is to deploy a nations resources with high and rising levels of productivity. Strong links between research institutions and oil industry; like specialised research institutions focused on petroleum industry, research contracts between firms and government research institutions or universities, and explicit dissemination mechanisms. Policies that ensure vigorous domestic rivalry, raise the sophistication of home demand, enhance the amount of market and technical information in the nation, and promote appropriate corporate goals offer the best approaches for advancing science and technology in the nation as a whole as well as stimulating R&D in oils companies. The proper role for governments policy toward a petroleums industry is to stimulate such dynamism and upgrading. Governments aim should be to create an environment in which companies can upgrade competitive advantages in established industries by introducing more sophisticated technology and methods and penetrating more advanced segments. Government policy should also support the ability of the oils companies to enter new industries where higher productivity can be archived than in positions ceded in less productive industries and segments. The most potent influences of government in advanced nations are often slow and indirect.

Transcendent strategy methodology

Oils companies can influence factor creation through active involvement in the efforts of government entities, educational institutions, and the local community. This companies have a responsibility, not to mention a self-interest, in influencing the type and character of degree programs, research directions, and public services. A concentrated effort by a firm or group of firms can make a difference. German petrochemical companies, for example, have established relationships with all the major German universities and sponsor institutes devoted to chemical research, contributing to the rate of upgrading in the industry. This methodology proposes three stages; the first one is the integration of the oil industry in a cluster, continued by the regional development of the support industries and mainly the integration of the R&D institutions, universities and technological suppliers. Finally, the commercial opening of the industrial sector toward an internationalisation of the productive activities and the investment in new market with expansion potential. In the petroleum field, a cluster is geographic concentrations of interconnected companies and institutions. Clusters encompass an array of linked industries and other entities important to competition. They include, for example, suppliers of specialised inputs such as components, machinery, and services, and providers of specialised infrastructure. Clusters also often extend downstream to channels and customers and laterally to manufacturers of complementary products and to companies in industries related by skills, technologies, or common inputs. Finally, these clusters include governmental and other institutions, such as universities, standards-setting agencies, think tanks, vocational training providers, and trade associations, that provide specialised training, education, information, research, and technical support. Oil cluster represent a kind of new spatial organisational form in between arms-length markets on the one hand and hierarchies, or vertical integration, on the other. A cluster, then, is an alternative way of organising the value chain. Compared with market transactions among dispersed and random buyers and sellers, the proximity of companies and institutions in one location, and the repeated exchanges among them, foster better co-ordination and trust. Thus clusters mitigate the problems inherent in arms-length relationships without imposing the inflexibilities of vertical integration or the management challenges of creating and maintaining formal linkages such as networks, alliances, core competencies, capabilities, and partnerships. An oil cluster of independent and informally linked companies and institutions represents a robust organisational form that offers advantages in efficiency, effectiveness, and flexibility (figure 1).

Alliances Robust organisational Better Coordination

Specialised suppliers Home and foreign Customers Services & Support

E&P companies

Refineries

Petrochemical

Chemical

Universities R&D institutions technology suppliers

New Value chain Networks

Partnerships Vertical & horizontal integration

Figure 1. Framework of the Petroleum Cluster with a transcendent strategy Poor countries lack well-developed clusters; they compete in the world market with cheap labour and natural resources. To move beyond this stage, the development of well-functioning transcendent strategy is essential. Transcendent strategy become an especially controlling factor for countries

moving from a middle-income to an advanced economy. Even in high-wage economies, however, the need for transcendent strategy upgrading is constant. The wealthier the economy, the more it will require innovation to support rising wages and to replace jobs eliminated by improvements in efficiency and the migration of standard production to low-cost areas. Promoting transcendent strategy in developing economic means starting at the most basic level. Policy-makers must first address the foundations: improving education and skill levels, building capacity in technology, opening access to capital markets, and improving institutions. Over time, additional investment in more oil cluster assets is necessary.

Conclusion
In the early stages of economic development, countries should expand internal trade among cities and states with oil industries, and after, trade with neighbouring countries as important stepping stones to building the skill to compete at petroleum industry. Such trade greatly enhances transcendent strategy development. Oils companies, no less than governments and universities, have a stake in education. Universities have a stake in the competitiveness or local oils businesses. By revealing the process by which wealth is actually created in an economy, transcendent strategies open new public-private avenues for constructive action.

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