Major Entry Modes for FDIs in the Mexican Oil Industry and Their Key Motivations. A Comparative Investigation

Table of contents

List of figures and tables

Introduction to the object of investigation

1. Preview: The transformation of the Mexican oil industry
1.1 Formerly predominant conditions
1.2 The recent energy reforms and their consequences

2. Comparative analysis between the past and the current modes of entry
2.1 Juxtaposition of entry modes
2.1.1 Past attempts
2.1.2 Currently planned attempts
2.2 Probable key motives behind the selected entry modes and prospective advantages
2.2.1 Key motivations
2.2.2 Expected advantages

Conclusion

List of references

List of figures and tables

Figure 1: Target territories on the Mexican Gulf Coast made accessible for FDIs (Stafford, 2016)

Figure 2: Exemplary pioneering operation - Pan American Energy's development of the Hokchi block (framed zone) (Stafford, 2016)

Figure 3: New permitted entry mode choices for foreign oil companies (framed zone) intending to extend their upstream processes in Mexico (own elaboration)

Table 1: Summary of the FDIs realised by foreign oil companies throughout the past years (own elaboration based on the concepts of Brouthers & Hennart, 2007; Buckley & Casson, 1976; Dunning, 2000; Dunning & Lundan, 2008; Eden & Dai, 2010; Geringer, 1988; Iammarino & McCann, 2013; Ietto-Gillies, 2005 and Lundan, 2010)

Introduction to the object of investigation

The present report reflects a profound evaluation of the performance, change and the economic-political relation between the government and foreign investors in one of the most prosperous and untouched oil markets: Mexico, whose growth in value is estimated to attain $54.9 billion in 2021, equal to an increase of 79.4% since 2016 (MarketLine Advantage, 2017).

The origin of this object of research is attributable to two drivers. On the one hand, the subchapter about the extractive industries from the module’s core reading "Global Shift" by Peter Dicken (2011) served as a starting point for the corresponding analysis. In contrast to this basic reference, the scope is narrowed down to the oil sector for the sake of a more concise and precise investigation. On the other hand, the topic as such deserves a closer examination due to the relevant, dynamic transformation process within a promising emerging economy, stimulated by governmental reforms from the past ten years enabling the liberalisation for the benefit of foreign MNCs.

With this in mind, there arises the question of major entry modes practised by global players in the meantime to penetrate the Mexican oil sector. The corresponding answer provided in this document is structured as follows.

The first chapter consists of a preview comprising the entire metamorphosis of the Mexican oil industry, starting with an overview of the formerly predominant conditions, continuing with a description of the recent energy reforms and their consequences, and ending with an outline of the latest modes of entry.

In addition, these subchapters are informed with information on both the past and the present role of the Mexican nation-state, accompanied by strategic adjustments implemented by prominent intercontinental players at the respective time.

Subsequently, the focus shifts towards the analytical core embedded in the second chapter. At this point, the contents draw mostly on theoretical frameworks related to the previously characterised modes of entry, allowing an ad hoc classification and juxtaposition of the FDIs, the key motivations to internationalise as well as of the anticipated advantages behind the entrepreneurial initiatives.

Ultimately, all the aforementioned insights and key arguments are summarised in a brief concluding chapter.

1. Preview: The transformation of the Mexican oil industry

1.1 Formerly predominant conditions

Similar to the policies enforced by the majority of the OPEC member states until this day, the Mexican government used to defend a protectionist position in terms of its rich oil deposits. Historically, the origin of Mexico’s efforts to nationalise the oil sector is traceable to the year 1934, when the then-administration under President Lazaro Cardenas adopted a programme for this purpose to secure the country’s industrial growth (BBC, 2017).

As a matter of fact, this initiative proved its persistence well until the beginning of the 21st century, what underlines the governmental role as a strict regulator (Dicken, 2011a) to underpin the territorial sovereignty. Moreover, it strengthened the monopoly of PEMEX, the major state-owned and subsidised player (MarketLine Advantage, 2017) holding exclusive rights to extract oil and gas across the Mexican maritime territory in the Gulf of Mexico, especially in the rich Cantarell field close to the Yucatán Peninsula since its discovery in 1976 (BBC, 2017).

However, it can be assumed that this dominance affected mostly the upstream activities within the production cycle of oil, whereas the market situation regarding the middle and/or downstream processes remained indeed accessible to foreign multinational companies. The following three examples demonstrate how BP, Exxon Mobil and Royal Dutch Shell (MarketLine Advantage, 2011) redefined their local corporate strategies and functionally integrated themselves into the Mexican oil sector to build a market presence as refiners, distributors or service companies (Bridge, 2008; Dicken, 2011b).

In regard of BP, the company implemented a tactic of consolidation while entering the market in the 1960s, which primarily encompassed the commercialisation of the own lubricant brand Castrol by establishing a collaborative network with local suppliers involved in an exchange of technological knowledge (BP, n.d.).

With the decades going by, the investments not only amplified the trade spectrum with natural gas products, crude oil and petrochemicals, but also enhanced BP’s social commitment via the initiation of educational programmes linked with the Anglo Mexican Foundation and the awarding of Chevening scholarships by the British Foreign and Commonwealth Office (BP, n.d.).

Over the course of more than a century of practice in the Mexican market, Exxon Mobil managed to re-organise its basis around the downstream sector, the petrochemical industry and even the upstream segment (ExxonMobil, n.d.-c, n.d.-d). While the engagement in the first category mainly revolved around the installation of B2B networks for the distribution of imported oils and lubricants of the own Mobil brand (ExxonMobil, n.d.-a), the second field relied on a broader clientele by fabricating paraxylene, polyolefin and olefin for the packaging, automotive and mining industry, among other plastic products (ExxonMobil, n.d.-b). In regard of the upstream domain, ExxonMobil resorted to its expertise by turning into a provider of consultancy services for the national energy projects, ranging from the explorative and production-related stages in the oil and gas branch to the design of vital facilities (ExxonMobil, n.d.).

Royal Dutch Shell’s entry in the Mexican market started with similar commercial endeavours in 1954 and continued with an extended line of activities through the importation of natural liquid gas, consulting services offered by Shell Global Solutions and the opening of a sourcing office in 2011 for a continuous and sustainable collaboration with the Mexican partners (Royal Dutch Shell, n.d.).

1.2 The recent energy reforms and their consequences

Despite PEMEX’s pretended strength throughout the 20th century, the Mexican government was forced to intervene in order to revert the negative development in the monopolistic oil and gas sector, visible through symptoms such as steadily decreasing quantities of extracted petroleum at the beginning of the 21st century. Therefore, the administration under President Calderón reacted in 2008 with drafts including energy reforms and possibilities of private investment in the state-owned company (BBC, 2017). However, PEMEX’s operational performance kept fluctuating until this decade, what is exemplarily mirrored by a growing market value of the crude oil branch by ca. 21% and a simultaneous decline of its absolute volume of about 6% in 2010 (MarketLine Advantage, 2011).

Eventually, the plans materialised in 2014 and resulted in an economic stimulus package officially approved by the Mexican Congress, what sealed the end of PEMEX’s special status for the sake of a more vivid national oil industry (BBC, 2017). Additionally, it can be asserted that the government adapted a new understanding of a nation-state in the meantime, namely that of a more liberally acting regulator (Dicken, 2011a).

In the light of the recent underperformance, affected by another stagnation in the form of a decrease by 16.7% in market value and a poor growth rate of 0.5% in 2016 (MarketLine Advantage, 2017), both the Mexican administration and PEMEX proceeded to counteract the negative forecasts regarding a further decline of the market volume by 2021.

Thus, the next endeavour dedicated to the invigoration of the home oil market consisted of the first deep-water oil auction opened exclusively for foreign direct investors in 2016 to receive bids for drilling operations along a considerable part of the Mexican coast at the Gulf of Mexico, as depicted in figure 1.

Abbildung in dieser Leseprobe nicht enthalten

Figure 1: Target territories on the Mexican Gulf Coast made accessible for FDIs (Stafford, 2016)

At the end of the last year, the National Hydrocarbons Commission managed to award eight out of ten blocks to a great variety of globally active MNCs (Stillman & Williams, 2016).

For instance, the Total SA, the CNOOC Ltd., the Chevron Corp. and Exxon Mobil Corp. won all four blocks in the Northern Perdido Basin, an area similar in geological structure to the neighbouring US-American maritime territory (Stillman & Williams, 2016; Webber, 2016).

Furthermore, Total gained access to two additional blocks in the Salina Basin in the Southern part of the Gulf of Mexico, along with the Statoil ASA and BP as close collaborators, whereas Sierra Oil & Gas, supported by the private equity companies Riverstone Holdings and BlackRock Inc., was awarded another couple of blocks in that area (Stillman & Williams, 2016).

In regard of these less explored Southern zones, two other companies adapted different approaches to penetrate the market.

In opposite to the aforementioned auction involving deep-water blocks, the Argentine Pan American Energy belongs to those first movers having commenced their offshore operations in the Hokchi shallow water block (see figure 2) at the end of October 2016 as a part of their investment amounting to US$ 212 million for the first two years (Stafford, 2016).

Abbildung in dieser Leseprobe nicht enthalten

Figure 2: Exemplary pioneering operation - Pan American Energy's development of the Hokchi block (framed zone) (Stafford, 2016)

[...]