International business strategy How political connections of Russian firms influence their international activities

Country

Poland (+Europe)

Year of entry

mid-1940s

Industry/ business area

Oil and gas

Entry mode

Gazprom, which is now number one natural gas supplier in Europe and exports gas to 25 european countries, started their internationalization in Europe with the entry in Poland and continued to enter Czechoslovakian market in 1967.  In 1968 russian gas was supplied to Western Europe under a contract with Austrian OMV. The company cooperates with a vast number of partners in their target markets, for example E.ON, BASF, Wintershall Holding, Verbundnetz Gas and Siemens (Germany), GDF SUEZ, EDF and Total (France), Eni (Italy) and much more. They usually work with long-term contracts of about 20 years.

In 2011 Gazprom supplied a total of 221.1 billion m3 of natural gas abroad. The majority of gas export goes to Europe – in fact they exported 150 billion m³ in 2011, which was 11.4 billion m³, i.e. 8.2 %, more than in 2010 (138.6 billion m³).

Motives

Due to Russia's geographical location, the Company has the potential to become an energy “bridge” between the European and Asian markets by supplying its own natural gas and providing gas transit services to other producers. This predetermines the essence of the Company's strategy in its key business areas. Since the demand for gas and oil in europe is high and the company owns enormous gas ressourses in Russia, the target market Europe seems to be very promising.

Firm specific advantages used on the foreign market

Gazprom is unique for enjoying the advantage of being simultaneously an energy producer and supplier owning a potent resource base and a manifold gas transport infrastructure. The company is still improving their pipelines to Europe, for example with the Yamal - Europe gas pipeline. The transnational Yamal - Europe gas pipeline runs across four countries: Russia, Belarus, Poland and Germany. The current overall length of the gas pipeline exceeds 2,000 km.

Gazprom owns 60% of Russia’s proven reserves of natural gas, which themselves make up a third of the planet’s known blue fuel reserves.

As it is the main gas supplier for Europe and those countries are dependent on the Gazproms supply, it is said to be kind of a monopoly and therefore in a position of fixing the prices.

First mover or follower

First mover

Type of state involvement in the process of internationalization

In fact, the company was fully state-owned in the beginning. Gas exploration, development, and distribution were centralized in the Ministry of Gas Industry, which was created in 1965 and transformed itself into State Gas Concern Gazprom, which became the country's first state-corporate enterprise. The company was still controlled by the state, but now the control was exercised through shares of stock, 100% of which were owned by the state. In 1991, some of the assets were transferred to newly created national companies. Through the years, the state-owned company was criticized for tax avesion, asset stripping and price fixing.

On 4 September 2012, the European Commission said it had launched an anti-trust case against Gazprom. The Brussels-based competition watchdog said it opened the formal legal probe based on "concerns that Gazprom may be abusing its dominant market position in upstream gas supply markets."

Evaluation of the success of the internationalization

As the recent sales and market position of Gazprom depicts, the internationalization of the company was a high success.