Cost Delay Case

1. Discuss internal, domestic and global environments of  business revealed by this case.

Answer: Internal/domestic environments

a) The business decision making process in Indian govt. sector is pretty slow which leads to unnecessary loss of time and money. In this case, the slow process lead the to loss of opportunity to buy a firm (premier Oil)

b) There are much more than required levels of clearances that needs to be taken to acquire a company abroad. Application is reviewed by members of special committee of RBI, Finance and commerce ministries. Since three organizations are involved in the clearance process, it increases the time to take a concrete decision. It would have been better if there was a single window from where all required clearances could be taken.

c) Indian opened its market in 1991 and by 1998 it should  have such a policy already in place to avoid unnecessary delay. This is an example of inability to predict the future business opportunities.

Global Environment

a) The global environment is very much competitive. There are companies which will take away the chance in just a blink of an eye.

b) The policies are company friendly and it allows companies to acquire other companies abroad seamlessly.

c) They had better government regulation and faster process which resulted in their getting govt. clearance quickly and take away the deal from IOC.

2. Discuss whether it is the domestic or global environment that hinders the globalization of Indian business.

Answer: It’s the domestic
environment which hinders the globalization of Indian business. The policies were not in place at the time the markets were opened to foreign players. It’s a misconception that in India policies cannot work. India should learn from countries like Korea which initially strengthened its internal industries before opening its economy to the world but India failed to strengthen the companies, especially the govt. sector. Main reason for this was the faulty policies and failure to implement some good policies. Even though we make very good policies on paper, we fail to implement it effectively. Most of the companies in the govt. sector today are not making much profit as private sectors. The govt. must look into this aspect as govt. sector companies are as important as private s sector companies.

3. Even if Elf had not acquired Premier Oil, what would have been the impact of the delay in the clearance on IOC?

Answer: Since the oil prices rose to $24 from $11 in the meanwhile the cost of acquiring the company would have more than doubled.

4. What would have been the significance of the foreign acquisition to IOC?

a) Supply of oil to india: – this would have eased off much pressure off the Bombay high refinery which is currently producing 80% of domestic crude oil.

b) Forex reserved: IOCL would have earned foreign exchange  reserves for india by selling the product in the world market.

c) Better protection from oil shocks: – India would have
been better insulated from fluctuating oil prices in the world market if it’s domestic companies can produce most of the oil needed for india.

5. What are the lessons of this case?

Answer: Strike while
the iron is hot. The decision making process should be fast or you will loose the opportunity to the competitors.

Seeing the future: One should be able to predict the future business opportunities and make preparations for them in advance to avoid any unnecessary delay.