BP Oil Leak: Is this an indicator of disasters to come?

The recent BP oil leak disaster in the Gulf of Mexico is undoubtedly an environmental disaster that will have severe consequences for marine and coastal life in the area. The disaster occurred in April 2010, when there was a catastrophic malfunction on the oil platform which created an explosion which ultimately resulted in the death of employees on the rig and the eventual melting and collapse of the platform. What are we to make from this event?

This disaster is different from the Exxon Valdez oil spill in Alaska twenty odd years ago, in that the breakup of that crude oil tanker in the formerly pristine wilderness environment was contained to a limited area. Of course that “limited area” is still now suffering the costs of this disaster, through among others, the loss of the sustainable fishery as viable economically. The difference in the case of the BP disaster is that the “leak” is from an oil seam beneath the seabed in the Gulf of Mexico, so not only is the oil covering the surface of the water, it is spread through multiple layers of the marine ecosystem. The Environmental impact is instant and widespread, and the longer the leak continues the more widespread the damage will become. Oil deposits are already affecting the shorelines of four American states, and subsequently the economic sustainability of the communities that rely on the Gulf for their livelihoods. This is all bad news for BP, for although ExxonMobil were held responsible for the clean up as in the case of BP, the economic compensation claims were limited to only a few communities. BP is already responding to claims from hundreds of communities along the Gulf. Many more people are directly affected in the Gulf of Mexico than were affected in Alaska.

The Oil rig and platform that ultimately was destroyed was a state of the art platform that essentially “floated” above the oil well. The oil well was in a deep water and so as a result required a flexible drilling platform to deal with the currents and wave movements in the Gulf of Mexico. In years past a drilling operation of this kind would have been economically unviable. However with Oil prices rising to above US$100 a barrel in 2008 before the GFC, and expected to return to that level once the global economy recovers, these wells are now economically viable. Deep water wells of this kind taping Liquid Gas and Oil are now becoming more common around the world. So does this mean there is the likelihood of more disasters of this kind?

In 2010 we have already seen a leak on a oil and gas exploration platform off the North West Australian coast, and these rigs are by their nature in risky environments. The BP have already declared that the risk of this Gulf of Mexico leak event occurring had been one in one million. This is not that high and they have suggested that the industry needs to reduce the risk level to one in one billion or one trillion. Indeed they should!

This environmental disaster will result in significant damage to the BP brand and probably the company’s profitability as well. Don’t be surprised if BP is total transformed in the coming year due to this event. BP have already accepted responsibility for the disaster, and are responsible for the financial claims of citizens effected, responsible for the cleanup, and Bloomberg press have suggested responsible for $1 million a day in royalties. How many companies can afford this sort of financial effect?

We need to learn from this disaster, in terms of managing environmental risk, as well as managing political and financial risk – they are all related in this disaster. Companies need to heed the consequences of disasters like this, and ensure that they do not themselves make decisions that in due time will be seen as risky. As a society we need to consider the true impact of our thirst for petroleum products. The more we consume, the greater the desire to tap these hard to get oil and gas seams, and if that is the case we open the likelihood of more disasters like this to come in the future.

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Manage your risk: business in China is about having the right partner

China is for many businesses the great big unknown. It seems to hold so much potential, it is powerful, it is the source of low cost manufacturing, and shouldn’t your company be looking at entering the Chinese market in some capacity? China is also a large market in its own right and this is another opportunity which you could take advantage. But how do you do it?

China the forbidden country?

We have all heard the horror stories of business failure in China, or Intellectual Property being stolen and a product that is identical to your being launched on the global market place as a competitor. This is not necessarily how things need to be for a company looking to invest in China in any capacity.  It is critical for the success of any business venture for you to manage your exposure to risk, and with China, you may need to consider many more factors then those risk factors that are common in established ‘western’ markets. So how do you go about entering the Chinese market?

There are of course a few ways in which you can enter the Chinese market, those which are high risk, such as searching for manufacturers on the Internet. A simple search on http://www.alibaba.com will show you a plethora of manufacturers who can provide products to any specification required, and many will have pictures of their “manufacturing plant”.  Using this method of finding a business partner in China is rife with danger and risk. How do you know that the manufacturer is who they say they are? are they a middleman? or the manufacturer themselves? can you afford to take the risk? and are you getting the best deal possible? The answer to all these questions may indeed be NO!! The old refrain “buyer beware” is important whenever you enter into business relationships of this kind.

As in any culture and country, there are good people, and bad people, people who will do the right things and those who will try to take advantage of you and rip you off. But there are ways of offsetting this risk in China. The Chinese appreciate and treasure relationships, so you need to be aware of this with any business venture in China.  An alternative to the high risk strategy described above is to attempt to minimise your risk exposure by conducting research on the ground in China. If you want to succeed in business in China, then you need to get over to China and meet with business people who can help you, either with a joint venture, or who can help you establish a wholly owned subsidiary. It is important that as a western company that you engage good people and partners to investigate the Chinese market. Each market opportunity is unique in China, and as a consequence any investigation needs to be unique. It is here that specialist “China” companies such as The Australia China Development Company (www.tacdc.com.au) can help. Companies of this kind specialise in investigating market opportunities for western companies looking to invest in China. They can find the opportunities on the ground in China for your company, and perform a full time role that saves your company the time and manpower to fully investigate the Chinese market.

It is important to remember that this all takes time and there are no real quick deals to be made in China. If you want a good long lasting deal then you need to be prepared for the long haul. Ultimately however if you engage the right business partner to help you, your success in China will be for the long-term.

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